Newsletter No. 119 (EN)

 

 

 

 

Comparison of commonly used Hardship and Force Majeure Clauses

 

 

 

July 2014

 

 

 

Lorenz & Partners 2014

 

 

 

 

Table of Contents

 

  1. Introduction
  2. Force Majeure
  • Definition

 

  • Spirit and Purpose
  1. Hardship
  • Definition

 

  • Spirit and Purpose
  1. The Different Bodies of Rules and Regulations
    • The CISG

 

  • The ICC

 

  • The UNIDROIT Principles

 

  • The FIDIC

 

  • The BGB

 

  • Force Majeure in Law

 

  • Force Majeure in the German Law

 

  • Force Majeure in the CISG

 

  • Force Majeure in the ICC

5.4. Force Majeure in the UNIDROIT Principles

  • Force Majeure in the FIDIC Rules

 

  • Hardship in Law

6.1. Hardship in German Law

  • Hardship in the CISG

 

  1. Hardship in the ICC

6.4. Hardship in the UNIDROIT Principles

  • Hardship in the FIDIC Rules

 

  1. Similarities and Differences of the Different Clauses

 

  • Force Majeure

 

  • Similarities

 

  • Differences

 

  • Hardship

 

  • Similarities

 

  • Differences

 

  • Reviewing of the Decision of the Belgian Supreme Court of June 19th 2009

8.1. Facts of the Case

  1. Facts of the Decision

 

  1. Causes for this Ruling
  2. Conclusion
  3. Synopsis

 

 

 

 

 

1.

Introduction

concluded, and the change of the underlying

 

 

circumstances is due to economic influences.

 

 

When drafting international contracts, a matter of particular concern should be to focus on un-foreseen circumstances, which might lead to substantial problems. Questions may arise, such as:

 

  • Who will be responsible, if e.g. a ship with urgent cargo for a construction site was damaged by a heavy storm and the cargo is lost?

 

  • Who is responsible for the delays in completing the construction work and the substantial penalties that might ap-pear?

 

In legal terms, this refers to Force Majeure and Hardship. Force Majeure applies to cases where performance has become (temporarily) impossible due to an event beyond one party’s control even though all reasonable precaution measures had been taken. Hardship on the other hand deals with cases where the agreed performance is basically still possible. However, the underlying facts have substantially changed so that fullfilling the agreement would be economically detrimental.

 

It is important to be aware that Force Majeure and Hardship are two different principles, even if they sometimes are treated as the same. They are different in their preconditions, and in their legal consequences. To apply Force Majeure to a case, the legal obligations of a party must become impossible for anybody due to circum-stances that nobody can avoid (such as earthquakes or lightning). Such circumstances are principally known to the public, but nobody is able to predict where and when they will happen. For this, the English translation for Force Majeure is “Act of God”, which makes is clear that nobody is able to influence these circumstances.

 

Hardship in contrary is based on the fact that the underlying circumstances of the contract change in a way which the parties did not foresee at the time when the contract was

 

Furthermore, the legal consequences of both doctrines are completely different. Consequence of Force Majeure is that one party cannot fulfil its contractual obligations anymore (impossibility). The legal consequence of Hardship is that the party, for which the underlying circumstances did change substantially, can basically still fulfil its contractual obligations and perform the contract, but the performance became economically worthless. Depending on the contractual agreement between the parties, the contract might be adjusted to the changed circumstances automatically, or the parties will re-negotiate the contractual details which are affected by the changed circumstances (most likely be the purchase price).

 

Under German law, the basic principle “Pacta Sunt Servanda” states that once a contract has been entered, the contracting parties are obliged to fulfil their contractually agreed obligations, no matter if circumstances change later. Legal constructions called “economic im-possibility” or “frustration” are basically no reason for not performing a contractual obligation.

 

Such domestic principles, however, cannot be simply transferred to international law. The United Nations Convention on Contracts for the International Sale of Goods („ CISG “) or the principles of the International Institute for the Unification of private law (“UNIDROIT”) or the rules of the Interna-tional Chamber of Commerce (“ICC”), all contain provisions dealing particularly with Force Majeure and Hardship.

 

In addition, there are various other regulations issued by renowned international associations, such as the Fédération Internationale Des In-genieurs-Conseils (“FIDIC”), which include e.g. a particular Force Majeure Clause. It has to be noted that the FIDIC regulations focus mainly on contracts concerning construction and engineering. The commonly applied CISG contains a Force Majeure Clause; however, it does not contain any rules on hardship. In a landmark decision on 19th June 2009 the Belgian Supreme Court therefore applied the UNIDROIT principles to close this loophole in the CISG, although UNIDROIT was not agreed between the par-ties.

 

Since the consequence of this judgement could be extensive, the following text provides an overview on the different Force Majeure and Hardship Clauses that are available under international treaty law.

 

 

  • Force Majeure Clauses

 

  • Definition

 

Force Majeure is French and stands for higher force. Force Majeure means unavoidable events such as natural disasters of all kinds, especially storms, earthquakes, flood, volcanic eruption, but also fire, traffic accidents, kidnappings, wars, riots, revolution, terrorism, sabotage and strike. Force Majeure regularly requires a completely unexpected occurrence of those events. However, a Force Majeure event has to be denied if the parties must con-sider the possibilities of a certain incident to happen, e.g. floods that occur repeatedly in the same region or fires in dry countries and one party neglected to take the respective precautions. A Force Majeure event therefore could be generally described as an event that affects the contractual relationship unpredictably from the outside and that, despite taking extreme care by the parties, was not avoidable.

 

  • Spirit and Purpose

 

The question remains who is responsible for the non-performance of the contract. In order to avoid disputes and risks of interpretation, Force Majeure Clauses are integrated in a great number of treaties to essentially dispense both parties from liability or their obligations, when an extraordinary event or circumstance,

 

 

beyond the control of the parties, occurs. The occurrence of such event of Force Majeure leads to the – at least temporary – suspension of the primary obligations of both contracting parties. Either party has to bear the adverse consequences of non performance or the delay in performance. As a consequence the liability dispenses and the other party is unable to claim compensation for damages or the like.

 

 

  • Hardship

 

  • Definition

 

In case of Hardship, the performance of the contract is not impossible, but merely hindered. Hardship is defined as any event of legal, technical, political or financial nature oc-curring after the conclusion of the contract, which was unforeseeable at the time the contract had been formed despite using the ut-most care. In general, hardship does not cause the impossibility of performance, but allows for renegotiation of the contract.

 

  • Spirit and Purpose

 

Hardship clauses typically recognise that parties must perform their contractual obligations even if events will render performance more difficult than one would reasonably have antici-pated at the time of the conclusion of the con-tract. However, where continued performance has become excessively burdensome due to an event beyond a party’s reasonable control, a hardship clause can oblige the parties to negoti-ate alternative contractual terms.

 

The principle of Hardship is particularly influ-enced by the Common Law and the Equitable Rights of the Anglo-American legal system, to find a balance under the principle of equity and good faith. The principle “Pacta Sunt Ser-vanda” which dominates the German civil law system and which was adopted from the ro-man law is limited by this. The purpose of a Hardship clause is to provide a higher level of flexibility and to balance the risk between the parties.

 

 

  • The Different Bodies of Rules and Regulations

 

  • The CISG

 

The CISG is a treaty offering a uniform international sales law that, as of January 2010, has been ratified by 74 countries. This makes the CISG one of the most successful interna-tional uniform laws. Japan is the most recent important member of the CISG, which joined 01 August 2009. Brazil and San Marino are the latest contracting states, which became members on 01 April 2014 and on 01 March 2013 respectively. CISG is directly applicable to contracts for the sale of goods between parties whose places of business are in different member states. CISG is also applicable in case only one of the parties is a resident in a CISG member state but the contract between the parties refers to the law of this state as applicable law for the dispute. Even if neither party is resident of a member state, CISG can be applicable when the parties expressly agree to its application for their legal relationship. The CISG defines its own territorial criteria of application without the need to resort the rules of private international law. For sales contracts concluded prior to the ratification of the CISG Article 100 II CISG applies:

 

This Convention applies only to contracts con-cluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1.”

 

  • The ICC Rules, Publication No. 650

 

The ICC is the largest, most representative business organisation in the world. Its hun-dreds of thousands of member companies in over 130 countries have interests covering every sector of private enterprise. Objective of the ICC is to promote international trade and

 

 

to support international businesses to face challenges and opportunities of globalisation. By issuing contract rules, an efficient settle-ment of international transactions is promoted.

 

  • The UNIDROIT Principles

 

UNIDROIT is an independent intergovernmental organisation. Its purpose is to study needs and methods for modernising, harmonising, and coordinating private interna-tional law and in particular commercial law be-tween states, and to draft international regulations to address the needs of the members. Membership of UNIDROIT is re-stricted to States adhering to the UNIDROIT Statute. UNIDROIT’s currently 61 member states represent a variety of different legal, economic, and political systems as well as different cultural backgrounds.

 

  • The FIDIC Rules

 

FIDIC, the International Federation of Consulting Engineers represents members of the engineering industry globally. As such, the Federation promotes the business interest of firms supplying technology- based services for the built and natural environment. Founded in 1913, FIDIC today numbers 75 Member Associations representing approx. 1 Million professionals. FIDIC also publishes interna-tional contract samples and business practice documents in order to ease the conclusion of contracts concerning engineering.

 

  • The BGB

 

The German Civil Code (Buergerliches Gesetzbuch

 

“BGB”) became effective on 01 January 1900, and was considered a massive and groundbreaking project after having been developed since 1874. The BGB is based on Roman law. Like other Roman-influenced codes, it regulates the law of persons, obligations, property, family and inheritance, and unlike e.g. the French Code civil or the Austrian Civil Code, a chapter containing generally applicable regulations is placed first.

 

 

  • Force Majeure in Law

 

  • Force Majeure in German Law

 

The term “Force Majeure” (“höhere Gewalt”) occurs in the BGB in §§ 651a ff., which regu-late the Travel Law. But nevertheless the idea of Force Majeure is also accepted in the law of obligations in § 275 I-III, § 326 I, V, §§ 323 ff. BGB.

 

Example:

 

A vendor and a purchaser conclude a contract on the delivery of 5 tons of rice. The vendor sorts out those 5 tons and stores them in an-other warehouse ready for delivery. Due to a storm the warehouse and the rice are destroyed during the night.

 

Solution:

 

The rice is destroyed because of the Strom. This is an unavoidable event of superior power which the parties could not have foreseen at the time of the conclusion of the contract. As the vendor already finished the ascertainment of goods by sorting out the rice and storing it in another warehouse, the performance of the delivery of exactly these 5 tons of rice is now impossible for the vendor and everyone else, § 275 I BGB. The right of delivery of the pur-chaser is barred by this, § 275 I BGB. On the other hand, the vendor cannot claim consideration, § 326 I BGB. The purchaser has the opportunity to withdraw from the contract, § 326 V BGB, without having to set a time limit. Thus, the performances exchanged have to be returned, e.g. the deposit the purchaser had to pay.

 

  • Force Majeure in the CISG

 

The CISG contains a written Force Majeure clause in Art. 79 CISG. This regulates that a party is not liable for failure to perform any of its obligations if it proves that the failure was due to an impediment beyond the party’s con-trol and that he could not reasonably be ex-pected to have taken the impediment into ac-

 

 

 

count at the time of the conclusion of the con-tract or to have avoided or overcome it or its consequences. If one party is able to prove these requirements, it is relieved from its liabil-ity of performance and the other party cannot claim any further rights.

