21 March 2001

THAI MINING LEGISLATION

The general prospecting licence is a non-exclusive, non-renewable licence that is issued for one year by the local mineral resources office (LMRO). The licence allows a mining company to explore a designated area. There are also other provisions that govern the possession of minerals. No licence holder may possess minerals of any type in excess of two kilograms without a licence from the DMR. Possession of a large quantity of minerals may be permitted for the purposes of analysis, but the quantity must not exceed the limit stated in the licence. Current practice is to allow 10 kilograms for each type of mineral.

The exclusive prospecting licence contains the same conditions as a general prospecting licence, but it includes an exclusive right to explore for any kind of mineral in the area that is covered by the licence. It is also non-transferable and is valid for a period of one year. It can be renewed for a second year. Holders of an exclusive prospecting licence must comply with the following:

The maximum exploration area that may be granted to one person is 1,250 rai (i.e., two grid blocks) per province. A work plan and a description of exploration methods must be submitted, both of which must be endorsed by a qualified geologist or mining engineer recognized by the DMR. The maximum area that may be granted for offshore exploration under the MOI's policy is 20,000 rai. For an area larger than 20,000 rai, it is possible to submit a special prospecting licence application, but the applicant must offer 'special benefits' to the government.

The special prospecting licence has a duration of three years and is renewable for two years. The exploration area granted under a special prospecting licence may not exceed 10,000 rai. An application for this kind of licence must include a work plan and an estimate of expenses for each year of the project, as well as an offer of special benefits to the government.

The prospector must commence exploration within 90 days of the issuance of the special prospecting licence. A progress report to the DMR must be submitted within 120 days of receiving a licence. The special prospecting licence is suitable for large projects involving high-value minerals or substantial investment capital, or when the applicant requires more time or a larger area for exploration. The prospector may relinquish areas he no longer wishes to prospect. Each applicant for the licence must propose special benefits to the Thai government in the application.

The DMR issued two internal regulations on application, renewal and transfer procedures for these kinds of licences. The regulations are treated as guidelines and mandates with which the applicants and DMR officials should comply.

Rights to Surface Land

Determining land open for exploration

Mineral rights under the Minerals Act do not include any rights to the surface land.

There are some categories of reserved areas that have been declared closed to exploration and mining activities by cabinet resolutions. These include wildlife reserve areas, national parks areas, forest areas (conservation forests and economic forests) and areas reserved for security purposes. The first three categories are administered by the Royal Forest Department, while the fourth comes under the control of the Ministry of Defence.

Development activities, including mining, are strictly prohibited in conservation forest areas and restrictions apply to mining activities in economic forest areas. Because the other areas in the country are classified as urban areas, water bodies and areas for settlement programmes, only small, site-specific areas are available for mining. The current programme to reclassify the country's forest areas will increase the total area of conservation forest and reduce the total area of economic forest.

A government resolution for watershed classification in May 1985 prescribed that without exception, all development activity would be prohibited in forest areas classified as Category 1A. Watershed Category 1B was subject to government approval on a case-by-case basis, while mining was allowed to operate in reserved forest Categories 2 to 5. It became more difficult to obtain permission to operate a mine in any category of reserved forest because of the revocation of forest concessions countrywide in January 1989. This resulted in a reclassification of the country's forests, which are now pending classification as national parks, wildlife reserves, economic forests and land reform zones.

Restrictions on foreign ownership

Ownership of land is governed by the Land Code (1954), the Civil and Commercial Codes, the Land Reform for Agriculture Act (1975) and regulations set forth by the Ministry of the Interior. Under Thai law, foreigners may own land only if a treaty has been entered into between Thailand and their country, or if permission is granted by the Ministry of the Interior. At present there are no such treaties between Thailand and any other country; the Treaty of Amity and Economic Relations between the United States and Thailand does not allow foreign ownership of land.

The Ministry of the Interior will generally give permission for foreigners to own land if they have met any of the following conditions:

Acquiring surface rights

Before applying for a mining lease the applicant must acquire the right to use the surface land from the public or private owner, as the case may be. Negotiation with a private landowner is concluded by purchase or lease. A lease agreement may last for up to 30 years and must be registered with the Land Department.

