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Understanding the Foreign Business Act in Thailand
31/05/2022
Thailand has become an attractive hub for businesses looking to establish a presence in Asia. While Thailand actively looks to attract foreign businesses, there are certain business activities which are set aside for Thai nationals only. The Foreign Business Act (FBA) was introduced as a way to govern business activities involving foreign nationals and entities.
While certain activities are reserved for Thai nationals under the FBA, it is possible for foreign entities to legally undertake these activities by obtaining a Foreign Business License (“FBL”) from the Department of Business Development.
Key points
- The Foreign Business Act restricts foreigners or foreign owned companies from undertaking over 50 business activities.
- In Thailand, if 50% or more of a company’s shares are owned by a foreigner, it is deemed foreign owned. The definition takes into account the “ownership” and not the effective control of the company.
- In order for a foreign owned entity to be able to engage in any of the 50 prohibited activities a Foreign Business Licence is needed.
- In practice, many foreigners operate under a majority Thai owned company, to avoid the restrictions of the FBA. This is usually done with a preference share structure to allow foreign control. It should be noted that that the use of Thai nominee shares is forbidden under the FBA.
Who does the Foreign Business Act consider a foreigner?
The FBA restricts foreigners or foreign owned companies from undertaking over 50 categories of business activities in Thailand. But what constitutes a ‘foreigner’ or ‘foreign owned company’ under the FBA?
Section 4 of the FBA states the following:
1) A natural person who is not of Thai nationality;
2) A juristic person not registered in Thailand;
3) A juristic person registered in Thailand, being of the following descriptions:
- Being a juristic person at least one-half of capital shares of which are held by persons under (1) and (2) or a juristic person in which investment has been placed by the persons under (1) or (2) in the amount at least equivalent to one half of the total capital thereof; and
- Being a limited partnership or a registered ordinary partnership, the managing partner or the manager, of which is the person under (1).
4) A juristic person registered in Thailand with at least one-half of the capital shares of which are held by persons under (1), (2) or (3) or a juristic person in which investment has been placed by the persons under (1), (2) or (3) in the amount at least equivalent to one half of the total capital thereof.
Ownership of a Thai company under the Foreign Business Act?
In relation to the 50 restricted business activities established under the FBA, foreign ownership of a limited company is capped at a maximum of 49.99% (unless an FBL or a BOI promotion has been obtained). If 50% or more of the shares of a company are owned by a foreigner, it is considered a foreign company.
However, being a minority shareholder in a Thai Limited company does have some advantages over a 100% foreign-owned company. For example, a company which has less than 50% foreign owned shares is considered a Thai company, and therefore, not subject to the restrictions of the FBA.
It is possible for foreigners to have control of a Thai Limited company while still adhering to the ownership requirements of the FBA. This is due to the Thai interpretation of the law being about ownership and not control of a company. Under the FBA, Foreigners are allowed to have majority voting rights and control in a Thai limited company through preference shares and weighted voting rights.
It is important to note that the use of nominee shares in Thailand is expressly prohibited by the Foreign Business Act. A nominee shareholder is a person (Thai National) who has shares in a company but has no legal rights or ability to control nor manage the company.
What are the restricted activities established by the Foreign Business Act?
The FBA restricts foreigners from undertaking about 50 types of business. These business activities have been grouped into three lists.
- List one includes newspaper businesses, animal farming, land trading and other activities. Foreigners are prohibited from operating businesses in list one for “special reasons” and there is no approval available for a foreigner or foreign entity to obtain.
- List two has three groups and includes businesses related to national security and domestic land, waterway, or air transportation (including the domestic airline business). Foreigners or foreign entities can operate a business engaged in list two activities if approval has been given by the Minister of Commerce and the Cabinet. However, it is very difficult to obtain such approval.
- List three Foreigners and foreign entities are prohibited from engaging in list three activities on the grounds that “Thai nationals are not ready to compete” with foreigners. It is possible for foreigners and foreign entities to receive approval from the Director-General of the Commercial Registration of the Department of Business Development and the Foreign Business Committee for these activities. List three consists of “other categories of service business except those prescribed by ministerial regulations”.
For a full list of the restricted business activities, please see below.
List 1: Business not permitted to foreigners
The following businesses are not available to foreigners, unless special permission has been granted:
- The press, radio broadcasting station or radio and television station business;
- Rice farming, plantation or crop growing;
- Livestock farming;
- Forestry and timber processing from a natural forest;
- Fishery, only in respect of the catchment of aquatic animals in Thai waters and specific economic zones of Thailand;
- Extraction of Thai medicinal herbs;
- Trading and auction sale objects or objects of the historical value of Thailand;
- Making or casting Buddha images and monk alms-bowls; and
- Land trading.
