Last year we explained how Thailand’s Foreigners’ Working Management (No.2) (2018)(ED2), which came into force on 28 March 2018, has significantly liberalized restrictions on foreign workers, and which you can read hereand here. However, in recent months we have noted two different articles by legal commentators that have clearly misunderstood the extent to which ED2 has made the labor law environment in Thailand more foreign friendly.
One of the articles proclaims the “good news” that directors of companies that are exempted under the Foreign Business Act (1999)(FBA) pursuant to the Treaty of Amity and Economic Relations between the United States and Thailand (1968)(Amity Treaty) no longer require a work permit. For reasons we explain below, this is not true.
The other article asserts that “in theory” directors of companies that are promoted under the Investment Promotion Act (1977)(IPA)and the Industrial Estate Authority Act (1979) (IEAA) are also not required to have work permits. For reasons explain below, this is also not true.
How did both of these legal commentators, law firms that specialize in labor law for foreigners in Thailand, get this so wrong? We believe it is because they did what is all too common and unfortunately the case—they asked and differed their legal opinions to “the official”:
“we double checked with the Ministry of Labor in Bangkok and they agreed that American directors [of a Amity Treaty] company would not need a work permit”;
“…authorized directors of companies [IEAA] and [IPA] companies . . . are no longer required to have work permits. . . . the Employment Office in Sriracha, Chonburi Province . . . is of the strong opinion that directors of [IEAA] and [IPA] companies are not eligible for a work permit according to the new [labor law]”;
rather than carefully reading and analyzing the relevant law themselves. So let’s do that.
First we need to understand that the FBA prohibits what it defines as any “foreigner” (both individuals and juristic entities) from doing most businesses in Thailand, without a licenseissued under the FBA. And the evident confusion in the articles mentioned above appears to stem from Section 4(2)(8) of the ED2, which states:
The following foreigners can now work in Thailand without a work permit: . . . foreigners who are representatives of a company holding a foreign business licenseunder the foreign business law of Thailand.
Directors of a company are considered its representatives under Thai law and the current foreign business law of Thailand is of course the FBA. Section 8 of the FBA restricts “foreigners” from doing most businesses in Thailand without a foreign business “License” (as defined and detailed in Section 4 of the FBA).
To obtain a License, Section 17 of the FBA provides that the applicant must apply for permissionby filing an application to the Cabinet of Ministers or the Director-General of the Department of Business Development. The Cabinet or the Director-General then will consider as to whether to give approval or grant permission within sixty days. In addition, Section 18 of the FBA provides that the Minister of Commerce may prescribe conditions to be observed by foreign business License holders such as: the ratio of the capital to loans for the operation of permitted businesses; the number of foreign directors who must have a domicile or residence in Thailand; or the amount of, and the period of time for maintaining, a designated minimum company capital in Thailand.
This is the primary purpose of the FBA, to define who “foreign” business operators are, require that they have a License to operate their business, detail how they can obtain a License and the penalties if they operate such foreign business without a License.
However, there is one other exception to the prohibition against foreigners operating a business in Thailand under the FBA. Section 4 of the FBA defines a foreign business operating “Certificate”, which is nota License, but which nonetheless allows foreigners to operate a business in Thailand. To obtain the Certificate, subject to Section 11 of the FBA, the applicant need only notifythe Director-General of the applicant’s accurate eligibility and will readily obtain a Certificate within thirty days.
Who is eligible for a Certificate? Section 10 of the FBA provides:
The provisions of section 5, section 8, section 15, section 17 and section 18 shall not apply to foreigners operating businesses specified in the Lists annexed hereto upon permission granted pro tempore by the Government of the Kingdom of Thailand.
Foreigners operating businesses specified in the Lists annexed hereto by virtue of a treaty to which Thailand becomes a party or by which Thailand is bound in consequence of obligations therefrom shall be exempt from the application of the provisions of the sections specified in paragraph one and shall be governed by the provisions of and conditions set forth in such treaty, which may, inter alia, confer upon Thai nationals or Thai enterprises the right to operate businesses in the countries of nationality of such foreigners as a matter of reciprocity.
And Section 11 says:
Foreigners under section 10 who intend to operate businesses specified in the Lists annexed hereto shall notify the Director‐General in accordance with the rules and procedures prescribed in the Ministerial Regulation in order to obtain certificates, and the Director‐General shall issue certificates to such foreigners without delay but no later than thirty days as from the date of receipt of their written notification, unless the Director‐General considers that the notification is not in accordance with the rules and procedures prescribed in the Ministerial Regulation or that it is not in accordance with section 10, in which case the Director‐General shall notify such foreigners thereof without delay but no later than thirty days as from the date of receipt of their written notification.
The certificates shall also indicate conditions prescribed by the Government or prescribed in the treaty.
And this (as we previously detailed)is precisely what a company that qualifies under the Amity Treaty is. Thus, an Amity Treaty Company does notoperate its business in Thailand by holding a License; rather it does so by holding a Certificate, a completely different category under the FBA and one that is not excepted under Section 4(2)(8) of ED2.
What about IPA and IEAA companies?
Section 12 provides:
In the case where the business of the foreigner who is promoted under the law on investment promotion or granted written permission for the operation of the industry or the operation of trade for export under the law on the Industrial Estate of Thailand or under other laws is the business specified in List Two or List Three annexed hereto, such foreigner shall notify the Director‐General in order to obtain a certificate. When the Director‐General or the entrusted competent official has examined validity of the investment promotion certificate or written permit, the Director‐General shall issue a certificate without delay but no later than thirty days as from the date of receipt of the notification of the acquisition of the investment promotion certificate or written permit, as the case may be. In this case, such foreigner shall be exempt from the application of this Act, with the exception of section 21, section 22, section 39, section 40 and section 42, throughout the period in which the business in question is under investment promotion or under permission for the operation of the industry or the operation of trade for export, as the case may be.
The issuance of the certificate under paragraph one shall be in accordance with the rules and procedures as prescribed by the Director‐General.
And thus IPA and IEAA companies are exempted from the restrictions of the FBA by receiving a “Certificate”, nota License, as well.
If the drafters of ED2 had wished to exempt the directors of Amity Treaty, IPA, and IEAA companies they could have either included companies holding foreign business certificatesunder Section 4(2)(8) or simply have made that Section applicable to any company that was exempted from the FBA restrictions. However, they did not do that. They specifically limited the exception to companies holding foreign business licensesunder the FBA. Thus, foreign directors of Amity Treaty, IEAA, and IPA companies holding foreign business certificatesare still required to have work permits.
DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at: duensingkippen.com