Belmont Limcharoen has been monitoring the changes proposed to the Foreign Business Act (FBA) and appreciates that there will be many parties interested in the outcome of the implementation of the changes and their application in relation to foreign investment in the real estate sector. At present, the changes proposed indicate that certain companies, falling within Lists 1, 2 and 3 of the Foreign Business Act, shall be required to notify the Ministry of Commerce in the event that shareholding structures include a voting percentage right that exceeds 49% voting control in the company. Such an obligation would be required on current proposals to be within a year. In other words, voting rights will be used for the first time as one of the standards to define foreign ownership under the proposed Act.
Companies falling within List 1 and 2 would be obliged within 2 years to alter their shareholdings to reduce voting rights to be of an acceptable level to the authorities so that the voting rights of foreigners could not comprise control or be in the majority. Certain, if not all, companies in List 3 will be exempt. Therefore, large numbers of investors will wish to know: a) when they need to notify the authorities and how to do so; b) whether they are exempt and therefore not required to change shareholding structure; and c) if not exempt, how the shareholding structure should be changed and how investments can be protected without breaching the laws of the Kingdom of Thailand.
In relation to the real estate sector, it is evident that 'land trading' is not exempt, as this is included in List 1. However, services industries, including brokerage are exempt upon a reading of List 3. As the lists will now be applied in a different context than first envisaged when the Foreign Business Act was passed into law, the actual exemptions cannot yet be determined absolutely or conclusively. Certainly, there will be the need for consultation with the relevant authorities and, as is standard form, government officials will be presented with a set of guidelines that should provide some practical information on how the changes may be dealt with in practice.
In relation to companies that own land � such as property rental companies or companies engaged on a small residential scale in the management of some real estate � and have a foreign interest (which always must be less than 50%) and voting rights which are weighted to provide foreign control over such a company, there should be an analysis of the activity of such a company, its principal objectives and consultation with the authorities in relation to whether such a company needs to alter its shareholdings or not. This is where the interpretation of List 1 and List 3 become important. We also urge any foreigners conducting business through Thai companies using �nominee� structures to take this opportunity to clean up their structures and ensure they are in compliance with Thai law. There is, of course, the matter of the Land Code and the proper compliance of other relevant laws.
Prior to cabinet approval of the proposed revisions to the Foreign Business Act, it was unclear whether weighted voting right structures in Thai companies were allowed under the existing law and this created uncertainty within the business community. Although the latest developments require some foreign investors to change their voting structures and adapt to the new rules, we believe the changes will provide clarity for investors and our clients. Such changes can be dealt with in a calm, measured and thought out way taking into account the time the authorities are allowing for consultation and implementation of the changes � if changes are necessary.
Desmond Hughes is a partner in Belmont Limcharoen.
desmond@belmontlimcharoen.comwww.belmontlimcharoen.com