 

  1. Force Majeure in the ICC

 

  • 1 of the ICC Force Majeure clause states that in order to be considered Force Majeure, there must be an impediment due to failure, which is similar to Art. 79 CISG. § 2 is designed specifically on the basis of CISG article 79(2) and is intended to make it clear that a contracting party can invoke the Clause where A fails to perform its duties towards its contracting party B because of non-performance by C, a sub-contractor in a contract with A. § 3 of the ICC provides a list of force majeure events, which includes e.g. war, explosions, natural disaster, strikes, etc. As a legal consequence, the party who fails to perform and claims Force Majeure, will be re-lieved from liability without having to face any claims of the forfeiting party and the other party is released from their obligations as well.

 

  1. Force Majeure in the UNIDROIT Principles

 

The UNIDROIT principles contain a writ-ten Force Majeure Clause in Art. 7.1.7. This rule excuses non- performance by a party if that party proves that the failure was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its conse-quences. The article does not restrict the rights of the party who has not received performance to terminate if the non-performance is funda-mental. Where applicable, it states to exclude the nonperforming party from liability in dam-ages. In some cases the impediment will prevent any performance at all but in many others it will simply postpone performance.

 

 

  • Force Majeure  in  the  FIDIC79 CISG does not cover Hardship. Renegotia-

Rules                                                            tion is therefore not an option.

 

 

As there are numerous drafts of international contracts by the FIDIC, hence only the major published contracts shall be taken into account. These are the “Red Book” (concerning construction contracts), the “Yellow Book” (concerning contracts on plants and their design) and the “Silver Book” (concerning EPC (Engineering, Procurement and Construction) contracts). These books all contain written Force Majeure Clauses in their Art. 19. The Clause is a combination of a new provision for defined events of force majeure, and a new wording of a provision covering im-possibility (or illegality) of performance. Clause 19.1. FIDIC states Force Majeure as an event beyond the control of the Employer and the Contractor, which makes it impossible or ille-gal for a party to perform, including but not limited to e.g.: war, hostilities, rebellion, contamination by radio-activity from any nu-clear fuel or riot.

 

 

  1. Hardship in Law

 

  1. Hardship in German Law

 

The BGB contains a hardship clause in § 313 I BGB. Since the reform of the law of obligations in 2002 the doctrine of frustration has been included in § 313. This paragraph states that a contract has to be renegotiated if an event occurs which fundamentally alters the present contract, and places an excessive burden on one of the party’s performance making the adherence to the contract unreasonable. In case renegotiation is impossible, the disadvantaged party can with-draw from the contract. The hardship clause in § 313 I BGB results from the ideas of good faith in § 242 BGB and restricts the basic principle “Pacta Sunt Servanda”.

 

  1. Hardship in CISG

 

The CISG does not contain a written Hardship clause, and the prevailing opinion is that Article

 

  1. Hardship in the ICC

 

The ICC does not set out the provisions of Hardship in a standard clause, so it cannot be incorporated in a contract by reference. The ICC Hardship explanation is intended to give an idea about what Hardship is, when it can occur, and which consequences it brings. However, the ICC Hardship provision is not a standard clause, and the parties cannot simply refer to the ICC Hardship clause by reference sentence (as they could with the ICC Force Majeure clause). It is rather necessary to draft and include a Hardship clause directly into the contract. The ICC Hardship clause gives merely a broad understanding of Hardship, but it is too broad to be a part of a contract, and this clause cannot become binding, even if the parties want to do so.

 

  • 1 of the ICC Hardship clause recognises that parties must perform their contractual obliga-tions even if “events have rendered perform-ance more onerous than would reasonably have been anticipated at the time of the conclusion of the contract.” However, where continued performance has “become exces-sively onerous due to an event beyond a party’s reasonable control which it could not reasona-bly have been expected to have taken into ac-count,” the clause requires the parties to “negotiate alternative contractual terms which reasonably allow for the consequences of the event.”

 

  1. Hardship in the UNIDROIT Principles

 

Art. 6.2.2 of the UNIDROIT Principles de-fines hardship as a situation where the occur-rence of events fundamentally alters the con-tract, provided that those events meet the re-quirements which are laid down in subpara-graphs. This also shows that Art. 6.2.2 is not exhaustive but has to be adjusted by the parties to fit their needs. The effects of hardship (Article 6.2.3) have effects both in procedural and material law. The disadvantaged party can request renegotiation If this party fails to do so, it does not lose this right. However, this failure may affect the finding as to whether hardship actually existed. If the parties fail to reach agreement on how to amend the contract according to the changed circumstances within a reasonable time, Article 6.2.3 (3) authorises either party to resort to the court. Paragraph (4) provides rules for the court to deliver judgement in these cases.

 

  • Hardship in the FIDIC Rules

 

The FIDIC major works do not contain writ-ten Hardship Clauses. In large projects, where the performance of the parties’ contractual obligations is spread over several years, the par-ties might thus consider to add a hardship clause to the contract, to stipulate when and how the parties will rearrange the contractual terms in the event the contract loses its eco-nomic balance.

 

 

  1. Similarities and Differences of the Different Clauses

 

  1. Force Majeure

 

7.1.1.    Similarities

 

All of the above rules and regulations have in common that the binding character of a contract is not an absolute one; hence, an exemption might be possible. Nevertheless, all regulations point out strictly, that such exemption can only be granted in exceptional cases. All clauses require an im-pediment which is due to the failure and the party who cannot perform has to prove that the impediment was beyond its control and not foreseeable.

 

7.1.2. Differences

 

The ICC does not point out the consequences of a third person’s failure. Art. 19.1 FIDIC defines Force Majeure rather broad compared to the other regulations, as it states that the

 

 

event or circumstances must be “exceptional”. The event must be, beyond the parties’ control and the parties could not have reasonably been provided for such event before the contract was made. The event cannot be attributed to one of the parties. Art. 79 II CISG contains a regulation in case a party’s inability to perform is due to the failure of a third party, whom it has engaged for parts of the performance. Thus, the possibility of exculpation exists. Furthermore, Art. 79 CISG does not contain an enumeration of possible impediments, so this article’s field of application is not as nar-row as the one of § 1 of the ICC Hardship Clause. Neither the FIDIC Major works, nor the UNIDROIT Principles in Art. 7.1.7, envis-age the possibility of exculpation by a third person’s failure. The UNIDROIT article does also not contain an enumeration of possible impediments; therefore it has to be understood wider than the definition of impediments in the ICC. Unlike the other regulations, Art. 19 FIDIC contains a more specified variety in its legal consequences, and their application has to be proved carefully.

 

  1. Hardship

 

7.2.1.   Similarities

 

There are no similarities between the existing Hardship clauses in § 313 BGB, ICC and UNIDROIT Principles.

 

7.2.2.   Differences

 

The UNIDROIT principles contain a written Hardship clause in Art. 6.2.2, and the ICC contains a definition in § 1 of its Hardship Clause. The CISG and the FIDIC do not con-tain similar clauses. The ICC does not set out the provisions of hardship in a standard clause so that a hardship clause has to be inserted by the parties if necessary. Instead, the ICC pro-vides four alternatives relating to the effects of hardship the parties can adopt. The UNIDROIT Principles define Hardship as a situation where the occurrence of events fundamentally alters the equilibrium of the contract, provided that those events meet the requirements which are laid down in subpara-graphs. This also shows that Hardship under UNIDROIT is not exhaustive but has to be adjusted by the parties to fit their needs.

 

 

the court had to access the UNIDROIT Principles to come to a just decision. However, it has to be noted, that the Court applied the UNIDROIT Principles without them being agreed between the parties.

 

 

  1. Reviewing the Decision of the Belgian Supreme Court of June 19th 2009

 

  1. Facts of Case

 

A French vendor and a Dutch purchaser en-tered into successive contracts for the sale and the delivery of steel tubes to Belgium. In early 2004, after facing a 70% increase in the market price of steel, the vendor asked for the contract to be renegotiated due to the increased sale price. As they could not reach a satisfying agreement, the case went to court.

 

  • Facts of the Decision

 

The Supreme Court ruled that circumstances which were not reasonably foreseeable at the time of the conclusion of an agreement and which increase the burden of the agreement disproportionately can, under certain circum-stances, be considered an ‘impediment’ within the meaning of Article 79 CISG. The Belgian Supreme Court further held that Art. 79 CISG can govern hardship. As this article contains no indication how to resolve hardship, it relied on Art. 7 I, II CISG to bridge the gap. Since Art. 7 CISG is a good faith clause, interpretation is accessible and the resolving of hardship issues can be adapted on the individual needs. To interpret the definition of hardship, the Su-preme Court used the UNIDROIT regulations to apply hardship to that case, despite the par-ties never agreed to apply UNIDROIT to their contract.

 

  1. Causes of this Ruling

 

Due to the lack of publication, the reasons for this ruling can only be guessed. Probably, the Supreme Court wanted to balance the burden between the parties. As the CISG does not give any indication how to solve a hardship,

 

 

  • Conclusion

 

The aforementioned rules and regulations are just examples for the variety of regulations available to deal with Force Majeure and Hard-ship events. As a matter of this, the parties have to have a closer look to what they want to regulate and what they believe is necessary to be regulated in the contract itself. Different contracts need different clauses on diverse grounds. There needs to be an evaluation what exact purpose the clause shall serve in the individual case.

 

It has to be mentioned that all the existing hardship clauses are quite soft, so that there might be a right of renegotiation even if the change in the circumstances is less than 70%. Hence, concerning hardship, it might be rec-ommendable to apply the UNIDROIT Princi-ples with the provision that a fundamentally change of circumstances is only given if the diversification reaches 100%.

Although Lorenz & Partners always pays greatest attention on updating the information provided in this newsletter we cannot take responsibility for the topicality, completeness or quality of the information provided. None of the information contained in this newsletter is meant to replace a personal consultation. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected, if not generated deliberately or grossly negligent.

 

 

 

 

 

BGB

ICC Rules

CISG Rules

UNIDROITS Princi-

FIDIC Rules of

 

 

 

Publication No. 650,

 

ples

the Major

 

 

 

2003

 

 

Works

 

1. Force

§§ 326 I, V, 275 I-III BGB

Clause of 2003

Art. 79 CISG

Art. 7.1.7

Art. 19 FIDIC

 

 

§ 1 ICC Force Majeure

 

Majeure:

 

 

 

 

 

 

 

Basic Principle:

Pacta Sunt Servanda as an

Rather be fair as an

Influenced by Com-

Affected by Common

Drafted with a

 

 

influence of the Roman

influence of the Com-

mon Law, based on

Law aiming to be fair

Common Law

 

 

Law

mon Law System

precedent rather than

and equitable

background fol-

 

 

 

 

statute law

 

lowing laws

 

 

 

 

 

 

based on previ-

 

 

 

 

 

 

ous rulings

 

Requirements:

o Impossibility of per-

o Impediment, beyond

o Failure due to an

o Non-performance

o Event beyond

 

formance § 275 I BGB

party’s control

impediment beyond

due to an impedi-

control of Em-

 

 

for liable party or

o Enumeration of

his control

ment beyond party’s

ployer or Con-

 

 

everyone or

events not being ex-

o Not reasonably

control

tractor

 

 

o Refuse of performance

haustive in § 2 ICC

foreseeable at the

o Not reasonably fore-

o Which makes it

 

 

because of maladjust-

o Not reasonably fore-

time of the conclu-

seeable at the time

impossible or

 

 

ment to equivalent, §

seeable at the time of

sion

of the conclusion

illegal for a

 

 

275 II BGB, or

the conclusion

o Impediment or

o Impediment or con-

party to per-

 

 

o Refuse of performance

o Impediment was not

consequences were

sequences were un-

form

 

 

in case of duty to per-

reasonably avoidable

unavoidable

avoidable

o Enumeration in

 

