Do you know about the Act governing Foreign Business in Thailand?

A large number of foreigners are investing or considering an investment in Thailand’s various sectors. The Foreign Business Act (FBA) is the most essential legislation in this regard since it specifies the types of activities that foreigners are eligible for, as well as the limits that apply to them when doing business in Thailand. As a result, noncompliance with the FBA may harm a foreign investor and/or its company activities. The goal of this article is to provide general information for foreign investors who want to start a business in Thailand, such as whether their operation will fall within the FBA’s scope and what constraints they will face.

Outline: Foreign Business Act in Thailand

Section 4 of the FBA defines “foreigner” as a:

1. A natural person with non-Thai citizenship status
2. A juristic person who is not registered in Thailand
3. Juristic persons with the following characteristics:

• • Individuals under (a) or (b) owning half or more of the juristic person’s capital shares, or a juristic person with persons under (a) or (b) investing half or more of the juristic person’s entire capital.
  • The person named in (a) as the managing partner or manager of a limited partnership or a registered ordinary partnership.
  • A juristic person registered in Thailand with the persons listed in (a), (b), or (c) holding half or more of its capital shares, or a juristic person with the individuals listed in (a), (b), or (c) investing with the value of half or more of its total capital.

Unless ministerial regulations stipulate otherwise, the shares of a limited company represented by share certificates issued to bearers are regarded to be the shares of foreigners for the purposes of the definitions.

Restrictions: Foreign Business Act in Thailand

Beginning with the categorization of business activities into three lists, the FBA regulates some business activities in Thailand in which foreigners are forbidden from participating.

List 1: These are the business operations in which foreigners are not permitted to participate because they are reserved for certain reasons. The purchasing and selling of land are one of the forbidden industries on List One.

List 2: These are business activities that are prohibited because they impact national security and safety; business activities that affect art and culture, as well as traditional and folk handicrafts; and commercial activities that have an impact on natural resources or the environment. While the Minister of the Ministry of Commerce (“MOC”) may provide permission on a case-by-case basis with Cabinet agreement, please note that the MOC has never awarded a foreign business licence to a foreign business operator under List Two in practice.

List 3: These are business activities in which Thai citizens are not ready to compete with foreigners. However, with the agreement of the Foreign Business Committee, the Director-General of the MOC’s Department of Business Development (“DBD”) may grant permission.

Aside from that, the DBD also considers other aspects like:

• Amount of investment in Thailand by a foreigner.
• Foreign business creates employment opportunity in Thailand.
• Thai nationals will benefit from the foreigner’s technology.
• The requested services are complex and will still want the assistance of a foreign specialist.

Please note that, according to the DBD’s rules, a foreigner can hire a local representative to do business in Thailand on its behalf. In this case, the DBD considers the foreigner to be conducting business in Thailand through its representative. As a result, foreigners working with local agents for such purposes must apply for and get a foreign business licence before they may start doing business.

Business Exemptions: Foreign Business License in Thailand

A foreigner can engage in business activities that are:

1. not listed under List One, List Two or List Three except for certain business i.e. manufacturing and exporting activities.
2. specifically described in the FBA as exempt from a foreign business licence requirement;

iii. promoted under the Investment Promotion Act B.E. 2520 (1977) or granted written permission for the operation of the business under the Industrial Estate Authority of Thailand Act, B.E.2522 (1979).

1. by virtue of a treaty to which Thailand becomes a promoter of the business.
2. same as in iii, foreigners must notify the Director-General of the DBD in order to obtain a foreign business certificate.
3. Thailand is currently bound by several agreements such as the U.S. – Thai Treaty of Amity and Economic Relations of 1833 (the “US-Thai Treaty of Amity”), Thailand – Australia Free Trade Agreement (TAFTA), Japan – Thailand Economic Partnership Agreement (JTEPA), ASEAN Framework Agreement on Services (AFAS), and ASEAN Comprehensive Investment Agreement (ACIA).
4. Only the US-Thai Treaty of Amity allows U.S. nationals and/or companies to hold majority or whole of the shares in companies to engage in business on the same basis as Thai companies but with certain requirements, i.e.:

– A minimum of 51% of shares must be of the citizens of the United States;

– At least half of the directors must be citizens of the United States.

The Treaty of Amity between the United States and Thailand, however, prevents US nationals/entities from engaging in the following restricted activities:

– Communication;

– Transportation;

– Fiduciary responsibilities

– Banking services that include depository functions;

– Property ownership;

– Land or other natural resource exploitation; and

– Domestic trade in indigenous agricultural products.

FBA issues regulations from time to time. It is to exclude certain foreigners’ service business activities, as detailed in Ministerial Regulations.

Your Take!

A business can get Ministerial Regulations exemption under the FBA. If not, every foreigner/foreign juristic person operating a business must apply for and receive FBL. This includes enterprises targeting finance activities as well. Foreign investors must do this before beginning operations.

Shareholding and/or trust unit holding are not eligible to participate in business subject to the FBA. Foreign investment through the acquisition of shares or holding of trust units does not require a foreign business licence.

If a foreigner conducts business in Thailand, he or she must also meet the minimum capital requirement. It is applicable even if they engage in business with foreign business licence requirement exemption.

Finally, as a foreigner, you should know about the specific Thai laws and regulations.  It is very important for any business you want to start in Thailand.

Above all, you must have proper legal guideline and knowledge of Thai Law. For that, you must consult with Law Firms engaged in Foreign Business Registration in Thailand. Konrad Legal is a full-service law firm working in the process since 2013. Please write your query to us at [email protected] so that we can do the needful for you at the earliest.