Thailand Clarifies Service Business Activities Exempted From Foreign Business Restrictions.
Legal News & Analysis - Asia Pacific - Thailand - FDI - Regulatory & Compliance
4 July, 2019
Thailand’s Ministry of Commerce has released additional details on the types of service business activities that are exempt from licensing requirements for foreign businesses. The exempted service businesses (broadly relating toservices that companies in the same group provide to one another) are defined in Ministerial Regulation No. 4 Re: Determination of Service Businesses which Are Not Required to Apply for Permission for a Foreign Business License B.E. 2562 (2019), which was published in the Government Gazette on June 25, 2019. This regulation follows the Thai Cabinet’s recent approval of the exemption of three categories of service business from foreign business license requirements.
The specific activities exempted under Ministerial Regulation No. 4 include the following services between juristic persons with an eligible relationship:
- domestic loan provision;
- lease of office space (including public utilities); and
- consulting services regarding administration and management, marketing, human resources, or information technology.
Ministerial Regulation No. 4 defines an eligible relationship between juristic persons as being characterized by at least one of the following:
- more than half of the total shareholders or partners of one juristic person are also more than half of the shareholders or partners of the other juristic person;
- at least 25 percent of one juristic person’s capital is held by shareholders or partners who also hold at least 25 percent of the other juristic person’s capital;
- one juristic person is a shareholder or partner holding at least 25 percent of the other juristic person’s capital; or
- more than half of the controlling power in the first juristic person is held by directors or partners who also hold more than half of the controlling power in the second juristic person.
The most notable change implemented by the new regulation relates to the provision of loans. The Foreign Business Commission considers that international loans between companies in the same group may negatively impact Thailand’s economy, and may also risk the creation of a tax avoidance loophole where a company pays dividends to its overseas parent company in the form of a loan. The notification therefore limits the loan service exemption to domestic loans, and any company that provides loans (or guarantees) to affiliates or associate companies overseas will still require a foreign business license or foreign business certificate.