The Real Deal On The US-THAI Treaty Of Amity

editor’s note: This blog has always been about sharing everything we know about Thailand – the bars, the nightlife and making our own way in business here. Well folks – to do just about anything as a foreigner in Thailand you better have a lawyer. Visa, work permits, marriage stuff and of course business endeavors. We have tried to cover business stuff as we go and I even tried to keep a section on it.

Recently we met an American lawyer in the Big Mango and we discussed some sort of regular column for the blog. I think it will be cool. This will be his first post and we are already discussing some ideas for other posts. We may do some sort of ask the lawyer column and highlight some real case work. I would like to welcome Ben to the blog! Thanks.

Ben is the Managing Director of Integrity Legal (Thailand) Co., Ltd.

Much confusion surrounds the US-Thai Treaty of Amity and Economic Relations, or simply the Treaty of Amity as most expats refer to it in Thailand. The confusion surrounding the treaty stems from its precarious status with regard to the WTO treaty signed by Thailand nearly fifteen years ago and the, currently mothballed, Free Trade Agreement between the United States and Thailand. Many people wonder if the Treaty is still in force and if it is, then how much protection does it really offer?

A QUICK EXPLANATION OF THE TREATY AND ITS HISTORY

The Treaty of Amity was signed in 1966 and replaced an older treaty and was basically an updated version. There were several important rights conferred in the treaty, not the least of these was the right of Americans to own all the shares of stock in a Thai Limited Company and for that company to receive ‒National Treatment.” What this means is that in the eyes of the law the Treaty of Amity Company with an American majority owner is treated the same as if the majority owner were Thai. Therefore, a company registered under the Treaty of Amity is not treated as a ‒foreign” company, but a Thai company.

For many American expats, the treaty has been a godsend over the years because it has allowed them to own their businesses outright and not need to deal with the vagaries of the Foreign Business Act (the most recent incarnation is the Foreign Business Act of 1999). The Foreign Business Act states that all, or virtually all, foreign owned companies need to obtain a foreign business license in order to operate. Obtaining a foreign business license is no easy feat depending upon which type of business classification the company in question falls into.

To make a long story short: The Treaty of Amity allowed Americans to own the majority of a Thai business without needing to get a Foreign Business License. There are still a few areas not covered by the Treaty of Amity, most notable is the fact that even an Amity Treaty Company cannot own land.

THE TREATY OF AMITY IS GREAT: WHERE’S THE CONFUSION?

The confusion regarding the Treaty of Amity deals with the WTO (World Trade Organization) and the treaty Thailand signed with them nearly 15 years ago. Under the WTO rules, no nation can give any one nation preferential rights over any other.

This means that Thailand is in violation of its WTO obligations by allowing ONLY Americans the right to own a company outright with national treatment. If Thailand extended the privilege to citizens of the other member nations of the WTO, then the problem would end there because Thailand would be in compliance with the WTO. Since Thailand does not seem likely to do this they are in violation of the WTO because unequal privileges are extended to the US.

Thailand was given an exemption period in 1995 to get their laws in order. This exemption lasted for ten years and expired in 2005. Since then, Thailand has technically been in violation of the WTO. However, the Treaty of Amity is still in effect. How can this be?

According to Article 14 of the US Thai Treaty of Amity and Economic Relations:

§3 The present Treaty shall remain in force for ten years and shall continue in force thereafter until terminated as provided herein.

§4 Either Party may, by giving one year’s written notice to the other Party, terminate the present Treaty at the end of the initial ten-year period or at any time thereafter.

Seems simple, the treaty doesn’t end until one of the parties says its going to end and even then, those concerned shall have a year to comply with the new rules, whatever they may be.

This doesn’t really answer the question as to where this fits in with the WTO. It seems that by signing the WTO Thailand did not abrogate any existing treaties, hence the need for the exemption period for Thailand to get its valid laws in compliance with the new system. Therefore, the laws on the books at that time and still in effect (such as the Treaty of Amity) are not affected by the WTO until the government of Thailand amends its laws accordingly. This is just one man’s opinion, but it seems to be corroborated by the fact that I helped a client process an Amity Treaty protection request for his company less than one month ago. The request was granted by the Thai Foreign Business Office and the Treaty of Amity Certificate duly conferred upon his company.

