Presented August 14, 2001 © Seri Manop & Doyle

So far today, you have heard about the personal and corporate tax benefits to be available under the ROH scheme.

My job today is to explain the legal issues associated with the scheme from the perspective of the foreign investor.

The good news is that although these issues are quite serious, they are straight forward, so I will not have to take up a lot of your time in explaining them.

These issues are listed in order of importance.

Another important legal issue concerning the availability of work permits for expat staff will be discussed by another one of my colleagues therefore, I will not address it here.

Before I start critiquing the scheme, I would like to begin by saying, I believe the proposed ROH classification is a very positive development.

Until now, no foreign multinational had reason to even consider Thailand as a suitable location for a regional profit center.

With the introduction of the ROH scheme, this situation may change in the future.

In its present state, however, I think few multinationals will be able utilize the scheme. Why? Because it falls short.

In order for the ROH scheme to make sense, multinationals would have to see Thailand as a realistic alternative to Hong Kong and Singapore as a place to hold money.

The ROH scheme in its present form does not make Thailand a realistic alternative.

How the Thai government addresses the issues I am about to discuss, will have a major impact upon whether the ROH scheme evolves into something foreign investors can actually use OR it remains something that only looks good on paper.

     I. Foreign Currency Bank Accounts

Let me begin, with what I believe to be the primary obstacle to foreign investors utilizing the ROH scheme:

It is the current restrictions associated with holding foreign currency in Thailand bank.

The whole idea behind the ROH scheme is to encourage multinationals to pool foreign capital in Thailand.

However, Thai government places tight restrictions on the ability of companies to hold foreign currency in Thailand banks.

The following are just 2 of the restrictions associated with holders of foreign currency in Thai Banks.

For most companies, operating a foreign currency account under these restrictions is just not workable, therefore, they instead forced to convert the foreign currency into Thai Baht.

The issue is that most multinationals will not want to convert large amounts of foreign currency to Thai Baht. Why? Because it will expose them to exchange rate risks.

Your head office CFO in New York is going to say "What's a Baht?"

He also going to say that "It doesn't make any sense to pool money in Thailand if we have to convert it all into a Thai Baht. He won't care what tax incentives are available.

Why not collect money in Hong Kong and Singapore where foreign currency accounts are readily available?

I think the government will have to address this issue head on, otherwise, the ROH scheme will be a non-starter for many multinationals.

The only thing that I have heard the government say to address this issue is that it will keep the US Dollar/Thai Baht exchange rate at around 43.

Okay, but what about the next government? Or what if this government changes its mind?

I think that the government should allow ROH companies to maintain normal foreign currency bank accounts and of course tax the foreign currency income received.

Otherwise, I think many multinationals make a decision against the scheme based upon this single issue.

     II. Agency in Charge

The next issue I would like to address concerns the government agency or agencies that will be involved in the ROH registration process and in monitoring continued compliance.

The guidelines presented to date do not state which government agency is to be in charge.

The state agency selected will have a huge impact on the amount of effort and time needed to comply with the ROH regulatory requirements.

I think the procedure the ROH registration should be like a 5 K race.

Even if you proceed slowly you can still expect to finish within a reasonable amount of time.

BUT the fear is that approvals may be required from

I am afraid that if all 3 state agencies are involved, our 5K race would turn into a marathon.

AND it would require more effort than many multinationals will be willing to put forth.

I think the logical alternative would be to, instead, put BOI in charge.

Nothing against the Ministry of Commerce or the Revenue Department, but I do not think they are currently equipped to handle ROH applications and monitoring compliance over the long term.

On the other hand, BOI IS equipped to perform these functions because they are very similar to what BOI already does with and for BOI promoted projects.

Also, BOI has the most experience in coordinating action between government agencies which is extremely important and another reason why BOI is the logical choice.

     III. Registration Procedure

The final issue I would like to discuss, are the government approvals which will be required for foreign investors to establish a ROH.

The guidelines state that the benefits offered under the ROH scheme will be available to both Thai and foreign held companies.

However, the guidelines do not state whether the registration requirements for both foreigners and Thai's will be the same.

My concern is that foreign investors applying for ROH status will be required to obtain an 'Alien Business License'.

Generally, foreign-held businesses in Thailand are required to apply for and obtain an Alien Business License prior to commencing operations.

Applications to obtain an Alien Business License are filed with the Ministry of Commerce and are reviewed by a committee.

The criteria used by the committee to evaluate these applications is basically

"How the business will benefit Thailand"

The application process to obtain an Alien Business License can many times be a difficult and the outcome is less then certain.

If foreign investors seeking to establish a ROH are required to first obtain an Alien Business License, this will substantially lengthen the registration process and make the outcome less predictable.

Therefore, I believe the government should allow foreign-held companies that qualify under the ROH criteria to avoid the normal Alien Business License application process.

This would be the same privilege as the government already affords foreign-held BOI promoted projects.

If the government grants this exception, ROH registration will become a much simpler and more predictable process, which will, therefore, make the scheme more attractive to foreign investors.

     IV. Conclusion

In conclusion, I believe the ROH scheme is a very positive step forward.

I think potentially it could provide multinationals with interesting, and new options regarding to how they can structure their investment in Thailand and in the region.

However, there are now serious issues which must be resolved before this scheme will be widely accepted by multinationals.

These are:

As a recap of how I would like see these issues resolved.

Do I think that these things could realistically occur? I think there is a chance that 2 and 3 can occur.

I am much more skeptical about 1. I think the Bank of Thailand will not want to make exceptions concerning foreign currency controls.

But We'll see