New Foreign Exchange Regulations to Facilitate Capital Movements and Flexibility in Foreign Exchange TransactionsArticles
The Bank of Thailand (“BOT”) has committed to a further relaxation of foreign exchange regulations in order to drive the development of a new foreign exchange ecosystem in Thailand and to solve fundamental problems in the foreign exchange market in Thailand. These new regulations are primarily aimed at promoting more capital movement, allowing for greater flexibility in conducting foreign exchange transactions, as well as reducing costs and unnecessary processes to cope better with worldwide volatility in the long run. To achieve such bold objectives, the BOT announced the new foreign exchange regulations in April 2022, which can be summarized into the following key points:
- Removal of the restrictions on domestic and cross-border transfers
Regarding domestic transfers, previously, a resident was permitted to transfer foreign currencies to another resident only through a foreign currency deposit account (“FCD”). However, the new regulations entitle a resident to purchase or withdraw foreign currencies from an FCD to pay another resident who does not have an FCD in their normal course of business or as necessary for business to be conducted in foreign currencies, such as payment for goods or services in the supply chain; provided that the purpose of such domestic transfer shall not require the BOT’s approval (e.g. payment associated with digital assets) and such payment in foreign currencies shall not be made in cash.
For outward remittance, the limits for some purposes of outward remittance have been removed, such as the limit for lending to unaffiliated entities, which was previously capped at USD 50 million per year; and the limit for purchasing immovable properties, which was previously capped at USD 50 million per year. Furthermore, the BOT has added some purposes of outward remittance that will not require its approval, such as the repayment of loans which are not remitted into Thailand; and the deposit of funds into the remitter’s account opened in a foreign country.
- Reduction of the requirements for supporting documents when conducting foreign exchange transactions
Under the new regulations, supporting documents would not be required for certain transactions regardless of the amounts involved, but only where the commercial banks have performed the ‘Know Your Business’ process on its clients. In such case, types of transactions that will not require the supporting documents would include, among others, forex hedging, purchase of foreign currencies and withdrawal of foreign currencies from an FCD.
Therefore, the customers who have not undergone said ‘Know Your Business’ process would be subject to the existing regulations, i.e. they are still required to provide supporting documents to commercial banks for conducting foreign exchange transactions in an amount exceeding USD 200,000.
- Easing of regulations on investment in foreign securities
The new foreign exchange rules for investment in foreign securities are more flexible and attractive. For instance, a resident is now allowed to pay in foreign currencies for investment products, such as investments in private equity or venture capital; and payments for life insurance products, such as savings life insurance, unit-linked life insurance or universal life insurance issued and distributed either abroad or domestically.
Additionally, under the new regulations, an investor may request a loan in foreign currencies from a commercial bank in order to pay for investment in foreign securities, provided that the commercial bank may examine the related documents to their satisfaction and require the signing of a loan/credit facility agreement.
Overall, the loosening of foreign exchange regulations under the BOT’s new forex ecosystem comes in response to higher market volatility globally, particularly in forex markets, and helps to facilitate balance in capital outflow and capital inflow in the market. Moreover, certain aspects of the new regulations will lower operational costs and reduce the paperwork burden on business operators because they require less or no documentation for some foreign exchange transactions. This would eventually support Thai investors (both retail investors and SMEs) to access forex services more conveniently and effectively.
These new regulations were published in the Royal Thai Government Gazette on 12 May 2022 and became effective as of 13 May 2022. The BOT has also announced the guidelines for commercial banks to implement such new measures. Thus, investors conducting foreign exchange transactions in Thailand should be aware of these new forex policies and regulations and prepare for the new change.
This is intended merely to provide a regulatory overview. It is not intended to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of law, please do not hesitate to contract any of the authors.
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