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August 4, 2017

Engineering, Procurement, and Construction: Considerations for Foreign Companies Working on Projects in Thailand

Bangkok Post, Corporate Counsellor Column

The pace of Thailand’s infrastructure development has continued to grow in the past few years, bringing numerous opportunities for engineering, procurement, and construction (EPC) firms based overseas that are looking for ways to participate in a project in Thailand. However, potential investors will need to have a solid understanding of the country’s legal and regulatory framework prior to investing significant time, energy, and capital.

The most significant law relating to the participation of foreigners in business activities in Thailand is the Foreign Business Act, B.E. 2542 (1999) (FBA). List 3 of the FBA restricts a number of activities which engineering and construction firms will likely engage in, such as architectural, engineering, and construction services, as well as wholesale or retail trading with registered capital under THB 100 million and other ancillary services. A company that has half or more of its shares held by non-Thais will be deemed as “foreign” under the FBA and thus subject to its restrictions.

Foreign companies and foreign majority-owned Thai companies wishing to engage in these activities in Thailand must first obtain a foreign business license or foreign business certificate from the Department of Business Development, Ministry of Commerce. Importantly, each business line will be treated separately for the purposes of assessing compliance under the FBA. A company that has been granted a foreign business license to conduct architectural services, for example, is not automatically permitted to conduct engineering services or construction activities.

Foreign companies must also be aware of professional licensing requirements. Engineering services and architectural services are both licensed activities in Thailand, meaning companies who regularly engage in such services are required to comply with the regulations of the Council of Engineers and the Architect Council of Thailand, respectively. To become registered and licensed at either Council, a company must have Thai-licensed engineers or architects sitting on its board of directors. Foreigners are prohibited from working as engineers or architects in Thailand, meaning a company wishing to engage in engineering, architecture and/or construction projects will need to engage Thai engineers and/or architects. Engaging in such services without obtaining the proper license shall result in a fine and imprisonment.

Another issue is that a foreign-incorporated company may not send non-Thai citizens to work in Thailand without first obtaining a foreign business license. Even after such license has been granted, a common misconception, especially among foreign professionals whose citizenship permits them visa-free travel to Thailand, is that they are permitted to perform business-related activities on a short-term basis provided they indicate that their purpose of travel is “business” when arriving at their port of entry. In reality, foreign nationals are required to obtain work permits after arriving in Thailand prior to engaging in any work. Penalties for not obtaining such work permits include severe fines, imprisonment, and/or summary deportation and blacklisting. This is an important point to consider for offshore contractors intending to deploy employees to perform site visits in Thailand.

A common feature of multinational engineering firms that conduct EPC activities in Thai projects is the “split” contract. Typically, the EPC activities will be divided into two or more contracts, with a wrap-around agreement signed by all parties to ensure joint liability of contractors. Often, engineering and procurement activities will be performed by an offshore contractor, while the onshore contractor will be responsible for construction and commissioning. When utilizing this structure, the onshore contractor must have obtained a foreign business license or certificate to perform construction work. Moreover, if the onshore contractor has not obtained an engineering license in its own name, it will need to retain a licensed Thai subcontractor to approve engineering schematics.

A foreign engineering contractor may consider establishing a Thai subsidiary and applying for investment promotion from the Board of Investment to establish a Trade and Investment Support Office (TISO), which will allow it to engage in support services, including onshore activities, with certain exceptions, such as civil engineering and architectural services. In case a TISO-promoted company is established with foreign majority ownership, a foreign business certificate will be required.

A Ministerial Regulation was adopted by the Ministry of Commerce with respect to the FBA on May 26, 2017, and outlines a number of service businesses which no longer require a foreign business license under List 3(21) of the FBA, including some services provided by parties who contract with government agencies or state-owned entities. However, this exception does not apply to engineering services, architectural services, or construction.

In conclusion, foreign EPC contractors are able to participate in projects in Thailand, provided they abide by certain licensing requirements and have a clear understanding of the regulatory framework. Much like engineering schematics, it is important to ensure that contractual structures are properly devised at the outset of any project. While the regulatory framework for foreign EPC contractors is presently complex, it will be interesting to observe whether the government takes any action to streamline the approval processes to achieve its national infrastructure development objectives.

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