A business entity with non-Thai nationals as major stock holders is termed a foreign company. The 1999 Foreign Business Act (FBA) aims to define the term “foreigner”, and stipulates what businesses or activities a foreigner can wholly or partially control. Certain business cannot be owned or controlled by non-Thai personalities if they are mentioned in the prohibited categories of the 1999 FBA. In the event that a non-Thai entity or company wishes to establish or conduct business under the prohibited business categories, a business license based on the stipulations of FBA Act B.E. 2542 must be obtained. For a foreigner to manage or conduct a restricted business under Thai law, a foreign business license in Thailand is required.
Under the FBA, a foreigner is a juristic person who is unregistered in Thailand or an entity that does not have a Thai nationality. It is also defined as a juristic person registered in Thailand, but with the majority of business capital held by non-Thai natural born. Any registered ordinary partnership or limited partnership with a foreigner as a manager or managing partner is also considered “foreign”. The above-defined foreigners are prohibited from conducting business in Thailand without a foreign business license. However, there are two types of foreigners who may be permitted to operate particular businesses if approved by the Director-General. They are:
- Thailand-born foreigners, but are not granted Thai nationality
- Any person who becomes a foreigner due to the revocation of his nationality based on the governing nationality laws.
Foreigners with pending deportation (or has been deported), or illegally staying in Thailand are prohibited from conducting or operating any business in Thailand.
Restrictions According to Foreign Business Act
There are three classifications of business activities based on the stipulations of Thailand Foreign Business Act B.E. 2524.
- List 1: Indicates all businesses not permitted to foreigners
- List 2: Indicates businesses permitted to foreigners under certain conditions
- List 3: Indicates businesses not yet permitted to foreigners
Limitations of Foreign Business Act
FBA lists 1, 2 and 3 are subjected to the limitations enforced by this Act. First, all activities under List 1 are firmly prohibited to foreigners. Unless permission is approved by the Cabinet, foreigners are barred from businesses under List 2. All businesses under List 3 are prohibited to foreigners unless approved by the Director-General of the Commercial Registration Department (CRD).
The above definitions indicate that a limited company where the majority of the shares are held by Thais is considered a Thai company and therefore not subjected to the FBA. This also means that foreigners are permitted to own up to 49% of a company that deals with restricted businesses. Approval is required for foreign shares starting at 50%. A foreign business license (FBL) is required of any company engaging in restricted business where majority share is foreign-owned.
Under Lists 2 and 3, the minimum capital requirement for foreigners is 2 million baht and 3 million baht respectively.
Foreign Business License Exceptions
Under the Thailand-United States Treaty of Amity, a foreign entity or company where majority of shares are foreign-owned may be permitted to set up business in Thailand. Under this condition, the director and majority shareholders must be U.S. citizens.
Thailand under the Board of Investment (BOI), foreigners may be allowed to set up business in Thailand if they hold majority or all shares in any BOI-promoted company.
Application for Foreign Business License
Except for the above exemptions Foreign Business License is required of all foreigners who wish to operate businesses under Lists 2 and 3 of the FBA.
The first thing to do is to file an application with the Commercial Registration Department, which the Foreign Business Committee or Cabinet will review. The impact of the proposed business is measured against its advantages and disadvantages to Thailand’s security and safety, economic development, social effect, local employment and such. If the proposed restricted business is deemed to be beneficial and promote Thai interests, approval of foreign business license application is more probable.