Relocating Operations to ASEAN: The Compliance Risks You Must Plan For (Thailand Focus)

The ASEAN region presents a wealth of opportunities for businesses looking to relocate their operations, particularly in Thailand. With its strategic location and robust economic environment, the country is an attractive gateway to the broader Southeast Asian market. However, navigating the compliance landscape is critical to success. This blog post outlines essential compliance risks associated with relocating operations to ASEAN, especially focusing on Thailand, to ensure your business is well-prepared for this move.

Understanding the Foreign Business Act (FBA)

Thailand's Foreign Business Act (FBA) plays a central role in shaping how foreign businesses operate in the country. The FBA defines what constitutes a foreign business, focusing primarily on ownership structures. If a business has 50% or more foreign shareholding or is a foreign-registered entity, it falls under the FBA's purview.

The act categorizes business activities into three lists:

1. Prohibited activities (which foreign entities cannot engage in)

2. Activities requiring a Foreign Business License (FBL) (where prior approval is necessary)

3. Permitted activities (which can be engaged in without restrictions).

   
   

High angle view of Bangkok skyline showcasing modernity and expansion in business operations.

To successfully enter the Thai market, businesses must examine potential entry routes. They can apply for the Board of Investment (BOI) promotions, which offer incentives for investing in specified sectors. Alternatively, obtaining a Foreign Business License is critical for those in regulated industries. Each route has its specific conditions and timelines that must be adhered to, making early planning essential.

Navigating Regional Investment Protections (ACIA)

The ASEAN Comprehensive Investment Agreement (ACIA) offers a framework aimed at liberalizing and protecting investments in the region. It enhances predictability in foreign investments through provisions like national treatment, most-favored-nation (MFN) treatment, and investor-state dispute settlement (ISDS).

Despite the ACIA's protections, it's crucial to remember that local laws, such as Thailand's FBA, continue to govern market access. Companies must map the benefits of the ACIA against the licensing requirements set forth by national legislation. Failure to do this could lead to unexpected barriers during market entry.

Close-up of manufacturing equipment representing Thailand's industrial capabilities for foreign businesses.

Planning your compliance strategy should take these elements into account, as understanding both regional and national regulations will be key to smooth operations in Thailand and beyond.

Customs, Free Trade Agreements (FTAs), and Compliance

Thailand's compliance landscape also includes critical factors such as customs regulations and Free Trade Agreements (FTAs). The World Trade Organization (WTO) valuation rules and the ASEAN Harmonized Tariff Nomenclature (AHTN) 2022 come into play, where accurate classification, origin documentation, and valuation are paramount for businesses trying to minimize operational costs.

Incorrect classification of goods or misreported origins can lead to post-clearance audits, loss of preferential duty rates, and increased landed costs. Compliance with customs procedures should not be underestimated, as these mistakes can significantly disrupt operations and lead to costly legal implications.

Preferential Duties Under FTAs: Thailand has signed various FTAs with partners, including ASEAN countries, that allow for reduced tariffs on qualifying goods. For businesses relocating to Thailand, it's crucial to ensure that compliance measures align with these FTAs to maximize cost-saving opportunities.

Assessing Strategic Relocation Risks and Trade-offs

As companies evaluate the attractiveness of Southeast Asia as a destination for supply chain relocation, they must also conduct rigorous risk profiling. Various factors, including labor quality, infrastructure availability, policy stability, and sector-specific licensing requirements, can vary significantly from one country to another.

A detailed benchmarking exercise can provide insights into the trade-offs associated with different locations. For instance, labor costs might be lower in one country, but the local workforce's skill levels may not match those required for high-tech manufacturing. In contrast, another country may have a well-trained workforce, but infrastructure challenges could hinder logistics.

Eye-level view of a vibrant industrial park demonstrating the dynamic business ecosystem in Thailand.

These types of strategic factors must be carefully weighed before allocating capital expenditures (capex) to avoid costly setbacks in the future.

Practical Takeaway: Building a Compliance Blueprint

To ensure a seamless entry into the Thai market, it's essential to create a compliance blueprint. This strategic plan should encompass the following sequence:

1. FBA Mapping & Lawful Entry Route: Identify whether your business falls under foreign ownership and ascertain the correct entry route based on activity type.

   
   

2. BOI Feasibility: Assess eligibility for BOI incentives to maximize investment benefits.

   
   

3. FTA/RCEP Origin Design: Develop a strategy for classifying goods in compliance with import regulations to utilize preferential duties effectively.

   
   

4. Zone/Location Choice: Evaluate locations like the Eastern Economic Corridor (EEC), Industrial Estate Authority of Thailand (IEAT), or Free Zones to determine the best operational base.

   
   

Creating a structured compliance plan helps avoid unnecessary structural rework after incorporation and facilitates a smoother transition to operations in Thailand.

Final Thoughts on Compliance in Thailand

Relocating operations to ASEAN, and particularly to Thailand, presents a unique set of compliance challenges that businesses must not take lightly. By thoroughly understanding the Foreign Business Act, regional investment protections, customs regulations, and potential risks associated with relocation, companies can develop a comprehensive compliance strategy.

Preparation will not only mitigate risks but also serve to bolster operational efficiencies and enhance overall market access. If you're considering relocating to Thailand, request our ASEAN relocation risk map. Our tool will compare Thailand against your shortlisted countries based on ownership limits, licensing requirements, and duty impact while helping to structure a 12-month compliance plan.

Embrace the potential of the ASEAN market, but remember that thorough compliance planning is the key to unlocking its full benefits.

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