Australian Thailand Foreign Free Trade Agreement (1)
May 24 2010 Categories: Doing Business In Thailand, Thailand Foreign Business Act No comments yet
Many countries are currently negotiating Free Trade Agreements with Thailand and the citizens of those countries are waiting impatiently for the benefits they will get out of these free trade agreements. Hopefully, they will finally be able to invest in Thailand without having to make allegiance to “You-Know-Who” “He/She-Who-Must-Not-Be-Named” that is to say the Thai Wife, Boyfriend or the Thai shareholder that may be deemed a nominee.
What is the Purpose of a Free Trade Agreement
Now Free Trade Agreements have two purposes. The first purpose is to increase and facilitate trade between the two countries that have executed the FTA. The second purpose is to facilitate foreign direct investment from the citizen of one country into the other country.
In this post I will discuss the Free Trade Agreement between Australia and Thailand.
Note that I’m not a trade expert so I’m not able to judge what benefits the Free Trade Agreement executed between Australia and Thailand has brought to Australia. It may very well be that the FTA between Australia and Thailand was a success in terms of trading and that was what the Australian team was concentrating on when they negotiated this Treaty.
Benefits for Australian Citizens in Terms of Foreign Direct Investment
What I’m an expert on is Foreign Direct Investment in Thailand and as far as I can judge on this part of the Treaty Thai negotiators have definitely outsmarted the Australian negotiators.
I have already given in my updated post “Starting a Business in Thailand (2): The restaurant” the example of the restaurant business but for those who have not read it I will discuss again this issue below.
In a nutshell the Free Trade Agreement between Australia and Thailand grants majority Australian ownership of major restaurants up to 60%. Australian citizens may be in right to believe that they have their received a major advantage as per comparison to what is applicable to the rest of the world. Sorry don’t hold your breath, read the fine print instead.
Now the fine print says that:
1) The restaurant must provide full restaurant services (food and beverage preparation and serving services with or without entertainment, and
2) The facility must have a minimum area of 450 square meters, and
3) The provider must have a minimum paid-up registered capital of 50 million Baht.
Now condition 1 is ok and I don’t have any comments to do about it. Conditions 2 is also ok but for the fact that I do not know a lot of restaurant in Bangkok with a 450 sqm area.
Where the Australian negotiators have been outsmarted by their Thai counterpart is with condition 3 especially if you read condition 3 in parallel with the condition of ownership limitation at 60%.
Would benefit of the privilege only Australian citizen that are ready to invest into a 50,000,000 THB restaurant. Don’t know about you but I don’t think they are a lot of 50,000,000 THB restaurants in Bangkok, Phuket, Pattaya or Koh Samui. Kind of restaurants that would fit this description are the huge beer gardens like the Tawan Deng or maybe a few hotels restaurants. Beside this I don’t see a lot around.
But the real problem is that any Australian citizen that would be ready to invest into such a restaurant (must not have many of them around) cannot do it alone because even in this case they can only hold 60% of the restaurant business entity.
Meaning that they still need to find a real Thai partner willing to invest 40% that is to say 20,000,000 THB together with them and of course Thai wealthy investors are lining up in front of the Australian embassy for the privilege to invest 20,000,000 THB into a restaurant with an Australian citizen.
Other Examples:
That is not the only sector where the privileges granted to Australian citizens are only apparent by comparison to what is already available.
I selected a few other example of benefits granted to Australian citizens as per the Thailand Australian Foreign Trade Treaty and compared them to their equivalent BOI promotion that may be obtained by anyone.
| BOI PROMOTION ; AVAILABLE TO ANY ONE | FREE TRADE AGREEMENT THAILAND AUSTRALIA |
| 7.3.5 Aquariums. Conditions for aquariums
1. Projects must have a minimum investment (excluding cost of land and working capital) of not less than 100 million baht, with total area of not less than 10 rai. 2. Fifteen percent of the total area must be allocated as a car park and another 15 percent as a green area. 3. A study on environmental impact must be submitted
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Aquariums services (CPC 96321**)
A total area of not less than 10 rai is required. Service supplier must have a minimum paid-up registered capital of 200 million Baht. Conditions 2 and 3 are not mentioned but my guess is that they will also be applicable Note that the difference in the amount of investment required is because in the BOI promotion the amount spend on purchasing project land is not included in the 100,000,000 while obviously it is in the FTA.
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| 7.3.3 Amusement parks
Conditions for amusement parks 1. Projects must have a minimum investment (excluding cost of land and working capital) of not less than 500 million baht, with total area of not less than 200 rai. 2. Project details must be approved by the Board. 3. Fifteen percent of the total area must be allocated as a car park and another 15 percent as a green area |
Theme park services (CPC 96194**)
A total area of not less than 200 rai is required.
Service supplier must have a minimum paid-up registered capital of 1,000 million Baht.
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| 7.4.3 Hotels Conditions for hotels
1. Projects located in Zone 1, Zone 2, Hat Yai district or Muang district of Chiang Mai will receive only non-tax privileges. 2. Projects located in Zone 3 (excluding those provinces specified in section No.1 and No.3) will receive only an exemption of import duty on machinery and other nontax privileges. 3. Projects located in Amnat Charoen, Buri Ram, Kalasin, Maha Sarakham, Nakhon Phanom, Nan, Narathiwat, Nongbualamphu, Pattani, Phayao, Phrae, Roi Et, Sia Ket, Surin, Sakon Nakhon, Satun, Yasothon, orYala, will receive privileges according to the BOI Announcement No.1/2543. 4. Each hotel must have at least 100 rooms. Note that: BOI non tax privilege generally includes majority up to 100% foreign ownership and land ownership |
Luxury hotel and resort services (CPC 641**) including hotel management services.
Service supplier must have a minimum paid-up registered capital of 800 million Baht. The facility must have a minimum of 100 rooms. Note that including hotel management services does not mean anything because hotel management services is already an activity where foreign investors are allowed 100% foreign ownership
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Of course, there are many more categories than the three mentioned in my example and some may procured a real advantage to Australian citizens but a quick reading of Thailand’s Schedule of Commitments fails to show me any definitive advantage that would be granted to Australian citizens. I mean there is nothing in the privileges granted to them that cannot be obtained by citizens of other countries by following normal investment processes.
What would be interesting to know is whether the fact that Foreign Direct Investments advantages obtained by the Australian delegation seems so lame is because they were focusing on the trading part of the Agreement (which benefit may be importants but that I’m not able to understand as trade is no my area of expertise) or because the delegation was composed of people which did not understand Thailand foreign investment framework. If anyone knows the answer I would love to hear it.
I will discuss the visas privileges granted to Australian citizens in a post later this week or next.
Note: This post is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010
About the Author:
The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.
http//:www.renephilippe.com
© Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact.
Originally posted 2009-11-09 05:26:48.
Related posts:
- Foreign Ownership: Ownership Ratio Table |
- Doing Business in Thailand: The Nominee Issues (Part 2)
- Starting a Business: The One Start One Stop Investment Center
- Investing in Thailand: Obtaining a Foreign Business License
- Investing in Thailand: Nominees Issue, the witch hunt?
- Starting a Business in Thailand (2): The Restaurant
- Doing Business in Thailand: Thai PLC and Nominees definition
- Investing in Thailand: what is a Foreigner under the FBA?
