First 5 Calls: Thailand

The only Southeast Asian country that was never colonized by an European country, Thailand literally means “land of the free.” Thailand’s relatively strong infrastructure, business-friendly and pro-investment policies continue to encourage investment inflows and support sustained economic progress. Thailand presents a full range of export and trade opportunities for Canadian businesses across multiple sectors.

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The world’s largest exporter of rice.

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Declared the 13th friendliest country in the world by the World Economic Forum.

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Thailand will officially mourn the passing of King Bhumibol possibly up to October 2017, lending to some uncertainty for foreign investors.

Explore your possibilities through these connections:

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Marti Falcone
Marti Falcone
Regional Manager Asia, EDC
MFalcone@edc.ca
613.598.3122

“Investors are strongly encouraged to consult the Thailand Board of Investment for details on restricted and encouraged industries, sector opportunities, and investment application procedures.”

What are some of the key challenges for Canadian companies that want to do business here?

The World Bank ranks Thailand 49 out of 189 (benchmarked to June 2015) for ease of doing business and is committed to liberal investment policies and maintaining a business friendly environment. However, the current political landscape resulting from the May 22, 2014 military coup continues to present some degree of uncertainty for foreign investors. Additionally the constitution remains suspended causing further ambiguity.

Pirating and IP infringement are an ongoing issues and enforcement and prosecution is considered lax and ineffective. To ensure IP assets are protected as well as possible, Canadian companies are encouraged to consult with a reputable IP law firm prior to selling or investing in the market.

Which sectors offer significant potential for Canadian businesses?

Sectors such as wood pulp and paper; fertilizers, automotive inputs; oil and gas; power and telecom represent much opportunities.

What key advice can you offer Canadian businesses?

Investors are strongly encouraged to consult the Thailand Board of Investment for details on restricted and encouraged industries, sector opportunities, and investment application procedures. Additionally, we recommend you connect with the Trade Commissioner service in Thailand as well as other key partners as obtaining a local partner is key to entering the market.

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Yvonne Chin
Yvonne Chin
Consul and Senior Trade Commissioner
Yvonne.Chin@international.gc.ca
(011-66-2) 646-4300
Can you highlight specific locations in Thailand that make ideal points of entry for Canadian businesses?

• Bangkok for all sectors and businesses

• Chiang Mai for Information Communication Technologies

• Phuket (and other second tier cities) for “smart city” technologies

Any emerging niche industries where you see opportunities for Canadian businesses?

• E-commerce and e-banking

• Seafood, specifically lobster

• Research and development (R&D) collaboration with educational institutions

• Thailand is looking to become a medical hub. There is opportunity for R&D collaboration on new medical devices and for the importation of high-end and innovative medical devices

What are Thailand companies looking for in a foreign partner or supplier?

1. A good relationship that extends beyond the office. It is important for Thai people to have trust in order to partner and to do this you must be able to get along outside of work.

2. A product. Canadian companies sometimes have difficulty because they want to export a service or an idea, where Thai people like to have an actual “thing.”

3. Thailand is no longer a “simple” economy. They are not looking to import basic technologies that they can create here. They are looking for innovative and one-of-a-kind technologies.

4. Thai companies are looking to import goods from countries outside of Asia as they view products from countries like China as low quality.

5. Good support: Marketing, promoting, budgeting, and after sales service.

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Angus Mitchell
Angus Mitchell
Partner Managing Director Thailand, DFDL
angus.mitchell@dfdl.com
+66 26 363 282

“Get good advice on corporate and tax structuring to ensure that you are able to avail yourself of double tax treaties, bilateral or multilateral investment treaties, and country specific investment incentive schemes.”

From a legal perspective, what are the top three things Canadian companies need to consider about the Thai markets?

For investments in the right industries, Thailand’s Board of Investment (BOI) offers attractive tax incentives and other benefits. The promoted industries and the available benefits have evolved over time to reflect Thailand’s development and the increased labour and other costs relative to those in neighboring countries such as Vietnam and Myanmar. Consequently, the BOI’s current emphasis is on high-tech and high-value-added industries.

However, there are some exceptions to these restrictions, such as where the investor obtains Board of Investment privileges.

Foreigners (including majority foreign owned companies) cannot own land in Thailand. However, there are some exceptions to this prohibition, such as for companies that obtain Board of Investment privileges and companies operating on Industrial Estate Authority of Thailand lands.

Often a visitor to Thailand will hear that through the use of a Thai nominee shareholder, the restrictions on land ownership and the restrictions on foreign participation in certain industries can be evaded. While there is no doubt that this practice continues, there are strict prohibitions against it under Thai law, and Thai authorities often enforce these rules, in particular with focused “crack downs” within certain industries or geographic regions.

A prudent investor will instead seek a legitimate, suitably qualified and funded Thai investor as a majority shareholder if foreign majority ownership is not permitted and will then put in place contractual provisions to protect themselves as a minority shareholder.

What’s your top advice for Canadian companies coming to Thailand?

As in any developing market, there is a learning curve for investors in Thailand. Getting established can involve a lot of paperwork, signatures and visits to various government departments.

It is imperative that investors do their due diligence on potential partners. The Canadian Embassy staff and the Thai-Canadian Chamber of Commerce will often be able to provide helpful contacts and information. Finally, seek good advisors, and remember that often “you get what you pay for.”

It is important to view Thailand as part of an overall ASEAN investment strategy. If your business makes sense in Thailand, it probably makes sense across the ASEAN region.