When the government owns the land, a permit issued by the concerned government agency must be submitted along with the application for a mining lease before a lease is granted.

Mining Rights

Upon discovery of a commercial mineral deposit, a prospector must apply for a mining lease in order to mine. Although there is no guarantee of being granted a mining lease, prospectors holding exclusive prospecting licences or special prospecting licences have first priority. A mining lease may cover an area of not more than 300 rai onshore and 50,000 rai offshore. There is no limit on the number of mining leases for which one person may apply. A mining lease has duration of not more than 25 years and may not be transferred or subleased without the approval of the MOI. Pending the approval of the mining lease, a prospector may apply for a non-transferable temporary mining lease that is valid for one year.

An applicant for a mining lease must provide the following:

The DMR has published guidelines for determining the minimum amount of capital required. A letter of confirmation issued by a bank may be accepted as evidence of financial capital. An applicant who declares that he has his own machinery and equipment may produce evidence of ownership and value thereof for deduction from the amount of money for which evidence is required, as long as the deduction does not exceed 50% of the amount designated.

Special Rules for Offshore Mining

In August 1978, the cabinet passed two resolutions concerning offshore mining of minerals at depths not exceeding 200 feet. The resolutions can be summarized as follows.

Known deposits

After the expiration of the maximum mining lease period of 25 years, a foreign mining lease-holder may apply for a new mining lease to work an old deposit, provided that it realigns its equity interests so that Thai nationals hold at least 60% of the total equity interest in the venture.

Unknown deposits

A company with foreign shareholders may apply for a mining lease to exploit a new deposit offshore, provided that Thai nationals hold at least 51% of the equity interest initially, to be increased to 60% within two years.

These resolutions constitute administrative guidelines to be followed by the DMR in its consideration of whether or not to grant or renew an offshore mining lease.

Other Required Approvals

Purchase of minerals

Any person wishing to purchase minerals in the course of business must obtain a licence from the DMR. A purchasing licence is valid only until December 31 of the year the licence is issued. The holder of a purchasing licence may not purchase minerals at any place other than that specified in the purchasing licence. Purchasing minerals outside the specified place of purchase requires an external purchasing licence, which is valid for the same period as the purchasing licence. A holder of a purchasing licence must keep accounts of minerals bought and sold, and minerals still on hand.

Transportation and storage

The transportation of a mineral is possible only if the mineral royalty is paid. For most minerals, an ore transport licence must accompany the transporting vehicle to the destination stated in the licence. However, minerals such as fluorite, barite, gypsum, coal and gemstones require no ore transport licence after the royalty is paid. Any person who wishes to store minerals outside the mining area or outside the place of purchase must also obtain a storage licence. This licence is valid until December 31 of the year of issuance.

Ore dressing

No one can undertake ore dressing operations without a licence except for the holder of a mining lease or of a temporary mining licence.

Export-Import Policies

 The import of mineral and metal of any kind (with the exception of tin) in excess of two kilograms does not come under the provisions of the Minerals Act, regardless of quantity. The Minerals Act, however, governs export of the following minerals:

Alien Business Licence

The DMR has a policy of not granting mineral rights to foreigners (including companies in which ownership by foreigners exceeds 49%). However, it is possible that the DMR would grant mineral rights to a foreign company under a special agreement or a foreign company promoted by the Board of Investment. In such a case, a foreign company would require an alien business licence under Schedule 2(3)(4) of the new Alien Business Operation Act.

Mining Council Membership

The Mining Council was established by the Mining Council Act (1983). The council comprises members who are mining operators, including those involved in exploration and trading. Any person wishing to apply for mining rights is required to be a member of the Mining Council.

