CORE RESTRICTIONS ON FOREIGN INVESTMENTS

 

In the course of your starting up of a business in Thailand, you will face a number of legal restrictions, including the core restrictions on foreigner's conducting of almost businesses in Thailand, the prohibition on foreigner's landholding, immigration requirements, restrictions on foreigner working in Thailand, as described below.

 

 

FOREIGN BUSINESS ACT

 

A core restriction imposed on foreigner carrying on business in Thailand is the Foreign

Business Act B.E. 2542 (A.D. 1999).

 

Definition of Foreigner

 

The Act defines the term “foreigner” as:

 

(1)  a non-Thai natural person

 

(2)  a juristic person not registered in Thailand

 

(3)  a juristic person registered in Thailand, with at least one half of its capital stake held by a person under (1) or (2), or a juristic person with at least one-half of its total registered capital invested by a person under (1) or (2)

 

(4)  a limited partnership or a registered ordinary partnership the managing partner or the manager of which is a non-Thai natural person

 

(5)  a juristic person registered in Thailand with at least one-half of its capital shares held by persons under (1), (2), (3) or (4) or a juristic person with at least one-half of its registered capital invested by a person under (1), (2), (3) or (4)

 

Prohibited/Restricted Businesses

 

The Act classified the restricted businesses into three Lists:

 

List 1: Businesses prohibited to foreigners

 

The activities under List 1 are absolutely closed to foreigner, comprising:

 

• Newspaper, radio broadcasting station or radio and television station business

• Rice farming, plantation or crop growing

• Livestock farming

• Forestry and timber processing from a natural forest

• Fishery, only in respect of the catchment of aquatic animals in Thai waters and specific economic zones of Thailand

• Extraction of Thai medicinal herbs

• Trading and auction sale of antique objects of Thailand or objects of historical value of the country

• Making or casting Buddha Images and monk alms‐bowls

• Land trading

 

List 2: Business related national security or having impact on art, custom, folk handicrafts, or natural resources and environment

 

The businesses under List 2 are open to foreigners, subject to a permission from the Minister of Commerce with approval from the Cabinet, comprising:

 

• Production, distribution and maintenance of (i) firearms, ammunition, gun powders and explosives, (ii) components of firearms, ammunition and explosives, (iii) armaments, ships, aircraft or vehicles for military use, (iv) equipment or components of all types of war materials

• Domestic transportation by land, water or air, including domestic aviation

• Trading of antiques or artistic objects that are artistic works or handicrafts of Thailand

• Production of wood carvings

• Silkworm raising, production of Thai silk yarn, weaving of Thai silk or printing of Thai silk patterns

• Production of Thai musical instruments

• Production of goldware, silverware, nielloware, bronzeware or lacquerware

• Production of crockery or porcelains representing Thai arts and culture

• Production of sugar from sugar cane

• Salt farming, including non‐sea salt farming

• Production of rock salt

• Mining, including rock blasting or rock crushing

• Timber processing for production of furniture and utensils

 

Foreigners may operate a business under List 2 only if the non-perceived foreigners hold at least 40% stake in the entity or business and Thai directors are be less than two-fifths of the total number of directors.

 

List 3: Businesses Thai nationals are not ready to compete with foreigners

 

The activities under List 3 are open to foreigners, subject to a permission from the Director-General of the Department of Business Development, Ministry of Commerce (the “DBD”), comprising:

 

• Rice milling and production of flour from rice and economic plants

• Fishery only in respect of the hatching and raising of aquatic animals

• Forestry from a grown forest

• Production of plywood, veneer wood, chipboards or hardboards

• Production of lime

• Provision of accounting services

• Provision of legal services

• Provision of architectural services

• Provision of engineering services

• Construction, except (i) construction of structures for delivery of infrastructure public services in the sphere of public utilities or transportation requiring the use of special apparatuses, machines, technology or expertise, with the minimum capital of five hundred million Baht or upwards from foreigners; and (ii) construction of other types as prescribed in the Ministerial Regulation

• Brokerage or agency businesses, except (i) a broker or an agent in the sale or purchase of securities or in services related to futures trading of agricultural commodities or financing instruments or securities, (ii) a broker or an agent in the sale, purchase or procurement of goods or services necessary for the production or the provision of services amongst affiliated enterprises, (iii) being a broker or an agent in the sale or purchase, procurement, distribution or acquisition of domestic and foreign markets for the distribution of domestically manufactured or imported goods, which by nature is the operation of international trade, with the minimum capital of one hundred million Baht or upwards from foreigners, (iv) being a broker or an agent of other types as prescribed in the Ministerial Regulation