Get good advice on corporate and tax structuring to ensure that you are able to avail yourself of double tax treaties, bilateral or multilateral investment treaties, and country specific investment incentive schemes. For example, Thailand’s new “International Headquarters (IHQ)” and “International Trading Centre (ITC)” investment schemes are worth investigating if you are considering establishing a base in the ASEAN region.

From a regulatory and legal point of view, what do Canadian companies need to know about doing business here?

Thailand uses a civil law legal system, like Quebec, rather than a common law system. The fundamental laws are set out in the voluminous Civil and Commercial Code Court judgments are useful in predicting how a law will be interpreted by another court, but they are not binding on those future courts.

Thailand has strict rules regarding working in Thailand without a valid work permit, and the definition of “work” is quite broad and vague. Though there are a number of exceptions, the general rule is that a company must employ four Thais for every one foreigner with a work permit.

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John Casella
John Casella, CPA, CMA
PKF Tax and Consulting Services (Thailand) Limited
John.Casella@pkf.com
+66 2 108 1591 (ext. 103)

“There are abundant business opportunities in Thailand, which is actually a relatively easy place to operate once you have gotten over the learning curve and culture shock in your first year.”

What is the most important piece of information Canadian companies need to know about the Thai market?

Expect a steep learning curve in your first year(s) of business in Thailand, and work closely with experienced expats who know the market well enough to guide/advise you how to best navigate through differences that you will need to understand in order to be successful in the Thai market. There are abundant business opportunities in Thailand, which is actually a relatively easy place to operate once you have gotten over the learning curve and culture shock in your first year. Thailand is a very pleasant place to live, but you will need patience and persistence to succeed in Thailand.

What's the best approach for Canadian companies coming to Thailand?

As mentioned, Canadian companies coming to Thailand will need patience and persistence to succeed. Do your research and get to know the business landscape and understand the business culture. The Canadian Embassy in Thailand and the CanCham Thailand (Thai-Canadian Chamber of Commerce) are important resources for new Canadian companies coming to the Thailand.

I have seen too many Canadian companies that come to Thailand and try to “go it alone” without recognizing that trustworthy advisers and experienced connections make a big difference in achieving the right business decisions/outcomes. Without a good quality network in Thailand, it is too easy to unknowingly head down the wrong path and/or a slippery slope before finding out when it’s too late.

What are some pitfalls you’ve observed?

Underestimating the rules, regulations and level of bureaucracy in Thailand is a major pitfall that most Canadian companies coming to Thailand fail to recognize. Canadians come to Thailand familiar with Western business norms and ways of doing business. They see the Thailand “wild east” business culture and assume there are few rules and regulations that need to be followed. That misconception can be fatal, because although the rules and regulations are not always effectively enforced in this developing nation, they do exist and ultimately need to be understood and followed; ignorance of the local laws is unacceptable, as much in Thailand as it is in Canada.

I have seen many businesses that come to Thailand and go about building a business without properly understanding and following some of Thailand’s fundamental tax, accounting and financial systems in place. They might “get by” in blissful ignorance for their first couple of years, but eventually once they get bigger and achieve the success they’ve worked so hard to achieve, they can run into serious problems due to non-compliance with statutes they didn’t even know existed.

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Tom Hoskins
Tom Hoskins
Associate, Legal Research and Member Services, TRACE International
info@TRACEinternational.org
410.990.0076

“Culturally engrained concepts of ‘under the table’ payment, patronage systems, gift-giving and hospitality endure in the Thai business environment.”

How would you characterize the risk of corruption in Thailand?

Businesses are at moderate risk of encountering corruption in Thailand. The 2016 TRACE Matrix, which measures business bribery risk, ranks Thailand as 61st out of 199 countries with an overall risk score of 51 out of 100.

Thailand has criminalized corruption since 1932. Following a 2014 military coup (brought on in part by protests over an amnesty law for high-profile officials convicted of political crimes, including corruption), there have been substantial government efforts to tackle corruption. Despite such efforts, culturally engrained concepts of “under the table” payment, patronage systems, gift-giving and hospitality endure in the Thai business environment. Commercial activities regularly intersect with government in Thailand, elevating the corruption risk.

Recent cases involving corruption of Thai officials cover a range of industries including agriculture, pharmaceuticals, extractive industries and construction.

How do these risks affect Canadian businesses?

The World Economic Forum’s 2016-17 Global Competitiveness Report ranked Thailand 34th out of 138 countries, but with high levels of diversion of public funds (88th out of 138) and irregular payments and bribes (80th out of 138), indicating that these are the types of corruption risks businesses may face. According to the World Bank’s 2016 Ease of Doing Business Report, which ranks Thailand 49th out of 189 economies, obtaining credit and the administrative requirements when starting a business are also problematic areas.

Gift-giving and hospitality are regarded as business and cultural norms in Thailand. Although there are clear legislative limits on the amount that public officials may accept, exceeding such limits remains common.

How can Canadian businesses guard against these corruptive practices?

Anti-bribery compliance support and information is available from the Anti-Corruption Organization of Thailand (ACT), a non-governmental organization that provides information on local corruption issues and events. The National Anti-Corruption Commission, a public enforcement agency, also offers helpful information on Thailand’s anti-corruption laws and their enforcement.

Companies can use public records from the Ministry of Commerce’s Department of Business Development to investigate employees’ and intermediaries’ employment histories, bankruptcy histories, and beneficial ownership. Companies may wish to refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.

Companies may further reduce their risks by conducting businesses through intermediaries that have undergone a comprehensive due-diligence review process, such as TRACEcertification.