FOREIGN INVESTMENT

Business laws could use an update, says expat lawyer

NINA SUEBSUKCHAROEN
While widely criticized proposals to toughen the Foreign Business Act (FBA) died with the end of the military-installed government last year, the current government still has its work cut out to modernize investment regulations, says Marcus Collins, a partner with the Bangkok law firm McEvily & Collins.
The existing FBA is still based on concepts that date back to the era of military dictatorship three decades ago, and Thailand is a very different place, he said.
''This economy has progressed so rapidly in the last two decades and we all know that the legal system here, the current laws, haven't really kept pace with the development and are still based on an economy that existed 20 years ago in large part,'' Mr Collins said in an interview.

''I think it is really necessary for the government to take a critical look at the entire body of law applying to commercial transactions and see what needs to be done.''
He cited the Revenue Code as an outdated law that basically doesn't address issues that are relevant today.
The Alien Business Law, the predecessor of the FBA, was introduced in 1972 by the National Executive Council, as the military government of the day was known. It aimed to reserve certain economic activities for Thais and Thai-majority owned companies, mostly related to national security, culture and natural resources.
The FBA, enacted in 1999, divides economic activities into three lists. List 1 covers activities barred to foreigners including newspapers, radio stations, TV, rice farming, animal husbandry, fishing and land trading.
List 2 deals with issues related to national security or any activities affecting art and culture, national resources and the environment, so mining is an example of an activity closed to foreigners. All services, wholesale or retail businesses, restaurants and others are on List 3, and in some cases List 2. While the 1999 Act is a bit clearer, it still contains many provisions of its predecessor.

Mr. Collins said the restrictions are bad for consumers because protection provides little incentive for some industries to be competitive.
He has no quarrel with restrictions based on national security, religious and cultural reasons, but questions other barriers.
''But even sectors such as agriculture, why not allow foreign companies to operate farms, why not allow foreign companies to bring in technology? Doing so is only going to benefit the economy, it isn't going to hurt it.''
Regulatory concerns aside, Mr. Collins said foreigners were still favourably disposed toward Thailand now that it has returned to having an elected government.
While his law firm has not seen a dramatic increase in investment, it does feel that people who were holding off when the military was in place are now coming back. The abolition of the Bank of Thailand's capital controls, which made it difficult to bring money in for investment purposes, has helped sentiment.
Where property is concerned, he said, most foreign individual buyers are opting for leaseholds. Although Thai law allows foreigners to own up to 49% of a condominium building, Mr. Collins said a lot of foreigners do not like living in a condominium building and prefer leasing landed property.
''Zoning in certain areas doesn't allow condominiums to be built, for example Samui, which is becoming a more and more desirable location for foreigners to purchase property.''

However, major investors would still have to use companies as vehicles to invest in property. ''But they have to be very cautious as far as ensuring that they have a real Thai co-investor who is not considered a nominee.''
The Land Code stipulates that a Thai company that buys property must be majority Thai owned and there is still the issue of nominees under the Foreign Business Act.
''It still hasn't been clarified what constitutes a nominee,'' he said.
For foreign individuals buying leasehold property, the law allows for an extension of 30-years after the initial 30-year period. However the lessor must physically register the first extension and if he refuses to do so, the foreign lessee would have to go to court to enforce the contract.
''I don't think the government will allow foreigners to own land as such,'' said Mr. Collins. ''I think that is such a hot potato ... but there is a lot that can be done to make it more attractive for foreigners to own property here or to make it easier legally for foreigners to have some right in property, for example by having longer lease terms or by allowing for a larger piece of a condominium building.

''Thirty years as a leasehold is considered not very long term and of course there is great concern that a company that is a lessor might go bankrupt, so it might not even be able to extend a lease after 30 years.''
Mr. Collins said there was a way to give indirect control over a land-owning company to a lessee, improving assurdhances that after 30 years the lease can be extended. This involves ''ring-fencing'' the company by not allowing any other business activity aside from holding that particular piece of land. This is far from an ideal situation but it would effectively provide a 60-year term as opposed to 30 plus 30-years.
''So we have creative ways and legal ways around this particular issue but ideally we wouldn't want to go that route, we want to just have a simple straightforward long term lease.''