Thailand has been traditionally one of the main recipients of foreign investment in South East Asia. In the era of globalization and economic integration, investing overseas is a common business practice worldwide. Thailand as one of most targeted countries in the region to invest, has its own regulations and criteria in terms of legal compliance for operating a business.
From the perspective of H&P lawyers in Bangkok, the regulation concerning Foreign Direct Investment (FDI) has improved significantly in Thailand during the last decade. However, there are still have various restrictions and not friendly regulations under Foreign Business Act B.E.2542 (1999) as amended (FBA). To start with, the definitions of Thai and Non-Thai nationals in order to grant permission to operate businesses and which businesses are permitted to operate in the country of Thailand is one of the first well known traditional barriers for foreign investment.
Secondly, we should not think only in terms of FBA, as the Board of Investment of Thailand (BOI) also plays an important role by promoting foreign investment in Thailand as well. BOI maintains policy of providing special consideration to both: domestic and foreign investment projects. Under the Investment Promotion Act, investors will receive benefits including Tax and Non-tax incentives.
At the end, the criteria of the legal counsels to give the correct advice on complying with FBA or BOI will be based on the project that the foreign investor wants to develop in Thailand.
We would like to start by providing some key information on the regulation of the Foreign Business Act. This law addresses the categories of businesses which are allowed and not allowed for foreigners to own and operate. Under this Act, it defines foreign as if half or more of its shares are held by non-Thai citizens or foreign juristic persons. In addition, the FBA reserves certain business activities for Thai nationals, and limits the ability of foreigners to engage in those activities.
The list of restricted businesses under this Act includes Agricultural, Industrial, handicrafts, trade and commercial, services, and etc. As the principal law which limits foreign ownership in Thai businesses, the FBA separates businesses into three lists as follows:
List ONE Businesses that are strictly reserved for only Thais (Thai person, or Thai company which comprise of 51% up Thai shareholder): this list includes 9 business activities.
List TWO Businesses that are in related and concerning national security or safety that could have impact on art and culture, customs, or native manufacture, or with an effect on natural resources These businesses are subdivided into three separate groups in 13 business activities.
List THREE Businesses that are prohibited for non-Thais which are businesses that Thais are not capable of competing foreigners, unless permission is granted by the Director General of the Department of Business Development with the approval of the Foreign Business Board in 21 different businesses.
After pointing the essence of the regulation, we must say that the criteria for foreign shareholding in business projects are as follows:
1) Business activities are not reserved for Thais or restricted to foreigners under the FBA under List One annexed to the FBA, Thai nationals must hold shares totaling not less than 51% of the registered capital (under article 17), or
2) It has obtained a foreign business license or foreign business certificate, as well as acquire investment promotion under the BOI (under article 12), or
3) Under the protection of an international treaty to which Thailand is a party, such as the Thai-Australia FTA or JTEPA. (under article 11)
H&P lawyers usually receive many enquiries on Foreign Business License and we understand that there is a common lack of knowledge on FBL and the proceeding to obtain this. Therefore, we will refer now to the proceeding to obtain Foreign Business License (FBL) as follows:
1)Applying for FBL on businesses in Annex List Two under FBA article 17. The foreigner can apply the FBL via Minister of Commerce with the approval of the Cabinet. The examination process will take 60 days or will be extended not more than 60 days. After this, the cabinet shall grant the license within 15 days. In terms of rejection, the minister has to inform the applicant in written within 30 days.
2)FBL under annex List Three article 17. The foreign applicant can apply FBL at DBD via the Director General of the Department of Business Development with the approval of the Foreign Business Board. The examination process takes 60 days. After the permission result is announced, the Director General of DBD shall grant the license within 15 days. On the businesses on List Three, if the application be rejected, the Director General shall inform the foreign applicant within 15 days after the rejection with crystal-clear reason and the applicant has right to appeal the order to Minister within 30 days after being informed and the appeal will take 30 days to finalize.
3)Regarding applying a license under FBA article 12, based on this article, the foreigner has obtained investment promotion permission to operate business under Investment Promotion Act or permission in written under The Industrial Estate Authority of Thailand (IEAT). If such permitted businesses fall on List Two and List Three of FBA, the foreigner can summit to obtain foreign business certificate to the Director General. The Director General or authorized officer after receive the application have to examine the accuracy of promotion certificate or industrial or export license and shall grant certificate within 30 days after being informed the promotion certificate or industrial/export license. In this case, these foreign business activities shall not be fallen to FBA except on article 21,22,39,40 and 42 until the such promotion certificate or industrial or export license expire.
4)After receive the license, the foreigner can register the company and operate business in Thailand. Even though the foreigner has obtained the License and is able to operate business in Thailand, the foreign Company or Foreigner still is responsibly to comply with oversea money transfer, carry out the license conditions etc.
If you require legal assistance on Foreign Business License (FBL), please contact our lawyers in Bangkok at [email protected]
