The central bank, Bank of Thailand (BoT), publishes on their website “Exchange Regulations in Thailand,” which offers general information on cross-border portfolio investment rules.

Given recent appreciation pressures on the baht, additional regulations were promulgated by BoT to curb currency speculation.

Capital Inflows

The Foreign Business Act

Under the Foreign Business Act (FBA) of 1999, foreign firms are generally restricted to 49.99% of local companies. Other laws, however, in banking and insurance, for example, impose limits of less than 49.99% on certain sectors. The FBA also sets guidelines for establishing trading partnerships with other countries. The Cabinet is currently amending the FBA, with several drafts under study.


Recent Regulations

In December 2006, BoT set an unremunerated reserve requirement (URR) on short-term capital inflows (excluding those related to trading of goods and services), requiring financial institutions to withhold 30% of foreign currencies bought or exchanged with THB. An immediate exemption was made for investments in listed equities on an unhedged basis.

In January 2007, BoT eased the restrictions by offering options to either maintain the URR withholding amounts or hedge them against foreign risks under certain conditions.

Two months later, in March 2007, the URR for nonresidents holding government bonds, treasury bills, or BoT bonds longer than 3 months was relaxed. Nonresidents selling foreign currencies against THB for investment in bonds, treasury bills, debentures, bills of exchange, promissory notes, and unit trusts, whether listed on the Stock Exchange of Thailand or not, can either comply with the URR or fully hedge their investments with local financial institutions. Details are available at the BoT links below.

In July 2007, BoT began to allow nonresidents to engage in baht swaps or other hedging contracts with domestic banks, on the condition that the underlying transactions were initiated before 19 December 2006. This further relaxation of the 30% reserve requirement is aimed at reducing the THB1.5 to THB2 per USD gap between “onshore” and “offshore” exchange rates.

The BoT lifted the URR on March 2008. Thai banks can trade foreign exchange with nonresidents without needing to set aside 30% of foreign funds kept in domestic accounts. The BoT requirement of full foreign exchange hedging for incoming speculative funds invested in Thai fixed income instruments and related mutual funds is also abolished. Beginning February 2008, the BoT would increase the amount of Thai investment abroad and would make regulations that will permit residents to deposit foreign currencies. In addition, the Ministry of Finance will adjust the structure and management of public debt along with the consideration to make use of the Public Debt Management Act to improve the balance of capital flows.

In March 2008, to support the production of small and medium scale enterprises (SMEs), the BoT also launched the following temporary programs:

•Soft loans will be offered through financial institutions up to a ceiling of THB40,000 million for a period of three years.
•A facility to purchase foreign currency forwards (up to six months), which SMEs have sold to financial institutions, as a means to support liquidity in that market.

Capital Outflows

In January 2007, BoT relaxed exchange control regulations on capital outflows. Limits on nonresident investments or lending to businesses abroad were raised to USD50 million per year from USD10 million per year. Resident investors are allowed to invest or lend in businesses abroad to a maximum USD20 million per year. In December 2007, BoT relaxed the URR, allowing a parent company (or its Thai subsidiaries) and companies registered on the Stock Exchange of Thailand (SET) to transfer a maximum USD100 million per year off-shore for direct investment or lending.

BoT also allows the Government Pension Fund, Social Security Fund, provident funds, mutual funds (excluding private funds), securities companies, insurance companies, and specialized financial institutions to invest in securities abroad issued by Thai residents without limitation. The maximum for investments issued by nonresidents is USD50 million, subject to limits set by the board of directors. BoT approval is not required for investments below USD 50 million.

In July 2007, foreign exchange controls for capital outflows were further relaxed:

• Companies listed on the Stock Exchange of Thailand are permitted to purchase foreign currencies up to USD100 million per year to invest abroad subject to certain conditions;
• The limit on fund remittances abroad by individual residents was adjusted to USD1 million or equivalent per year (depending on the purpose);
• An individual resident’s repatriation requirement for foreign currency receipts was extended from within 120 days to within 360 days;
• There is no longer the requirement for individual residents to sell or deposit foreign exchange receipts from abroad within 15 days; and
• Institutional investors are allowed to invest in deposits with financial institutions abroad without approval from authorities. However, the deposited amount will be counted as part of the total amount allowable for investing abroad.

Beginning 1 September 2007, the Securities and Exchange Commission (SEC) further relaxed regulations on offshore investment by local investors subject to the following limits:

• institutional investors - USD50 million through authorized securities brokers or purchased from authorized securities dealers;
• individual investors - USD5 million through authorized private fund operators; investments in securities listed on regulated exchanges may be made through authorized securities brokers.

Previously, offshore investments were only allowed for mutual funds, provident funds, and proprietary portfolios of securities and asset management companies.

In March 2008, the BoT increased the foreign investment limit for the Securities and Exchange Commission to USD30 billion to allocate to securities companies, mutual fund companies and individual investors (through investments with private funds or securities companies).
The removal of the URR also includes additional measures to prevent speculation on the THB:

•Revision of rules for domestic financial institutions to borrow THB from nonresidents – reduction on the limit for transactions with no underlying trade or investments for all maturities to no more than THB10 million in the outstanding balance per group of nonresidents, so as to limit channels of speculation.
•Revision of rules regarding the provision of THB by domestic financial institutions to nonresidents – expanded each institution’s limits for transactions with no underlying trade or investment to no more than THB300 million in the outstanding balance per group of nonresidents so as to increase demand for purchases of foreign currencies and two-way flows.
•Revision of the structure of Nonresident Baht Account (NRBA) – segregating Nonresident Baht Account for Securities (NRBS) from NRBA to allow transfer of THB between the same types of accounts and prohibit transfer between different types.

In compliance with BoT rules, authorized securities business operators must report clients’ offshore portfolios. Also, the SEC now allows listing and trading of foreign securities such as Transferable Custody Receipts of leading foreign stocks, Exchange Traded Funds and related products; and shares of foreign companies listed on the SET (rules and conditions have yet to be finalized by the SEC).

Further details regarding the regulatory developments on currency speculation are available at the BoT links below.

For more detail on regulations impacting foreign investors, refer to the section on Rules and Regulations >Market Regulation> Currency Exchange Controls.