Category Archives: Thailand Business Investment & Corporate Legal

Thailand Foreign Investment – Circumvention of Thailand’s Restrictions on Foreign Investment

Thailand Foreign Investment

Legal Risks of Nominee Shareholding in Thai Corporate Entities

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The forerunner of circumvention, the commonplace vehicle employed by renowned foreign MNCs and lesser SMEs all the same is the joint venture with local partner to form a corporate entity and to the effect of, the ‘naturalization’ of an otherwise statutorily-deemed “Alien” / “Foreigner” to become a Thai entity.

Risks of severe legal ramifications & repercussions, albeit observably dormant risks are inherent in such ‘naturalization’. Some of these risks, without limitation, are set out below, with the overarching legal insinuation that these structures effectively allow the otherwise foreign entities to avoid the attraction of most foreign business restrictions (use of such structures to hold land is also dealt with briefly below) particularly the Thai Foreign / Alien Business Act (“FBA“), and essentially – a circumvention of the law.

1. Nominee Shareholding & Circumvention of the Law

Section 36 of the Foreign / Alien Business Act B.E. 2542 (A.D. 1999):

A Thai national or juristic person that assists a foreigner in avoiding the Foreign Business Act by means of holding shares as a nominee or being a nominal owner of the company, shall [including the foreigner so allowing the Thai nationals or juristic persons to commit this offence] be liable for a fine of THB100,000 to THB1,000,000 and/or imprisonment of up to 3 years.”

Vis-à-vis, liabilities & stipulated possible penalties for circumvention of the FBA is shouldered by the Thai nominees, the actual foreign entity(ies) utilizing the Thai nominees and responsible authorized directors, directors & senior management of the same and includes:

  • Fine of THB100,000 – THB1,000,000;
  • Imprisonment of up to 3 years; and/or
  • Termination or dissolution of business and / or the Thai private limited company.

In addition, the parties mentioned above may face the relevant sanctions under other primary legislation such as the Civil & Commercial Code, criminal sanctions under the Thai Penal Code, specific sanctions under industry-specific legislation and / or other sanctions under related ‘common’ law.

2.   Nominee Shareholding & Legal Feasibility

An especially pertinent consideration is the actual tact of nominee shareholding, especially in face of its clearly spelt out unlawfulness, and what risks the foreign investor runs vis-à-vis uncooperative nominees or a rebellion / mutiny by the local joint venture partners.

Vis-à-vis the majority shareholding exercising their inherent rights in a manner adverse to the minority foreign ownership:

  • Foreign investor may be completely barred from exercising its rights in Court, whereby a derivative suit / derivative action is the only available recourse to protect the minority foreign ownership from the Thai partners. Further, if the minority foreign ownership prevails in Court, remedies & recompense are awarded to the company and not the minority foreign ownership.
  • Vide Civil & Commercial Code, it is to be noted that derivative actions generally have the requirement that it be shown that the minority shareholder is exercising its right of action in Court for the benefit of the company and that the company and not the shareholders have suffered as a result. This could well be an issue.
  • Another method is where the ‘beneficial owner’ that is the foreign minority wishes to recall the shares from the nominees, the foreign minority may do so by virtue of law because such shares were held in ‘trust’. Thereto, while the shareholder list is evidence in Thai law, but may be contested whether the shareholder(s) so listed are the actual owners. Such contest may be evidenced by proof of the source of funds having purchased the shares, and such evidence is admissible in Court to prove the identity of the ‘beneficial owners’ [Supreme Court Judgments Nos. 10274/2551 and 6735/2548].

It is important to note that the concept of ‘trusts’ are generally not recognized and do not accord well with the Courts. It may well be that these causes of action in case of default may not be plausible nor viable to the foreign minority what with its underlying unlawfulness making it effectively prima facie conceding to a Court of Law of such underlying illegality.

3. Nominee Shareholding, Practical Difficulties & Further Circumvention

There are further practical, corporate governance and accounting difficulties which come with such a structure, for instance, accounting-wise with regards to the declaration and payment of dividends. In this example, while this may be further accommodated by tailored accounting practices, the inherent gene of circumvention may branch out to further circumvention in this and other respects, adding to the myriad of unlawful elements.

4. Nominee Shareholding & Circumvention of Foreign Land Ownership Restrictions

Another pertinent issue to highlight is that foreign ownership of land (save for very limited exceptions) is prohibited. This restriction (enshrined under Section 97 of the legislation set out below)  is effectively avoided as the ownership of the land, being held by the subject entity, vests in a Thai entity when however in reality, the land is owned by the foreign minority.

The Act Promulgating the Land Code B.E. 2497 (A.D. 1954) as amended up till Land Code Amendment Act (No. 12) B.E. 2551 (A.D. 2008) (“LC“) prescribes liabilities & sanctions for circumvention of restrictions on the foreign ownership of land:

  • Foreign individuals are liable to fines not exceeding THB20,000 and / or terms of imprisonment not exceeding 2 years (Section 111 LC)
  • Company is liable to a fine not exceeding THB50,000 (Section 112 LC)
  • Nominees are liable to fines not exceeding THB20,000 and / or terms of imprisonment not exceeding 2 years (Section 113)
  • Land being held by subject entity shall be disposed by the nominee within the period of time specified by the Director-General of the Department of Lands which shall be not less than 180 days and not more than 1 year. The Director-General shall have the power to dispose of such land if the time limit elapses.
  • Further, there is criminal liability for the offence of furnishing false information to a competent official in view of recording a false statement in official documents – a term of imprisonment not exceeding 3 years and / or a fine not exceeding THB6,000 (Section 276 Thai Penal Code).

