Legal Issues and Its Implications in Fdi

Topics: Tax, Investment, Foreign direct investment Pages: 8 (2208 words) Published: August 8, 2012
This paper examines and discusses how major legal factor directly relate to foreign investment; Board of Investment Regulations and its role affect ownership and operation of foreign direct investment (FDI) in Thailand. This paper also provides brief background of Thailand and comprehensive information on the above legal concerns. Furthermore, it illustrates how the outcome of these regulations is in favor of FDI and; therefore, attract foreign investors to invest in Thailand.

Foreign Direct Investment has recently become increasingly significant in terms of capital inflow and capital formation which contribute largely to a development in Thai economy for the past decades. It has been significantly influenced the upbeat economic growth for the past decades and somehow prompt Thailand to change from solely agriculture-based export country to a more manufacturing-based country. There are 5 main regulations that foreign investors should be aware; Foreign Business Law, Labor Protection law, The Land code of Thailand, Taxation, and Board of Investment. However, this paper will emphasize primarily on Board of Investment as it is the main regulation that govern and support most of foreign direct investment in Thailand.

Thailand: The Overview
Thailand is a constitutional monarchy under His Majesty the King, Bhumibol Adulyadej. Thailand’s population is approximately 65 million with over 94% of its population are Buddhist. Thailand uses civil law system and most Thai laws are embodied by parliament. Thailand’s economy relies primarily on export of agriculture products, electronic parts, rubber, clothing and textiles. Thai government has been encouraging constantly to promote Thai economic development by encouraging foreign direct investment since 1981.

Basic Laws related to foreign investment
Both local firms and companies that have business operations in Thailand should review the following regulations promptly to ensure compliance with Thai regulations. Below is a brief review of basic laws that potential foreign investors should be aware of; * Foreign Business Act of 1999

Foreign Business Act of 1999 (FBA) is a replacement of the Alien Business Law of 1972 which govern the conduct of foreign business in Thailand. This act forbids foreign investment from involving in certain business activities and proposes how foreign companies run their business in Thailand. FBA contains specific definition of “foreigners”, list of those prohibited activities as well as criteria and procedure for obtaining a license.

* Labor Protection Act
Labor Protection Act includes basic minimum right of employees working in Thailand. This cover basic employee’s rights such as working hour, overtime, working hours, holiday, entitled leaves, etc. All of the minimum rights stated in this act should be strictly followed in order to be in compliance with the regulation.

* The Land Code of Thailand
The Land Code of Thailand generally involves with the ownership of property of both Thai and foreign companies investing in Thailand. As far as foreign direct investment is concerned, this code prohibits any foreign ownership of property in Thailand unless special privileges permission is granted by the Board of Investment for the purpose of promoting foreign direct investment in Thailand.

* Taxation
Thai taxation comprises of five categories of tax; corporate income tax, personal income tax, doubles tax treaties, Specific Business Tax and Value Added Tax. Generally, every registered company in Thailand is subject to corporate income tax rate of 30% unless it falls under the Small Medium Enterprises (SMEs) which will be taxed differently.

The above basic regulations govern foreign business in Thailand in general; nevertheless, as mentioned in the introduction, Thailand has special government agency to promote and monitor foreign direct investment, Board of Investment (BOI).

Board of Investment...
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