Amendment to Determination of Service Business Exempted from Applying for FBL. Cash Payment for Stamp Duty for Company Registration Documents

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1 Bangkok Global Law 540, Unit 1705, 17 th Floor, Mercury Tower, Ploenchit Road, Lumpini, Pathumwan, Bangkok Thailand Tel: +(66) Fax: +(66) Legal Insight Vol. June 2017 Amendment to Determination of Service Business Exempted from Applying for FBL On 9 June 2017, the Ministerial Regulation regarding determination of the service business exempted from applying for foreign business license (No.3) B.E.2560 (2017) has been published in the Government Gazette to amend determination of service businesses that foreigners are able to operate without applying for a foreign business license under the Foreign Business Act B.E.2542 (1999): Financial institution business, related or necessary business to the operation of the financial institution, other business of financial institution, and business of company operating financial business of financial institution under the laws on financial institution businesses. Asset management business under the laws on asset management company; Representative office of foreign company in international trading business; Regional office of foreign company in international trading business; Service business having administrative agency as a party; and Service business having state-enterprise as a party. BOI Promotion on Technology and Innovation Development To increase the capacity in respect of technology and innovation as well as enhance the country s competitiveness and overall industry, the BOI has issued its Announcement No. Sor.1/2560 to add certain activities regarding technology and innovation development into the eligible list of general activities for investment promotion annexed to the BOI Announcement No.2/2557 dated 3 December Under the BOI Announcement No. Sor.1/2560 as effective on 8 February 2017, the targeted core technology development shall include 1) Biotechnology development; 2) Nanotechnology development; 3) Advanced material technology development; and 4) Digital technology development. Furthermore, the following projects engaging in target activities that promote the development of target technology (enabling services) have been added into the list of promoted activities annexed to the BOI Announcement No.2/2557, namely, electronics designs, research and development, engineering design, scientific laboratories, calibration services, and vocational training centers (only in the field of science and technology). Cash Payment for Stamp Duty for Company Registration Documents On 29 May 2017, the Notification of the Director-General of the Revenue Department on Stamp Duty No.56, dated 27 April 2017 ( the Notification ), was published in the Government Gazette. According to the Notification, payment of stamp duty for documents regarding company registration that subject to stamp duty under the Revenue Code e. g. the Memorandum of Association, the Articles of Association, the Power of Attorney must be made in cash before or at least on the date of registration. This rule is enforceable for electronic company registration (the DBD s e-registration) from 18 April 2017 and shall become effective for traditional company registration (non-electronic company registration) from 1 August Criteria of Investment Promotion under National Competitive Enhancement Act for Targeted Industries According to the National Competitive Enhancement Act for Targeted Industries B.E.2560 (2017) ( Act ), the Policy Committee determined the criteria of investment promotion under the Act by its announcement No.1/2017 as published into the Government Gazette on 23 June

2 The following industries are targeted industries under the Act in which the Policy Committee may at any time amend or revoke one of such industries as deemed appropriate: Next-generation automotive; Smart Electronics; Quality Tourism; Agro-industry-Biotechnology; High-Valued Food Processing; Robotics Industry; Aviation Industry; Biofuel and Biochemical Industry; Digital Industry; and Medical Hub. A promoted activity shall be considered as one of targeted industries with no local production or service or using new technology or using high production from overseas and to be domestically developed or from research and development in the country which is strategic investment with externalities to development of national economy and society. The incentives and privileges of each promoted project shall be determined by the Policy Committee in accordance with a project assessment. A promoted project shall be entitled to one or several privileges as follows: 1) Financial support from the national competitive enhancement for targeted industries fund to support investment capital, research and development, innovation promotion or human development made by reimbursement to a promoted person after completion of project plan for actual payment but not exceeding approved amount in each tranche; 2) Exemption of corporate income tax for not exceeding 15 years (the Policy Committee may consider to determine an exemption of corporate income tax as ratio of investment capital, excluding land and working capital); and 3) Other incentives and privileges under the Investment