If the Thai company subsequently converts into a foreign company (by way of purchase of shares or otherwise) – the reconstituted company has to dispose of the land within 1 year from the date of such reconstitution.

These are just the legal risks, foreign investors have to always bear in mind the risks of the counterpart, empowered by majority shareholding, being uncooperative or rebelling. While there exists a plethora of devices where the minority retains control (vide preference shares, directorship, articles of association, etc.) – this remains a risk, especially as the foreign investor’s hands are somewhat shackled by, once again, the underlying illegality of circumvention.

N.b.   Another common way employed by foreign investors to circumvent Thai foreign land ownership restrictions is the use of back-to-back 30 year leases, with the additional ‘safety’ of an usufruct Agreement / superficie Agreement. This strategy however, is inherently unenforceable by law as an attempt to circumvent the Land Code and is therefore riddled with legal risks.

Conclusions

While the employment of such structures is conceded as being widely commonplace in Thailand, and there exists a number of facades to “minimize” risks of detection (there are claims that legal risks may be minimized too) – years of such structures being in existence with a large majority having faced little or no problem may offer some proof of the dormancy of such risks or conversely the inaction of the authorities in enforcement. Notwithstanding, and also in consideration to the minority that have faced severe legal repercussions or internal hostility – these remain inherent risks which (i) resemble a weak point in a structure that may blow up in face of challenge; and (ii) represent a form of compromise in terms of a corporation’s foundation which may be used as a bargaining chip in negotiations involving the entity with the shady gene.

 

 

For more information on the foregoing, or on Thailand-bound investments in general, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG (BLB) including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarize or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.
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Hiring Employees in Thailand Basic Necessities (reproduced extract)

Thailand Employment

Hiring Employees in Thailand Basic Necessities

– Extract from an old BLB newsletter –

An insight into the legal aspects of Thai employment is necessary of course as most business ventures will follow with such need. It is prudent to first note that while the statutory provisions relating to employment are quite typical in nature as compared to other jurisdictions: its application and interpretation by the Thai Courts and labor authorities are well known as tending toward employees.

Considering the limited space available here, we shall have to contend to point-form descriptions of some salient points for consideration when hiring.

Age

Minimum age for employment in Thailand is 15; if employee is 15-18, additional restrictions apply such as the necessity of informing the labor authority; no maximum age in private sector.

Form & Nature of Employment Agreement

No requirement to be in writing; contractual in nature; deemed as ‘Contracts for Hire of Service’.

Working Hours

Maximum of 8 hours/ day 48 hours/ week, generally 8.30 a.m – 5.30 p.m with lunch break from 12.00 p.m – 1.00p.m; if work is ‘detrimental to health / safety’, 7 hours/ day 42 hours/ week.

Minimum Wage

Currently (pursuant to Thailand’s Employment Committee No. 6), varying according to province from THB 300/ day (Bangkok, Phuket, Nakorn Pathom, Nonthaburi, Pathum Thani, Samut Prakarn and Samut Sakorn) to THB 222 (Payao); THB 15,000/ month for fresh university graduate (bachelor’s degree).

Minimum Rest Periods / Paid Leave

1 rest day/ week; 1 rest hour/ day; 13 public holidays/ year (which must include National Labor Day 1st May); 6 days paid leave/ year of service; 30 days of paid sick leave/ year (cannot include inability to work due to injury/illness arising out of working, medical certificate can be required if sick leave taken for 3 or more days consecutively, failure to submit of which reasonable explanation must be given.

Working Rules

Where 10 or more employees are employed, must be in writing and lodged with Department of Labor Protection & Welfare and a copy must be posted in prominent location at place of work and must include details such as Working Days, Regular Working Hours, Rest Periods, Rules on Overtime and Holiday Work, Procedures for Submission of Grievances, etc.

Social Security Contributions

These are mandatory and statutorily codified in the Social Security Act B.E. 2533 (A.D. 1990); rate of 5% (both employer and employee contributes, monthly) on employees’ wages with a cap of 750 THB; tax deductible; provides 7 types of employee benefits including sickness / injury / disability / death not suffered in course of employment, maternity, child welfare, unemployment and old age pension.

Workmen’s Compensation Fund

On the other hand, this fund covers sickness / injury / disability / death suffered in the course of employment; mandatory and statutorily codified in the Workmen’s Compensation Fund Act B.E. 2537 (A.D. 1994); contributions are paid annually; rates being between 0.2% – 1% of the total payroll varying according to the type of business and nature of the work.

Vicarious Liability

Employers are vicariously liable for the acts of the employees, save for such acts of the latter that are ‘wholly outside’ the scope of their employment

Records

Employee records and wage payment documentation have to be maintained.

Among many other things, these initial requirements are fundamental to Employment in Thailand.

Foreign Employees

Foreign employees need a Work Permit to work in Thailand, which will subsequently endorse their Visa. The process may be summarized as follows:

90-day Non-Immigrant ‘B’ Visa à Work Permit à 1-year Non-Immigrant ‘B’ Visa + Multiple Entry Permit

Requirements: 2 Mill THB capitalization of Employer Company per Work Permit; 4-1 Thai-foreign employee ratio; and compliance with minimum salary in accordance with the current guidelines.

The Labor Office & Tribunal

The forum of adjudication for employment disputes is the Labor Court. Labor related complaints and employee grievances may be filed with the Labor Officials which are known to be supportive to employees.

Employment Agreement

The Employment Agreement should be as clear and comprehensive as appropriate as any discrepancy or uncertainty will likely be interpreted in favor of the employee.

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG (BLB) including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarize or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.

