10 Feb Dej-Udom & Associates Business and Legal Update – January 2013Download PDF
The Dej-Udom & Associates monthly business and legal update for Thailand and the ASEAN region for January 2013
COUNTDOWN 2015 – ASEAN Economic Community |
Understanding the AEC –
A recent study by a Thai consulting firm found that local businesses don’t really understand the ASEAN Economic Community (AEC). The study showed that attempts by the government to educate Thai businesses about the AEC have not been successful. Additionally, an older segment of the population represented by senior Thai management is generally not in favor of working outside of Thailand.
In order to create better financial services links between ASEAN Economic Community (AEC) countries, Thai banks are expanding their networks; and currently, a number of Thai banks are opening representative offices in Myanmar. Overall, the advantage of a Thai bank network expansion is that they will be able to provide financial transactions from bank branches located on the Thai borders next to neighboring Asean countries.
Thailand’s Trade Negotiations Department announced plans to create a movie entitled “2015 Accidentally Not” in order to educate viewers about the ASEAN Economic Community. The movie will be shown nationwide to help educate the general public about AEC.
The growth of household spending in Cambodia, Laos, Myanmar and Vietnam will provide opportunities for Thai Small and Medium-Size Enterprises (SMEs). In addition, the increase in car and motorcycle use in these countries will also provide new business opportunities. Other areas that will see business growth opportunities are many tourist related sectors including hotels and restaurants. When reviewing investment potential, Thai SMEs should consider what types of businesses are being encouraged by the government of that particular ASEAN country.
Mae Sot Trade Zone
The Thai Cabinet approved a proposal to create a Special Economic Zone in Mae Sot on the Thai-Myanmar border. The proposed economic zone is to be located on 5,600 rai of land next to the Moei River. The project will include duty-free areas and bonded warehouses. A second friendship bridge linking Thailand with Myanmar will also be built.
Thais Want Guarantees
Business leaders have expressed some concerns about investing in the Dawei Project in Myanmar and want official guarantees from the Thai government. Due to the enormity of the project, it will be difficult for private companies to invest in it unless they have government support. The project will include a deep sea port, an industrial estate, and transportation links to Thailand. Another recent Thai concern about the project is Myanmar’s proposal to reduce the Dawei Project’s overall area from the originally planned 205 square kilometers down to 150 square kilometers.
Financial experts have proposed that Myanmar companies use a similar financial model to the one previously employed for investments in Laos. The idea is to gain financing for projects in Myanmar through “backdoor” listings on the Thai stock market. For example, this method was used to raise money for a deal between the Electricite du Laos and Tanayong in Thailand.
Historic Rail Line Renewed
The Myanmar government announced plans to complete construction of a famous rail line started by the Japanese Army during World War II. The rail line runs through Eastern Myanmar to the Three Pagodas Pass bordering Thailand and passes through a region with ethnic minorities including the Mon and the Karen. Myanmar will also discuss with Thailand the potential to revive the railway on the Thai side.
Securities & Exchange
Thai and Lao Bourses to Cooperate
The Lao Securities Exchange (LSX) and the Stock Exchange of Thailand (SET) have agreed to a second extension of a Memorandum of Understanding (MoU) between the two exchanges. The MoU extension is intended to cover human resource training, market surveillance, and promoting business opportunities. The Thai bourse is committed to working with their Lao counterparts and will offer both training and its expertise.
Greater Mekong Region Hub
The Securities and Exchange Commission (SEC) believes that the Thai stock market can become a hub for fundraising and investment in the Greater Mekong Sub-region. This has been encouraged by the SEC’s recent decision to allow Thai firms investing overseas to raise funds from the SET by listing as holding companies or through infrastructure funds.
Investors are being warned about speculative stocks. The Stock Exchange of Thailand (SET) is concerned about 61 listed companies that are showing price-to-earning ratios of more than 40 times. The SET is considering using special measures against such exaggerated share prices.
Personal Tax Rates Cut
The Thai Cabinet has given its approval to changes in the personal income tax structure. Under the new tax structure, rates will now be divided into seven brackets that add two new brackets to the previous five. The new tax structure reduces the highest personal income tax rate from 37% to 35% and permits married couples to file separately. Low income earners will see their income tax rate cut by 50%.
Emissions-based Tax Structure
The new automobile tax structure based on emissions instead of engine size is causing concern among auto manufacturers. While they agree to the change, manufacturers say they need five years instead of the required three to adjust production.
Basel III in Effect
From January 1, 2013, banks are required to conform to the Basel III standards drafted by the Bank for International Settlements. The new standards raise the minimum level of capital and the quality of capital. At the same time, the Bank of Thailand (BOT) announced new guidelines for banks in calculating off-balance sheet activities as risk assets that must be sufficiently protected by capital funds.
Asset Seizure for Offenders
Under an amendment of the Anti-Money Laundering Act, the assets of vendors who sell pirated or counterfeit goods valued at over 500,000 Baht are now subject to having their assets seized. The new law, which was recently passed by the Parliament, will come into effect once it is published in the Government Gazette.
Extension for Migrants
The Thai government agreed to extend the deadline for nationality verification three more months for migrants who failed to meet the December 14, 2012 deadline. Some 1.2 million migrant workers from Cambodia, Laos and Myanmar have already registered and completed the nationality verification process. Migrant workers who have not completed nationality verification are not eligible to apply for permission to work in Thailand.
Increase in Business
The Business Development Department reports that Thailand experienced a large increase in new business registration in 2012. The number of foreign businesses registered under the Foreign Business Act grew by 29%. The largest growth has been in service industries and wholesale/retail. The Board of Investment also received a record number of applications including many at the end of the year ahead of the planned changes to the BOI policy for 2013. In total, 2,262 applications were approved including 744 Japanese projects.