 

form in person if per-

o Duty of notification

o Party who fails

o Party must give no-

Art. 19.1 not

 

 

formance is unaccept-

 

must give notice

tice

being exhaus-

 

 

able

 

 

 

tive

 

 

 

 

 

 

 

 

Lorenz & Partners

 

July 2014

 

Page 10 of 13

 

 

 

 

e-mail: [email protected]

 

 

 

 

 

 

 

 

 

 

 

 

 

BGB

ICC Rules

CISG Rules

UNIDROITS

FIDIC Rules of the

 

 

Publication No. 650,

 

Principles

major works

 

 

2003

 

 

 

 

o Claim of equivalent is

o Relief from liability,

o Relief from liabil-

o Relief from liability,

o Payment to Con-

Legal Conse-

dispensed. Relief

no further rights for

ity, no further

no further rights for

tractor, if work suf-

from liability

disappointed party

rights for disap-

disappointed party

fers loss or damage,

quences:

o § 326 I BGB. Option

 

pointed

 

Art. 19.5 FIDIC

 

 

 

 

o Optional Termina-

 

for disappointed

 

 

 

 

party: Rescission of

 

 

 

tion, if the effects

 

the contract § 326 V,

 

 

 

of force majeure

 

323 I BGB, but bene-

 

 

 

continue for a pe –

 

fits have to be re-

 

 

 

riod of 182 days,

 

turned, §346 I BGB

 

 

 

Art. 19.6 FIDIC

 

 

 

 

 

o In case of termina-

 

 

 

 

 

tion payment has to

 

 

 

 

 

be carried out ac-

 

 

 

 

 

cording to the value

 

 

 

 

 

of the work done,

 

 

 

 

 

Art. 19.6 FIDIC

 

 

 

 

 

o Same Payment has

 

 

 

 

 

to be made, if per-

 

 

 

 

 

formance is re-

 

 

 

 

 

leased due to law of

 

 

 

 

 

the contract

 

 

 

BGB

ICC Rules, Publica-

CISG Rules

UNIDROITS Princi-

FIDIC Rules

 

 

 

tions No. 650, 2003

 

ples

of the major

 

 

 

 

 

 

works

 

2. Hardship:

§ 313 I, III BGB

§ 1 ff. ICC Hardship

No written Clause

Art. 6.2.2

No written

 

 

Clause of 2003

 

 

Clause

 

 

 

 

 

 

 

 

 

 

Pacta Sunt Servanda as

Rather be fair as an

Influenced by

Affected by Common

Drafted with a

 

Basic Principle:

an influence of the Ro-

influence of the Com-

Common Law,

Law aiming to be fair and

Common Law

 

 

man Law

mon Law System

based on prece-

equitable

background fol-

 

 

 

 

dent rather on

 

lowing laws

 

 

 

 

statute law

 

based on previ-

 

 

 

 

 

 

ous rulings

 

 

o Circumstances that

o Continued perform-

None

o Occurrence of events

None

 

Requirements:

concern the contrac-

ance of contractual

fundamentally alter the

 

 

tual basis

duties has become

 

equilibrium of the con-

 

 

 

 

o Changed onerously af-

excessively onerous

 

tract

 

 

 

 

ter the conclusion of

due to an event be-

 

o Either because the

 

 

 

 

the contract

yond parties’ control

 

costs of the perform-

 

 

 

 

o Parties would not have

o Not reasonably fore-

 

ance have increased

 

 

 

 

contracted if they had

seeable at the time of

 

o Or because the value of

 

 

 

 

foreseen these changes

the conclusion

 

the performance a party

 

 

 

 

 

 

 

receives has diminished

 

 

 

 

BGB

ICC Rules, Publica-

CISG Rules

 

FIDIC Rules of

 

 

tions No. 650, 2003

 

UNIDROITS Princi-

the major works

 

 

 

 

ples

 

 

 

 

 

 

 

 

 

o Could not reasonably

 

o Events occur after con-

 

 

 

have avoided the

 

clusion

 

 

 

event or its conse-

 

o Not foreseeable

 

 

 

quences

 

o Events are beyond par-

 

 

 

 

 

ties control

 

 

 

 

 

o The risk of event was

 

 

 

 

 

not assumed by disad-

 

 

 

 

 

vantaged party

 

 

§ 313 I BGB: Adjustment

Disadvantaged party can

Non existent

Disadvantaged party can

Non existent

 

of the Contract; If adjust-

demand renegotiation

 

demand renegotiation

 

Legal Conse-

ment is not possible, dis-

 

 

 

 

quences:

advantaged party can re-

 

 

 

 

 

sign from contract, § 313

 

 

 

 

 

III BGB

 

 

 

 

 

 

 

 

 

 

 

 

Newsletter Nr. 122         (DE)

 

 

 

 

 

 

 

 

Gründung einer Hongkong Handelsgesell-schaft und das deutsche Steuerrecht

 

Januar 2015

 

 

 

 

 

A l l  r i g h t s r e s e r v e d ©  L o r e n z  & P a r t n e r s  2 0 1 5

 

Obwohl Lorenz & Partners größtmögliche Sorgfalt darauf verwenden, die in dieser Broschüre bereitge-stellten Informationen stets auf aktuellem Stand für Sie zur Verfügung zu stellen, möchten wir Sie darauf hinweisen, dass dies eine individuelle Beratung nicht ersetzen kann. Lorenz & Partners übernimmt keiner-lei Gewähr für die Aktualität, Korrektheit, Vollständigkeit oder Qualität der bereitgestellten Informatio-nen. Haftungsansprüche gegen Lorenz & Partners, welche sich auf Schäden materieller oder ideeller Art beziehen, die durch die Nutzung oder Nichtnutzung der dargebotenen Informationen bzw. durch die Nut-zung fehlerhafter und unvollständiger Informationen verursacht wurden, sind grundsätzlich ausgeschlos-sen, sofern seitens Lorenz & Partners kein vorsätzliches oder grob fahrlässiges Verschulden vorliegt.

 

 

 

  1. Einleitung

 

Deutsche Unternehmen lagern gelegentlich Teile ihres Geschäfts ins Ausland aus. Ent-weder ist die Produktion im Ausland billiger oder die Nähe zu Rohstoffen kann ein aus-schlaggebendes Kriterium für eine derartige Verlagerung sein. Häufig aber verlagern Un-ternehmen einen Teil ihres Geschäfts ins Ausland, nicht nur um dort selbst zu produ-zieren, sondern auch um die Nähe zu den Zulieferern zu haben und so eine bessere Kontrolle über diese ausüben zu können. Aus diesem Grunde werden gerade in Hongkong häufig Gesellschaften gegründet, die beispielsweise die chinesischen oder asiatischen Zulieferer zum deutschen Kon-zern koordinieren bzw. kontrollieren sollen.

 

Die Gründung einer Handelsgesellschaft in Hongkong ist aber gerade im Hinblick auf das deutsche Steuerrecht keine einfach zu handhabende Übung. Das Außensteuerge-setz (AStG) bestimmt, unter welchen Vo-raussetzungen das Einkommen der Hong-kong-Gesellschaft gegebenenfalls auch in Deutschland versteuert werden muss.

 

Wir wollen im Folgenden anhand eines Bei-spiels einer deutschen Firma („Inländer“), welche eine Hongkong Co., Ltd. („HK Ltd.“) gründet, um damit den Handel von China zu ihrer deutschen Firma zu organi-sieren, die Auswirkungen des AStG er-klären.

 

  1. Funktionsverlagerung

 

Ein erstes Risiko ist in diesem Zusammen-hang der Problemkreis der Funktionsverla-gerung auf den an dieser

 

 

Stelle nur kurz eingegangen werden soll. Kennzeichen der Funktionsverlagerung ist,

 

dass nicht einzelne Wirtschaftsgüter auf eine ausländische

 

konzernangehörige Gesellschaft übertragen werden, sondern dass es sich um ein ganzes Paket an Leistungen handelt, das an die aus-ländische Gesellschaft übertragen wird und das Chancen und Risiken für die ausländi-sche Gesellschaft birgt. Der gesetzgeberi-sche Zweck der besonderen Regeln der Funktionsverlagerung liegt insbesondere da-rin, dass angenommen wird, dass gerade immaterielle Güter in der heutigen Zeit ein immenses Gewinnpotential beherbergen. Im Falle einer Funktionserlagerung wird z.B. die Einkaufsfunktion des deutschen Mutterhauses teilweise nach Hongkong ausgelagert (und damit auch Know-how und Gewinnchancen). Damit geht gerade auch das Gewinnpotential auf die ausländi-sche Gesellschaft über. Um hier eine Um-gehung der inländischen Steuerpflicht zu verhindern, hat der deutsche Gesetzgeber eine besondere Funktionsverlagerungsverordnung

 

(FVerlVO) geschaffen.

 

Insbesondere in folgenden Fällen handelt es sich um eine Funktionsverlagerung (Schreiben des Bundesfinanzministeriums vom 17.07.2009):

 

  • Beendigung und Verlagerung der Tä-tigkeit eines Eigenproduzenten

 

  • Beendigung und Verlagerung der Tä-tigkeit eines Eigenhändlers

 

  • Umstellung eines Eigenhändlers zum Kommissionär

 

 

  • Umstellung eines Eigenproduzenten zum Auftragsfertiger

 

  • Auslagerung der Produktion auf einen Auftragsfertiger

 

  • Umstellung eines Auftragsfertigers zum Eigenproduzenten

 

  • Umstellung eines Kommissionärs zum Eigenhändler

 

Der Tatbestand einer Funktionsverlagerung stellt nicht darauf ab, ob durch einen ent-sprechenden Vorgang die Gewinnerwar-tungen des verlagernden Unternehmens steigen (z.B. Verlagerung einer Teileferti-gung auf einen Auftragsfertiger mit Vergü-tung nach der Kostenaufschlagsmethode) oder ob sie gemindert werden (z.B. bei Um-stellung vom Eigenhändler zum Kommis-sionär). Für die Tatbestandsverwirklichung ist es auch unerheblich, ob das verlagernde Unternehmen aus tatsächlichen oder rechtli-chen Gründen in der Lage ist, die betreffen-de Funktion weiterhin selbst auszuüben.

 

Rechtsfolge einer Funktionsverlagerung ist die Bewertung eines Transferpakets unter Berücksichtigung des enthaltenen Gewinn-potenzials (Flick/Wassermeyer/Baumhoff, § 1 Tz. V77) und damit die Festlegung der Be-steuerungsgrundlage.

 

III. Definition einer

Zwischengesellschaft

 

Weiterhin stellt sich aus Sicht des AStG die Frage, ob die HK Ltd. eine Zwischengesell-schaft im Sinne des AStG ist. Nur dann kann es – bei Vorliegen weiterer Vorausset-zungen – zu einer Zurechnung des Einkom-mens an den Inländer kommen.

 

Eine Zwischengesellschaft ist eine Gesell-schaft in einem Niedrigsteuerland, deren Gründung der deutsche Gesetzgeber als möglicherweise durch Steuerumgehungsmo-tive motiviert ansieht. Sie kann daher für ih-re in Deutschland unbeschränkt steuer-

 

 

pflichtigen Anteilseigner (z.B. eine deutsche GmbH) steuerliche Folgen auslösen, die im Zweifel nicht erwünscht sind.

