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Legal Update

Relaxes Foreign Exchange Regulations On Foreign Currency Deposits And Transfers

30 July 2007
Mayer Brown JSM Legal Update

Summary

The Ministry of Finance (the "MOF") and the Bank of Thailand (the "BOT") have issued a Notification from the MOF and Notifications of the Exchange Control Officers from the BOT to relax the regulations on exchange control and capital flows to promote more balanced capital movements, and to increase flexibility for Thai businesses in managing their foreign currencies in order to enhance their competitiveness in the world market.

Full Update

The key provisions of these Ministerial Regulation and Notifications are as follows:

1.  Thai Direct Investment Aboard

1.1  This new provision allows companies who are registered on the Stock Exchange of Thailand, with a positive shareholder equity as shown in their financial statements of  the previous year and which do not belong to a group of companies under  business  rehabilitation, the ability to invest abroad in an amount up to US$100 million or equivalent per year.

1.2  Companies that do not qualify to invest abroad under 1.1 above are able to have direct investment abroad as follows:

(a)  A Thai parent company in Thailand can invest directly in a subsidiary company [see note 1 below] abroad in an amount up to US$50 million or equivalent per year.

(b)  A subsidiary company [see note 2 below] in Thailand can invest in a parent company abroad in an amount up to US$20 million or equivalent per year.

2.  Foreign Currency Deposits with Financial Institutions In Thailand

Under this relaxation, Thai residents are provided with a greater flexibility to deposit foreign currencies as follows:

2.1 Residents with funds in foreign currency which originated abroad regardless of the source, such as export earnings or foreign borrowings, may deposit that foreign currency with financial institutions in Thailand under the following conditions:

(a)  If the depositor has future obligations to pay such foreign currency outside Thailand within 12 months, the total outstanding balance for all foreign currency accounts can be up to US$1 million or equivalent for an individual or US$100 million or equivalent for a juristic person.

(b)  If the depositor has no future obligations to pay such foreign currency, the total outstanding balance for all foreign currency accounts can be up to US$100,000 or equivalent for an individual or US$5 million or equivalent for a juristic person.

2.2.  Residents with funds in foreign currency which originated within the country, obtained either by converting baht into foreign currency, or by borrowing foreign currency from a financial institution in Thailand, can deposit such foreign currency with financial institutions in Thailand under the following conditions:

(a)  If the depositor has future obligations to pay such foreign currency outside Thailand within 12 months, the total outstanding balance for all foreign currency accounts can be up to US$500,000 or equivalent for an individual or US$50 million or equivalent for a juristic person.

(b)  If the depositor has no future obligations to pay such foreign currency, the total outstanding balance for all foreign currency accounts can be up to US$50,000 or equivalent for an individual or US$200,000 or equivalent for a juristic person.

3.  Thai Residents Buying Foreign Currencies For Remittance Aboard

This provision has been implemented to broaden the limit of fund remittances by Thai residents, who may buy foreign currencies to remit abroad for certain purposes, up to US$1 million or equivalent for each purpose per year. Such purposes include:

3.1  Remittance to a Thai permanent resident abroad;
3.2  Remittance of estate money to a permanent resident abroad;
3.3  Remittance to family members/relatives who are permanently residing abroad;
3.4  Remittance for a public charitable donation or buying shares under employee stock option program of an overseas-employer company; and
3.5  Remittance for the purchase of property (not limited to residential property).

4.  Repatriation Requirement

Under the previous repatriation requirement, Thai residents with foreign currency receipts had to bring such receipts into Thailand within 120 days (if exceeding 120 days, approval was required from a financial institution on behalf of the competent officer of Exchange Control). As a result of this relaxation, the period has been extended to 360 days. Further extension is possible only with permission from the competent officer. This relaxation will provide greater flexibility to Thai businesses in their granting of trade credits to foreign customers.

5.  Surrender Requirement

This relaxation includes the abolition of the requirement for Thai residents with foreign currencies received from abroad to sell or deposit such receipts within 15 days. This rule change not only will provide more flexibility to Thai businesses and individuals in managing their foreign exchange receipts, but will also allow financial institutions to set procedural guidelines that best suit their operations and allow them to compete more effectively in international markets.

6.  Foreign Portfolio Investment By Thai Institutional Investors

Institutional investors will be permitted to invest by way of foreign currency deposit with foreign financial institutions without seeking an approval from the BOT. The deposited amount shall be counted as part of the total foreign portfolio investment amount according to the Exchange Control regulations. 

Conclusion

The above-mentioned relaxations took effect from 24 July 2007. The BOT expects that these changes will provide the following benefits:

1.  Promote more balanced capital movements consistent with a more balanced economic development and the stabilization of the Thai Baht exchange rate;

2.  Assist in the Thai Baht's adjustment in accordance with market dynamics;

3.  Provide greater flexibility for Thai businesses in granting trade credit to their foreign customers; and

4.  Be consistent with international practices.

 

Note 1: a company/partnership outside of Thailand in which a company in Thailand will hold/own 10% shares/interest or more

Note 2: a company in Thailand which is held/owned as to 10% shares/interest or more by a company/partnership outside of Thailand



For further information, please contact:

Name: Sathaporn Jumsuk
Phone: +66 2 677 7555 x140
Fax: +66 2 677 7599

Name: Sudkhate Jungcharoen
Phone: +66 2 677 7555 x186
Fax: +66 2 677 7599
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