board of investment thailand

Introduction

In general, foreigners have the same rights as Thai nationals to own and operate businesses in Thailand, except where specific restrictions are imposed. These restrictions may be prescribed by Thai legislation, as a condition of a Board of Investment promotion certificate and/or by a Thai company’s articles of association. This newsletter is intended to give a general overview of such restrictions and discuss the Foreign Business Law recently passed by the National Assembly.

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Foreign Business Law

The most wide-ranging legislation restricting foreign participation in business activities in Thailand is National Executive Council Announcement No. 281, otherwise known as the “Alien Business Law“, which has been in force since 1972. It has been replaced by the new Foreign Business Law, which has been approved by both the Senate and the House of Representatives and will become effective 90 days after it receives Royal Assent and is published in the Government Gazette.

Like the Alien Business Law, the Foreign Business Law imposes restrictions on the participation of ‘foreigners’ in three categories of businesses. However, there has been a change in the categorisation of some businesses under the new law (see “Comparisons between the Alien Business Law and the Foreign Business Law”).

Restricted businesses

The Foreign Business Law prescribes that a wide range of service businesses and commercial and industrial activities may not be carried out by `foreigners’. These categories are set out in the Annexes to the new law as follows:

Annex One: There is a total prohibition (for “special reasons”) on foreigners engaging in the businesses listed in Annex One. Annex One covers a variety of businesses including newspaper publication, radio and television broadcasting, certain types of farming and trade in real property.

Annex Two: Foreigners are prohibited from engaging in certain businesses listed in Annex Two as businesses affecting national security or arts, culture, customs, local handicrafts or natural resources and the environment, except with a licence from the Minister of Commerce (the “Minister”) and approval from the Cabinet.

Even with such licence, a foreign company engaging in a business set out in Annex Two must be at least 40 per cent Thai owned and two-fifths of its directors must be Thai nationals. However, the 40 per cent capital restriction may be reduced to 25 per cent with the approval of the Minister and the Cabinet.

Annex Three: Foreigners are prohibited from engaging in certain businesses listed in Annex Three as they are businesses in which the Thai people are not yet prepared for competition with foreigners, except with a licence from the Director General of the Commercial Registration Department of the Ministry of Commerce (the “Director General”) and approval from the Foreign Business Committee (the “Committee”).

The three Annexes to the new law, listing the types of restricted businesses, are attached to this newsletter as Schedule 1.

Foreigners

For the purposes of the Foreign Business Law, a “foreigner” means:

1          a natural person who is not a Thai national;

2          a juristic person not registered in Thailand;

3          a juristic person registered in Thailand of which at least 50 per cent of the share capital (or at least 50 per cent of the capital invested in it) is held by the persons set out in 1 or 2 above and if a limited partnership or a registered ordinary partnership, whose managing partner or manager is not a Thai national; or

4          a juristic person registered in Thailand of which at least 50 per cent of the share capital (or at least 50 per cent of the capital invested in it) is held by any of the entities set out in 1, 2 or 3 above.

For the purposes of calculating the level of foreign ownership in a company, it is assumed that any bearer certificates are held by foreigners.

Licences

As noted above, a foreigner can only engage in an Annex Two business with a licence from the Minister and with Cabinet approval, or in an Annex Three business with a licence from the Director General and with Committee approval.

The Foreign Business Law sets out specific time periods in which the Director General and the Minister are required to respond to applications. A response to an application for a licence must be given within 60 days. A response to an application under Annex Two may be extended by a further 60 days if deemed necessary by the Cabinet. If approved, the licence is required to be issued within 15 days of such approval. If rejected, the Minister or Director General is required to write to the applicant (within 30 days and 15 days, respectively) giving a clear explanation of why the application has not been approved. Appeal to the Minister against a rejected application is only permitted in relation to an application under Annex Three.

Issuance of a licence is subject to the satisfaction of certain eligibility requirements and may be made subject to certain conditions. These include minimum capital investment, the maintenance of a certain debt to equity ratio, the number of foreign directors that must reside in Thailand and a minimum period for maintaining the initial capital investment in Thailand. Generally, the Foreign Business Law contemplates that licences will be granted for as long as the applicant operates the licensed business, but licences can be revoked in certain circumstances.

Exemptions

• Investment Promotion: Foreign-owned enterprises granted promotional privileges by theBoard of Investment (“BOI”) or the Industrial Estate Authority of Thailand engaging in businesses listed in Annexes Two or Three are not required to be licensed.

• Treaties: See “The Thai-U.S. Treaty of Amity and Economic Relations” below.

• Government Approval: The Government may as a “temporary measure” permit a foreigner to carry out any of the businesses listed in any of the Annexes. For example, such exemption may be granted to a company involved in a government-sponsored infrastructure project.

If a foreign owned business is exempted pursuant to any of the above provisions, it is required to obtain a certificate from the Director General.