 

Die Voraussetzungen einer Zwischengesell-schaft sind wie folgt:

 

  1. Ausreichende Beteiligungsquote

 

Die Gesellschaft (HK Ltd.) muss sich di-rekt oder indirekt im Mehrheitsbesitz von einem oder mehreren Steuerinländern be-finden. Dabei wird eine mittelbare Beteili-gung eingeschlossen. (Beispiel: Der Inländer A ist zu 50% an der deutschen Gesellschaft B beteiligt, diese ist wiederum zu 30% an der Zwischengesellschaft C in Hongkong beteiligt. A hält damit an der C eine mittel-bare Beteiligung von 15%). Die Anteile mehrerer Inländer werden zusammenge-rechnet. Darüber hinaus sind auch die Stimmrechte ausschlaggebend, soweit diese sich von den Gesellschaftsanteilen unter-scheiden. Auch sie werden gemäß ihrem prozentualen Anteil entsprechend berück-sichtigt. Wesentlich ist auch, ob tatsächlich Einfluss ausgeübt werden kann. Ist dies der Fall, wie z.B. bei Treuhändern, dann ist eine ausreichende Beteiligungsquote auch gege-ben, wenn sie zwar faktisch bei 0% liegt, aber der Einfluss überragend ist.

 

  1. Passive Tätigkeit

 

Die Gesellschaft wird nur insoweit als steuerschädliche Zwischengesellschaft ange-sehen, als sie nicht aktive Tätigkeiten aus-führt. Somit unterliegen nur Einkünfte aus passiven Quellen durch die Zwischenge-sellschaft der Hinzurechnungsbesteuerung (dazu ausführlich unter IV.).

 

Als Zwischengesellschaft kann eine Gesell-schaft außerdem nur in Bezug auf diejenigen Einkünfte angesehen werden, die einer nied-rigen Besteuerung unterliegen.

 

  1. Niedrigsteuerland

 

Die Gesellschaft muss in einem Niedrig-steuerland angesiedelt sein. Ein Niedrigsteuerland liegt nach deutscher Definition vor, wenn die Ertragsteuerbelastung unter 25% liegt. Dies ist in Hongkong regelmäßig der Fall. Darüber hinaus liegt eine niedrige Besteuerung auch vor, wenn 25% oder mehr zwar rechtlich geschuldet aber tatsäch-lich nicht erhoben werden (aufgrund von Erlassen oder ähnlichem – sogenannte Mal-taklausel).

 

Auf die Besteuerung einer solchen Zwi-schengesellschaft, die alle drei dieser Vo-raussetzungen erfüllt, findet dann § 8 AStG Anwendung.

 

  1. Aktive und passive Einkünfte

 

Bei den Lieferungs – und Leistungsbeziehun-gen wird zwischen aktiven und passiven Tä-tigkeiten unterschieden. Aktive Tätigkeiten werden als legitim angesehen und steuerlich nach den allgemeinen Regeln behandelt und sind somit nicht steuerschädlich. Bei passi-ven Tätigkeiten wird dagegen unwiderlegbar vermutet, dass sie in unangemessener Weise in das Ausland verlagert worden sind. Sie werden daher in das Inland zurückverlagert und dort besteuert.

 

  • 8 AStG trifft die Unterscheidung zwischen aktiven und passiven Einkünften, indem diejenigen Einkünfte definiert werden, die der Gesetzgeber als aktiv ansieht. Alle ande-ren Einkünfte, die nicht unter diese Defini-tion fallen, sind daher passive Einkünfte und voll in Deutschland zu versteuern.

 

Exkurs

 

Nebenerträge, soweit sie mit aktiven Ein-künften zusammenhängen, sind selbst aktiv, auch wenn sie isoliert betrachtet passiv wä-ren (z.B. Anlage von notwendigen Fi-nanzmitteln oder Vermietung zeitweise nicht genutzter Räumlichkeiten etc.). Es müssen aber Erträge sein, die nach der Ver-kehrsauffassung kein wesentliches eigen-ständiges Gewicht haben.

 

 

  1. Definition von Handel und

 

Dienstleistungen

 

  • 8 AStG bestimmt die Besteuerung ent-sprechend der Tätigkeit der HK Ltd. Hier-bei kommen insbesondere Handels- und Dienstleistungstätigkeiten in Betracht.

 

  1. Handel

 

Hauptmerkmal des Handels ist die Ver-schaffung der Verfügungsmacht über das gehandelte Objekt, also die tatsächliche wie rechtliche Möglichkeit über eine Sache zu verfügen. Eine reine Lieferung reicht gerade nicht aus. Der HK Ltd. muss es in tatsächli-cher wie rechtlicher Hinsicht möglich sein, dem Inländer die Verfügungsmacht an der Sache zu verschaffen. Es darf aber vor der Weiterveräußerung auch keine Bearbeitung oder ähnliche Dienstleistung in dem Maße erfolgen, dass die Dienstleistung und nicht der Handel als Schwerpunkt der Tätigkeit anzusehen wäre.

 

  1. Dienstleistungen

 

Bei der Dienstleistung steht anders als beim Handel nicht das Objekt im Vordergrund, sondern ein ökonomisches Gut , bei dem es im Unterschied zur Ware nicht auf den ma-teriellen Wert, sondern auf eine von einer Person erbrachten Leistung zur Befriedi-gung eines bestimmten Bedarfs ankommt. Dienstleistungen können administrativer, überwachender, technischer, beratender, verwaltender und vermittelnder Art sein.

 

Damit ist der Hauptunterschied zwischen Handel und Dienstleistung gerade die Handhabung des Handelsobjektes, z. B. die Verschaffung des Eigentums an der Sache (Handel) oder die Bewertung bzw. Verwal-tung einer Sache (Dienstleistung).

 

Es ist zu beachten, dass die Einordnung als Dienstleistung oder als Handelsleistung noch nicht dazu führt, dass die Leistung selbst eine passive oder aktive Tätigkeit dar-stellt. Das ist abhängig von weiteren Fakto-ren, die im Weiteren behandelt werden. Ei-ne Abgrenzung zwischen Dienstleistung und Handel ist erforderlich, da sich die Aus-nahmen im Katalog des § 8 AStG jeweils unterscheiden.

 

  1. Einzelbeispiele

 

Die teilweise sehr komplizierte Unterschei-dung zwischen der Einordnung einer Tätig-keit als Handel oder Dienstleistung soll im Folgenden an einer Reihe von Beispielen er-klärt werden.

 

  1. a) Kommissionär/Konsignator

 

Der Kommissionär (ebenso der Konsigna-tor) betreibt Handel, da sowohl der Ver-kaufs- als auch der Einkaufskommissionär dem Kommittenten die Verfügungsmacht an den Waren verschafft. Die Verschaffung der Verfügungsmacht ist gerade das Merk-mal des Handels und kann nicht als Dienst-leistung ausgelegt werden. Zwar leisten Kommissionäre neben dem Handel auch häufig eher dienstleistungsähnliche Dinge, doch kommt es bei der Bewertung regelmä-ßig auf den Schwerpunkt der Arbeit an und diese liegt beim Kommissionär gerade auf dem Handel, womit er steuerrechtlich auch entsprechend behandelt wird.

 

  1. b) Handelsmakler/Makler

Der Makler (§ 652 BGB) und der Handels-makler (93 ff. HGB) sind Dienstleister. Sinn ihrer Einschaltung ist es, Geschäfte zu ver-mitteln. Der Warenfluss findet ohne ihre Beteiligung statt. Sie verschaffen keine Ver-fügungsmacht und erlangen sie selbst auch nicht. Ökonomisches Gut ist die Vermitt-lung, so dass es zu einem Handel zwischen den vermittelten Parteien kommen kann.

 

  1. c) Scouting

 

Das Scouting ist regelmäßig eine Dienstleis-tung, da auch hier kein Warenfluss stattfin-det. Die Gesellschaft sucht und findet in diesem Falle nur die einschlägigen Waren. Das Scouting ist folglich eine Unterart des (Handels-) Maklers.

 

 

  1. d) Qualitätssicherung

 

Die Qualitätssicherung stellt regelmäßig eine Dienstleistung dar. Sie ist ein ökonomisches Gut bei dem die Leistung im Vordergrund steht, nämlich gerade die Kontrolle und Si-cherung der Qualität.

 

  1. e) Logistikkontrolle

Bei der Logistikkontrolle steht ebenso wie bei der Qualitätssicherung das ökonomische Gut der Leistung im Vordergrund. Es geht um eine reine Kontrolle. Ein Erwerb von Gütern findet in keiner Weise statt. Logi-stikkontrolle ist daher eine Dienstleistung.

 

  1. f) Forschung

Im Rahmen der Forschung ist zu unter-scheiden, ob die HK Ltd. für den Inländer forscht oder auf eigene Rechnung tätig wird und dann das Ergebnis an den Inländer ver-kauft. Forscht die HK Ltd. auf Rechnung des Inländers, dann handelt es sich um eine Dienstleistung, da die Leistung im Vorder-grund steht. Forscht sie aber auf eigene Rechnung, verkauft die Ergebnisse an den Inländer und nimmt damit am wirt-schaftlichen Verkehr teil, so handelt es sich bei der Tätigkeit um einen Handel im Sinne von § 8 AStG. Inwieweit dies aber das Merkmal der Teilnahme am allgemeinen wirt-schaftlichen Verkehr erfüllt, ist jedenfalls dann fraglich, wenn nur der Inländer die Forschungsergebnisse abnimmt (zur Defini-tion siehe im Folgenden).

 

Die Rechtsfolge bei Dienstleistungen, die zudem die unten genannten Voraussetzun-gen von § 8 Abs. 1 Nr. 5 AStG erfüllen, ist, dass die Einnahmen passiv sind und damit als steuerschädlich behandelt werden. Das bedeutet, der Gewinn der HK Ltd. ist dem Steuerinländer zuzurechnen.

 

Kommt man nach der Berücksichtigung des § 8 Abs. 1 Nr. 4 oder 5 AStG zu dem Schluss, dass es sich um aktive Einkünfte der HK Ltd. handelt, dann sind diese Ein-künfte nicht der deutschen Muttergesell-schaft zuzuordnen sondern unterfallen aus-schliesslich dem Hongkonger Steuerrecht.

 

 

v.Voraussetzungen des § 8 Abs. 1 Nr. 4 (Handel) und 5 (Dienstleistungen) AStG

 

Nachdem die Aktivität der HK Ltd. einge-ordnet ist, kann eine Bewertung vorgenom-men werden, ob es sich bei den Einkünften um aktive Einkünfte oder passive Einkünfte handelt. Um eine Zurechnung der Gewinne zum Inländer zu vermeiden, sollte es sich um aktive (Handels- oder Dienstleistungs-) Einkünfte handeln, ansonsten droht eine Doppelbesteuerung (dazu unten).

 

  1. Handel

 

Nach § 8 Abs. 1 Nr. 4 AStG begründet der Handel nur dann aktive (und damit steuer-unschädliche) Einkünfte, wenn bestimmte weitere Voraussetzungen erfüllt sind. Damit ist diese Norm eine Negativ-Abgrenzung. Begründet wird dies damit, dass die Aus-übung von Handel, anders als z. B. die Pro-duktion, nicht an einen bestimmten Ort ge-bunden ist. Allein die Tatsache, dass formal eine ausländische Gesellschaft Käufer und Verkäufer im Handelsverkehr ist, besagt da-her noch nicht, dass diese Gesellschaft tat-sächlich die entsprechenden (steuerunschäd-liche) Funktionen ausübt.

 

In Fällen des Handels liegen aktive Ein-künfte vor, wenn die ausländische Gesell-schaft einen qualifizierten Geschäftsbetrieb unterhält, welcher die folgenden Vorausset-zungen erfüllen muss:

 

  • Unterhaltung eines für derartige Han-delsgeschäfte in kaufmännischer Wei-se eingerichteten Geschäftsbetriebs (z.B. Ausstattung mit hinreichenden Büroräumen, ausreichendes Personal (wohl mind. drei Arbeitnehmer), etc.). Grundsätzlich muss die Teilnahme am wirtschaftlichen Verkehr möglich sein.

