M&A Monthly Report : May 2018

Custom Audit

Currently, Customs (by Customs Audit Bureau) has again introduced a temporary Voluntary Audit Program (VAP) available between 1 April 2018 and 30 April 2019 (last time ended in August 2017), under which trustworthy companies have the opportunity to correct any unintentional mistakes that were resulted from erroneous duty declarations, short payments or any other mistakes due to accidents or misunderstandings. Business operators joining the program will be able to pay the duty and VAT shortfalls without duty penalties and surcharges in which the following liabilities are recovered. Please note that liabilities in relation to inadvertent errors on import declarations typically found by customs auditors (in event of regular customs audit or review taken place) would include penalties equivalent from 0.5 to 2 times of the duty shortfall and 1% (per month) duty surcharges.

Therefore, the principle benefit of the VAP is that there is likely to be a substantial reduction on total liabilities, in comparison with the regular audit or review practice. As experienced, other benefits are that companies have time to prepare all necessary information for the customs auditor and companies will normally not be subjected to another audit for the next 3 years. However, as VAP would normally cover duty evasion cases (i.e. undervalued, wrong HS Code, misuse of duty privilege); unfortunately, it will not include smuggling cases (i.e. hand-carried goods) and customs evasion cases of prohibited and restricted goods (i.e. import or export without licensing in place) which are inapplicable to do VAP and require much higher penalties (up to 3 times value of goods plus duty and VAT). All importers and exporters now are therefore urged to take advantage of the VAP benefits by undertaking a self-review of their import/export activities, especially in relation to verifying the correctness of duty and tax payments before the closing date 30 April 2019.


Foreigner import goods to sell in Thailand

Q: A foreign company, registered in Thailand, has received the BOI promotion to manufacture milk and to sell milk products and beverages. The company is planning to import the milk and beverages products from countries in ASEAN to sell to Department store, retail shops, wholesale shops, hotels and restaurants in Thailand.

The company would like to confirm whether 1) Selling imported goods to customer in Thailand is considered as wholesale or not? And 2) If the business is considered as wholesale, issuing invoice from multiple branches will require 100 million baht registered capital for each branch or not?

A: 1) the company imports milk products and beverages to sell to Department stores, retail shops, wholesale shops, and restaurants in Thailand and, then, the buyers resell the products to customers or use as raw material to produce other products, shall be considered as wholesale business according to business under List 3 (15) of the Foreign Business Act B.E. 2542 which must obtain the Foreign Business License prior to operation.  However if a foreigner need to operate the business without having to obtain the Foreign Business License, the company must have a fully paid-up capital of Baht 100 million and can operate 1 shop. The minimum capital is excluding minimum capital as required by other business according to the Foreign Business Act B.E.2542 or other laws.

2)  The wholesale location is a place that is used to do business with customers such as contacting customer, receiving order, receiving and distributing goods, and issuing accounting documents to customer etc. So, if the company has multiple business location doing activities as describe herewith, then each branch shall be considered as doing the wholesale business and must have fully paid-up capital of 100 Million Baht per 1 shop.      

Foreigner operates commercial banking business

Q: The company is operating the commercial bank and the banking related business, which do not require the Foreign Business License according to the Ministerial Regulation (No.3) B.E. 2560, as such, the company will not have to comply to conditions under the Foreign Business Act B.E. 2560 is correct or not ?

A: As the banking and related businesses has been exempted from obtaining the Foreign Business License prior to operation according to the Ministerial Regulation (No. 3) B.E. 2560, therefore, the bank shall not be subjected to conditions and requirements under the Foreign Business License; however, with reference to the first paragraph of Section 14 of the Foreign Business Act, the foreign company who is operating the business that is not mentioned in the Annex List of such Act, must have the minimum registered capital of not less than 2 million Baht and it must be fully paid-up.

Guarantor for Loan of affiliated company  

Q: A foreign company wants to be a loan guarantor for an affiliated company for loan from the Export-Import Bank of Thailand (EXIM Bank).  The EXIM Bank was established by the Export-Import Bank of Thailand Act B.E. 2536 (1993) under the supervision of the Ministry of Finance and is considered as a State Enterprise under Budget Procedures Act, B.E.2502.


However, according to the Ministerial Regulations (No. 3) B.E. 2560, it exempts party who is providing the services to the State Enterprise under Budget Procedure from obtaining the Foreign Business License so, in this case, to be the loan guarantor with the EXIM Bank shall be exempted from obtaining the Foreign business license is correct or not?

A: In this case, the foreign company is providing service as a loan guarantor to the subsidiary with EXIM Bank and not a service provider to EXIM Bank so such service is not an exempted service according to Ministerial Regulations (No.3) B.E.2560; therefore, the foreign company must obtain the Foreign Business License prior to operation.