Promotion Act, excluding tax incentive on reduction or exemption of corporate income tax in which the Policy Committee shall consider on case by case basis as deemed appropriate. Extension of the Investment Promotion Measures in the SEZs to 2018 To encourage investment in the border areas under the industrial development plan, the BOI resolved to extend application submission deadline for projects investing in the Special Economic Zones ( SEZs ) from the end of 2017 to the end of Moreover, six activities have been added to the list of eligible activities for investment promotion for special privileges with a condition that such activity must be located only in the SEZs. The six activities are as follows: 1) Animal feed and feed ingredients; 2) Manufacture of construction materials and prestressed concrete for public utilities; 3) Production of body care products; 4) Production of plastic products for consumer goods; 5) Production of fiber products; and 6) Office and building development for industrial use/warehouse. In addition, the scope of two activities, namely construction materials and body care, has been broaden as all types of construction materials shall be included in construction materials and body care shall also cover cosmetics. Guideline on Technology Transfer under Foreign Business License In June 2017, the Director-General of the Department of Business Development ( DBD ) announced that the Foreign Business Committee established sub- committee by inviting representatives from government and private sectors and educational institutions specialized in technology and innovation to research and set a guideline on technology transfer under application of foreign business license within 6-month period. The research of guideline on technology transfer under the foreign business license shall include the following issues: 1. The technology transfer shall cover various aspects such as technology on intellectual property, on particular industry or service, and on general business management which the technology transfer may differ among each aspect; 2. The technology transfer shall be significant and beneficial to the business operation of foreigner in the first stage. Therefore, the more technology transfer in the business investment by foreigner, the more business profits and maximizing its results to relevant trading industrial or service sector; and 2

3 3. The procedure of the technology transfer shall be effective for actual passing of knowledge to respective persons, for instance, on the job training, train the trainer, including entering an agreement on technology transfer and participation of Thai personnel in research and development project, appointment of Thai personnel in a position of a foreigner, providing educational support and skill development to Thai personnel. In addition, the consideration of the foreign business license must include other aspects regarding national security, economic and social development, public order and good morals, national culture and tradition, conservation of natural resources, energy and environment, consumer protection, size of business, employment, technology transfer, and research and development. Investment Promotion Policy on Medical Services In order to stimulate the investment and push Thailand forward as the medical hub of Asia, the BOI resolved to approve the addition of medical service businesses to the list of eligible activities for investment promotion annexed to the BOI Announcement No.2/2557 dated 3 December Under the BOI Announcement No.6/2560 as effective on 24 March 2017, the eligible activities in respect of the medical service business shall include the following: 1) Public health service on Thai traditional health; 2) Specialized medical center; 3) Infirmary; and 4) Ambulance service for patient, doctor, or medical equipment (air, land, or water). However, each activity shall be subject to specific conditions for investment promotion under the BOI scheme. The tax incentive of the exemption of corporate tax income for 5-year or 8-year period, including other non-tax incentives shall be granted to a promoted project upon its business. In addition, an additional incentive may be granted to the promoted project operating the public health service on Thai traditional health and specialized medical center located in the promotion zone of the Eastern Economic Corridor ( EEC ) comprising Chachoengsao Province, Chon Buri Province, and Rayong Province. The promoted project as located in the above- mentioned provinces shall receive an additional 50% reduction from the normal rate of a corporate income tax on the net profit deriving from the promoted activity for a period of 5 years counting form the expiring date of the corporate income tax exemption in accordance with the BOI Announcement No.4/2560 dated 16 March 2017 regarding the investment promotion measures in the EEC. Labour Protection Act as Amended On 29 June 2017, the National Legislative Assembly ( NLA ) voted to pass the proposed amendments to the Labour Protection Act which shall be enacted into law after its publication in the Government Gazette and shall be effective on the following day after the publication into the Government Gazette. In this connection, there are four key issues of these