 

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Thailand Foreign Investment – Navigating Thailand’s Foreign Investment Restrictions

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Foreign Investment in Thailand – Navigating Thailand’s Restrictions on Foreign Investment

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Establishing a Foreign Owned Corporate Entity in Thailand and Thailand Foreign Business Restrictions in a Nutshell

When prospective foreign investors walk in our door already with the presumption that there is no such thing as a fully foreign owned company in Thailand – it often strikes us as an unfounded, ill presumption.What more when fellow business consultants & even occasional legal practitioners seem to make the same sweeping assumptions. A quick visit on corporate structures in Thailand however reveals that even reputable foreign MNCs with entities in Thailand appear to favor this predisposition to “naturalize”. This brings us to briefly revisit these investment restrictions to quickly underline to readers the reasons for this tendency for foreign-controlled Thai private limited companies in Thailand, whether by direct or indirect means (such as the common 2-tier / 3-tier / like multi-tier structures).

The primary obstacle – Foreign / Alien Business Act B.E. 2542 (A.D. 1999) (“FBA“)

1. The notorious FBA is the cornerstone legislation that appears to bar foreign owned companies to carry out business in Thailand.

2. The FBA has 3 schedules / lists – schedules which will be listed out at the end of this write-up, these schedules spell out the businesses that are caught under the FBA. Please see below, briefly, to explain their respective mechanisms briefly.

  • List 1 is an absolute ban for, inter alia, farming or animal farming, extraction of Thai herbs, radio broadcasting, newspaper or television station businesses, etc.
  • List 2 mandates 40% Thai ownership & cabinet approval for, inter alia, land, water & air transportation, mining, production of carved wood, etc.
  • List 3 mandates a foreign business license for, inter alia, forestry, operating a fishery.
  • Of especial restrictiveness, List 3 contains a catch-all provision for service businesses.

3. Anything that does not fall within these Schedules, subject to other industry laws & regulations and minimum capitalization requirements, may be fully foreign owned. Some of the businesses as listed in the Schedules also come with qualifiers, for instance, retailing – the FBA does not prevent a fully foreign owned retailer if it meets the specific minimum capitalization requirement as spelt out.

4. This includes manufacturing, import & export, to wit: any business not falling within the Schedules.

5. Commentators have commented that the definition of Alien / Foreigner under the FBA does not extend to “foreign control”, to wit: what attracts the FBA’s restrictions is foreign shareholding, and foreign control is not prima facie in contravention, suggesting that control via preference share structures and other means are not the issue, so long as:

6. There is no attempt to circumvent the FBA, which attracts severe legal repercussions for the business, the Alien / Foreigner & the Thai nominees if a Thai nominee structure is the manner of circumvention / avoidance that is being employed – despite the definition of “nominee” being rather obscure.

7. Other industry-specific restrictions include those related to banks & financial institutions ; insurance brokers ; businesses dealing with securities ; telecommunication companies ; and so forth.

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Legal Foreign Ownership of Companies / Corporations in Thailand

Moving forward:

1. Of course, the prescribed “solution” is to obtain the foreign business license for businesses under List 2 and cabinet approval for those caught under List 3. However, this may not be plausible for some, but this “solution” is the proper way forward by operation of law.

2. Foreign investors may avail of a number of exemptions, investment incentives and / or promotions that allow full or a higher ownership allowance for their local corporate entities, which are available for a wide scope of industries, such as:

3. Exemptions under various free trade agreements such as the AMITY Treaty (American-owned companies), JTEPA (Japanese-owned companies) and TAFTA (Australian-owned companies).

4. Exemptions under Board of Investment (BOI) promotions.

5. Exemptions granted by the Industrial Estate Authority of Thailand (IEAT).

6. Representative Office or Regional Office.

7. On a cursory evaluation: (i) What is the nature of the business activity? Does it fall under one of the FBA lists? (ii) If it falls within Lists 2 or 3, are there qualifying factors that the proprietor can meet? (iii) Can the foreign investor obtain a foreign / alien business license? (iv) Are there exemptions which would be applicable to the business activity and/or the proprietor’s nationality and/or the site of the local business operation and/or by virtue of other factors? (v) Would a representative office or regional office be sufficient for the proprietor’s local interests? (vi) Does the foreign investor have one or more bona fide Thai joint venture interests?

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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Businesses Restricted from Full-foreign Ownership in Thailand

— excerpt from the FBA —

LIST ONE

The businesses not permitted for aliens to operate due to special reasons:

(1)

 Newspaper business, radio broadcasting or television station business

(2)

 Rice farming, farming or gardening.

(3)

 Animal farming

(4)

 Forestry and wood fabrication from natural forest

(5)

 Fishery for marine animals in Thai waters and within Thailand specific economic zones.

(6)

 Extraction of Thai herbs.

(7)

 Trading and auctioning Thai antiques or national historical objects.

(8)

 Making or casting Buddha images and monk alms bowls.

(9)

 Land trading

LIST TWO

The businesses related to the national safety or security or affecting arts and culture, tradition, folk handicraft or natural resource and environment.

Group 1: The businesses related to the national safety or security

(1)

 Production, selling, repairing and maintenance of:

(a)

firearms, ammunition, gun powder, explosives.

(b)

Accessories of firearms, ammunition, and explosive

(c)

Armaments, ships, air-crafts or military vehicles.

(d)

Equipment or components, all categories of war materials.

(2)

 Domestic land, waterway or air transportation, including domestic airline business.
Group 2 : The businesses affecting arts and culture, traditional and folk handicraft:

(1)

 Trading antiques or art objects being Thai arts and handicraft.

(2)

 Production of carved wood.

(3)

 Silkworm farming, production of Thai silk yarn, weaving Thai silk or Thai silk pattern printing.

(4)

 Production of Thai musical instruments.

