Thailand is an attractive destination for foreign investment, and investments that contributes to the development of skills, technology, innovation, and development, are actively promoted. However, some sectors are subject to foreign equity restrictions governed by the Foreign Business Act 1999 (FBA).
Under the FBA, a company that is not registered in Thailand or it is registered in Thailand but half or more than half of its shares are held by non-Thai natural or juristic persons, is considered a foreign company.
In Thailand, there are 43 categories of business activities, divided into three lists, which are subject to different levels of restrictions for foreigners.
This includes businesses such as newspaper publication and radio broadcasting or television stations, rice farming, animal husbandry, fishery in Thai territorial waters and exclusive economic zones in Thailand, forestry, land trading, or trade and action sale of Thai antiques or objects of historical value.
Foreigners are prohibited from operating these activities and therefore they cannot, under any circumstances, obtain a Foreign Business License.
This includes businesses involving national safety or security, including the arms trade, domestic aviation business, businesses affecting arts, culture, traditional customs and folk handicrafts, and businesses affecting natural resources or the environment.
To operate these activities, a foreigner would require a license from the Department of Business Development (DBD), Ministry of Commerce and an approval from the Thai Cabinet. Additionally, the company must be owned at least 40% by Thai natural or juristic persons (note only 25% if the Minister of Commerce and the Cabinet have given special approval) and at least two-fifths of its managing directors would have to be Thai nationals.
This includes businesses in which Thais are deemed not ready to compete, and include all service businesses (accounting, legal, architecture, engineering, and any other category of service business except those prescribed in the ministerial regulations), as well as retail (unless the company’s registered capital is THB 100 million or more), hotel business, tourism, advertising, selling food and beverages, construction (with some exceptions), and others.
To operate these activities, companies can be 100 % foreign owned, without the need of a Thai shareholder, but must apply for a license before commencing operations.
For legally conducting a business in Thailand, foreigners must possess a Foreign Business License prior to commencing operations.
An application for a FBL should be filed with the Commercial Registration Department of the Ministry of Commerce, which will be reviewed by the Cabinet or Foreign Business Committee, as the case may be.
Requirements for getting a Foreign Business License:
• The minimum capital shall not be less than 2 million Baht (3 million for activities under List 3)
• Transfer of Know-How to Thai workers
• Advantage for Thailand from the engagement of the foreign company in Thailand (improvement of environment, economy)
• Employment of foreign staff under the ratio 4 Thai employees to 1 foreign employee
• No effect to other Thai companies (competing in the same field of operation)
The Ministry of Commerce (MOC) officials accepts the Foreign Business License application together with all required documents and information, and the Foreign Business Committee must review of the application and decide upon it within 60 days of submission.
If the application is rejected, the MOC must inform the applicant within 15 days of the decision. The notification of rejection must be in writing and expressly state the reasons why the application was rejected.
The applicant has the right to appeal the decision within 30 days of the date on which he received the rejection notice. The Minister of Commerce is required to rule on the appeal within 30 days of receipt. The decision of the Minister shall be final.
Further restrictions on foreign ownership in specific sectors such as telecommunications, banking, or insurance are regulated by specific laws, such as the Telecommunications Business Act 2006, the Financial Institution Business Act 2008, the Life Insurance Act 1992, and the Non-Life Insurance Act 1992.
Exceptions to the FBL requirement
Exceptions from the restrictions of the FBA can be granted as promotional privileges by the BOI, IEAT or, as a temporary measure in the form of government approval issued by the Thai government. A limited company with the sole purpose of distribution is free from this license requirement if it maintains a registered share capital of at least 100 million Baht for retailing or wholesaling, or 200 million Baht for both activities.
Exceptions can also be provided based on international treaties that Thailand has entered into. Based on the Treaty of Amity and Economic Relations between Thailand and the United States (Treaty of Amity), U.S. companies or nationals, can be eligible for “national treatment,” with some exceptions.
Other international treaties, such as the Thai-Australia Free Trade Agreement (TAFTA), the Japanese Thai Economic Partnership Agreement (JTEPA), the ASEAN Comprehensive Investment Agreement (ACIA), and the ASEAN Framework Agreement on Services (AFAS) also provide some exceptions. Qualified entrepreneurs may file an application for obtaining a Foreign Business Certificate from the Director-General of the Department of Business Development at the Ministry of Commerce.
The ASEAN Framework Agreement on Services (AFAS) and the ASEAN Comprehensive Investment Agreement (ACIA) allow ASEAN investors to hold shares up to 100%, 70%, 60% or 51% in a locally incorporated company engaging in specified restricted activities under the FBA without a need to obtain any license. However, the investors must apply for a Certificate of AFAS or ACIA Protection with the Department of Business Development.
Since June 2017, service businesses under a contract with a government authority or public enterprise, as well as foreign juristic person’s representative offices in the area of international trade business are exempted from the requirement to apply for a Foreign Business License. The contractors are required to only notify the Ministry of Commerce of their business operations to obtain a registration number.