Thailand Foreign Investment – Navigating Thailand’s Foreign Investment Restrictions

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Foreign Investment in Thailand – Navigating Thailand’s Restrictions on Foreign Investment

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Establishing a Foreign Owned Corporate Entity in Thailand and Thailand Foreign Business Restrictions in a Nutshell

When prospective foreign investors walk in our door already with the presumption that there is no such thing as a fully foreign owned company in Thailand – it often strikes us as an unfounded, ill presumption.What more when fellow business consultants & even occasional legal practitioners seem to make the same sweeping assumptions. A quick visit on corporate structures in Thailand however reveals that even reputable foreign MNCs with entities in Thailand appear to favor this predisposition to “naturalize”. This brings us to briefly revisit these investment restrictions to quickly underline to readers the reasons for this tendency for foreign-controlled Thai private limited companies in Thailand, whether by direct or indirect means (such as the common 2-tier / 3-tier / like multi-tier structures).

The primary obstacle – Foreign / Alien Business Act B.E. 2542 (A.D. 1999) (“FBA“)

1. The notorious FBA is the cornerstone legislation that appears to bar foreign owned companies to carry out business in Thailand.

2. The FBA has 3 schedules / lists – schedules which will be listed out at the end of this write-up, these schedules spell out the businesses that are caught under the FBA. Please see below, briefly, to explain their respective mechanisms briefly.

  • List 1 is an absolute ban for, inter alia, farming or animal farming, extraction of Thai herbs, radio broadcasting, newspaper or television station businesses, etc.
  • List 2 mandates 40% Thai ownership & cabinet approval for, inter alia, land, water & air transportation, mining, production of carved wood, etc.
  • List 3 mandates a foreign business license for, inter alia, forestry, operating a fishery.
  • Of especial restrictiveness, List 3 contains a catch-all provision for service businesses.

3. Anything that does not fall within these Schedules, subject to other industry laws & regulations and minimum capitalization requirements, may be fully foreign owned. Some of the businesses as listed in the Schedules also come with qualifiers, for instance, retailing – the FBA does not prevent a fully foreign owned retailer if it meets the specific minimum capitalization requirement as spelt out.

4. This includes manufacturing, import & export, to wit: any business not falling within the Schedules.

5. Commentators have commented that the definition of Alien / Foreigner under the FBA does not extend to “foreign control”, to wit: what attracts the FBA’s restrictions is foreign shareholding, and foreign control is not prima facie in contravention, suggesting that control via preference share structures and other means are not the issue, so long as:

6. There is no attempt to circumvent the FBA, which attracts severe legal repercussions for the business, the Alien / Foreigner & the Thai nominees if a Thai nominee structure is the manner of circumvention / avoidance that is being employed – despite the definition of “nominee” being rather obscure.

7. Other industry-specific restrictions include those related to banks & financial institutions ; insurance brokers ; businesses dealing with securities ; telecommunication companies ; and so forth.

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Legal Foreign Ownership of Companies / Corporations in Thailand

Moving forward:

1. Of course, the prescribed “solution” is to obtain the foreign business license for businesses under List 2 and cabinet approval for those caught under List 3. However, this may not be plausible for some, but this “solution” is the proper way forward by operation of law.

2. Foreign investors may avail of a number of exemptions, investment incentives and / or promotions that allow full or a higher ownership allowance for their local corporate entities, which are available for a wide scope of industries, such as:

3. Exemptions under various free trade agreements such as the AMITY Treaty (American-owned companies), JTEPA (Japanese-owned companies) and TAFTA (Australian-owned companies).

4. Exemptions under Board of Investment (BOI) promotions.

5. Exemptions granted by the Industrial Estate Authority of Thailand (IEAT).

6. Representative Office or Regional Office.

7. On a cursory evaluation: (i) What is the nature of the business activity? Does it fall under one of the FBA lists? (ii) If it falls within Lists 2 or 3, are there qualifying factors that the proprietor can meet? (iii) Can the foreign investor obtain a foreign / alien business license? (iv) Are there exemptions which would be applicable to the business activity and/or the proprietor’s nationality and/or the site of the local business operation and/or by virtue of other factors? (v) Would a representative office or regional office be sufficient for the proprietor’s local interests? (vi) Does the foreign investor have one or more bona fide Thai joint venture interests?