(5)

 Production of goldware, silverware, nielloware, bronzeware or lacquerware.

(6)

 Production of crockery of Thai arts and culture.
Group 3: The businesses affecting natural resources or environment:

(1)

 Manufacturing sugar from sugarcane;

(2)

 Salt farming, including underground salt;

(3)

 Rock salt mining;

(4)

 Mining, including rock blasting or crushing;

(5)

 Wood fabrication for furniture and utensil production

LIST THREE

The business which Thai nationals are not yet ready to compete with foreigners:

(1)

 Rice milling and flour production from rice and farm produce

(2)

 Fishery, specifically marine animal culture.

(3)

 Forestry from forestation.

(4)

 Production of plywood, veneer board, chipboard or hardboard.

(5)

 Production of lime.

(6)

 Accounting service business.

(7)

 Legal service business.

(8)

 Architecture service business.

(9)

 Engineering service business.

(10)

 Construction, except for:

(a)

Construction rendering basic services to the public in public utilities or transport requiring special tools, machinery, technology or construction expertise having the foreigners’ minimum capital of 500 million Baht or more.

(b)

Other categories of construction as prescribed by the ministerial regulations.

(11)

 Broker or agent business, except:

(a)

Being broker or agent for underwriting securities or services connected with future trading of commodities of financing instruments or securities.

(b)

Being broker or agent for trading or procuring goods or services necessary for production or rendering services amongst affiliated enterprises.

(c)

Being broker or agent for trading, purchasing or distributing or seeking both domestic and foreign markets for selling domestically manufactured or imported goods in the manner of international business operations having the foreigners’ minimum capital 100 million Baht or more.

(d)

Being broker or agent of other category as prescribed by the ministerial regulations.

(12)

 Auction, except:

(a)

Auction in the manner of international bidding not being the auction of antiques, historical artifacts or art objects which are Thai works of arts, handicraft or antiques or having the historical value.

(b)

Other categories of auction as prescribed by the ministerial regulations.

(13)

 Internal trade connected with native products or produce not yet prohibited by law.

(14)

 Retailing all categories of goods having the total minimum capital less than 100 million Baht or having the minimum  capital of each shop less than 20 million Baht.

(15)

 Wholesaling all categories of goods having minimum capital of each shop less than million Bath.

(16)

 Advertising business.

(17)

 Hotel business, except for hotel management service

(18)

 Guided tour.

(19)

 Selling food or beverages.

(20)

 Plan cultivation and propagation business.

(21)

 Other categories of service business except that prescribed in the ministerial regulations

 — excerpt from the FBA —

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Advertising in Thailand – ‘Puff Advertising’ – Thailand’s Legal Regime against False, Misleading or Exaggerated Advertising

THAILAND ADVERTISING

PUFF ADVERTISING

.Thailand’s Legal Regime against False, Misleading or Exaggerated Advertising.

‘Puffing’, in the context of advertising, has been defined as “…an expression or exaggeration made by a salesperson or found in an advertisement that concerns the quality of goods offered for sale. It presents opinions rather than facts and is usually not considered a legally binding promise…” (as opposed to advertising in relation to smoking which may come to mind, subject of which is briefly touched upon below).

It is conceivable that the target audience of advertisements, mostly whom are end consumers of the subjects being advertised are vulnerable to be swayed by loose assurances, inflated representations and unrealistic projections, express or implied, rapt in the advertisement media, having been skillfully implemented by the ever ingenious advertising industry.

Hence, in the name of consumer protection and fair trade / competition, there need be stringent control devices in place to guard against ‘false / misleading advertising’.

National advertisement laws worldwide recognize this need, with national authorities such as the Advertising Standards Authority in the UK, the Federal Trade Commission in the US, and in Asia the State Administration of Radio, Film and Television, General Administration of Press & Publishing & Ministry of Industry and Information Technology in China, the Television and Entertainment Licensing Authority in Hong Kong, Fair Trade Commission in Japan, Advertising Standards Authority of Singapore and so on, as steadfast watchdogs.

One ride on the Bangkok Sky Train may suggest that in this consumer driven market, the questionable almost-miraculous effects of everyday products projected by advertisement media are somehow lacking regulation, so much so to instead appeal to proprietors and investors as a lucrative platform with a ‘free for all’ advertising regime.

This is not the case however, albeit with an apparently low level of enforcement, Thailand has clear, strict rules with regards to advertising, and in particular, rules against false / misleading advertising.

The local watchdog, the Consumer Protection Board a statutory creature of the Consumer Protection Act B.E. 2522 (A.D. 1979) (as amended) is empowered to institute legal proceedings under Section 10(7) of the Act, against inter alia, business operators who have advertisements which “…contain a statement which is unfair to consumers or which may cause adverse effects to the society as whole; that is, notwithstanding such statement concerns with the origin, condition, quality or description of goods or services…” (Section 22) – such statements expressly including statements which are “false or exaggerated” (Sub-section 22(1)). Other than litigious powers, wide powers to veto, and to effect corrective measures are granted to the statutory watchdogs, for instance under Sections 27 & 28 of the Act to require substantiation of claims made in advertisements.

A vague, perhaps contradictory, permissive exception is provided where “A statement used in the advertisement which an ordinary person knows that is not possible to be true is not prohibited for use in the advertisement under (1) [Sub-section 22(1)]”, leaving ample room for “over-exaggeration” or “obvious falsity”, placing the boundaries of “false or exaggerated” as an obscure middle-point and allowing for advertising to effectively stretch its imagination so long as it stretches beyond the reasonable logic of the ordinary person.  This seems to suggest that the more the advertisement exaggerates, or the more indirect the manner of exaggeration – the more likely it is to fall within this exception – as exaggeration is more often than not welcomed by the sales-motivated proprietors / advertising agencies – this exception could be read as an encouragement to ‘push it’, to exaggerate properties of the product to near-impossibility.