• Sale by auction, except (i) a sale by auction which, in character, involves international bidding of items other than antiques, objects of antiquity or artistic objects that are artistic works or handicrafts or objects of antiquity of Thailand or of historical value of the country; (ii) sales by auction of other types as prescribed in the Ministerial Regulation

• Internal trade related to traditional agricultural products or produce not yet prohibited by law

• Retail of goods of all types with the total minimum capital in the amount lower than one hundred million Baht or with the minimum capital of each store in the amount lower than twenty million Baht

• Wholesale of all types with the minimum capital of each store in the amount lower than one hundred million Baht

• Advertising business

• Hotel business, with the exception of the hotel management service

• Guided touring

• Sale of food and beverages

• Cultivation, propagation or development of plant varieties

• Other service businesses, currently except securities or other businesses according to the Securities and Exchange Law, trustee businesses according to Trust for Capital Market Transactions Law, and future trading business according to the Agricultural Futures Trading Law.

 

Because of the loose interpretation of the law by the competent authorities, notwithstanding the principle that the Act is a public law which requires strict rather than loose interpretation, almost non-specified activities, including intragroup loan, have been considered as the service business under this List.

 

Overcoming Approaches

 

Besides obtaining business licenses, there are certain ways to overcoming the restrictions as described below:

 

Investment Promotion/Industrial Estate

 

A foreigner obtaining an investment promotion from the Board of Investment of Thailand (BOI) under the Investment Promotion Law or a written permission for operation of an industrial business or trade for export under the Industrial Estate of Thailand Law or under other laws may, if the promoted business falls under List 2 or 3, the foreigner will be eligible for a business certificate. In this regard, a notification must be served to the Director‐General of the DBD in order to obtain a certificate. The foreigner will be exempt from the restriction under the Act only in respect of the promoted business as long as the investment promotion or the permission to engage in an industrial business or a trade for export, as the case may be, remains valid.

 

International Treaty/Agreement

 

Thailand has entered into certain international treaties/agreements, which allows nationals of either country to conduct the specified businesses in the other country. At present, Thailand became a party to the Amity Treaty with the USA, Fair Trade Agreement (FTA) with Australia and Economic Partnership Agreement with Japan. To obtain a protection under any of the said treaties or agreements, the eligible person is required to notify the Director‐General of the DBD in accordance with the prescribed rules and procedures in order to obtain a business certificate.

 

(1) United States-Thailand Treaty of Amity and Economic Relations

 

Under the Treaty of Amity and Economic Relations B.E. 2509 (1966) between the USA and Thailand, an American owned Thai company or branch office of an American company is permitted to carry on almost businesses in Thailand, except:

 

• Owing land 

• Conducting business of inland communications

• Conducting business of inland transportation

• Conducting fiduciary functions

• Banking related to depository functions

• Exploiting land or other natural resources

• Engaging in domestic trade in indigenous agricultural products

 

(2) Australia-Thailand Free Trade Agreement

 

Under the FTA between Thailand and Australia, an Australian-owned company is permitted to engage in the following businesses:

 

• Onshore and offshore mining

• Construction rendering basic services to the public in public utilities and transport requiring special tools, machinery, technology, or construction expertise

• Luxury hotel business

• Restaurant

• Advisor to Regional Operating Headquarters

• Convention hall

• International exhibition center

• Wholesale and retail service relevant to the sale and installation of goods manufactured by an Australian-owned Thai company

• Higher education institution specializing in life sciences, biotechnology, and nanotechnology

• Amusement park and zoo

• Marine park

• Pier and anchor service for tourism ships

 

(3) Japan-Thailand Economic Partnership Agreement

 

Under the Japan-Thailand Economic Partnership Agreement (JTEPA), a Japanese-owned company is permitted to engage in the following businesses:

 

• Retailing business (except distilled alcohol)

• Wholesaling business (except distilled alcohol)

• Advertising business

• Hotel business

• Restaurant

• General management consultancy

• Logistics advisor (except transportation)

• Household electronic equipment repair and maintenance

 

Pursuing of Specially Developed Corporate Structures

 

As the definition of “foreigner” under the Act only focuses on the number or amount of capital or investment held by foreigners or perceived foreigners in the juristic entity, certain structures have been developed to exploit the loophole of the definition to secure the Thai nationality of the company, maintaining the 49/50% ratio of the foreigner/Thai’s stakes or investment, while ensuring the foreigners’ entitlement to the absolute control and benefits of the company.

 

The Ministry of Commerce in charge of this Act has made a few attempts to amend this definition to fill loopholes of the definition but failed to accomplish it on account of the investors’ turmoil. 

 

We have a team of qualified and experienced lawyers to advise on and implement the business structure bespoke to fit your business and overcome the restrictions under the FBA, as well as other comprehensive legal and tax services. Please contact us if you need any assistance in this area or we can be of any other help for you.