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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Businesses Restricted from Full-foreign Ownership in Thailand

— excerpt from the FBA —

LIST ONE

The businesses not permitted for aliens to operate due to special reasons:

(1)

 Newspaper business, radio broadcasting or television station business

(2)

 Rice farming, farming or gardening.

(3)

 Animal farming

(4)

 Forestry and wood fabrication from natural forest

(5)

 Fishery for marine animals in Thai waters and within Thailand specific economic zones.

(6)

 Extraction of Thai herbs.

(7)

 Trading and auctioning Thai antiques or national historical objects.

(8)

 Making or casting Buddha images and monk alms bowls.

(9)

 Land trading

LIST TWO

The businesses related to the national safety or security or affecting arts and culture, tradition, folk handicraft or natural resource and environment.

Group 1: The businesses related to the national safety or security

(1)

 Production, selling, repairing and maintenance of:

(a)

firearms, ammunition, gun powder, explosives.

(b)

Accessories of firearms, ammunition, and explosive

(c)

Armaments, ships, air-crafts or military vehicles.

(d)

Equipment or components, all categories of war materials.

(2)

 Domestic land, waterway or air transportation, including domestic airline business.
Group 2 : The businesses affecting arts and culture, traditional and folk handicraft:

(1)

 Trading antiques or art objects being Thai arts and handicraft.

(2)

 Production of carved wood.

(3)

 Silkworm farming, production of Thai silk yarn, weaving Thai silk or Thai silk pattern printing.

(4)

 Production of Thai musical instruments.

(5)

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

(6)

 Production of crockery of Thai arts and culture.
Group 3: The businesses affecting natural resources or environment:

(1)

 Manufacturing sugar from sugarcane;

(2)

 Salt farming, including underground salt;

(3)

 Rock salt mining;

(4)

 Mining, including rock blasting or crushing;

(5)

 Wood fabrication for furniture and utensil production

LIST THREE

The business which Thai nationals are not yet ready to compete with foreigners:

(1)

 Rice milling and flour production from rice and farm produce

(2)

 Fishery, specifically marine animal culture.

(3)

 Forestry from forestation.

(4)

 Production of plywood, veneer board, chipboard or hardboard.

(5)

 Production of lime.

(6)

 Accounting service business.

(7)

 Legal service business.

(8)

 Architecture service business.

(9)

 Engineering service business.

(10)

 Construction, except for:

(a)

Construction rendering basic services to the public in public utilities or transport requiring special tools, machinery, technology or construction expertise having the foreigners’ minimum capital of 500 million Baht or more.

(b)

Other categories of construction as prescribed by the ministerial regulations.

(11)

 Broker or agent business, except:

(a)

Being broker or agent for underwriting securities or services connected with future trading of commodities of financing instruments or securities.

(b)

Being broker or agent for trading or procuring goods or services necessary for production or rendering services amongst affiliated enterprises.

(c)

Being broker or agent for trading, purchasing or distributing or seeking both domestic and foreign markets for selling domestically manufactured or imported goods in the manner of international business operations having the foreigners’ minimum capital 100 million Baht or more.

(d)

Being broker or agent of other category as prescribed by the ministerial regulations.

(12)

 Auction, except:

(a)

Auction in the manner of international bidding not being the auction of antiques, historical artifacts or art objects which are Thai works of arts, handicraft or antiques or having the historical value.

(b)

Other categories of auction as prescribed by the ministerial regulations.

(13)

 Internal trade connected with native products or produce not yet prohibited by law.

(14)

 Retailing all categories of goods having the total minimum capital less than 100 million Baht or having the minimum  capital of each shop less than 20 million Baht.

(15)

 Wholesaling all categories of goods having minimum capital of each shop less than million Bath.

(16)

 Advertising business.

(17)

 Hotel business, except for hotel management service

(18)

 Guided tour.

(19)

 Selling food or beverages.

(20)

 Plan cultivation and propagation business.

(21)

 Other categories of service business except that prescribed in the ministerial regulations

 — excerpt from the FBA —

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