Thai Business Law
Foreigners operating businesses in Thailand and the Foreign Business Act
Thailand restricts or prohibits economical areas and business categories for foreigners primarily in the Foreign Business Act B.E. 2542 (A.D.1999) (FBA). Under the Foreign Business Act foreigners are prohibited from engaging in most business categories in Thailand, unless an alien business operation permit has been obtained from the Director-General of the Department of Commercial Registration with the approval of the Foreign Business Committee.
Separate laws control the foreign ownership of land as well as such activities as banking, insurance, finance and shipping.
When it comes to the intent to operate business as a foreigner in Thailand the approval requirement under the Foreign Business Act must be complied with.
More information (external):
- Thailand Board of Investment
- Thailand Department of Business Registration
The Foreign Business Act in Thailand divides businesses into three categories:
- List 1: Generally those businesses listed in Category 1 are absolutely prohibited to foreigners unless there is an exemption contained in a special law or treaty.
- List 2: Category 2 refers to businesses owned by aliens that were in existence and actually operating prior to the enactment of the Foreign Business law. These businesses were permitted to apply for a special Alien Business license and to continue operating. Foreigners, however, are not permitted to start new businesses listed in this category unless they obtain special permission from the Minister with the approval of the Cabinet.
- List 3: Category 3 businesses are treated in a manner similar to those in Category Two except that the power to grant an Alien Business License to foreigners who wish to start a new business is vested with the Director General and a committee.Exemptions are possible under the Treaty of Amity and Economic Relations between the Kingdom of Thailand and the United States of America. Also, the Board of Investment may grant exceptions for businesses covered by Lists Two and Three.
Operating a business under a Thai company
As it is very complicated or impossible to obtain a foreign business license most foreigners operate a business without a foreign business license or exemption even though these business categories are restricted or prohibited for foreigners. These foreigners have a work permit issued under a Thai company and operate their business through a Thai limited company. Thai company means under the current Foreign Business Act that half or more of the juristic person's shares are held by Thais. Foreigners are under the present (FBA) allowed to have majority voting rights and control in a Thai limited company through preference shares and weighted voting rights. The most popular form of business entity among foreign investors is therefore the private limited company.
A Thai company is not subject to the Alien Business Act and it is deemed that the business is operated by a Thai entity not alien and the company will in principle be regarded as a Thai company and therefor, as a Thai company, the company will not be restricted by the Foreign Business Act.
Restrictions on the use of Thai nominee shareholders
By using nominees and a preference share structure have been able to circumvent foreign ownership and business restrictions through Thai limited companies. The use of preference shares is allowed under the current Foreign Business Act, however the use of nominees by foreigners is and always has been illegal (sections 36 & 37 (FBA)).
The (previous) government announced plans to close this loophole by amending the Foreign Business Act. The amendments would mean that companies controlled by foreigners would be deemed foreign companies and would require a foreign business license or would need to restructure the company. The new law would not work retrospective but would affect existing companies. By law directors in a company must rotate yearly and be reelected. Under the new law (if it would become law) the company would make itself foreign by re-electing the foreigner as a sole director.
Main proposed amendments to toreigner definition under section 4:
- including foreign voting rights and control as a criterion in defining a company foreign (not passed)
- issue a clearer definition of what constitutes a nominee (not issued)
Current regulations restricting the use of nominees
The bar on the use of Thai nominee shareholder lies in the foreigner definition in section 4 of the Foreign Business Act, foreigner means a juristic person registered in Thailand having half or more of its capital shares held by the person under (1), (2) or (3), or a juristic person having the persons under (1), (2) or (3) investing with the value of half or more of its total capital.
New regulations (land office guidelines and business registration rules) continue on this principle and require in certain situations the Thai shareholders in a partly foreign owned company to show the source of their funding. According to new rules the Thai shareholders in a partly owned will be requested to submit evidence of financing used to hold shares, including bank statements and other documents.
The business registration rules do not determine the status of the Thai shareholders (nominee or not), there is no guarantee that the Thai company would be immune from investigation at a later date, it must prevent the use of Thai nationals as nominees.
Most of the foreign aimed accounting and law offices in the tourist areas like Samui, Pattaya and Phuket are now setting up companies as a 100% Thai owned and transfer after the registration of the company control and shares to the foreigner. In practice this prevents a first investigation when registering the company. It does not protect the foreigner from any future checks and investigations and if there is a breach with the Foreign Business Act or the company is set up as a 'land holding company' the foreigner is liable for severe penalties.