 

  • Teilnahme am allgemeinen wirt-schaftlichen Verkehr (Problematik der Definition: siehe unten). Dabei genügt es, wenn sich die Gesellschaft nur beim Einkauf oder beim Verkauf der


 

Waren an eine unbestimmte Anzahl von Personen wendet, die Waren aber ausschliesslich an ein ihr nahestehen-des Unternehmen verkauft oder von ihm bezieht. Dadurch werden Ein-kaufs- und Verkaufsgesellschaften im Ausland aus der Hinzurechnungsbe-steuerung herausgenommen, und zwar auch dann, wenn die Ware aus dem Inland oder in das Inland von oder an den Steuerpflichtigen geliefert wird.

 

Für das Vorliegen dieser Voraussetzungen ist der Steuerpflichtige nachweispflichtig.

 

Es kommt folglich ausschlaggebend auf die Definition der Teilnahme am allgemeinen wirtschaftlichen Verkehr an.

 

Der Bundesfinanzhof (BFH) hat die Teil-nahme am allgemeinen wirtschaftlichen Ver-kehr definiert und fordert eine Tätigkeit, die gegen Entgelt an den Markt gebracht und für Dritte äußerlich erkennbar angeboten wird (Urteil vom 9. Juli 1986 (I R 85/83) BStBl. 1986 II S. 85). Die Auslegung der Teilnahme am wirtschaftlichen Verkehr ist damit weniger weit gefasst als die Erweite-rung zur Teilnahme am allgemeinen wirt-schaftlichen Verkehr. Diese fordert, dass die Zwischengesellschaft nach außen hin in Er-scheinung tritt und sich an eine – wenn auch begrenzte – Allgemeinheit wendet. Entscheidend ist also, ob für außenstehende Dritte erkennbar wird, dass die HK Ltd. ein Gewerbe betreibt. Der BFH geht so weit, dass er bestätigt, dass eine Beteiligung am allgemeinen wirtschaftlichen Verkehr nicht vorliegt, wenn die Leistungen ausschliesslich innerhalb eines Konzerns erbracht werden und die Beschränkung auf der inneren Kon-zernstruktur beruht (BFH Urteil vom 29 Au-gust 1984 (I R 68/81)).

 

Da im Beispiel die HK Ltd. zwar als Ein-käufer für den deutschen Mutterkonzern agiert, auf der anderen Seite aber eine Mehr-zahl von Verkäufern aus verschiedenen Ge-sellschaften und Gesellschaftsstrukturen stehen, die in keiner Verbindung mit dem Konzern stehen, würde die HK Ltd. am all-gemeinen wirtschaftlichen Verkehr teilneh-men. Rechtsfolge dessen ist, dass das Ein-kommen aktiv wäre und es zu keiner Hin-zurechnungsbesteuerung bei der deutschen Muttergesellschaft kommen würde. Diese Ansicht vertritt auch das Bundesfinanzmi-nisterium (Schreiben betreffend Grundsätze zur Anwendung des Außensteuergesetzes vom 14. Mai 2004 (IV B 4 – S 1340 – 11-04)), welches den Fall eines Einkaufkommissionärs als Teil-nahme am allgemeinen wirtschaftlichen Verkehr akzeptiert.

 

  1. Dienstleistungen

 

  • 8 Abs. 1 Nr. 5 AStG definiert zwei Tatbe-stände, in denen Einkünfte aus Dienst-leistungen passive (also steuerschädliche) Einkünfte sind.

 

Nach Buchst. a) sind Einkünfte aus Dienst-leistungen passive Einkünfte, wenn sich die HK Ltd. für die Erbringung der Dienstleis-tungen Personen bedient, die in Deutsch-land unbeschränkt steuerpflichtig sind und gemäß § 7 AStG an ihr beteiligt sind (Betei-ligung in diesem Sinne bedeutet: mehr als 50%). Ein Beispiel für eine schädliche Mitwirkung wäre es, wenn die HK Ltd., welche die Dienstleistungen erbringt, teil-weise per Telefon oder Emailkontakt aus Deutschland von der Muttergesellschaft in ihren Geschäften geführt würde. Ebenso verhält es sich, wenn sich die Gesellschaft für die Erbringung der Dienstleistungen ei-ner diesen Steuerpflichtigen nahestehenden Person bedient, die mit den empfangenen Leistungen in Deutschland unbeschränkt steuerpflichtig ist.

 

Buchst. b) beschreibt, dass Einkünfte aus Dienstleistungen der HK Ltd. an einen an ihr beteiligten unbeschränkt Steuerpflichti-gen oder einer diesem Gesellschafter nahe-stehenden Person grundsätzlich passive Ein-künfte sind. (Beispielsweise wenn die HK Ltd. Beratungsleistungen erbringt). Dadurch soll verhindert werden, dass die beim Inlän-

 

 

der anfallenden, und als Betriebsausgaben abziehbaren Kosten, erhöht werden.

 

Keine Zwischeneinkünfte in diesem Sinne liegen jedoch vor, soweit die Dienstleistun-gen als eigene wirtschaftliche Leistung der ausländischen Gesellschaft angesehen wer-den können. Das ist der Fall, wenn:

 

  • der Steuerpflichtige nachweisen kann, dass die ausländische Gesellschaft ei-nen für das Erbringen derartiger Dienstleistungen eingerichteten Ge-schaeftsbetrieb (qualifizierter Ge-schäftsbetrieb, siehe oben) hat, und

 

  • diese Dienstleistungen ohne Mitwir-kung des Inländers oder einer ihm na-hestehenden Person erbracht werden.

 

Durch diese Regelung ist es möglich, dass eine mit den erforderlichen Ressourcen aus-gestattete ausländische Dienstleistungsge-sellschaft ihre Dienstleistungen steuer-un-schädlich an den Inländer (die deutsche Muttergesellschaft) erbringen kann. Damit ist die Einrichtung einer konzerninternen Dienstleistungsfunktion im Ausland (unter den obigen Voraussetzungen) möglich.

 

Die zweite Ausnahme führt dazu, dass, wenn eine HK Ltd. Serviceleistungen nur für den Inländer erbringt und dabei auf Weisung des Inländers seine Wunschliefe-ranten anspricht, von einer Mitwirkung des Inländers auszugehen ist und dies zu passi-ven Einkünften aus der Agententätigkeit führt.

 

  1. Rechtsfolge aktiver und passiver Einkünfte

 

Im Falle passiver Einkünfte werden die Ein-künfte der HK Ltd. dem inländischen Ge-sellschafter zur Besteuerung zugerechnet. Die Steuer wird nach § 7 AStG gemäß den deutschen Steuervorschriften in dem jewei-ligen Jahr ermittelt. Die Hinzu-rechnungsbesteuerung nach §§ 7 ff. AStG führt damit zu einer Doppelbesteuerung, wenn und soweit auch in HK eine Besteue-rung erfolgt. Das gilt in aller Regel auchdann, wenn ein DBA besteht, da Deutsch-land sich in den meisten DBA eine Doppel-besteuerung für diesen Fall vorbehalten hat (Aktivitätsklauseln). Da mit Hongkong aber (bislang) kein DBA besteht, stellt sich diese Frage hier nicht.

 

 

VII. Fazit

 

Eine HK Ltd. kann eine Struktur wählen, die zu aktiven Einnahmen führt. Unabhän-gig davon, ob sie Handel betreibt oder Dienstleistungen anbietet, ist es möglich, die oben genannten Ausnahmen zu erfüllen und so aktive Einkünfte zu erlangen.

 

 

 

 

 

Newsletter No. 123 (EN)

 

 

 

 

 

 

 

 

 

Enforcement of Foreign Judgements

in Hong Kong

 

 

February 2015

 

 

 Although Lorenz & Partners always pays great attention on updating information provided in newsletters and brochures we cannot take responsibility for the completeness, correctness or quality of the information provided. None of the information contained in this newsletter is meant to replace a personal consultation with a qualified lawyer. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected, if not generated deliberately or grossly negligent.

 

 

 

  1. Introduction

 

There are certain cases and situations where it is necessary to enforce a court judgment in Hong Kong which has been obtained in an-other jurisdiction.

 

For example, a plaintiff may sue a defendant outside of Hong Kong because both parties reside in another country, e.g. Germany. However, the plaintiff then finds it difficult or even impossible to enforce the judgment in Germany, because the defendant does not have any assets there or has now relocated to Hong Kong. In such circumstances, it is necessary to enforce the foreign judgment in Hong Kong.

 

Under Hong Kong law any judgment which is awarded by a non-Hong Kong court is re-ferred to as “foreign judgment” This in-cludes judgments which are awarded in the courts of Mainland China and Macau. Foreign judgments are not automatically enforceable in Hong Kong. Thus the judgment creditor (the person who succeeded in the proceedings) has two choices:

 

  • Commence a new set of proceedings in a Hong Kong court (assuming that Hong Kong has jurisdiction over the respective matter). At the end of these proceedings the judgement creditor would have a Hong Kong i.e. domestic judgment which could be enforced as such; or

 

  • Register the foreign judgment with the Hong Kong court and seek to enforce the foreign judgment in Hong Kong.

 

 

 

The Foreign Judgments (Reciprocal Enforcement) Ordinance governs the registration system and court orders for the enforcement and recog-nition of all foreign judgments except those obtained from Mainland China and Macau courts.

 

  1. Common law vs. Statutory regime

 

There are two regimes governing the enforcement and recognition of foreign judgments in Hong Kong: the common law regime and the statutory regime.

 

  1. The common law regime

 

The common law regime is based on princi-ples established by case law, and it governs the recognition and enforcement of foreign judgments from all courts in most countries.

 

  1. The statutory regime

 

In contrast, the statutory regime only governs judgments from “superior courts” in certain foreign countries. The foreign countries under the statutory regime include the Commonwealth countries, (Australia, Brunei, Canada India, Malaysia, New Zealand, Singapore etc). It also includes some EU countries, such as Belgium, Germany, France, Italy, Austria, and The Netherlands, and interestingly, it also includes one non-EU and non-Common-wealth country: Israel.

 

Except for Australia, the statutory regime only enforces and recognizes judgments from “superior courts”. The “superior courts” are defined as the courts in the receptive country which have unlimited jurisdiction over civil and criminal matters. Further only monetary judgments may be enforced under the statutory regime.

 

 

  • The differences between the two re-gimes

 

Although there are many technical differences between the two regimes, the underlying substantive rules and principles are largely the same.

 

Countries and courts which are not covered by the statutory regimes are covered by the common law regime. Equally non-monetary judgments are covered by the common law regime as well.

 

  1. Conclusion

 

Due to the combined efforts of the common law and statutory regimes any civil judgment from any court in the world is, in principle, enforceable and recognizable by Hong Kong courts.

 

III. Requirements to Enforce a Foreign Judgment in Hong Kong

 

  1. The Judgement is final and conclusive


 

  1. Criminal and non-monetary civil for-eign judgements

 

According to Section 2 of the Foreign Judgment (Reciprocal Enforcement) Ordinance, only foreign judgments which concern monetary civil matters can be enforced. Criminal monetary penalties such as a tax payment or fine will not be enforced on the basis that such matters are beyond the concern and remit of the Hong Kong courts.

 

 

  1. Sufficient notice of the original pro-ceedings

 

The judgment debtor may object to the en-forcement of the foreign judgment in Hong Kong if he was not given sufficient notice of the original proceedings in the foreign court, and as a result had no opportunity to defend his case. This concept of reasonable notice and opportunity is at the heart of substantial justice/natural justice principle which the Hong Kong courts follow.

