Making Sense of Thailand’s Foreign Business Act

By ASEAN Briefing

Posted: 31st January 2017 08:20

Following Thailand’s 2014 coup, there were suggestions that the incoming military-led government would implement protectionist policies that would restrict investment into the country by foreign firms. However, in the years that followed there was a significant shift in the outlook of Thailand’s leaders. Barriers were lowered and restrictions reduced in a number of industries; this resulted in over US$9 billion of inward foreign direct investment (FDI) in 2015.

Research from the Economist Intelligence Unit suggests that Thailand will continue to encourage inward investment over the next few years in order to push the economy towards high income status. This is highlighted by recent amendments made (and further amendments scheduled for 2017) to the Foreign Business Act – the predominant legislation governing foreign investment in Thailand. This article will outline the key points of the Foreign Business Act, including the recent update, and what this means for potential entrants.

Thailand’s Foreign Business Act

The Foreign Business Act was introduced in 1999, superseding the Alien Business Law (1972), and applies to all foreign businesses in Thailand. According to the Foreign Business Act, a business is considered foreign if it fits one of the following criteria:
The Foreign Business Act divides industries into three categories, based on the level of restrictions placed on that industry (the full list can be found at the end of this article). List One contains “businesses that foreigners are not permitted to engage in for special reasons”. These are completely closed to foreign investment and include a range of businesses from strategic industries such as newspapers and radio stations, to businesses related to religion (e.g. making Buddha images) which are prohibited in order to protect local customs and traditions. In addition, the Foreign Business Act prohibits foreign businesses from trading in land. This is in line with Thai Land Laws, which forbid the ownership of land by foreign individuals or entities. Nevertheless, foreign companies with substantial investments benefiting the Thai economy may be given special privileges by the Board of Investment.
List Two industries are restricted, meaning that foreign companies require prior approval and the issue of a license from the Minister in the Government Gazette. Further, no less than 40 percent of shares and positions on the board of directors in these industries must be held by Thai nationals. The shareholding percentage may be reduced to 25 percent in some cases, with the authorization of the relevant ministers. List Two businesses are categorized into the following three groups:
Finally, List Three includes businesses in which “Thai nationals are not yet ready to compete with foreigners”. A wide range of businesses are covered by List Three, from construction to legal services. Similar to List Two, these businesses require a Foreign Business License. However, in this case the license is issued by the Director General of the Foreign Business Committee. Businesses in List Three are not required to have Thai shareholders, meaning that the company can be 100 percent foreign owned.

Although appointing Thai nominee shareholders (an unrelated third party who is registered as the holder of shares) may seem an attractive way to meet local shareholding needs without giving up decision-making power, the Foreign Business Act puts strict punishments on the table for those who attempt to disguise foreign ownership. Section 35 of the Act states that foreigners in violation of the nominee shareholding rules shall face a maximum of three years in jail or a fine of up to THB 1 million. Hence, it is advisable to avoid this situation completely and register the company correctly, either as a Thai Limited Company (maximum 49 percent foreign shareholding) or a foreign owned company, depending on the ownership structure.

The final point of note of the Foreign Business Act is the capital requirements for doing business in Thailand. Generally, the minimum registered capital required to start a business is THB 3 million. However, this can be reduced if the industry in question is being promoted by the Thai Board of Investment at the time of entry.

Recent amendments

The Thai government is working tirelessly to promote and realize its ‘Thailand 4.0’ model through which it hopes Thailand will become a high income and extensively connected ‘smart economy’. One aspect of this strategy is attracting foreign investment into business infrastructure and service industries such as banking and financial services. Accordingly, in 2016 regulations were loosened on banking (specifically, commercial banking and representative offices of foreign banks) and insurance investments. These previously List Three industries now no longer require a Foreign Business License issued by the Director General, making it easier and quicker to enter the market. Furthermore, plans are in place to extend this waiver to all financial services and telecommunications investments in 2017.

Alongside the aforementioned amendments, the Thai Board of Investment regularly promotes specific industries and fast-tracks investment approvals. This often includes the granting of permits to own land and easing of other Foreign Business Act regulations. As such, it is essential to keep abreast of current promotional activities and directives by government agencies in order to make the most of the incentives on offer.

Prohibited and restricted businesses in Thailand

List One – Foreign Investment Prohibited
List Two – Restricted (Requires Foreign Business License and 40 percent Thai shareholders and board members)
Group One – Businesses concerning national security or safety
Group Two – Businesses that could have an adverse effect on culture and customs
Group Three – Businesses that could have an adverse effect on natural resources or the environment
List Three – Restricted (Requires Foreign Business License)
This article was first published on ASEAN Briefing

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India, and ASEAN, we are your reliable partner for business expansion in this region and beyond.
For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.

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