OEM businesses are the businesses that make parts or subsystem used in another company's end products.   Good examples of OEM businesses are manufacturing of automotive parts.  Under Thai laws, OEM businesses may be deemed as hires of works.  Section 587 of the Civil and Commercial Code (“CCC”) provides the definition of hires of works “ A hire of work is a contract whereby a person, called the contractor agrees to accomplished a definite work for another person, call the employer, who agree to pay him a remuneration of the result of the work.”  

Under the CCC, hires of works focus on the results of the works which are, in this case, compatible parts that can be used with the end products.  Most of OEM companies manufacture parts in accordance with customers’ designs or specifications in order to make compatible parts with customers’ end products.  During manufacturing process, customers can inspect manufacturing processes and also have rights to reject or return incompatible parts to OEM manufacturers.  It can be said that customers focus on results of the works. Thus, OEM businesses may fall in the meaning of hires of works but not manufacturing businesses under Thai laws.  In contrast, manufacturing businesses, under Thai laws, are normally recognized as businesses where manufacturers manufacture products under their own designs or specifications and sell the products to general markets.

Do foreign OEM businesses under the BOI need to obtain the Foreign Business Licenses (“FBL”)?  The Foreign Business Administration Division, Ministry of Commerce (“MOC”) which is in charge of the FBA also follows the CCC theory of the hires of works. The MOC has issued several rulings that foreign OEM businesses, where manufactures produce products under designs or specifications of their customers, are hires of works which are the service businesses under (21), the Business List 3 of the Foreign Business Act (“FBA”).  However, this does not mean that foreign OEM businesses under the BOI have to obtain the FBL.

Are there any legal requirements for these businesses under the FBA?  Section 12 of the FBA requires the BOI companies which operate the businesses under the Business List 3 of the FBA, here are the OEM BOI businesses, to obtain the Foreign Business Certificates (“FBC”) within 30 days from the date of receipt of the notification of the acquisition of the BOI Certificate or BOI written permit as the case may be.  Therefore, such foreign OEM business operators must obtain the FBC to cover their OEM businesses.

Failing to comply with Section 12, the business operators would subject to a jail term of not more than three years or a fine of from THB 100,000 to THB 1,000,000 or both.  The Court may order to terminate the businesses.   If the OEM manufacturers violate the Court order, they may face additional a fine of THB 10,000 to THB 50,000 per day according to Section 37 of the FBA.  The directors, partner or persons with the authority to represent the juristic who connive at the commission of offences or do not reasonable take precaution in preventing such offences may face a jail term of not more than three years or a fine from THB 100,000 to THB 1,000,000 or both under Section 41 of the FBA.  Please also note that the MOC has established the Operated Governance Division to randomly investigate OEM companies on this issue.

It is strongly recommend foreign BOI OEM businesses to review their business transactions whether they are hires of works or manufacturing businesses.  The considerations of business forms (e.g., agreements or sale documents with customers), substances (e.g., the actual transactions) and business backgrounds must be taken into account when business operators verify whether OEM businesses are hires of works and need to obtain the FBC.  Please also note that, the MOC is quite generous and open for the foreign OEM  BOI businesses to obtain the FBC without imposing any liabilities even though it pass the prescription time under the law.



Disclaimer. The purpose of this article is to provide general information and shall not be deemed as legal advices.  ALT shall not be responsible for any claims and damages in using the information in this article.  In case, you need any further clarification or have any inquiries, please contact ALT directly.

Copyright © 2015 Asian Legal and Tax Strategies Ltd. All right reserved