Foreign Business Act (FBA)
Business laws in Thailand reserve certain rights only for Thai nationals. Therefore, foreign investors face certain restrictions when doing business in Thailand:
Juristic Persons in Thailand
The law separates foreigners in terms of juristic persons into two different kinds:
- Juristic person not registered in Thailand
- Juristic person registered in Thailand having the characteristics as follows:
- Limited company or public limited company whereby over 50% of its capital shares are owned by foreigner(s),
- Limited partnership or registered ordinary partnership whereby over 50% of its capital is invested by foreigner(s), or
- Limited partnership or registered ordinary partnership having a foreigner as the managing partner or manager.
Foreign Business Act Restrictions
According to Thailand Foreign Business Act B.E. 2542 (FBA), there are 3 types of business activities:
- List 1: Business Not Permitted to Foreigners
- List 2: Business Permitted to Foreigners under Conditions
- List 3: Business Not Yet Permitted to Foreigners
Lists 1, 2, or 3 of the Foreign Business Act in Thailand are subject to the limitations imposed by this Act.
- Activities that fall under List 1 are strictly prohibited to aliens.
- List 2 are prohibited to aliens unless permission is granted by the Cabinet.
- Businesses that are covered by List 3 are prohibited to aliens unless permission is granted by the Director-General of the Commercial Registration Department ("CRD").
Based on the above definition, if majority of the shares of a limited company are held by Thais, it is regarded as a Thai company and thus not subject to this Act. This means that aliens are generally allowed to participate up to 49% in a company engaged in restricted businesses. Beyond that, the approval requirement must be complied with. Strictly speaking, any company with majority of foreign shareholders is required to apply for the Foreign Business License (FBL) if it engages in a restricted business.
The minimum capital requirement for foreigners is two million baht in general, and three million baht for those under List 2 or List 3.
There are some exemptions which allow the foreigner to set up business in Thailand where majority of the owners are foreigners. The Thailand-United States Treaty of Amity is one of such exemption. Under this treaty, the majority of share and director have to be U.S. citizens to enjoy the exemption from FBL.
Similar to the Thailand-United States Treaty of Amity, the Thailand Board of Investment (BOI) is another exemption which might allow foreigners to operate their businesses in Thailand by holding majority of share. Foreign investors may hold a majority or all shares in promoted project depending on the BOI consideration. Such BOI-promoted company will not be restricted under FBA.
Foreigners wishing to engage in businesses indicated in List 2 or List 3 of Foreign Business Act in Thailand need to obtain a "Foreign Business License" from the relevant authorities before starting their business operations.
An application should be filed with the Commercial Registration Department, which will be reviewed by the Cabinet or Foreign Business Committee, as the case may be. Various criteria are used to consider the impact of the proposed business operation, such as the advantages and disadvantages to the nation's safety and security, economic and social development, size of enterprise, local employment, etc. Approval of business license application is more likely when the authorities view the business as providing significantly more benefits and protect and promote Thai interests.
The application process can be at times very time consuming with unpredictable outcomes. The Foreign Business License application is a complicated long process; in general, most of foreign investors will rarely go through this process even if they had a serious chance to get it. On the other hand, they will not hesitate to submit the BOI application even when there are only a few chances that it might be promoted.