Foreign Business License Thailand
Business laws in Thailand reserve certain rights only for Thai nationals. Therefore, foreign investors face certain restrictions when doing business in Thailand. The Foreign Business Act (FBA), B.E. 2542 (1999) is enacted to govern business operations and activities involving foreign nationals and entities.
Who are considered foreigners under the Foreign Business Act?
Section 4 of the FBA defines a foreigner as the following:
- A natural person who is not of Thai nationality;
- A juristic person not registered in Thailand;
- 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).
- A juristic person registered in Thailand 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.
It is important to note the qualifications and basic requirements for foreigners intending to apply for a Foreign Business License. Section 16 of the FBA lists the following qualifications and must not be under prohibitions as follow:
- being of not less than twenty years of age;
- having a residence in the Kingdom or having been permitted to enter the Kingdom temporarily under the law on immigration;
- not being an incompetent or a quasi‐incompetent person;
- not being a bankrupt;
- not having been punished by a court judgment or ordered to pay a fine in settlement of any offense under this Act or under the Notification of the National Executive Council No. 281, dated 24th November B.E. 2515 (1972), unless having been discharged for a period of not less than five years prior to the date of the application for the license;
- not having been imprisoned by a court judgment for offenses of cheating, cheating creditors, misappropriation or offenses related to trade under the Penal Code or the offenses related to loans fraudulent to the public or the offenses under the law on immigration, unless having been discharged for a period of not less than five years prior to the date of the application for the license;
- not having a license issued under this Act or under the Notification of the National Executive Council No. 281, dated 24th November B.E. 2515 (1972) revoked within the period of five years prior to the date of the application for the license.
In the case where a juristic person is an applicant, foreign directors, managers or persons responsible for the operation of such juristic person must also have the qualifications and must not be of any prohibition specified in paragraph one.
Foreign Business Act Restrictions
There are 3 types of business activities provided for under the Foreign Business Act:List 1: Business Not Permitted to Foreigners
The following businesses are not permissible to foreigners, in its strict sense, by special reason:
- 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.
Section 15 of the FBA provides that foreigner which is a juristic person may operate any business specified in List Two only where not less than forty percent of its shares are held by Thai nationals or juristic persons which are not foreigners under this Act.
Business activities fall under List Two are those 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 Respect of Which Thai Nationals Are Not Yet Ready to Compete with Foreigners
Activities stated in List 3 are designated as businesses in which Thai nationals are not yet ready to compete with foreigners. In order for foreigners to engage in activities stated in List 3, the foreign company must apply for and obtain a Foreign Business License prior to commencing the activity. The following business activities are listed as follows:
- 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.
Based on the above definition, if the 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 in up to 49% in a company engaged in restricted businesses. Beyond that, the approval requirement must be complied with. Strictly speaking, the majority of foreign shareholders in any company 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 that allow the foreigner to set up business in Thailand where the 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 the majority of share. Foreign investors may hold a majority or all shares in a promoted project depending on the BOI consideration. Such BOI-promoted company will not be restricted under FBA.
Application of Foreign Business License in Thailand
Foreigners wishing to engage in businesses indicated in List 2 or List 3 of the 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 Business 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 the 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 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.
If you have questions related to Foreign Business Licensing, feel free to contact us.