The WTO has yet to bring up this issue with Thailand, at least publicly. I have heard that part of the reason for this silence is the fact that the WTO is waiting for a more stable government to be elected before they broach the subject, but this is mere conjecture.

WHAT HAPPENS TO THE TREATY OF AMITY WHEN THE WTO CALLS FOR THAILAND TO COME INTO COMPLIANCE?

ALL HELL BREAKS LOOSE!!!! JUST KIDDING!

I think that when the WTO calls for Thai compliance with its treaty then Thailand will do one of three things: ‒grandfather” everyone in already registered under the Treaty of Amity, completely throw out the Treaty of Amity and tell everyone to get into compliance within a year, or sign a new free trade agreement with the US that calls for a combination of these two options.

The idea that Thailand will just throw out the Treaty of Amity and tell everyone protected by it to just deal with it seems unlikely, although this is Thailand and anything can happen.

According to the White House website:

‒The AER [Treaty of Amity] covers over 1,000 U.S. businesses in Thailand. Total U.S. investment in Thailand is about $20 billion.” http://www.whitehouse.gov/news/releases/2003/10/20031020-27.html
It seems unlikely that Thailand will throw away that kind of money and goodwill capriciously.

Also according to the US State Department at http://www.state.gov/e/eeb/ifd/2006/62040.htm, ‒Both the U.S. and Thailand anticipate that the rights granted investors under the AER will be replicated in the bilateral FTA currently under negotiation.” Although the negotiations for the US-Thai FTA have been postponed, until who knows when, it seems unlikely that the Thai-US Treaty of Amity will be thrown out before a new agreement is adopted in its place.

The current Thai-Australian Free Trade Agreement allows Australian Nationals the right to own up to 60% percent of certain companies. Although the list of companies in which this type of ownership is allowed is less extensive than under the US Thai Treaty of Amity, it still leave us with some idea of the worst case scenario for a possible US-Thai FTA.

WILL COMPANIES CURRENTLY PROTECTED BY THE TREATY OF AMITY BE ‒GRANDFATHERED” IN?

The Treaty of Amity itself says nothing about this scenario, only calling for the one year exemption period. It seems likely that Amity Treaty Companies will be ‒grandfathered” in. Previous foreign business acts have a ‒grandfather” clause allowing those engaging in what would become restricted businesses to continue to engage in such business. It seems logical that this kind of scheme would be used to phase out the Treaty if such an option was desired by the Thai government. Again, this is Thailand and nothing is a certainty, but looking at the past and the laws and politics at play it seems unlikely that the Treaty of Amity will be completely abrogated to the total detriment of those protected by it.

The worst case scenario under the Treaty of Amity: You get to own your business outright for a year. Since the Treaty has yet to expire: if you had a company registered the day before the treaty was terminated, then you would still have a year to come into compliance.

For more information on many aspects of American/Thai law see: http://www.integrity-legal.com

Thanks for reading,
Benjamin W. Hart, Esq.
US Licensed Attorney
Managing Director
Integrity Legal (Thailand) Co., Ltd.

30 thoughts on “The Real Deal On The US-THAI Treaty Of Amity”

  1. Thanks for the comprehensive summary. Does this affect large US companies (e.g. Procter & Gamble) who set up factories, sales offices and so on here as well as the litle guy who wants to run his small business?

    Or is there something else that covers the major investors?

  2. GREAT IDEA FOR A REGULAR POSTING

    When we speak of the Treaty of Amity the discussion always seems to be about a US company doing business in Thailand. My GF has a Thai company and I want to use that company to do business in the USA mostly as protection against litigation that dominates the US business scene. So my questions are?

