Foreign Business Act

The Foreign Business Act B.E. 2542 (1999) is the primary law governing foreign investment in Thailand, establishing restrictions on foreign ownership and participation in various sectors of the Thai economy. The FBA aims to protect local industries while encouraging foreign investment in targeted sectors that promote national economic development.

The Act divides business activities into three restricted lists, each with different levels of foreign ownership and participation allowed. Compliance with the FBA is essential for any foreign company or investor seeking to conduct business in Thailand.

II. Legal Basis and Statutory Authority

A. Governing Law

• Foreign Business Act B.E. 2542 (1999) – The primary law regulating foreign businesses in Thailand.

• Ministerial Regulations under the FBA – Define licensing procedures, exemptions, and compliance requirements.

• Cabinet Resolutions – Allow for amendments or exemptions to the FBA in special circumstances.

B. Purpose of the Foreign Business Act

• To protect sensitive sectors and industries critical to national security, cultural heritage, and economic stability.

• To regulate foreign participation in the Thai economy through licensing and ownership restrictions.

• To ensure that foreign investments benefit the Thai economy.

C. Regulatory Authorities

• Department of Business Development (DBD), Ministry of Commerce – Manages the licensing and compliance of foreign businesses.

• Foreign Business Committee – Reviews and approves licenses for certain restricted businesses.

• BOI (Board of Investment) – Provides exemptions for BOI-promoted businesses in targeted industries.

III. Definition of Foreign Entity under the FBA

A “foreigner” under the FBA is defined as:

1. Natural Persons: Individuals who are not Thai nationals.

2. Juristic Persons Registered Outside Thailand: Foreign companies.

3. Juristic Persons Registered in Thailand with Majority Foreign Ownership:

   • Foreign ownership exceeding 50% of shares.

   • Majority foreign control of voting rights.

4. Partnerships: Partnerships where foreign individuals or entities hold a majority interest.

A. Nominee Arrangements (Prohibited)

• Using Thai nationals as nominees to hold shares on behalf of foreigners is illegal under Section 36 of the FBA.

• Violations may result in fines, imprisonment, and revocation of business licenses.

IV. Structure of Restricted Business Activities (Three Lists)

The FBA divides restricted businesses into three annexed lists, each with different levels of restriction:

A. List 1: Absolutely Prohibited Businesses

• Foreign ownership is strictly prohibited.

• Reserved exclusively for Thai nationals.

• Examples:

  • Newspaper publishing, radio broadcasting, and television.

  • Land trading.

  • Rice farming, livestock farming, and other agricultural activities.

  • Forestry and logging.

  • Thai traditional medicine and herbal medicine.

B. List 2: Businesses Related to National Safety, Arts, Culture, and Natural Resources

• Foreign ownership is permitted only with Cabinet approval.

• Thai nationals must hold at least 40% of shares, and at least two-fifths of the board of directors must be Thai nationals.

• Examples:

  • Domestic transportation.

  • Manufacturing of firearms, ammunition, and explosives.

  • Mining and gemstone trading.

  • Trading in Thai arts and antiques.

C. List 3: Businesses in Which Thai Nationals Are Not Yet Ready to Compete

• Foreign ownership is allowed with a Foreign Business License (FBL) issued by the DBD.

• Examples:

  • Legal, accounting, and architectural services.

  • Advertising and media production.

  • Restaurant and hotel management (excluding hotel operation).

  • Retail and wholesale trade with low capital requirements.

V. Licensing Process under the Foreign Business Act

A. Foreign Business License (FBL)

• Required for foreign entities engaging in List 3 businesses.

• Application must be submitted to the DBD, including:

  • Business plan and financial projections.

  • Proof of minimum registered capital (THB 3 million or higher).

  • Corporate structure and list of shareholders.

  • Lease agreements (if operating from a physical location).

B. Review by the Foreign Business Committee

• The Committee may request additional information or clarifications.

• Factors considered:

  • Economic benefits to Thailand.

  • Technology transfer potential.

  • Employment of Thai nationals.

C. Licensing Conditions

• The FBL may include conditions such as:

  • Minimum Thai employment requirements.

  • Reporting obligations (annual or quarterly).

  • Restrictions on profit repatriation.

D. Timeframe for Approval

• Typically 30–60 days for List 3 applications.

• Up to 90 days for List 2 applications requiring Cabinet approval.

VI. Exemptions to the Foreign Business Act

A. Treaty Exemptions

• Treaty of Amity (USA–Thailand): U.S. citizens and U.S.-owned companies may engage in most business sectors without an FBL, except for restricted industries (e.g., land, broadcasting).

• JTEPA (Japan-Thailand Economic Partnership Agreement): Provides exemptions for Japanese companies in specific service sectors.

• TAFTA (Thailand-Australia Free Trade Agreement): Similar exemptions for Australian companies.

B. BOI-Promoted Companies

• Companies promoted by the Board of Investment (BOI) are exempt from the FBA for approved activities.

• BOI promotion provides significant benefits:

  • 100% foreign ownership.

  • Corporate income tax exemptions.

  • Fast-track work permits for foreign employees.

C. IEAT (Industrial Estate Authority of Thailand)

• Companies located in Industrial Estates may be exempt from FBA restrictions.

VII. Minimum Capital Requirements

A. Registered Capital

• Minimum capital for foreign businesses is THB 3 million per activity.

• For treaty-exempt businesses, this may be reduced or waived.

• For branch offices of foreign companies, the minimum capital is THB 3 million per branch, which must be remitted from abroad.

B. Compliance Obligations

• Foreign companies must maintain fully paid-up capital.

• Annual reports must be submitted to the DBD.

VIII. Compliance and Enforcement

A. Reporting Obligations

• Annual submission of financial statements to the DBD.

• Notification of any change in shareholders or directors.

• Disclosure of beneficial ownership if requested.

B. Inspections and Investigations

• The DBD may conduct inspections to ensure compliance.

• Violations may result in:

  • Fines of up to THB 1 million.

  • Imprisonment for up to 3 years for directors.

  • Revocation of the Foreign Business License.

C. Prohibition of Nominee Structures (Section 36)

• Foreigners may not use Thai nominees to circumvent ownership restrictions.

• Violations may result in severe penalties, including criminal charges.

IX. Practical Considerations for Foreign Investors

• Foreign investors must carefully assess whether their planned activities fall within List 1, 2, or 3.

• If seeking to operate in List 3, obtaining an FBL is essential.

• Companies with substantial local operations should consider BOI promotion to avoid FBA restrictions.

• Nominee structures are strictly prohibited and monitored by the DBD.

X. Conclusion

The Foreign Business Act of Thailand is a critical piece of legislation for any foreign investor seeking to operate in the country. It balances foreign investment with local industry protection, ensuring that foreign participation is regulated in sensitive sectors.

Foreign investors must ensure compliance with the FBA, including registration, reporting, and operational restrictions. Given the complexity of the law, professional legal consultation is recommended for all foreign businesses.