 

 

According to Section 3 (2)(a) of the Foreign Judgment (Reciprocal Enforcement) Ordinance, a foreign judgment must be final and con-clusive in order to be enforceable in Hong Kong. This is echoed in the case Nouvion v Freeman (1989) 15 AC 1, where the judge stated that a foreign judgment must be “conclusively, finally and forever estab-lished” in order to be enforced.

 

A foreign judgment will only be “final and conclusive” once it cannot be challenged by the judgment debtor in the issuing court anymore, i.e. it cannot be varied or set aside.

 

However, if there is a possible or even pending appeal, then a judgment can still be classed as final and conclusive (Linprint PTY Ltd v Hexham Textiles PTY Ltd [1993] 23 NSWLR 508). This rule was designed to prevent judgment debtors from making multiple and/or groundless appeals. However, in practice, Hong Kong courts rarely enforce judgments until the outcome of any pending appeal has been determined.

 

However, the burden of proof in this regard is quite high. As such this argument has only been successful once in the English case of

 

Adams v Cape Industries plc [1990] 1 Ch 433.

 

  1. Judgement not obtained by fraud

 

Hong Kong courts will not recognize and enforce any foreign judgment which is obtained by fraud.

 

The definition of fraud includes:

 

  • a party knows false evidence has been introduced;
  • a party procures any false evi-dence;
  • a party deceives the foreign court(s);
  • intimidation by violence or other illegal acts; and
  • the foreign court is corrupt.

 

An example of fraud is the case Price v Dewhurst (1837) 8 Sim 279, where the judge had a financial interest in the outcome of the case.

 

It should be noted that a judgment debtor can allege that the foreign judgment was obtained by fraud even if the same fraud allegation was made and rejected in the original foreign court (Abouloff v Oppenheimer (1882))

 

  1. Judgement is not contrary to public policy

 

The enforcement of the foreign judgment must not be contrary to Hong Kong public policy. There are very few cases where the judgment debtor has raised this argument successfully in Common Law countries, and there is no such reported case in Hong Kong.

 

  1. Conflicting judgment(s)

 

Under Common Law tradition and the principle of res judicata, a Hong Kong court will not recognize and enforce a foreign judgment if there has been a previous conflicting Hong Kong decision on the same matter. This was confirmed in Vervaeke v Smith [1983] 1 AC 145. Further, the case

 

Showlag v Mansour [1994] 2 All ER 129 established that if there are two conflicting prior decisions, then the one which was decided first will usually apply.

 

  1. The foreign court had juris-diction

 

A Hong Kong court will not recognize or enforce a foreign judgment if the foreign court did not have jurisdiction over the case. There are two ways to prove a foreign court’s legitimate jurisdiction.

 

First, the judgment debtor resided in the for-eign jurisdiction at the time the proceedings were commenced. If the judgment debtor is a company, then it must either have been registered in the foreign country or have had its place of business in the foreign country when the proceedings began in order to be classified as a resident thereof.

 

 

Second, the judgment debtor participated in the foreign court proceedings. The judgment debtor must have had a certain level of participation in or given some level of con-sent to the court proceedings. If the judgment debtor voluntarily appears before the foreign court in the original proceedings, then such consent/participation is deemed to have occurred. In addition, if the judgment debtor brought a counterclaim in the original proceedings, then the foreign court is also deemed to have jurisdiction to the case.

 

  1. Procedure to Enforce a Foreign Judgement in Hong Kong

 

  1. Time limit

 

Any person who obtains a foreign judgment must register the said judgment with the Hong Kong Court of First Instance within 6 years of the judgment date.

 

  1. Application to register a foreign judgement

 

An application made to enforce a foreign judgment may be made ex parte (without notifying the other party). A “writ of fieri fa-cias to enforce a foreign registered judgment” should be used to begin the registration procedure. The Court may direct the applicant to issue the originate summons via an “originating summons-expedited form” and then serve the same upon the judgment debtor.

 

Further, according to the Rules of the High Court, the registration application must include an affidavit which is supported by the following:

 

  • An authenticated copy of the judgment;
  • The name, business and last known abode of the judgment creditor and judgment debtor;

 

  • Evidence to show that the judg-ment creditor is entitled to en-force the judgment and the judgment is enforceable in Hong Kong;
  • Other evidence to prove that the judgment is enforceable in Hong Kong.

 

  • Court order for registration

 

Once the application has been submitted, the Court will review the contents thereof and make an order for registration. This order will state the final date on which the judgment debtor may apply to set aside the registration. Once issued, the order must be served upon the judgment debtor along with a Notice of Registration.

 

  1. Notice of Registration

 

The Notice of Registration of a foreign judg-ment must be served upon the judgment debtor, either by delivering it to him personally, or by sending it to him at his last known address or place of business. The Notice must state:

 

  • Full particulars of the registered judgment and the order for regis-tration;

 

  • Name and address of the judg-ment creditor or his solicitor;

 

  • That the judgment debtor has the right to apply to set aside the registered judgment; and

 

  • The deadline for making such an application to set aside the regis-tered judgment.

 

  • Application to set aside a registration

 

The judgment debtor may apply to the court to set aside the registration order if the judg-ment:

 

  • was obtained by fraud;
  • is contrary to public policy;

 

  • was granted by a foreign court which had no jurisdiction; or

 

  • was obtained without giving sufficient opportunity to the judgment debtor to defend himself in the foreign court.

 

  1. Execution

 

After the period to apply to set aside the registration has expired, or, if such an application has been made and rejected, the judgment creditor may initiate the execution of the judgment by providing an affidavit of service of the Notice of Registration to the Registrar of the High Court.

 

 

 

Newsletter No. 123 (EN)

 

 

 

 

 

 

Enforcement of Foreign Judgements

in Hong Kong

 

 

February 2015

 

 

 

 Although Lorenz & Partners always pays great attention on updating information provided in newsletters and brochures we cannot take responsibility for the completeness, correctness or quality of the information provided. None of the information contained in this newsletter is meant to replace a personal consultation with a qualified lawyer. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected, if not generated deliberately or grossly negligent.

 

 

 

  1. Introduction

 

There are certain cases and situations where it is necessary to enforce a court judgment in Hong Kong which has been obtained in an-other jurisdiction.

 

For example, a plaintiff may sue a defendant outside of Hong Kong because both parties reside in another country, e.g. Germany. However, the plaintiff then finds it difficult or even impossible to enforce the judgment in Germany, because the defendant does not have any assets there or has now relocated to Hong Kong. In such circumstances, it is necessary to enforce the foreign judgment in Hong Kong.

 

Under Hong Kong law any judgment which is awarded by a non-Hong Kong court is re-ferred to as “foreign judgment” This in-cludes judgments which are awarded in the courts of Mainland China and Macau. Foreign judgments are not automatically enforceable in Hong Kong. Thus the judgment creditor (the person who succeeded in the proceedings) has two choices:

 

  • Commence a new set of proceedings in a Hong Kong court (assuming that Hong Kong has jurisdiction over the respective matter). At the end of these proceedings the judgement creditor would have a Hong Kong i.e. domestic judgment which could be enforced as such; or

 

  • Register the foreign judgment with the Hong Kong court and seek to enforce the foreign judgment in Hong Kong.

 

 

 

The Foreign Judgments (Reciprocal Enforcement) Ordinance governs the registration system and court orders for the enforcement and recog-nition of all foreign judgments except those obtained from Mainland China and Macau courts.

 

  1. Common law vs. Statutory regime

 

There are two regimes governing the enforcement and recognition of foreign judgments in Hong Kong: the common law regime and the statutory regime.

 

  1. The common law regime

 

The common law regime is based on princi-ples established by case law, and it governs the recognition and enforcement of foreign judgments from all courts in most countries.

 

  1. The statutory regime

 

In contrast, the statutory regime only governs judgments from “superior courts” in certain foreign countries. The foreign countries under the statutory regime include the Commonwealth countries, (Australia, Brunei, Canada India, Malaysia, New Zealand, Singapore etc). It also includes some EU countries, such as Belgium, Germany, France, Italy, Austria, and The Netherlands, and interestingly, it also includes one non-EU and non-Common-wealth country: Israel.

 

Except for Australia, the statutory regime only enforces and recognizes judgments from “superior courts”. The “superior courts” are defined as the courts in the receptive country which have unlimited jurisdiction over civil and criminal matters. Further only monetary judgments may be enforced under the statutory regime.

 

  • The differences between the two re-gimes

 

Although there are many technical differences between the two regimes, the underlying substantive rules and principles are largely the same.

 

Countries and courts which are not covered by the statutory regimes are covered by the common law regime. Equally non-monetary judgments are covered by the common law regime as well.

 

  1. Conclusion

 

Due to the combined efforts of the common law and statutory regimes any civil judgment from any court in the world is, in principle, enforceable and recognizable by Hong Kong courts.

 

III. Requirements to Enforce a Foreign Judgment in Hong Kong

 

  1. The Judgement is final and conclusive


 

  1. Criminal and non-monetary civil for-eign judgements

 

According to Section 2 of the Foreign Judgment (Reciprocal Enforcement) Ordinance, only foreign judgments which concern monetary civil matters can be enforced. Criminal monetary penalties such as a tax payment or fine will not be enforced on the basis that such matters are beyond the concern and remit of the Hong Kong courts.

 

 

  1. Sufficient notice of the original pro-ceedings

 

The judgment debtor may object to the en-forcement of the foreign judgment in Hong Kong if he was not given sufficient notice of the original proceedings in the foreign court, and as a result had no opportunity to defend his case. This concept of reasonable notice and opportunity is at the heart of substantial justice/natural justice principle which the Hong Kong courts follow.

 

 

According to Section 3 (2)(a) of the Foreign Judgment (Reciprocal Enforcement) Ordinance, a foreign judgment must be final and con-clusive in order to be enforceable in Hong Kong. This is echoed in the case Nouvion v Freeman (1989) 15 AC 1, where the judge stated that a foreign judgment must be “conclusively, finally and forever estab-lished” in order to be enforced.

 

A foreign judgment will only be “final and conclusive” once it cannot be challenged by the judgment debtor in the issuing court anymore, i.e. it cannot be varied or set aside.

 

However, if there is a possible or even pending appeal, then a judgment can still be classed as final and conclusive (Linprint PTY Ltd v Hexham Textiles PTY Ltd [1993] 23 NSWLR 508). This rule was designed to prevent judgment debtors from making multiple and/or groundless appeals. However, in practice, Hong Kong courts rarely enforce judgments until the outcome of any pending appeal has been determined.

 

However, the burden of proof in this regard is quite high. As such this argument has only been successful once in the English case of

 

Adams v Cape Industries plc [1990] 1 Ch 433.

 

  1. Judgement not obtained by fraud

 

Hong Kong courts will not recognize and enforce any foreign judgment which is obtained by fraud.

 

The definition of fraud includes:

 

  • a party knows false evidence has been introduced;
  • a party procures any false evi-dence;
  • a party deceives the foreign court(s);
  • intimidation by violence or other illegal acts; and
  • the foreign court is corrupt.

 

An example of fraud is the case Price v Dewhurst (1837) 8 Sim 279, where the judge had a financial interest in the outcome of the case.

 

It should be noted that a judgment debtor can allege that the foreign judgment was obtained by fraud even if the same fraud allegation was made and rejected in the original foreign court (Abouloff v Oppenheimer (1882))

 

  1. Judgement is not contrary to public policy

 

The enforcement of the foreign judgment must not be contrary to Hong Kong public policy. There are very few cases where the judgment debtor has raised this argument successfully in Common Law countries, and there is no such reported case in Hong Kong.

