Foreign Business: Wholesale and Retail Minimum Capital Requirements

The Foreign Business Act of 1999 restricts both wholesale and retail businesses from foreign investment, with exceptions depending on the amount of minimum capital. However, the conditions under which a foreign business may engage in either is not exactly the same and furthermore the issue is complicated by other minimum capital requirements in the Act. The Act itself does not define the exact difference between wholesale and retail. However, in an advisory opinion published on July 2015, the DBD addressed the issue.

The sale of a product which the foreign business did not produce by itself through a sales agent whereby the sales agent will receive a commission according to an agreement falls within the category of “retail business” according to Annex Three (14). Legally, this situation would be considered the sale of goods directly to the consumer whereby the use of a sales agent is one possible channel of retail.

The sale of a product which the foreign business did not produce through a distributor falls within the category of “wholesale” according to Annex Three (15).

Where the foreign business hires another firm to produce advertising for the products and pays service fees whereby the value of the products equals the service fees, such an activity is not considered the conduct of business according to the Foreign Business Act and does not require a Foreign Business License.

The export of a product for distribution overseas does not fall within any restricted category annexed to the Foreign Business Act and a foreign business engaging such activity does not require a Foreign Business License. However, Section 14, paragraph one applies and requires that a foreign company have a minimum capital of at least 2 million baht for the start of business operations in Thailand.

In the event that a foreign business has a majority foreign ownership and wishes to engage in a business defined as either “retail” or “wholesale” above, such a business is required to apply for a Foreign Business License, which must be issued by the Director-General of the Department of Business Development, with approval from the Foreign Business Committee. However, the exception is if the minimum capital, (this refers to shares that have been paid-in by the shareholders already) for either the retail or wholesale business is at least 100 million baht (for each business). As for the retail business, a minimum capital of 100 million baht allows for up to five shops, while for the wholesale business it allows for up to only one. Furthermore, the aforementioned amount of registered capital is to be allocated for either the wholesale or retail business only, and cannot be counted towards the registered capital of the company as specified by the Foreign Business Act or other laws.

Foreign business restrictions in Thailand are complex. Foreign investors interested in Thailand are advised to consult with competent Thailand lawyers.

 

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Category: Administrative Law, Business in Thailand, Company Registration

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