Thailand - Thai Exchange Control Law Relaxed To Stimulate Capital Outflows And Lessen Pressure On The Thai Baht: More Opportunity For Offshore Investment.
Legal News & Analysis - Asia Pacific - Thailand - Capital Markets - FDI
7 December, 2019
Due to the constant appreciation of the Thai Baht, the Ministry of Finance (MOF) and the Bank of Thailand (BOT) decided to relax exchange control regulations to stimulate capital outflows to support capital flow balance and lessen pressure on the Thai Baht. The relaxations became effective from 8 November 2019 onwards.
Such relaxations include, among others, allowing Thai residents to keep a certain amount of foreign currency proceeds offshore, allowing multilateral netting for payment of goods and services, allowing retail investors to directly invest in foreign securities and derivatives without involvement of a local licensed intermediary, and allowing more freely outward remittance of foreign currency whereby most of outward remittance transactions will not require approval from the BOT. We compare the previous regulations and the major amendments to the Thai exchange control law and regulations below:
|Repatriation Requirement of Foreign Currency|
|No.||Previous Regulations (Before 8 November 2019)||New Regulations (From 8 November 2019)|
|1.||The requirement to repatriate any foreign currency received offshore back to Thailand is exempt if the value of the transaction is less than USD 50,000 (or equivalent).||The requirement to repatriate any foreign currency received offshore back to Thailand is exempt if the value of the transaction is less than USD 200,000 (or equivalent).
Note: The MOF and the BOT plan to increase the threshold for export proceeds to be USD 1 million in the next three months.
|2.||Multilateral netting requires approval from the BOT.||Multilateral netting is now permitted for netting payments of goods or services, or advance payment thereof for affiliated companies, including any interest accrued from such advance payment, provided that the remitter must register with the BOT and provide certain documents to the commercial banks. The approval from the BOT is no longer required.|
|Outward Remittance of Foreign Currency|
|3.||The outward remittance of foreign currency is allowed based on a positive list of specific purposes. If the outward remittance is made for purposes not on the list (e.g. guarantee), prior approval from the BOT is required.||The new regulations now allow more freely outward remittance of foreign currency by prescribing a negative list of specific transactions which require prior approval from the BOT. Most of outward remittance transactions are not prescribed on the negative list and, thus, not require approval from the BOT but only approval from a commercial bank in Thailand as an authorized agent of the BOT.
The transactions listed on the negative list are, among others, transfer to a remitter's offshore account and investment in non-permissible financial instruments.
|4.||In case where the BOT approval is not required, the previous regulations set out list of specific supporting documents which the fund remitter is required to submit to a commercial bank in Thailand for outward remittance.||The BOT no longer prescribes list of specific supporting documents. Instead, the remitter will be required to submit documents evidencing the underlying obligations or documents related to the purpose of the transactions to the satisfaction of the commercial bank in Thailand, whereby the commercial bank may request for additional documents as deemed appropriate.|
|5.||The commercial banks in Thailand are not required (but still entitled) to request for supporting documents from the remitter for outward remittance of foreign currency less than USD 50,000 (or equivalent).||The threshold is now increased from 'less than USD 50,000' to be 'less than USD 200,000' (or equivalent) to reduce the burden of preparing and providing supporting documents in order to facilitate the ease of outward remittance of foreign currency.|
|6.||Outward remittance of foreign currency for certain permitted purposes are subject to limits, e.g. employee stock option plan is subject to limit of USD 1 million (or equivalent) per employee per year.||Limits of outward remittance of foreign currency for certain transactions (e.g. employee stock option plan) have been repealed. Additional permitted purposes are introduced with limits, e.g. gift to non-resident.|
|7.||Purchase of foreign currency or withdrawal of foreign currency for and on behalf of affiliated companies requires power of attorney.||The new regulations permit purchase of foreign currency or withdrawal of foreign currency for affiliated companies by submitting evidence that the companies are affiliates, without power of attorney being required.|
|Offshore Investment in Foreign Securities and Derivatives|
|8.||Retail investors are not allowed to directly invest in foreign securities or derivatives without involvement of a local licensed intermediary.||Retail investors are now permitted to directly invest in permissible foreign securities and derivatives (including OTC derivatives) up to USD 200,000 (or equivalent) per investor per year, without involvement of a local licensed intermediary. Any excess amount can still be invested through a local licensed intermediary.|
|9.||Permissible foreign investment for qualified investors (or the so-called high net worth investors) was limited to securities and derivatives in IOSCO and ASEAN countries, and did not include repos or securities lending and borrowing transactions.||
Permissible foreign investment for institutional investors, qualified investors and retail investors are now the same asset class which includes:
There is no longer limitation on countries of issuance or counterparty.
In addition, qualified investors and retail investors are now also permitted to invest in foreign endowment insurance, unit-linked life policy and universal life insurance.
|10.||The aggregated investment limit which the BOT allocated to investors regulated by the Office of the Securities and Exchange Commission (SEC) is USD 100 billion.||The aggregated investment limit which the BOT allocated to investors regulated by the SEC is now increased to USD 150 billion in order to facilitate the increasing demand for foreign investment and enhancing efficiency in long term investment planning and management.|
The MOF and the BOT plans to further relax the Thai exchange control laws and regulations in the next three months.
We will keep you posted if there are any further updates.
For further information, please contact:
Benja Supannakul, Partner, Baker & McKenzie