Beginning in 2017, foreign construction companies, with pleasant surprises, have found it convenient to launch their contracting business in Thailand with or without applications for foreign business licenses under the Foreign Business Act of 1999 or the FBA, typically known as the prohibitive regulatory hurdles to entry into the local market by any foreign service provider.
Such hurdle exists no more.
List 3(10): Construction is Somewhat Restricted
Along with service business in general, construction is considered by the legislation as a business in which Thai nationals are not ready to compete with foreigners.
Foreigners who wish to carry on the restricted construction business will need to apply for a foreign business license from the Department of Business Development (DBD), the Ministry of Commerce (MOC) under the recommendation of the Foreign Business Committee.
List 3(10)(a) attached to the FBA does provide for an exception: construction business related to infrastructure projects in the fields of public utilities and transport using tools, machinery, technology or special skills with investment from 500 million baht or more (USD 16 million). This large infrastructure construction investment is exempt from the FBA and a multinational company is free to set up a 100%-foreign owned company to undertake megaprojects.
Because of the minimum capital requirement, this exception is not very popular.
A Flexible Exception
Realizing that construction is key to the development of the country, the legislators were smart in including List 3(10)(b) as another flexible exception: any construction business stipulated in a ministerial regulation.
The exception implies that years down the road if any administration envisions they should relax any particular type of construction business or any rules or regulations concerning foreign construction, they could instruct the Ministry of Commerce to simply issue a regulation to exempt such construction service from the application of the FBA, without having to go back to the Parliament and take the trouble through the constitutional process of enacting a new amendment legislation.
The Favorable List 3(21)
List 3(21) attached to the FBA: other services, is also another flexibility for the DBD to grant a foreign business license to any overseas construction company by classifying it as other services not particularly designated as a construction business in List 3(10). The leeway helps avoiding any need for the government to risk issuing even a secondary regulation in favor of foreigners and upsetting fellow Thai citizens in the construction industry.
In fact, most foreign business licenses for construction are quietly granted in this category.
Liberating Ministerial Regulations
One great benefit of category (21) of List 3 is it opens up the possibility for the MOC to prescribe a ministerial regulation to remove any service business from List 3 altogether when it deems that Thai nationals are ready to compete with foreigners in those areas.
The MOC has issued a few of such regulations, including the one in 2017, which liberates construction companies who enter into construction contracts with government agencies and state enterprises.
Government agencies are any government entities defined in the Budget Procedure Act, such as the Ministry of Transport, the Ministry of Energy, the Eastern Economic Corridor Office, and the Bangkok Metropolitan Administration.
State enterprises are also any government-owned business units covered by the Budget Procedure Act, namely the State Railway of Thailand, the Mass Rapid Transit Authority of Thailand, the Airports of Thailand Plc, PTT Plc., and the Industrial Estate of Thailand.
These foreign construction companies, either incorporated abroad or established in Thailand as a wholly-foreign own limited companies, are totally exempt from the FBA and do not need to apply for a foreign business license at all to undertake a government project in the country. They will just have to seek routine acknowledgement from the DBD by producing a draft contract with government agencies or state enterprises.
Foreign Construction Contracts in Private Sector
Foreign construction companies engaging with employers in the Thai private sector are no less viewed favorably by the Foreign Business Committee and the DBD, even though they remain obligated to seek a foreign business license in List 3(10) or List 3(21), as appropriate.
Although not backed up by a ministerial regulation in the fashion of a government contract, a private construction contract is practically viewed by the authorities as a business that Thai nationals are able to compete very well with global companies, thus they are more relaxed in their approach.
Many of such foreign business licenses for private construction contracts have been granted particularly to overseas construction companies from Asia which are more active in the country than their counterparts from other parts of the world due to their geographical proximity to the Thai nation.
This unprecedented positive approach, adopted by the administration to up local economic activities through government budgets and private investments, has been running smoothly for a few years now and is unlikely to change as the latest government after the general election is obviously an extension of its predecessor. It is a new friendly image of the FBA that more and more foreign service providers feel comfortable to live with.
Wirot Poonsuwan is the Senior Counsel and Head of Special Projects at Blumenthal Richter & Sumet in Bangkok and can be reached at [email protected]