The New Draconian Policy of the Bank of Thailand

30% Deduction for Incoming Monies from Aboard

Any Misery for Property Buyers in Pattaya

Updated 21st February,2007

“No man can serve two masters” enlightening us that “Money” can become our “Misery” if we are dominated by its omnipotence. “If you worship money, you cannot worship god”. The words of Buddha “Nothing is all black, Nothing is all white” remind us to search for the equilibrium between the “Good” and “Bad” in our greedy world. The influx of foreign funds into Thailand even after the coup creates the questionable appreciation of our currency.  In the “Globalization Period”, our world becomes flat where the current of money can go everywhere. After an inundation, it can become a drought just overnight.  Money is just like water which can be destructive. This financial phenomenon has been closely monitored by the Bank of Thailand responsible to stabilize the exchange rate of the Kingdom.

Money is a Misery

Why is money not always welcome in Thailand” The answer is that the speculation of currency in the Thai money market in 1997 created the economic catastrophe which is still a nightmare for many people.

The appreciation of the Thai currency affects the exportation of the country which represents  60% of our GDP. We cannot compete with our neighbors who produce  cheaper than us.

How about Pattaya” Many tourists and resident expatriates cry once they change their monies. The property market definitely suffers from this deep impact.

How to solve this problem” In stead of the interest rate control or overseas investment, the easy quick answer from the interim government is “Stop Money coming to our country!”

On 18th December,2006,  the Bank of Thailand made a circular letter instructing all commercial banks to deduct the reserve amount of 30% from all persons making foreign exchange with the amount from US$ 20,000. The clear example is “If John sent money from UK to his bank account in Pattaya for three millions baht to buy house, a bank will deduct 900,000 baht from his account. He can cash only 2.1 millions baht”

You can see that John will have not enough money to pay for his house. He will have to send more money from UK to cover the amount.

The deducted money will be sent to the Bank of Thailand to make a reserve. It can be refundable after one year without interest if John can prove that he keeps or spends out his money in Thailand otherwise the Bank of Thailand will charge John 10%. The burden of proof is on John that he has been keeping 900,000 baht in Thailand for the period of not less than one year. If John forgets to ask the money back within 2 years, his 900,000 baht will be confiscated by the government.

It is questionable whether you will have to prove that you spent out your money in a legitimate business. The problem is that foreigner cannot buy land under Section 97.- of the Land Code of Thailand. How can a foreigner report to the Bank of Thailand that he spent his money to buy a land in Thailand”

In response to this “Draconian Policy”, the Stock Exchange of Thailand suffered from the panic sales on Tuesday, 19th December,2006, which was recorded in our history as a “Black Tuesday”.

Many foreign investors have not seen Thailand as a promising land anymore for their speculative monies.

The Exception proves the Rule

To be or not to be a good rule, it must be proved by its exeptions. On 20th December 2006, the Bank of Thailand made a sharp u-turn, to exempt investments in the stock market and some other business activities. Our discussion will be only on the exceptions involved with real estate business in Pattaya.

1)      Money for Purchase of  Condominiums

Money for purchase of a condominium unit is exempted from 30% reserve by the Bank of Thailand. In this connection, you have to check if a building  permit of the condominium you will purchase is a category of “Condominium Unit” (Akarn Shood) not “Apartment” (Tee Puk Arsai Ruam). You have to inform your bank that the purpose of remittance is “to purchase a condominium in Thailand” whereby the bank who receives your money will issue a letter certificate (Thor.Tor.3) showing the purpose of remittance.   The problem now is some banks (not every bank) in Pattaya deny to open a bank account for you if you have visa “TR” or “TS”. However, some lawyers may have  good connection to assist their clients to open a bank account even with “TR” or “TS” visa. Otherwise, you may use the “Escrow Account” of a lawyer. It is advisable to retain a real and reliable lawyer who will not be gone with the wind with your money.

2)      Money for Foreign Direct Investment (FDI)

To enjoy this exemption of FDI, you will have to prove that you hold shares in a Thai company more than 10% with a managing power as a director. The money you bring into the country to pay for your shares will be exempted from the 30% reserve. There are some technical problems for foreigners setting up companies to mostly in Pattaya to buy land. These foreigners have to bring money into Thailand to pay the total price of land. How can they do if they can own only 49% of shares” You have to see the regulations of the Ministry of Commerce and Land Department for companies applying for ownership of land. Many foreigners use the legal loophole by setting up a Thaicompanyby using 100% Thai nominee to acquire ownership of land, and later transfer shares into 49% back to the foreigner and remain 51% shares for Thai nominee shareholders after the conveyancing at the Land Office. If you want to buy a house for 6 millions baht, you may set up a company with a capital of 12 millions baht where you can bring in the money to pay for your shares of 49% which is nearly 6 millions baht.It is advisable to consult with a lawyer who will explain to you all pitfalls from this new policy of the Bank of Thailand to provide you with a proper solution or search in our reading room “The New Zero Tolerance Policy” in our webpage

3)      Money for Purchase of Real Properties

The wording of this expection is “Investment in Real Estate”. We understand this exception applies to foreigners enjoying privileges under investment promotion laws by the Board of Investment (BOI) or Industrial Estate Authority of Thailand (IEAT), or a foreigner bringing in 40 millions baht for investment. These foreign investors are not in Pattaya.

However, there is a good news that some commercial banks in Pattaya become tolerant for foreigners transfering money into their bank accounts in Thailand with the purpose “to purchase real properties in Pattaya”. These foreigners will have to show their land purchase agreements under their names.  The Supreme Court has a ruling that a foreigner can sign a buy and sale contract because a restriction under the Land Code 1954 is not the absolute restriction. A letter from a reliable lawyer may comfort the banks that they are not money speculators. It is a case by case basis for the bank to exercise the discretion.