    NB: I AM NOT TRYING TO GET ANY FREE LEGAL SERVICE HERE BUT JUST LOOKING TO GET YOUR OPINIONS ON THE VALIDITY AND ADVANTAGES OF THE CONCEPT MRMYIONRF BELOW

    1) How receptive are the various states and Municipalities to a Thai Treaty of Amity Co. openning an office in the states. Does the Federal Treaty overrule any local requiremnts?

    2)Does it need an EIN number if there are no USA based employees just independent contractors?

    3) Does the company have to a State Corporate charter from the state that it is operating from or is the Federal Treaty enough?

    4) Do you see such a set-up a way of limiting liability and lawsuits as the company and all of its assets are in Thailand?

    5) Revenues are paid in Thailand and not to the US office. Is that income subject to US corporate and state taxes?

    6) Overall what do you think are the advantages of setting up such an operation under the Treaty to do business in the USA versus starting a USA based company?

    Hope that trhough all of this non-legal “mumblings” you get the drift of the concept. I also assume that you can set up the needed structure (at Thai rates of course)

  3. Many legal offices in Thailand provide nominees to entrepreneurs who don’t have Thai associates. Does the same exist with US nominees?

  4. Wow! Great info… I’ve heard lots of speculation and erroneous info about the Treaty of Amity over the years. This is a great summary; clear, concise and well-written.

    I’ll be looking forward to future installments from Ben.

  5. Thanks Ben – that was very interesting and answered many questions I had – concessions then for US and Aus citizens – anything for us poor ole Brits?

  6. What isn’t quite clear to me is what would have to be solved during an eventual 1 year grace period. Okay, get a foreign business license for starters. But would an Amity company need to find 51% Thai owners?

  7. @powers,

    It seems we would need to get the FBA license , but you would just have to re-allocate the existing shares to the current 7 or 3 shareholders. Even with the amity treaty corp you still need 7 or 3 shareholders ( 7 or 3 depending on when you registered the company), but in reality your giving your shareholders more of your company and getting yourself to the under 49% requirement.

    The amity treaty status is great for some people, I have 2 at the moment so I hope things don’t change to much.

    Im sure Ben will correct me if my information is incorrect. 🙂

    Cheers

  8. By the way, additional question: if the US are giving a kind of reciprocity to Thai nationals, then the US are also in violation of the WTO obligations, no?
    And if they’re not giving any reciprocity, then why would the Thai gvt keeps this benefit?

  9. Hi all,

    Thanks for all of the great feedback about this piece I am pleasantly surprised that everyone is interested in this.

    First, yes this will be on the test.

    Second, the “special” privileges extended to Thais in the USA are extended to the other members of the WTO so those privileges are not seen as in volation of the WTO Treaty obligations.

    Third, as far as the one year grace period, this is a major plus, in my mind, because it will give an owner time to vet potential co-owners and structure the companies in such a way to maintain control over the operation (voting stock, trusted shareholders, etc.). I think that if nothing else the Treaty of Amity is good because if all else fails it is like getting a GUARANTEED full year of ownership and control of a Thai Company with the likely option of continuing full ownership indefinitely by being grandfathered in.

    Fourth, Sorry nothing I know of for Brits.

    Fifth, strictly speaking nominee shareholders are illegal under the foreign business act of 1999. The question about American nominees is a good one. I personally think it could be possible. It is a matter of having the US Embassy sign off on the “American” ownership. I think it could be done in theory. Technically the foreign business act can only be applied to Thai companies. I don’t think I’d pursue this course of action without proper legal advice and even then a lawyer might find out that it can’t be done.

    Sixth, as for the advantages of the Treaty in the USA the HUGE advantage for Thais wishing to do business in the US is the E1 & E2 Visa. This is a Trader and Investor visa. It is expedited for those operating under the treaty so it can be a real advantage for Thais wishing to do business there.

    As for liability for a Thai company in the USA: the company must still abide by the US’s laws (which include laws on liability, torts, etc.)

    The Federal Treaty overrides all state and municipal regulations about foreign ownership, but the company is only given “National Treatment” so it will only be treated as well as any normal American Company, so really it overrides nothing on the day-to-day level because any American Company is liable for the normal stuff. This is the same in Thailand hence the reason foreigners still needs a work permit the same as for a Thai Company.