Apart from these benchmark provisions, specific legislation govern specific types of products such as foods, drinks, cosmetics, and pharmaceutical products all of which expressly prohibit false, misleading or deceptive advertising.

Advertising of food products are similarly regulated by the Food Act B.E. 2522 (A.D. 1979) (as amended), where Section 40 of the Act prohibits “false or deceptive” advertising of the quality, usefulness or origin of food. Section 41 prescribes that advertisements of food have to be pre-approved before advertising. Section 70 gives that ‘false advertising’ in contravention of the Act may attract imprisonment of not more than 3 years and/or a fine of not more than THB฿ 30,000.

With regards to pharmaceuticals, the Drug Act, B.E. 2510 (A.D. 1967) (as amended) stipulates that advertisements of drugs shall “…not be boastful of its therapeutic properties or of its ingredients…” and shall “…not falsely or exaggeratedly show its therapeutic properties…” as well as that advertisements under the ambit of this Act shall “…contain no certification or laudation of its therapeutic properties by any other person… (Section 88).

In addition, Section 89 bars ‘impolite advertising’ of drugs “…no sale of drugs shall be advertised impolitely, or by means of singing and dancing, or by showing the distress or suffering of a patient…”. Breach of these advertising regulations may attract penalties in the form of imprisonment of not more than 6 months and/or a fine of not more than THB฿ 10,000 (Section 124).

In relation to cosmetic products, Section 37 of the Cosmetic Act B.E. 2535 (A.D. 1992) (as amended) adopts consumer protection law in relation to advertising, mutatis mutandis, to the advertisement of cosmetics.

Advertising of medical instruments, governed by the Medical Device Act B.E. 2531 (A.D 1988) (as amended) explicitly prohibits false, misleading, exaggerated or deceptive advertising under Section 59 which stipulates that advertisements of medical devices shall “…not falsely or fraudulently…” promote the “…benefits, quality, quantity, standard, component or origin of the medical device…” and further may not contain any statement that may cause confusion or misunderstanding as to a material part related to the medical device. In addition, advertisements of medical devices have to be prior licensed.

Over & above the aforementioned –

An overarching criminal sanction is enshrined in Section 271 of the Thai Penal Code which criminalizes the employment of “…fraudulent or deceitful… means, in “…selling goods so as to deceive a buyer as to the source of origin, nature, quality or quantity of such goods…”, and may attract imprisonment of up to 3 years and/or a fine of not more than THB฿  6,000.

Apart from “Puff Advertising”, there is a rigid regulatory framework in place for the advertisement of tobacco & alcoholic products –

The Tobacco Product Controls Act B.E. 2535 (A.D. 1992) (as amended) and the Ministry of Public Health Notice Volume 15 B.E. 2554 (A.D. 2011) issued thereunder, in line with the Framework Convention on Tobacco Control (“FCTC”) explicitly bans the advertising of tobacco products whether via broadcast, newspaper, magazine or other “printed matter”. Notwithstanding, there exists a contentious exemption, contra to the FCTC, where the prohibition of tobacco advertising does not apply to ‘live broadcast from abroad radio or television’ or ‘printed matters printed outside’ Thailand.

The advertising of alcoholic beverages is also heavily restricted, regulated by the Alcoholic Beverage Control Committee. Section 32 of the Alcoholic Beverage Control Act B.E. 2551 (A.D. 2008) provided that alcoholic beverages “…may not be advertised in any manner that directly or indirectly claims benefits or promotes its consumption and may not show the product or its packaging…”. Advertisements must also be accompanied by 1 of 5 prescribed warning messages which is required to be displayed for at least 2 seconds for video advertisements and to occupy at least 25% of the advertisement area for print media.

It remains the case however, that the thresholds of ‘exaggerated’ or the ambit of ‘false’ lacks definitive boundaries, effectively empowering the relevant regulatory bodies with considerable discretion. The apparent idleness and inaction of the Consumer Protection Board to prosecute false or misleading advertisements has also come under criticism, necessarily linking back to the lack of legal provision to compel such prosecution. The law regulating false / misleading advertising remains wanting in its obscurity despite these cornerstone provisions clearly set in place, without much light shed on the subject whether by Court decisions, definitive directives or regulations issued under primary legislation or guidelines by the respective authorities, a shortcoming that could be read as a call for exploitation and a lack of effective consumer protection in this respect.

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG (BLB) including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarize or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.

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Brief Insight into an Awkward Dimension of Thai Work Permits (non-legal)

* This piece has not been written or contemplated in any legal capacity of the author whatsoever *

Any well-seasoned expatriate employee in Thailand has come to terms that the truth, in theory and per proper compliance with the laws & relevant regulations involved in obtaining a Thai Work Permit is not as easy as it appears, and is on the contrary – a rather arduous ordeal. Inasmuch, the Thai Work Permit has become commercialized with business-minded entrepreneurs actually exploiting the fact of the process’ and requirements’  inherent cumbersome-ness.

The flowchart above provides a very brief overview of the immigrational process for legally continuing being present in Thailand vide Work Permits and Non-Immigrant Business Visas toward a possible ultimate ends of acquiring Thai Citizenship. It is fundamental to note that there are generally 3 major requirements for – in the employer’s perspective – a company to be able to legally employ a foreign employee, obtain the necessary work permit and obtain the proper visa endorsement, reiterated below in brief, along with the respective ‘ways around’ that is manifest in Thailand.