 

  1. Conflicting judgment(s)

 

Under Common Law tradition and the principle of res judicata, a Hong Kong court will not recognize and enforce a foreign judgment if there has been a previous conflicting Hong Kong decision on the same matter. This was confirmed in Vervaeke v Smith [1983] 1 AC 145. Further, the case

 

Showlag v Mansour [1994] 2 All ER 129 established that if there are two conflicting prior decisions, then the one which was decided first will usually apply.

 

  1. The foreign court had juris-diction

 

A Hong Kong court will not recognize or enforce a foreign judgment if the foreign court did not have jurisdiction over the case. There are two ways to prove a foreign court’s legitimate jurisdiction.

 

First, the judgment debtor resided in the for-eign jurisdiction at the time the proceedings were commenced. If the judgment debtor is a company, then it must either have been registered in the foreign country or have had its place of business in the foreign country when the proceedings began in order to be classified as a resident thereof.

 

 

Second, the judgment debtor participated in the foreign court proceedings. The judgment debtor must have had a certain level of participation in or given some level of con-sent to the court proceedings. If the judgment debtor voluntarily appears before the foreign court in the original proceedings, then such consent/participation is deemed to have occurred. In addition, if the judgment debtor brought a counterclaim in the original proceedings, then the foreign court is also deemed to have jurisdiction to the case.

 

  1. Procedure to Enforce a Foreign Judgement in Hong Kong

 

  1. Time limit

 

Any person who obtains a foreign judgment must register the said judgment with the Hong Kong Court of First Instance within 6 years of the judgment date.

 

  1. Application to register a foreign judgement

 

An application made to enforce a foreign judgment may be made ex parte (without notifying the other party). A “writ of fieri fa-cias to enforce a foreign registered judgment” should be used to begin the registration procedure. The Court may direct the applicant to issue the originate summons via an “originating summons-expedited form” and then serve the same upon the judgment debtor.

 

Further, according to the Rules of the High Court, the registration application must include an affidavit which is supported by the following:

 

  • An authenticated copy of the judgment;
  • The name, business and last known abode of the judgment creditor and judgment debtor;

 

  • Evidence to show that the judg-ment creditor is entitled to en-force the judgment and the judgment is enforceable in Hong Kong;
  • Other evidence to prove that the judgment is enforceable in Hong Kong.

 

  • Court order for registration

 

Once the application has been submitted, the Court will review the contents thereof and make an order for registration. This order will state the final date on which the judgment debtor may apply to set aside the registration. Once issued, the order must be served upon the judgment debtor along with a Notice of Registration.

 

  1. Notice of Registration

 

The Notice of Registration of a foreign judg-ment must be served upon the judgment debtor, either by delivering it to him personally, or by sending it to him at his last known address or place of business. The Notice must state:

 

  • Full particulars of the registered judgment and the order for regis-tration;

 

  • Name and address of the judg-ment creditor or his solicitor;

 

 

 

 

  • That the judgment debtor has the right to apply to set aside the registered judgment; and

 

  • The deadline for making such an application to set aside the regis-tered judgment.

 

  • Application to set aside a registration

 

The judgment debtor may apply to the court to set aside the registration order if the judg-ment:

 

  • was obtained by fraud;
  • is contrary to public policy;

 

  • was granted by a foreign court which had no jurisdiction; or

 

  • was obtained without giving sufficient opportunity to the judgment debtor to defend himself in the foreign court.

 

  1. Execution

 

After the period to apply to set aside the registration has expired, or, if such an application has been made and rejected, the judgment creditor may initiate the execution of the judgment by providing an affidavit of service of the Notice of Registration to the Registrar of the High Court.

 

 

 

 

 

Newsletter No. 125 (EN)

 

 

 

 

 

 

Working in Thailand –

 

An Overview of the Legal Framework

 

May 2016

 

 

A l l  r i g h t s  r e s e r v e d  ©  L o r e n z  &  P a r t n e r s  2 0 1 6

 

 

Although Lorenz & Partners always pays great attention on updating information provided in newsletters and brochures we cannot take responsibility for the completeness, correctness or quality of the information provided. None of the information contained in this newsletter is meant to replace a personal consultation with a qualified lawyer. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected, if not generated deliberately or grossly negligent.

 

 

  1. Introduction

 

Thailand, being an emerging market, is still becoming more and more attractive to for-eign investors and expatriates. However, employers as well as employees have to stick to the given laws. The Alien Working Act (the Act), adopted in 1978, requires all for-eigners working in Thailand to obtain a work permit prior to starting work in the Kingdom. An updated version of the Act, adopted in 2008, describes the procedure of issuance and maintenance of work permits, and lists certain occupations from which foreigners are excluded.

 

  1. Visa exemption and visa on arrival

 

Foreigners are required to hold a visa for en-tering the Kingdom of Thailand. Neverthe-less, according to the Ministry of Interior, passport holders from several countries may enter Thailand with a visa exemption (Por 30) or a visa on arrival (TR 15).

 

The visa exemption applies to citizens of developed countries with an adequate stand-ard of living (e.g., the European Union, USA, Japan). This is not a visa in the classi-cal sense but a short-term stay permit under the Visa Exemption Rule. This “visa” proc-ess starts by filling in the Arrival/ Departure Card. In addition to general information such as name, address, passport and flight number, the visitor must tick the list indicat-ing the purpose of the visit. This infor-mation is important for the Thai Immigra-tion Bureau, which monitors visitors with regard to their reason for visiting the King-dom of Thailand.

 

The application is filed (only for statistical purposes) and the permission to stay is is

 

sued at the immigration checkpoint, e.g., at Suvarnabhumi Airport. Depending on the country of residence and whether entry into Thailand is by land or by air, this permission is valid for 15 or 30 days.

 

In contrast, a visa on arrival is granted to a person who is not eligible for the visa ex-emption, and who applies for a visa on arri-val at immigration border check- points and international airports in Thailand.

 

However, it must be noted that ticking the

“business” category on the list will not mean the “visa” will be considered as a business visa, which is required in order to be able to apply for a work permit in Thailand. Indi-viduals entering Thailand either by visa ex-emption or visa on arrival cannot obtain a work permit unless they request a conver-sion to a business visa.

 

III. Non Immigrant B Visa

 

A foreign citizen intending to work, conduct business or undertake investment activities in Thailand must apply for a non-immigrant category B visa, which is valid for not less than 90 days. Multiple-entry visas with up to one-year validity are available in some con-sulates and embassies. The non-immigrant visa type is of special importance, as it is the only visa for foreigners staying temporarily in the Kingdom that entitles them to apply for a work permit. This type of visa can be obtained from all Thai embassies and consu-lates. Visa fees are approximately THB 2,000 (approx. EUR 50) for a single-entry visa with a three-month validity, and approxi-mately THB 5,000 (approx. EUR 125) for a multiple-entry visa with one-year validity.

 

Since 2015, non-Immigrant B visa applica-tions at most Thai embassies and consulates throughout Asia require a confirmation let-ter from the Labour Department (WP 3 Form) which serves as a confirmation that the requirements for the issuance of a work permit are fulfilled.

 

  1. Non-Immigrant, Single Entry

 

This visa is valid for three months from the date of issuance and allows a visitor to enter Thailand for a single period of up to 90 days. After this period, the foreigner has to leave the country or face penalties for over-staying. A further visit will require a new vi-sa, which can only be obtained from a Thai embassy or consulate outside Thailand. Fur-thermore, it is possible to extend the single entry visa for another 30 days by applying for an extension at the Immigration Office.

 

  1. Non-Immigrant, One-Year,  Multiple

Entries

 

  • multiple-entry non-immigrant “B” visa is valid for a period of up to one year, during which the foreigner can exit and re-enter Thailand as many times as he/she likes, with each stay having a validity of 90 days. Upon arrival in Thailand, the first period starts on arrival in Thailand, allowing the foreigner to remain in the country for 90 days. At the end of the 90-day period, the foreigner may leave the Kingdom and return without being required to apply for a new visa. Upon re-turn, the second period will start, enabling the visa holder to stay in Thailand for an-other 90 days and so forth. By this method, the multiple-entry visas can theoretically be extended for up to 15 months. To do this, the holder will have to leave the country and return just before the 1-year validity period is about to expire. The new entry stamp will entitle the foreigner to stay for another three months. Although holding a multiple-entry
  • visa allows a foreigner to leave and re-enter Thailand as many times as he/she likes, after each re-entry the foreigner will be

 

 

allowed to stay only for the maximum 90-day period.

 

  1. Other types of visa

 

Furthermore, other types of visas are issued for different purposes, such as the non-immigrant visa “O” (e.g., for a spouse ma r-ried to a citizen of Thailand or married to a foreigner possessing a work permit) or the non-immigrant visa “ED” (for students).

 

  1. Permitted Activities

 

Possession of a business visa does not allow anyone to work in Thailand unless the hold-er also gets a work permit, i.e., he/she is not allowed to get any job (whether paid or un-paid) in Thailand without a work permit. Without a work permit, a non -immigrant B visa only permits the holder to explore busi-ness opportunities (e.g., attend meetings etc.) as long as such activities are merely temporary in nature. Also, working via the Internet – such as writing e-mails during holidays – is permitted if it is not on a long-term basis. If the holder is based in Thailand permanently, even working for companies outside the country via the Internet is not al-lowed without a work permit.

 

Unfortunately, the legal framework is rather vague. So, in order to ensure conformance with Thai law, the visa holder should apply for a work permit as soon as his/her activi-ties turn into a business. Alternatively, the Labour Department is generally helpful in giving first-hand advice.

 

  1. Work Permit

 

According to Thai immigration regulations, the term “work” is defined as the use of physical or mental energy to complete tasks, no matter whether or not the person con-cerned receives wages or other forms of re-muneration. The law remains vague and leaves the interpretation to officials, in trying to eliminate legal loopholes and haggling. The Alien Working Act considers persons who are not of Thai nationality as “aliens”. It further states that all foreigners need to hold a work permit before starting any type of work in Thailand. The actual work permit will not be issued until the foreigner has en-tered Thailand in accordance with the immi-gration law and appears in person to receive his or her work permit, even if a prospective employer files an application on the alien’s behalf in advance of commencing work. The permit will be issued by the Department of Employment, which is a part of the Ministry of Labour and Social Welfare.

 

The permit will initially be valid only for the period that a foreigner’s non-immigrant visa allows him/her to remain in Thailand. Re-gardless of the actual length of stay in Thai-land, a foreigner can in principle only apply for a work permit valid for up to one year. The work permit is subject to renewal in ac-cordance with a renewed or extended visa. Even if a foreigner holds a Thai Certificate of Residence, the work permit also needs to be renewed annually. A work permit must be renewed before its expiry date, otherwise it will automatically become void. Unless a foreigner holds a non-immigrant visa issued within Thailand, he/she will still have to make the obligatory visa run once every 90 days. A visa issued within Thailand (non-RE) entitles the bearer to remain in Thailand for up to one year; however, notification of the foreigner’s whereabouts must still be filed with the authorities every 90 days (so-called “90 days report”).

 

  1. Essential Requirements

 

In addition to the various documents and conditions that have to be provided/met by an employer and an employee (“Regulations for Work Permits”), one of the integral parts of the application is the job description. The presumption among Thai officials at the La-bour Department is that a work permit should not be granted to a foreigner engaged in an occupation that could otherwise be performed as effectively by a Thai person. Hence, it becomes essential to formulate a

 

 

job description carefully in order to avoid undue scrutiny on the part of the Thai offi-cial reviewing the application. The Labour Department often appears to be attempting to reduce the number of work permits is-sued in order to help demonstrate that they are protecting Thai jobs. Nevertheless, the job description also has to point out that the job is beneficial to Thailand. In addition, every applicant has to be aware of the fact that the job description in their work permit determines their line of action. In order to act according to the law, the foreign national can only be engaged in a job with conditions that exactly match the job description and which are performed at the location de-scribed.

