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:
- It is established under foreign law
- Half or more of its capital is owned by foreigners even if the company is incorporated under Thai law (as opposed to a Thai Limited Company in which a foreign party can own up to 49 percent)
- Half or more of the value of the total capital being invested by foreigners even if more than half of the capital is owned by Thai nationals (put in place to block the use of Thai nominee shareholders)
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:
- Group One: Businesses related to national safety or security (e.g. production of firearms)
- Group Two: Businesses affecting traditional arts and culture (e.g. production of Thai musical instruments)
- Group Three: Business affecting natural resources or the environment (e.g. rock salt mining)
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.
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
- Newspapers, radio broadcasting, and television broadcasting
- Farming, animal husbandry, forestry, and fishery businesses
- Extracting Thai herbs
- Trade of Thai antiques
- Making or casting Buddha images and alms bowls
- Trading in land
Group One – Businesses concerning national security or safety
- Manufacturing, repair, or distribution of firearms, ammunition, etc.
- Manufacturing, repair, or distribution of armaments, ships aircraft, or military vehicles
- Manufacturing, repair, or distribution of any type of war equipment
- Domestic land transportation, water transportation, or air transportation (including domestic aviation)
- Trading of Thai works of art or handicrafts
- Wood carving
- Silkworm rearing, manufacturing of Thai silk, silk weaving, or printing
- Manufacturing of Thai musical instruments
- Manufacturing of goldware, silverware, and other precious metal jewelry
- Manufacturing of sugar from cane
- Salt farming, including rock salt farming
- Mining of rock salt
- Mining, including stone quarrying or crushing
- Timber processing for making furniture and utilities
- Rice milling and flour production from rice and plants
- Breeding of aquatic creatures
- Forestry from re-planting
- Production of plywood, veneer, chipboard, or hardboard
- Production of lime
- Accountancy (Need for business license may be waived in 2017)
- Legal services
- Agency or brokerage
- Retailing and wholesaling
- Hotel Operation (excluding hotel management) and tourism
- Sale of food and beverages
- Other services
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