 ฿ 2 Million. Capitalization per Work Permit

Generally, although the view of practitioners are divided as to whether this registered capital has to have been paid up or not – in practice, the Labor Ministry is usually satisfied with this amount as registered capital regardless of whether it has been paid up.

4:1 Thai – Foreigner Ratio

This (in)famous requirement may be generally circumvented in two ways:

1. “Parking” the expatriate employee’s work permit in another company.

2. In practice, the proof of the employment of such parallel 4 Thai employees are evidenced by producing submitted social security contributions and income tax. Generally, there are companies which have ‘ghost employees’ which lend their names to these registers and where the provider makes such requisite contributions at such minimal rates.

3. A combination of the above two also may be convenient for expatriates that do not qualify for retirement or marriage visas, do not own their own company, but wish to remain here for other reasons.

Minimum Salary

There are various minimums that are determined according to nationalities of prospective expatriate employees that are changed from time to time. As such stipulated minimums in accordance with the Thai Immigration’s regulations may be rather high and does not reach a compromise between a needy employer or a conceding employee, these minimum rates may not be practical. This is often dealt with ‘declaring’ a salary higher than that actually received by the employee – and corresponding contributions in social security and tax are remitted.

The Cost of a Work Permit

All things considered thus, the question of whether indeed a work permit is the ultimatum is unavoidable. Obviously, the performance of any work by exertion of “physical strength or knowledge whether or not intended for wages or any other benefits” [Working of Alien Act B.E. 2551 (A.D 2008) (“WOAA ’08“)].

In a quantification exercise (under the assumption that multiple entry visas are necessary and the work permits are given for 1 year each):

฿ 1,900  (90-day Non-B) + ฿ 3,800 (multiple entry) +  ฿ 3,000 (work permit) +  ฿ 1,900 (1-year Non-B) + ฿ 3,800 (multiple entry) +  ฿ 9,000 (Social Security ( ฿ 750  x 12)) +  ฿ 40,200 (Income Tax (on salary) for a British citizen with a minimum salary of 50,000  (3,350 x 12)) =  ฿ 63,600 (a little over 10% of annual salary)

This does not take into account any professional fees that may be involved.

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Respective liabilities imposed by law borne in not having a work permit:

Employee

Maximum Term of  Imprisonment of 5 years.

Fine from ฿ 2,000 to ฿ 100,000.

If the employee is agreeable to leave within 30 days, he/she may be relieved of any prison sentence.

Where the expatriate employee holds a work permit, but is in contravention of other provisions of the WOAA ’08, he/she is liable to a maximum fine of ฿ 10,000.

Employer

Rather recently, the employer has been relieved of criminal liability in the employment of expatriate employees in contravention of the WOAA ’08.

Fine from ฿ 10,000 to ฿ 100,000 per offending expatriate employee.

Similarly, where an employer employs an expatriate employee with a work permit, but such employment is in contravention of other provisions of the WOAA ’08, it is liable to a maximum fine of ฿ 10,000.

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Work Legally

While the chances of the authorities knocking on the doors of employers are somewhat minimal – it stands true that Thailand’s laws are clearly spelt out and are  to be stringently adhered to. There should be no cutting corners and these laws should be duly complied with; failure to do so would constitute an open invitation by both employer and employee to face severe consequences.

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG (BLB) including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarise or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.

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International Tax Planning – Thailand Tax Implications for Foreign Entities in Thailand

INTERNATIONAL TAX PLANNING

Thailand Taxation Basics

It is crucial  for investors and proprietors worldwide with an eye on Thailand to thoroughly consider the tax implications that flow from their inception within Thailand’s tax regime. Similar yet distinct from other tax jurisdictions, it is important to understand the different forms of taxation, methods of tax calculation and common structures to deal with the local tax.

Equipped with in-depth tax knowledge, the investor or proprietor may indeed find that Thailand’s tax implications are not severe in comparison. With proper implementation of strategy and structure, Thailand’s tax is far from an incapacitating burden but on the other hand rather accomodating for international subsistence.

In fact, for instance, where a foreign entity’s Thai presence qualifies, it may be privilleged as a Regional Operating Headquarters (“ROH”) which grants the foreign-owned ROH minimal tax liabilities.

Thailand’s tax code is encompassed in the Thai Revenue Code (“TRC”) and Ministerial Regulations.

Companies incorporated under Thai Law – Worldwide Income

The First Paragraph, Section 41 of the Revenue Code dictates that income derived from within Thailand is taxable:

“Every person who…derived assessable income under Section 40 from a post or office held or business carried on in Thailand, or from the business of an employer in Thailand, or from property situated in Thailand shall pay tax…whether such income is paid within or outside Thailand.”

It flows that the Thai-sourced income of Foreign Companies carrying on business in Thailand  [Taxable ‘Permanent Establishments’ include “Companies incorporated in a foreign country and carrying on business in Thailand” – Section 66 Paragraph 2 Thai Revenue Code] is taxable.

Section 76 bis of the Thai Revenue Code further provides:

“If a juristic company or partnership organized under a foreign law has an employee, representative or go-between to carrying on business in Thailand and thereby derives income or gains in Thailand, such a juristic company and partnership shall be deemed carrying on business in Thailand, and such employee, representative or go-between, whether a natural or juristic person, shall, in so far as the said income or gains are concerned, is deemed to be the agent of the said juristic company or partnership and shall have the duty and liability to file a return and pay tax under the provisions of this Division.”

This provision essentially catches all foreign companies with Thai  ‘agents’ generally taking the form of affliate / subsidiary companies that derive income within Thailand as ‘carrying on its business in Thailand’ – ‘agents’ of which are obligated to file returns and remit taxes on income and/or gains so earned by the foreign company.