 

Furthermore, employers who intend to em-ploy a foreign national must demonstrate what type of work each foreigner will be un-dertaking and why a foreigner shall be em-ployed instead of a Thai. This can be done by posting a job vacancy and providing evi-dence that no Thai citizen has applied or is qualified for the job (Order of the Royal Thai Police Headquarters No. 606/2549, Chapter 2). This provision does not apply to international trading companies, branches of a company or multinational companies.

 

  1. Investment Promotion

 

A work permit can also be issued by the Board of Investment (BOI). Such work permits can only be granted for a specific position that has been approved by the BOI for the period of permitted stay in the King-dom. This work permit only applies to for-eign nationals who are skilled workers (with a high-school degree), experts or persons who enter the Kingdom of Thailand for the purpose of studying investment op-portunities or performing any other act ben-efiting investment during their time of stay (cp. Investment Promotion Act, Chapter 3, Sections 24, 25 and 26).

 

BOI-promoted companies must submit the applications for their foreign staff’s work permits online through the so-called eExpert system. A foreigner can start working in the authorised position while the application is being processed.

 

Companies that have been granted a land-use permit certificate from the Industrial Es-tate Authority of Thailand (IEAT) have to apply for work permits for their foreign em-ployees online through the so-called “EPP system”.

 

  1. Permitted Activities

 

Once the work permit has been issued, the holder can work and run a business legally, receive income from this business, open a Thai bank account, apply for a Thai credit card or bank loan, import his personal be-longings to Thailand and apply for a one-year visa extension. The holder will also be subject to payment of Thai income tax. Un-der Thai law an employer is prohibited from allowing an “alien” to undertake any func-tion other than that described in the work permit. Any changes in the working condi-tions must be reported by the employer within 15 days. Such actions include simple changes in the employment, transfers and the termination of a foreigner’s employment.

 

In the case of dismissal, the work permit has to be cancelled.

 

  1. Restricted Occupations

 

Some occupations are reserved for Thai na-tionals only. These are mostly related to manual labour and the production of handi-crafts, but also include jobs such as hair-dressing or shop attendant. A Royal Decree of 1973 listed 39 professions and occupa-tions that were prohibited for foreign em-ployees. This list has been amended by sub-sequent Royal Decrees, the latest in 1979. A full list can be found on the Department of Employment website at www.doe.go.th. The work permit only allows the holder to work in the location that is specified in the work permit. Persons who leave these premises to work, even to meet clients at their offices,

 

 

are actually breaking the law. To avoid this, the work permit can state that the foreigner has to work outside the office. This is espe-cially necessary in cases such as where an employee meets clients on a regular basis as well as engineers working all over Thailand. However, it is necessary to describe the oc-cupation held as precisely as possible in the work permit, in order to avoid a breach of law. Nevertheless, the Alien Working Act does not prevent a foreigner from engaging in work in more than one field or in working for more than one employer, as long as all activities are covered in the work permit.

 

  1. Legal Consequences

 

Any foreigner who works without a valid work permit or who violates the working conditions stipulated in the work permit, may be punished with imprisonment not ex-ceeding five years (rather notional) or a fine of between THB 2,000 (approx. EUR 50) and THB 100,000 (approx. EUR 2,500), or both. Foreigners, who work in fields re-served solely for Thais, will additionally be fined up to THB 20,000 (approx. EUR 500).

 

An employer who employs a foreigner with-out a work permit or in violation of the conditions stipulated in the work permit may be fined between THB 10,000 (approx. EUR 250) and Baht 100,000.

 

  1. Exemptions from Work Permit Re-quirements

 

While most foreigners have to apply for a work permit and may not begin working un-til the permit is issued, the Alien Working Act does provide exemptions under special circumstances.

 

  1. Urgent and Essential Work

 

Exemption from work permit requirements is granted for foreigners who enter the Kingdom temporarily, but in accordance with the Immigration Law, in order to per-form any work of an “urgent and essential nature” for a period not exceeding 15 days.

 

Thus, no non-immigrant B visa is required. Such foreigners can enter Thailand with a tourist visa or even just a “30-day stamp” and still legally obtain this short-term work permit (Alien Working Act, Section 9).

 

However, such foreigners may engage in work only after written notification on a pre-scribed form, signed by the foreigner and endorsed by the employer, has been sub-mitted to, and accepted by the Labour De-partment. It only takes one day to apply.

 

The term “urgent and essential work” is not explicitly defined and, consequently, the is-suance of this sort of exemption is a matter of administrative discretion.

 

  1. Short Term Work on Conventions or Exhibitions

 

Foreign citizens who work on a temporary basis at a local convention or an exhibition are also exempted from work permit re-quirements. However, for this exception to apply, a foreigner can only stay in Thailand for a period of less than 30 days. The La-bour Department must also be informed of the situation before the seminar or the exhi-bition begins, unless a government entity is a co-sponsor. If the foreigner’s intention is to buy or negotiate outside the convention, or if he or she is planning to hold meetings with manufacturers, an invitation letter from

 

 

a Thai company and a business (non-immigrant B) visa will still be required.

 

  1. Activities not considered as „work“

 

According to the Announcement of the De-partment of Employment dated 6 March 2015, the following activities are not consid-ered as “work” and therefore do not require a work permit:

 

  • Attending a meeting, a discussion, or a seminar;

 

  • Attending an exhibition or a trade show;

 

  • Attending a business trip or a busi-ness discussion;

 

  • Attending a special or academic lec-ture;

 

  • Attending a training and a technical seminar;

 

  • Purchasing goods in a trade show;

 

  • Attending a Board of Directors meeting of one’s own company.

 

  1. Conclusion

 

As the legal consequences can be quite se-vere, every employer and employee should consider the requirements for a work permit carefully. In view of the complexity of the matter, professional advice should be ob-tained prior to applying for a work permit on your own.

 

 

Document ob-

 

 

Requirements

 

Permitted Activities

 

Restrictions

 

tained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 days stamp

 

o

Passport valid

 

o

Entering and

o

Engaging in any

 

 

 

 

for 6 months

 

 

remaining in

 

kind of work

 

 

 

o

Nationality of a

 

 

Thailand up to

o

Applying for a

 

 

 

 

country that

 

 

30 days with-

 

work permit

 

 

 

 

comes under the

 

 

out holding

o

Applying for a

 

 

 

 

visa exemption

 

 

visa

 

non-immigrant B

 

 

 

 

rule

 

o

Obtaining an

 

visa

 

 

 

 

 

 

 

emergency

 

 

 

 

 

 

 

 

 

work permit

 

 

 

Non-Immigrant

 

o

Passport valid

 

o

Entering and

o

Entering into se-

 

“B” visa

 

 

for 6 months

 

 

remaining in

 

rious business rela-

 

– single entry-

 

o

Invitation letter

 

 

Thailand for up

 

tionships

 

 

 

 

of prospective

 

 

to 90 days

o

Obtaining a sala-

 

 

 

 

employer

 

o

Applying for a

 

ried job

 

 

 

o

Corporate

 

 

work permit

o

Obtaining a con-

 

 

 

 

documents of

 

o

Exploring busi-

 

sulting job

 

 

 

 

hiring company

 

 

ness and in-

o

Supervisory and

 

 

 

o

Completed visa

 

 

vestment op-

 

installation work

 

 

 

 

application form

 

 

portunities

 

 

 

 

 

o

2 passport-sized

 

 

without a work

 

 

 

 

 

 

photos

 

 

permit

 

 

 

 

 

 

 

 

o

Obtaining a

 

 

 

 

 

 

 

 

 

work permit

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Immigrant

 

o

Passport valid

 

o

Entering and

o

Entering into se-

 

“B” visa

 

 

for 18 months

 

 

remaining in

 

rious business rela-

 

– multiple en-

 

o

Invitation letter

 

 

Thailand for up

 

tionships

 

tries-

 

 

of prospective

 

 

to 90 days, re-

o

Obtaining a sala-

 

 

 

 

employer

 

 

enter for an-

 

ried job

 

 

 

o

Corporate

 

 

other 90 days

o

Obtaining a con-

 

 

 

 

documents of

 

o

Exploring busi-

 

sulting job

 

 

 

 

hiring company

 

 

ness and in-

o

Supervisory and

 

 

 

o

Completed visa

 

 

vestment op-

 

installation work

 

 

 

 

application form

 

 

portunities

 

 

 

 

 

o

2 passport-sized

 

 

without a work

 

 

 

 

 

 

photos

 

 

permit

 

 

 

 

 

 

 

 

o

Applying for a

 

 

 

 

 

 

 

 

 

work permit

 

 

 

 

 

 

 

 

o

Obtaining a

 

 

 

 

 

 

 

 

 

short term

 

 

 

 

 

 

 

 

 

work permit

 

 

 

Document obtained

Requirements

Permitted Activities

 

Restrictions

Work permit

o

Non-Immigrant

o

Legally working

o

Engaging in an

 

 

“B” visa (or

 

in the Kingdom

 

occupation re-

 

 

Non-Immigrant

o

Applying for an

 

served for Thai

 

 

“O” Thai

 

extension of

 

nationals

 

 

spouse visa)

 

stay permit for

o

Working on an-

 

o

Passport copies

 

up to one year

 

other job than

 

o

Departure Card

 

 

 

described in the

 

 

TM.6

 

 

 

work permit

 

o

Education cer-

 

 

 

 

 

 

tificate (signed

 

 

 

 

 

 

copy)

 

 

 

 

 

o

Transcript

 

 

 

 

 

 

(signed copy)

 

 

 

 

 

o

CV or Resume

 

 

 

 

 

o

3 photos not

 

 

 

 

 

 

older than 6

 

 

 

 

 

 

months

 

 

 

 

 

 

 

 

 

 

 

Emergency work

o

Having entered

o

Performing ur-

o

Obtaining any

permit

 

Thailand in ac-

 

gent and essen-

 

other job than

– not exceeding 15

 

cordance to the

 

tial duties

 

listed below

days-

 

immigration law

o

Conducting

 

 

 

o

Written notifica-

 

business under

 

 

 

 

tion signed by

 

the BOI invest-

 

 

 

 

employer and

 

ment promotion

 

 

 

 

employee sub-

o

Working at ex-

 

 

 

 

mitted to and

 

hibitions and

 

 

 

 

accepted by the

 

conventions

 

 

 

 

Labour Depart-

 

 

 

 

 

 

ment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annex:

List of urgent and essential duties which entitle to an emergency work permit

 

 

  • Administrative and Academic Works
    • Meeting, Discussion, Seminar or Business Visit

 

  • Internal audit in a case of necessity
  • Special Lecture and academic

 

  • Aviation superintendence

 

  • Technical Works
    • Mechanical work for technical checking and fixing

 

  • Meeting on machine installation and technical work
  • Aircraft engineering and mechanic
  • Machine repairing/installation

 

  • Petroleum technician

 

  • Mechanic demonstration and testing
  • Technical training and seminar

 

  • Movie making and slide photographer

 

  • Overseas Employment Services
    • Workers recruitment

 

  • Skill testing

 

  1. Legal Service or Legal Cases
  • Arbitrator
  • Conducting law suits in arbitration court in case the law which enforces against

 

that dispute is not Thai or on the case that dispute needs no judgement of arbitrator in the Kingdom of Thailand

 

  1. Miscellaneous Works
  • Merchandise procurement

 

  • Tourist coordinator
  • Charity work without commercial objective or benefits

 

  1. Other Works under the consideration of Director-general or Official entrusted by the Director-General

 

 

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