List 2: Business Permitted to Foreigners under certain conditions
Section 15 of the FBA provides that a foreigner who is a juristic person, may undertake any business stated in List Two, if no less than fifty percent of the companies shares are held by Thai nationals or juristic persons which are not classed as foreigners under the FBA.
Business activities include:
- businesses related to national safety or security or
- having an impact on arts, culture, traditions, customs and folklore handicrafts or
- natural resources and the environment.
List 3: Businesses in which Thai nationals are not ready to compete with foreigners
The activities stated below are designated as businesses in which Thai nationals are not yet ready to compete with foreigners:
- Rice milling and production of flour from rice and economic plants;
- Fishery only in respect of the hatching and raising of aquatic animals;
- Forestry from a grown forest;
- Production of plywood, veneer wood, chipboards or hardboards;
- Production of lime;
- Provision of accounting services;
- Provision of legal services;
- Provision of architectural services;
- Provision of engineering services;
- Construction, with the exception of:
- Construction of structures for delivery of infrastructure public services in the sphere of public utilities or transportation requiring the use of special apparatuses, machines, technology or expertise, with the minimum capital of five hundred million baht or upwards from foreigners;
- Construction of other types as prescribed in the Ministerial Regulation
- Brokerage or agency businesses, with the exception of:
- being a broker or an agent in the sale or purchase of securities or in services related to futures trading of agricultural commodities or financing instruments or securities;
- being a broker or an agent in the sale, purchase or procurement of goods or services necessary for the production or the provision of services amongst affiliated enterprises;
- being a broker or an agent in the sale or purchase, procurement, distribution or acquisition of domestic and foreign markets for the distribution of domestically manufactured or imported goods, which is in character the operation of international trade, with the minimum capital of one hundred million baht or upwards from foreigners
- being a broker or an agent of other types as prescribed in the Ministerial Regulation
- Sale by auction, with the exception of:
- a sale by auction which, in character, involves international bidding of items other than antiques, objects of antiquity or artistic objects that are artistic works or handicrafts or objects of antiquity of Thailand or of historical value of the country;
- sales by auction of other types as prescribed in the Ministerial Regulation 20
- Internal trade related to traditional agricultural products or produce not yet prohibited by law;
- Retail sale of goods of all types with the total minimum capital in the amount lower than one hundred million Baht or with the minimum capital of each store in the amount lower than twenty million baht;
- Wholesale of all types with the minimum capital of each store in the amount lower than one hundred million baht;
- Advertising business;
- Hotel business, with the exception of the hotel management service;
- Guided touring;
- Sale of food and beverages;
- Cultivation, propagation or development of plant varieties;
- Other service businesses, with the exception of service businesses as prescribed in the Ministerial Regulation.
Foreign Business Licenses
If a foreign entity wishes to engage in any of the activities listed in List 2 or List 3 of the Foreign Business Act in Thailand, they will need to obtain a “Foreign Business License”.
In order to apply for a Foreign Business Licence, an application must be filed with the Business Department, and reviewed by the Cabinet or Foreign Business Committee.
When considering applications, various criteria will be considered. Examples include:
- the advantages and disadvantages to the nation’s safety and security,
- economic and social development,
- size of the enterprise and
- local employment opportunities, etc.
Approval of a business license application is more likely when the authorities view the business as:
- providing significantly more benefits,
- protecting and promoting Thai interests and
- not being in direct competition with Thai owned businesses.
What is the application process and how long does it take to get a Foreign Business License?
A foreign company interested in obtaining a FBL must submit an application and any necessary documents to the Director-General of the Department of Business Development.
The Director-General will make a decision regarding the application within 60 days from filing the application. The Director-General will then issue the license within 15 days after the approval date. In practice, the process takes around 6 months and there is no guarantee the applicant will obtain it.
How can our team of experts help?
While foreign owned entities are restricted from undertaking certain business activities under the Foreign Business Act, it is possible for such companies to apply for a Foreign Business Licence in order to legally be able to do so. However, in practice there are some business activities for which a Foreign Business License would never be granted and there is no guarantee you will receive a Foreign Business Licence after application.
In order to learn more about the Foreign Business Licence or incorporation matters in general, please feel free to book a consultation with our experts.
Alternatively, If you have an existing matter and you need assistance from our experts, you can post a job request here. Our experts will review the request and refer back to you with more details as soon as possible
Please note that this article is for information purposes only and does not constitute legal advice.
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