This principle is further encompassed in the respective Double Taxation Agreements to which Thailand is a member to, i.e. explicitly catching ‘agents’ as ’employees’ and may usually be found under Article 5 which generally provides for the definition of ‘Permanent Establishment’ (e.g. Article 5(3)of the Thailand – Hong Kong Double Taxation Agreement).

 Corporate Income Tax Rates based on Foreign Vehicle

*** Updated: January 2013 – Corporate Income Tax Rate slashed to 20% ***

Representative / Regional Offices do not attract tax liability as they function as non-revenue generating vehicles.

It is also important to observe that Thailand’s Corporate Income Tax Regime makes no distinction between foreign-owned and Thai-owned companies.

Special Rates 

Regional Operating Headquarters – 10%

Certain lower income bracket Small-Medium Enterprises – 15% / 20%

Certain Listed Companies – 25% 

There are also various industry-specific based rates, for instance, in the Oil & Gas industry – 50%.

Dividends

Onshore Dividends by Listed Companies – Exempt

Onshore Inter-Company Dividends – Exempt on condition of fulfilling 25% and 3 month holding conditions, non-fulfilment of which only attracts exemption for half of the dividends

Offshore Dividends – subject to the tax rate of 25% and a 6-month holding requirement and 15% Foreign Tax conditions

Capital Gain – Taxed as ordinary income – exemption for capital gains from listed shares

In addition to Corporate Income Tax, Foreign Companies operating in Thailand are subject to the following taxes in their remittance of profits / dividends:

Section 70 bis Profit Remittance Tax (“PRT”)

The branch office is required to deduct 10% PRT upon distribution of profits to the head office within 7 days in the following month of which distribution was made. Late payment attracts a penalty of a 1.5% surchage (capped at amount of tax payable).

There had been some ambiguity and resulting confusion regarding the proper method of calculation for Thai PRT. This had been recently settled by the Central Tax Court which had determined that the 10% PRT was incurred as a ‘second-level tax’ and only imposed on the profit after the company had already paid the 30% Corporate Income Tax, the latter of which would be the ‘first-level tax’ in the ‘Halliburton’ case. This essentially means that the PRT as a ‘second-level tax’ is calculated based on the balance of profit, similar in nature to a ‘dividend’ distribution from the foreign company’s Thai subsidiary to its foreign parent, equating the Section 70 bis profit to ‘net profit after tax’ and not profit per normal accounting. Further, the Court ruled that such tax could only be calculated at end of accounting year and thus remittance of service fees and subsequent profits to the foreign parent office is only PRT taxable if it can be identified as ‘net profit after tax’

In short, the 10% PRT is only to be imposed after the 30% Corporate Income Tax has been remitted.

Where the foreign company may be considered not to be carrying on business in Thailand, any offshore remittance of profits will similarly attract a 10% Withholding Tax as per Section 70 TRC.

Forum of Adjudication of Tax Disputes

For companies incorporated in Bangkok, the appropriate form of adjudication of tax disputes is the Central Tax Court.

Taxpayers desirous of contesting tax assessments to the Thai tax Courts are required to pay their tax so assessed up front, somewhat in a manner of an ante.

Inasmuch, legal challenges to tax should not be thought of as leeway for suspending tax payment. Practice-wise, evidence such as mortgage deeds, bank guarantees, and so forth may be submitted to the Tax Revenue Department to show that the tax has been paid. Upon receipt of the final Court decision favoring the taxpayer, the taxpayer will be awarded a refund of his surplus tax payment on top of which there will be imposition of 1% interest per month (which need be requested) amount of which is capped at the amount of tax and is not compoundable.

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG (BLB) including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarise or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.

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Thailand Business, Investment & Corporate Legal – Thailand Employment – Chapter 2: Terminating Employees in Thailand (in point form)

Thailand Business, Investment & Corporate Legal

 THAILAND EMPLOYMENT

Chapter 2: Terminating Employees in Thailand

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How to Terminate an Employee?

  • Must be in compliance with Employment Agreement, Work Rules, and applicable Law.
  • Fixed-term Employment (e.g. 1 year employment Agreements with the possibility of renewal and/or possibility of becoming permanent)
    • Automatic Termination (no notice requirement)
  • Permanent / Indefinite Employment
    • Minimum notice period of 1 (one) full payment-cycle in advance (normally 1 month) or wages in lieu thereof. [see below]
  • Daily Basis
    • Notice in advance or on payday (effective date of termination is next payday) or payment in lieu equal to number of days of which notice is deficient

 Employee Resignation

  • Employees may resign at any time, subject to such Resignation Notice Period as may be contained in the Employment Agreement.
  • Generally, the resignation of the employee is tantamount to a waiver of any severance pay that may be due and where the employee’s desire not to pursue its ‘retirement notice’ of which said desire is accepted by the employer (i.e. not to require the employee to serve working the notice period), the employee is not entitled thus to any payment of wages in lieu of notice of his/her own resignation.

Termination Notice Requirements

  • Employment Agreements generally contain Notice clauses which be must adhered to by both employee and employer, i.e. the employee is generally required to tender an advanced notice of resignation and vice versa.
  • Minimum of 1 (one) full payment cycle’s notice (normally 1 month) in advance with a maximum of 3 (three) full payment cycle’s notice.
  • Nonetheless, at such point, employee – employer relationships may have already turned sour and it may not be feasible to require the employee to continue working till expiration of the notice period. Generally, where the employee wishes to resign immediately, the employer may accept such immediate resignation and the employee thus will not be entitled to any payment of wages in lieu of notice per the employment agreement.
  • This however is not normally the case in respect of Termination by the employer, where the employee may desire to continue working through the termination notice period. Thenceforth, to effect immediate termination, the employer is mandated to pay the said payment of wages in lieu.
  • The effective date of resignation / termination will be at the end of the payment cycle and before the commencement of the next.
  • Example:
    • If Company O issues a Termination Notice to B in the middle of B’s payment cycle (generally meaning mid-month), and B’s employment agreement states that there is a Notice Period of 3 months – the said 3 months will begin to run after the end of the current payment cycle (generally meaning beginning next month). If Company O wishes to effect the termination immediately, payment of wages of the current month + 3 months payment of wages in lieu of notice needs to be given to B.