4)      Remittance of Money less than US$ 20,000

The remittance of money “not more than US$ 20,000″ is exempted from this 30% reserve. Some foreigners may see the loophole to send money several times to cover the amount they need.

5)      Corporate Loan before 19th December,2006

Even the Governor of the Bank of Thailand gave the interview on 10 ” 11 January,2007, about the relaxation of corporate loan. However, up until 28th January,2007, there is not any annoucement excepting the corporate loan from the 30% withholding reserve. It is understood that if the loan agreement was made before 19th December,2006 which was the date on which the draconian announcement was made, that loan agreement should be exempt. To mention the purpose of your inward money remittance as “Loan” in Thor.Tor. 3 (Exchange Control Slip)  is good as the supporting evidence to send your money back in the future.

6)      Request for Exemption on a Case-By Case Basis

If you cannot meet the above exeption, you may request the Bank of Thailand (BOT) by explaining that your business is the long term investment by showing the supporting documents with the justifiable explanation.The Bank of Thailand my consider and approve your request on a case-by-case basis. The lawyer who is keen on international transaction will be able to assist you.

7)      Exchange for Thai Currency outside Thailand

If you exhange your money for Thai Baht in your country and send Thai Baht to Thailand, the regulation of 30% wihholding reserve should not be applied to your inward remittance.

Some foreigners may see the way to circumvent this regulation by bringing money into Thailand by cash or travelling cheque whereby they can exchange for Thai currency with non-bank dealers. These foreigners may have problem in the future once they send the money back to their countries. If the amount exceeds two millions baht, they may provoke the suspicion of the Anti Money Laudering Office (AMLO).

You may hire a Thai lawyer to deal with the banks who send and recive your money. Your lawyer may represent you to provide information to instruct the sending bank in your country and work together with the receiving bank in Thailand to prepare a Foreign Exchange Transaction Form.

The requirement for the 30% withholding reserve will definitely slow down the property market in Pattaya. It is burdensome for foreigners to send more money to cover the price of properties.

The Bank of Thailand is strongly criticized by local and international business communities for their random policy. The Governor of the Bank of Thailand even admitted in her televised interview there was no legislation underlying the confiscation of 10% as a penalty or tax. The Governor added that this regulation will be continuously inn force for another 3 to 6 months. This draconian policy is based on a bias against the money speculator. How about foreigners in Pattaya” Are they speculator” Most of them will burn their money for their hedonism in the Walking Street or buy properties for their Thai partners once they fall in love. They are not involved in any “Conspiracy Theory” to harm the country. These pegans run away from Mr. Taxman to worship the sun in Jomtien. They should not suffer for the random policy. We strong believe this bias and random policy will be shortly repealed.

Foreigners in Pattaya are speculative only for the sustainable happiness under the doctrine elf sufficiency economy of our Majesty the King.

No. 52/2006

Summary of the Reserve Requirement on Short-Term Capital Inflows

This notice pertains to the Bank of Thailand’s announcement regarding the implementation of reserve requirement on short-term capital inflows on 18 December 2006 and its subsequent relaxation. The goal of the measure was to help maintain stability in the Thai baht which is conducive to sustained long-run growth in the Thai economy.

The following summary is intended to help add clarity regarding the measure and serve as a reference for financial institutions in implementing the reserve requirement.

1. Foreign currencies bought or exchanged against baht for the following transactions are exempt from the 30 percent foreign currency reserve requirement:

1.1. Foreign exchange transactions related to current account activities including transactions related to exchange of goods, services, income, transfers and aid.

1.2. Inflows for equity investment in companies listed in the Stock Exchange of Thailand and Market for Alternative Investment (excluding mutual funds and warrants), investment in the Thai Futures Exchange (TFEX), and investment in the Agricultural Futures Exchange of Thailand (AFET). Funds destined for the aforementioned investments should be deposited in the Special Non-resident Baht Account for Securities: SNS.

1.3. Foreign direct investment defined as investments by non-residents in resident entities where the investor owns at least 10 percent of the equity capital and has managerial power.

1.4. Investment in real estate such as land and condominiums (excluding real estate mutual funds).

1.5. Foreign currency borrowings transacted prior to 19 December 2006.

1.6. Currency swap transactions associated with rolling over existing exchange rate hedging contracts with the original financial institution.

1.7. Foreign currencies bought or exchanged against bath amounting to less than 20,000 US dollar or equivalent.

1.8. Foreign exchange bought or exchanged against baht from clients or authorized money changers in the form of travellers’ cheques and bank notes.

1.9. Foreign currencies bought or exchanged against baht from (a) foreign embassies, foreign consulates, specialized agencies of the United Nations, international organizations/ institutions incorporated in Thailand; and (b) Thai embassies, Thai consulates or other Thai government entities located outside Thailand. 1.10. Foreign currency borrowings of government entities.

2. Foreign currencies bought or exchanged against baht for the following transactions are subject to the 30 percent foreign currency reserve requirement:

2.1. Investments in debt securities transacted from 19 December 2006 onwards.

2.2. Foreign currency borrowings transacted from 19 December 2006 onwards.

2.3. Foreign currencies bought or exchanged against baht for purposes other than those exempted in 1 above.

3. Balances in Non-resident Baht Accounts are allowed to exceed 300 million baht without limit until 8 January 2007. After that, the balances shall not exceed 300 million baht.

4. From 8 January 2007 onwards, balances in the SNS accounts shall not exceed 300 million baht. The Bank of Thailand will continue to review the appropriateness of this limit.

Bank of Thailand
22 December 2006

Further information, please contact 0-2356-7345-6

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