    Taxes: As I understand it, a Thai Company in America can remit all income back to Thailand. It will still be taxed, but just the Thai will be able to choose where it will be taxed. This is all in line with the double taxation Treaty in existence between Thailand and the USA. There are some tricks one could play if they set up a US and Thai company either way (wink).

    Finally, The Treaty is comprehensive: big and small operations are governed by it. It just depends upon how the US Companies decided to incorporate themselves.

    Hope this covered most of the comments thus far. Thanks to everyone for reading and feel free to ask more.

    Best,

    Ben Hart

  10. The holder of an Amity Co can get a work permit?
    What are the costs to aquire a Work Permit I wonder?

  11. I am willing to talk to anyone and their attorney if you need a nominee U S citizen for your company. I can see having a monthy stipend and non voting share by power of attorney. Many things are possible. If interested whisper to me and I will send you my email or phone number. I live and work in Bangkok and can meet you.

  12. KT – the work permit costs and rules for an amity company are no different than a normal company. The only difference is the amount of needed capital is higher per work permit. It is 2 million baht per work permit per person of invested capital. Keep in mind though invested capital is just a “paper” thing.

  13. The only difference is the amount of needed capital is higher per work permit. It is 2 million baht per work permit per person of invested capital.

    ==>furrows brow and looks vaguely puzzled<==

    Sorry, I thought that was the same number that applied to all Thai companies. What’s the number for non-Amity organizations? A little tingling sensation in the back of my head says that maybe I heard 1.5 million before…? Can’t quite remember.

  14. 2 million THB registered capital gets you a work permit, plus 4 Thai employees, another “paper” thing. The Government has started cracking down on both of these criteria. From what I’ve read starting in 2009 the Thai Foreign Business office is going to want to actually see a bank statement showing the 2 million before they will issue an Amity Treaty certificate. Also, to get the one year visa extension the Ministry of Labor really wants to see those Thai employees they want pictures and even do spot checks. This situation is really only relevant for those on the one year visa extensions, but it is relevant vis a vis the treaty. I personally think that they are strict on enforcement of the visa regulation in cases like this because visa extensions are the path to Permanent Residence and ultimately Nationality so the Thais are sticklers for the rules. How these regulations will be enforced with the current rumblings afoot remains to be seen.

    Ben Hart
    The Soi Lawyer

  15. My reason exactly for having my businesses in Lao. Much easier to work with. Same goes for Cambodia and Vietnam. In this area you can I believe use the trade agreements to do business in Thailand getting around some of the Thai hassles. Depending on your business. Not sure about the permit things, probubly the same (sigh). This might be a route to take. Especially, if your spouse is a national in another asian country. Any information would be appreciated.

    Don’t get me wrong. Lao has its problems and the police can be a little iffy but all in all I find them more consistent to deal with.

    I would love to have a business here in Thailand. I love the country. Still, I am more interested in being a nominee if it is possible. Maybe you can adopt me and make me a part of your family.
    Anyone need a 54 year old son, poddy trained and self supportive.

  16. As much as I appreciate the work that’s gone into this piece, I can’t help but feel that BBB is way off the mark when he insists that fried bread is merely *optional* for a true English breakfast. If he’d done a little more- what’s that you say? It isn’t? It is?

    Wupes. My bad.

  17. Fasten your seatbelts! I think it all goes downhill very fast from here on in…

  18. rd – it won’t. cause I won’t let it. PE is just excited about the breakfast post, the ticycle spotting at the party and could not help himself. But never fear. SSB the admin is here.

  19. Now I’m getting a visual of ssB in red ultra-tights, standing with his legs firmly spread on the bartop, hands on his hips, his blue cape blowing in the fan’s breeze, lip-syncing the theme to “Mighty Mouse” ala Andy Kaufman.

    “Here I come to save the day…”

    I won’t even go into what YP is doing to encourage him. Now where did I put my meds?