amendments to the Labour Protection Act as follows: Minimum Wage Rates for Specific Workers The wage committee may determine different minimum wage rate for specific types of workers such as students, disabled and elderly workers from a minimum wage rate for general workers. However, such minimum wage rate for specific workers shall not be less than the rate of those general workers. Eliminating an Employer s Obligation to Submit a Copy of the Work Rules Upon an ease of doing business in Thailand according to the Order of the National Peace and Order Council No.21/2560 dated 4 April 2017, an obligation of an employer to submit a copy of the work rules to the concerned authority has been relieved. Moreover, this amendment also allows an employer to circulate such work rules via electronic system for access by employees. Retirement Age and Severance Pay A retirement age of an employee can be explicitly determined between an employee and an employer. When an employee reaches the retirement age as specified, an employment agreement shall be deemed terminated. If there is no agreement on the retirement age between an employer and an employee or the retirement age of an employee has been specified over 60 years old, an employee who reaches 60 years old shall be entitled to retirement by expressing an intention to an employer. Such intention on retirement shall be effective within 30 days from date of intention and an employer is obliged to pay a severance pay to a retired employee. 3

4 Penalty Against Employer Upon a failure of an employer to make a severance payment to a retired employee, an employer is liable to either a fine or imprisonment or both. Manufacturing Automation and Robotics Academy In May 2017, the Department of Skill Development under the Ministry of Labour signed a memorandum of understanding ( MOU ) with the Federation of Thai Industries to establish a Manufacturing Automation and Robotics Academy ( MARA ) to support one of 10 targeted industries in the Eastern Economic Corridor ( EEC ). A provincial skills development center shall be set up by the MARA focusing on the development of robotics, mechanics, artificial intelligence and automation to enhance government policy on economic growth in respect of the EEC. New Customs Act The Customs Act B.E.2560 (2017) ( the New Customs Act ) approved by the National Legislative Assembly on 9 March 2017, was published in the Government Gazette on 17 May The New Customs Act is to replace the Customs Act B.E.2469 (1926) ( the Current Customs Act ). The New Customs Act shall come into force on 13 November The New Customs Act was a result of deliberation and collaboration between the Thai government and the Thai private sector to amend the Thai customs law to comply with the global customs standard, it also aims at improving transparency and rising Thailand s competitiveness among the ASEAN countries. Key features of the New Customs Act can be summarized as follows: 1. Penalties for Duty Evasion, Smuggling, and Non- Compliance Formerly, duty evasion, smuggling and non-compliance in respect of restricted or prohibited goods shall lead to a penalty in the amount equal to 4 times of the price of the goods including the duty or an imprisonment not exceeding 10 years, or both. At present, the penalties and fine under the New Customs Act shall be lower than those prescribed by the Current Customs Act as the following: 1) Duty evasion - Statutory penalties and fines for duty evasion shall be reduced to be between times of duty shortfall (0.5-4 times of the duty evaded) or imprisonment not exceeding 10 years, or both; 2) Smuggling - smuggling shall lead to a penalty of 4 times the price of the goods (including the duty) or an imprisonment of not exceeding 10 years or both. Moreover, the smuggled goods shall be forfeited; 3) Non- compliance - non- compliance in respect of restricted or prohibited goods shall lead to a penalty of not exceeding Baht 500,000 or an imprisonment of fine of not exceeding 10 years or both. Additionally, the goods may be forfeited. 2. Amendment to Regime on Incentive and Reward Under the Current Customs Act, the incentive and reward payment are regulated by the authorization of the Director-General of the Customs Department. According to the New Customs Act, incentive amounts that are entitled to the customs officers and the reward amounts that are entitled to the whistleblowers shall be reduced. Additionally, there shall be a cap of Baht 5 million on the incentives and the reward payable. 3. Time Limit for the Consideration of the Appeal The Customs Board of Appeal shall be obligated to consider appeal cases within 180 days from the day on which such appeal and all supporting documents were filed. In case the Customs Board of Appeal cannot render its decision within 180 days, the appealer can file a lawsuit with the court. 4. Extension of Duty Refund Period Formerly, the request for duty refund must be submitted by the taxpayer within 2 years counting from the date of importation or exportation, as the case may be. Under the New Customs Act, the duty refund period is extended to 3 years from the date of importation or exportation. 5. Eliminating a Principle of Strict Liability Presumption of the Directors of the Taxpayer on Duty Evasion According to the previous law, directors of the juristic person taxpayer must prove that they were not involved in the offense or admitted to the offense or they acted reasonably to prevent the offense. Under the New Customs Act, the director shall be liable to the same penalties as the juristic person taxpayer only when the offense was a result from the order or act of the 4