Termination Without Cause – Severance Pay

  • Severance Pay is determined by Statute, varies according to the length of the employee’s employment and is calculated as per the employee’s last salary:
    • 120 days or more but not more than 1 year = 30 days Severance Pay
    • 1 year or more but not more than 3 years = 90 days Severance Pay
    • 3 years or more but not more than 6 years = 180 days Severance Pay
    • 6 years or more but not more than 10 years = 240 days Severance Pay
    • 10 years or more = 300 days Severance Pay
  • Where better terms are contained in the employment agreement or work rules & regulations – such better terms will be given effect by the law.

Tax on Severance Pay

  • Severance Pay is exempt from tax up to THB 300,000 (subject to certain conditions)

Termination with Cause – Instant Dismissal – Termination without Notice or Severance Pay

Written warnings should be issued before termination, and sufficient opportunity should be given to the employee to rectify his errors, afford an explanation and/or correct his/her ways. Where Termination is with Cause, the Termination Notice should clearly state so. The following are Causes for Termination:

  • Violation of the Work Rules & Regulations and/or such Orders / Instructions of the Employer which may be deemed Lawful despite having received written warning within 1 (one) year prior or, without such written warning in serious circumstances
  • Absenteeism from Work without Good Reason for 3 consecutive working days (irregardless of holiday in between)
  • Dishonest Performance of Duty
  • Intentional Commission of a Criminal Act against the Employer
  • Intentionally causing the Employer to Suffer Losses
  • Performance of an Act of Gross Negligence which Causes the Employer to Suffer Severe Losses
  • Imprisonment by Final Judgment (if negligence / petty offence – must cause the employer to suffer damages)

Termination by Reason Of The Employee’s Age

  • There is no statutory maximum age of employment in the private sector.
  • Retirement age instead is usually determined by the employer’s policy but notwithstanding such stipulated retirement age, termination by reason of an employee’s age is considered termination without cause and such notice prescriptions and severance payments are accordingly applicable.

Mutual Termination

  • Available, subject to the rule that parties cannot contract out of Thai Employment Laws’ stipulated minimums such as the minimum notice period, the provided severance requirements, and so forth.

Directors or other Senior Officers

  • So long as the individual Directors / other Senior Officers are employees, the LPA requirements apply mutatis mutandis, along with such specific requirements applicable to removal – appointment of Directors contained in the CCC, the employer company’s Articles of Association and other relevant laws.

Force Majeure – Frustration – Impossibility to Perform

  • Automatic Termination where it is impossible for employment agreement to be performed. Circumstances are such as inter alia, destruction of employer entity or employee’s death.

Post-Employment Allowances

  • Thai law is silent on this and principles of freedom to contract are applicable.

Post-Employment Non-Competition Clauses

  • These are enforceable subject to reasonableness and adherence to the Thai Unfair Contract Terms Act, Labor Protection Act, public order and good morals. More detailed illustrations on acceptable Non-Competition Clauses is provided here in BANGKOK LEGAL BLOG (BLB) Write-Up on Franchising.
  • In essence, in construing reasonableness / fairness, a degree of specificity must be infused upon the period and area of restriction, the subsequent employability of the employee in his profession / industry and the parties’ respective lawful interests.

Time Limitations for Employee’s Claims following Termination

  • For wages, other remuneration, disbursements, claims for reimbursements of advances, etc. – 2 (two) years from date of termination
  • For Severance Pay – 10 (ten) years

Unfair Termination

  • Distinct from the the Termination requirements above, employees may bring claims against their employers for Unfair Termination to the Labor Court, which may order reinstatement of the employee or where it decides that the two can no longer work together, order such damages to be paid to the employee taking into consideration:
    • Employee’s Age
    • Employee’s Tenure
    • Employee’s Hardship
    • Cause of Termination
    • Compensation that Employee is entitled to
  • Employee compensation flowing from Unfair Termination is not statutorily provided for but Courts generally award damages amounting to 2 (two) months’ wages for the first year or service and 1 (one) month of compensation for each subsequent year of service

Unfair Terms

  • Employees may challenge Terms contained in Employment Agreements contending that they are unfair, and it is the general inclination of the Courts that these Terms will be interpreted as tending toward the employee as opposed to the employer. It is the general consensus that the Thai position with regards to Employment, in the interpretation and provision of the LPA, interpretation of the terms of the employment agreement, work rules & regulations, etc. lean toward the Employee and much care is taken to determine what is fair and reasonable given the circumstances and that Employees are not oppressed by the generally stronger position Employer.

Employment Disputes

  • Aggrieved employees may bring their employment related complaints to:
    • Labor Officials (Ministry of Labor)
    • Thai Labor Courts – exclusive jurisdiction within territorial jurisdictions
    • Central Labor Court – Bangkok and surrounding provinces
    • Leap-Frog Appeals for Labor Courts – go directly to Supreme Court.
    • Where there is no corresponding Labor Court as according to territory, a Labor Claim may be brought in a Court of First Instance.

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG (BLB) including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarise or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.

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Filed under Thailand Business Investment & Corporate Legal, Thailand Company Incorporation, Thailand Employment