  20. Sorry to insist on that and maybe you don’t know the answer, but I don’t get it and while you are here… If Thailand is sure to benefit from the same benefits as all WTO countries in the US, then why would they keep on offering a better treatment to US citizens in Thailand?

    There must be something I am still missing. And the WTO as well 🙂

  21. @ Suk Psyco

    If a Thai wants to start a company in the US, they just need 1 partner with US status, American companies only need 1 owner to form a corporation not 7 like in Thailand. A few years ago if a Thai wanted to open a US company they needed to have 25,000 usd to do so, now there is no financial minimum.Thais can still form a corporation alone and get an investment visa to the us if they show 25,000 usd sent to the usa.

    @ Ben , after going through your web site Im not sure,
    Do you handle Company structures in Thailand ? or do you only handle visa’s?

    I can send some company setup/visa work your way , but I need to know your field of expertise. 🙂

    Cheers

  22. Jboy.bkk,

    Yes I do actually do a great deal with company structures, but my marketing plan thus far has been to build up that side of the practice mostly through word of mouth and use the website for the immigration stuff. I’ve found that the website is necessary for Immigration because the farangs looking to bring a Thai girl home are mostly in the USA, UK, or EU when they search for a lawyer. Whereas people here get their info from referrals and publications like the bangkok post etc.

    Sorry for the ramble, but that is why there is no info on the site. I’m currently in the process of adding a new page to deal with all of that.

    In answer to your question, yes I can do company setups. Also, I do work permits, contact drafting, contract review, wills, property conveyancing, etc. I’ve tried to make the firm a one stop shop.

    Just FYI, you only need 3 shareholders now for a company and the processing time is dramatically reduced. I can get a Thai company (without Amity protection, that takes longer) churned out in about a week. It actually takes a day at MOC (Ministry of Commerce) but we need time to get the paperwork in order.

    As to why Thailand would extend these benefits to the US only: I think two factors are at play here.

    1. Inertia, no one is ardently complaining about the current state of affairs and in classic Thai fashion they are just leaving it be.

    2. US-Thai relations. Thailand is armed and equipped by the USA. The Treaty is a corollary to the defense treaties between the two countries and to outright cancel it would likely cause some ill will.

    Under Thaksin Thailand was in the process of negotiating a Free Trade Agreement with the USA to get this all ironed out. The negotiations stalled because the two sides ultimately could not agree on stipulations regarding intellectual property. The US wanted Thailand to force people to pay retail price (farang prices) for pharmaceuticals. Thailand, in a bout of farsightedness said, “NO.” We like our people being able to buy medecine at a relatively reasonable price. Both sides let the matter drop and left the Free Trade negotiations in limbo. I personally believe the negotiations will start again as soon as a new Administration is in office in the USA and a stable government comes to power in Thailand

  23. Also, the WTO does not deal with Immigration law and the E1 and E2 visas that Thais can obtain for the USA (an ancillary benefit of the treaty) are good visas to get because they are faster and cause less hassle. This is something Thailand would like to hold on to so therefore they are not going to rock the boat too much

  24. Most large companies are most likely going to go through the Board of Investment so they can take full advantage of tax incentives, reduction in tariffs, etc.

  25. I agree with that statement, but the Treaty has been around for a long time, since before the BOI to my knowledge, ao there are bound to be a few large operations with Amity protection, but that is conjecture on my part.

    If it were me as CEO of a large operation here I would lean towards BOI

  26. So as an American, do I need to transfer Bt2 million into Thailand to start a company here.

    And what if I have a company in the US and wish to instead open a satellite office? Is there the same requirement then? Do I still need four Thai employees and can I arrange a work permit for myself by operating a satellite of my US company, which is a viable, ongoing concern that is making money.

  27. smack dab – always best to get a lawyer or a setup company involved to learn the latest. U actually need 4 mil for amity, not sure the latest on work permits and I am not sure on the satellite office but I don’t think it means much since you still need a company here.

    I am sure soi lawyer or sutlet could answer these for u.

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