5 director, or the director caused the taxpayer to carry out such offense. 6. Time Limit for Customs Officials to Assess Duty Under the New Customs Act, the customs officials shall be authorized to assess duty within 3 years from the date of importation or exportation, as the case may be. However, the Director- General of the Customs Department may extend this time limit by a maximum of 2 years. If there is evidence to believe that the taxpayer intended to evade of duty, there shall be another 5 years extension ( from the extension made by the Director- General of the Customs Department) for the customs official to assess the duty. 7. Time limit for customs post clearance audit Under the New Customs Act, the customs officials cannot perform a customs post clearance audit after 5 years counting from the date of importation or exportation, as the case may be. Formerly, there is no limitation period for a customs post clearance audit prescribed by the Current Customs Act. New Trade Competition On 24 March 2017, Thailand s amendment to the Trade Competition Act B.E (2017) ( the Act ) was approved by the National Legislative Assembly. It is expected that the Act will be published in the Government Gazette and will become into enforce within this year. The Act will be applied to all business operators: business operators engaging in industrial, commercial, agricultural, financial service but will not be applied to government agencies, non-commercial state enterprises. Key features of the Act can be summarized as the following: Definition of Business Operator with Market Domination The Act authorized the Trade Competition Commission to issue the criteria for Business operator with market dominance under the condition that the criteria must be reviewed at least once in five years. Abuse of market dominance Following are samples of actions which will be considered as abuse of market dominance which are prohibited for business operators with market dominance: Unfairly fixing or maintaining the purchasing or selling price level for goods and services; Unfairly setting conditions that requires other business operators who are its trading partners to limit provision of services, manufacturing, purchase or sale of goods, or to limit their opportunity in buying or selling goods, receiving or providing services, or in procuring credit from other business operators; Suspending, reducing or limiting provision of services, manufacturing, purchase, sale, delivery, and importation without reasonable ground as well as destroying or causing damages to the goods so as to reduce the quantity thereof to be lower than the demand of the market; and Intervening in the business operations of others without reasonable ground. These restrictions are very similar to those prescribed by the current Trade Competition Act B.E (1999). Merger Rule Pre-and post-merger notification shall be required. The requirements are: 1) Pre-notification will be required in case there will be a monopoly or will create dominance; 2) Post-notification will be required for mergers who may substantially lessen competition (notification can be made within 7 days after the merge). Formerly, only a post-merger notification is required. Cartel practices According to the Act, any operator is prohibited to take any action which will cause cartel practices or will lessen of competition in the market e.g. limiting quantity or goods or services, fixing of purchasing price or selling price etc. Penalty According to the Act, a person who commits an offence under the Act shall be punished in Thailand. This shall also apply to the case where part of such offence was committed outside Thailand but the consequence is felt in Thailand. Plans to Reform Thai Exchange Control Regulations On 5 June 2017, the Bank of Thailand ( BOT ) announced its plan to reform Thai exchange control regulations. According to this, the exchange control procedure shall be eased as procedure and documents shall be reduced, 5

6 electronic transactions shall be promoted. It is expected that new regulations for the reform shall be released within this year. Key features of the reform are as follows: 1) To reduce the requirement of supporting documents and create streamline process; 2) To relax regulations on FX risk management; 3) To provide alternative in foreign exchange service; and 4) To provide more investment options for Thai investors and/or Thai companies. Property and Share Swap According to the Royal Decree issued under the Revenue Code (No.630) B.E.2560 (2017), the Notification of the Director- General of the Revenue Department No. 4 regarding criteria, procedures, and conditions for exemption of income tax, value- added tax, specific business tax and stamp duty issued according to the Royal Decree issued under the Revenue Code (No. 630) B.E.2560 (2017), and the Notification of the Director- General of the Revenue Department No. 5 regarding