Administrative Efficiency

One characteristic of the Thai bureaucracy is the divided nature of Thai administration. Government agencies in Thailand are divided into ministries, departments and bureaus. Each is a separate juristic entity with independent contracting powers. Thus, the Ministry of Industry is a separate legal entity from the Department of Mineral Resources, which answers to it administratively. Even though the DMR is only one among many departments within the MOI, it can enter into contracts with a private party independent of the ministry. For example, the DMR can engage contractors to construct or repair buildings, purchase supplies and engage in consulting services. The director general, as the head of the department, is the signatory to contracts. The question of whether the department or the director general has the power to conclude contracts and the parameters within which this power can be exercised is governed by the law on public administration.

Each government agency is concerned only with administering its own law, even though that law may contradict other laws or may be inconsistent with national policy. This fact poses a major problem for the mineral industry in that the DMR is not the agency that has the final say on whether or not an exploration or mining venture can be conducted. The ultimate decision may rest with the Office of Environmental Protection (OEPP) or with the Forestry Department, if it happens to control the land on which the mining is to be conducted.

Foreign investors often believe that once having signed a contract with the DMR and having paid the bonus, they may then proceed with the exploration and development work. In reality, the contract is only a grant of mineral rights, subject to negotiation with the other agencies concerned, and there is no guarantee that investors will be given all necessary approvals in the end.

All acts of parliament have the same standing under the law. The Forestry Act, the Minerals Act and the Environmental Act are equal. Therefore, the DMR, the Forest Department and the OEPP are of equal legal status, in the sense that neither can tell the other what to do. There is no 'super-agency' to conciliate differences and impose its decision on conflicting agencies.

Policies issued by the heads of various ministries and departments are mandatory; the failure of government officers to comply with the policies may result in disciplinary action. These policies are internal directives and are not known to the public. As one looks through the various laws in Thailand, one finds many provisions giving wide discretionary powers to permanent officials responsible for administering the law.

Security of Tenure

One factor that is often cited as an impediment to the mining industry's development is the lack of 'security of tenure'. The existing legal system does not expressly guarantee that the holder of an exploration licence will be granted a mining lease if he makes a commercial discovery. The government bureaucracy and the limited scope of the mining laws are not the sole causes of the inability to assure a right to mine over prospected land. The conflicts and restrictions from other authorities as well as subsequent land-use conflicts complicate the issuing of rights.

The Fiscal Regime

The major taxes applicable to the mining business are company income tax, mineral royalties and value added tax.

Company income tax

A company that earns revenues from the mining business is liable to pay company income tax under the Revenue Code. The present rate is 30%. Dividend payments to overseas shareholders are generally subject to a withholding tax of 10%. Expenses incurred for the sole purpose of carrying on the business may be deducted.

Depreciation of assets may be deducted as a business expense but must be done on an annual basis. Official prescribed rates of depreciation are as follows:

Losses may be carried forward for five consecutive years.

Mineral royalties

Mining leaseholders must pay royalties to the government according to the Mineral Royalty Rates Act (1966). Royalties are paid based on the value of the minerals extracted, except in the case of gem mining, whereby the royalty is based on the size and the value of the land covered in the mining lease.

Value added tax

Effective from January 1, 1992, the value added tax (VAT) replaced the existing business tax system. Mining companies are subject to VAT at the usual rate of 10% (reduced to 7% until 30 September 2002).  However, a zero VAT rate applies to exports of minerals by mineral traders. The VAT payable is calculated from the difference between input tax (VAT paid by the mining trader to suppliers of goods or services) and output tax (VAT collected by the mining trader from persons who purchase goods or services).

Double tax treaties

Thailand has double tax treaties with 41 countries.

Board of Investment incentives

A mining project promoted by the Board of Investment under the Investment Promotion Act may be granted benefits including exemptions/reductions of customs duties on imported equipment, an income tax holiday of three to eight years, an exemption from withholding tax on dividends, and other incentives.

For further information on this topic please contact Albert T. Chandler at Chandler and Thong-ek by telephone (+662 266 6485) or by fax (+662 266 6483) or by e-mail (atchandler@ctlo.com).

A. T. Chandler

Ratana Poonsombudlert

Last Revised:  21 March 2001

Annex I  :  List of Mineral Legislation

Mineral Act

Mineral Royalty Rates Act

Tin Control Act

Mining Council Act

Revenue Code

Royal decrees

Ministerial regulations

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