criteria, procedures, and conditions for exemption of income tax, value-added tax, specific business tax and stamp duty issued according to the Royal Decree issued under the Revenue Code (No.630) B.E.2560 (2017), any gain derived from transfer of properties to a company or partnership incorporated under the law of Thailand in exchange of ordinary shares of such properties to a company or partnership, shall be exempted from income tax, value-added tax, specific business tax and stamp duty provided such transfer must meet the requirements. Proposed Amendment to the Civil and Commercial Code On 27 June 2017, the Department of Business Development ( DBD ) issued a public hearing on proposed amendment to the provisions of the Civil and Commercial Code of Thailand ( CCC ). The key proposed revisions are as set forth below: 1. The creditor of the company shall have an opportunity to request the company for conversion of debt into equity. A general meeting of shareholders may resolve to increase the company s capital by issuing new shares for allocation to the company s creditor under conversion of debt into equity scheme. 2. The company shall be entitled to change any preferential rights attributed to preference shares upon intention or demand of the shareholders of the company. It is proposed that the preferential rights of the preference shares cannot be altered unless a resolution of a general meeting of the shareholders. Moreover, a conversion of the preference shares into ordinary shares cannot be made unless permitted by the Articles of Association of the company. 3. The company shall be able to purchase the shares from its shareholder who desires to leave the company and is unable to transfer his shares to third person. However, such shares shall not be counted as a quorum of the general meeting of the shareholders and shall have no right to vote and receive any dividend. 4. The company shall be allowed to offer the new shares to its existing shareholders in proportion to the shares held by them or to employees or any director or any creditor of the company. Tax Exemption for Legal Entity On 13 June 2017, the Cabinet approved a Bill of Royal Decree on Tax Exemption in order to encourage a business owner to incorporate a separate legal entity. This Bill provides tax exemption for any gain derived from transfer of properties from an ordinary partnership or a group of individuals that is not a juristic person, on one hand, to a newly incorporated company, on the other hand, during 10 August 2016 to 31 December 2017 provided that certain conditions have been complied with. Three Proposed Amendments to the SEC Act The public hearings on an amendment to the Securities and Exchange Act ( SEC Act ) regarding the Regulatory Sandbox, the shareholders meeting under the order of the Office of Securities and Exchange Commission ( Office of SEC ), and the Capital Market Development Fund ( CMDF ) have been announced by Office of SEC in its website. Key issues of the proposed amendment to the SEC Act are as follows: Regulatory Sandbox The exempted businesses shall be included into the Regulatory Sandbox likewise the investment advisory service and private fund management. Consequently, the 6

7 proposed revision shall enhance new development and innovation as well as support a change of business in the capital market upon technological progress. It is believed that this revision shall relieve burden of relevant operators and the investors shall extensively receive better and various services. Shareholders Meeting under the Order of the Office of SEC In respect to protect the shareholders of the listed company, it is proposed that the Office of SEC shall empower to order a listed company to hold a general meeting of its shareholders in the event where the listed company operates or manages its business which may have material effect on benefits of public, company or shareholders and ordinary mechanism is unable to promptly solve such issue. This measure shall significantly increase a protection for shareholders of a listed company as the shareholders shall have power to decide for a solution of their company. Capital Market Development Fund At present, the Stock Exchange of Thailand ( SET ) acts as both exchange and capital market development functions. According to a draft of capital market development strategy No.3 ( ), a proposal to divide the two functions of the SET has been determined with a purpose that the SET shall mainly focus on conducting exchange function to effectively compete with foreign stock exchange. An establishment of the Capital Market Development Fund ( CMDF ) as a separate entity from the SET has been then proposed to act as capital market development center together with source of funds for long-term capital market development. Should you have any question, please do not hesitate to contact us: Picharn Sukparangsee picharn@bgloballaw.com Monnira Danwiwat monnira@bgloballaw.com Panida Agkavikai panida@bgloballaw.com Norarat Theeranukoon norarat@bgloballaw.com Amnart Khongsakda amnart@bgloballaw.com 2017 Global Law Offices Limited This publication is issued for general information only. The content herein shall not constitute any advice on specific matters. Consultation with professional advisors is highly recommended. 7