CHAPTER
1
FOREIGN
BUSINESS RESTRICTIONS
The framework of laws that applies
to foreign ownership of businesses in Thailand is complex, and there are
several different statutes that may have to be considered.
The Foreign Business Act (1999) is
the most important law affecting ownership of businesses by foreigners. It restricts
foreign ownership in 43 categories of business activity.
The Board of Investment, the most
important government agency to promote investment, has certain powers to grant
permission for majority foreign ownership, which would not otherwise be
available (see further, Chapter 3 Business Promotion Incentives).
Americans have special rights under a treaty called the United States –
Thailand Treaty of Amity and Economic Cooperation (see in detail, Chapter 2 The
United States - Thailand Treaty of Amity). There are also special laws that
apply to particular industries, including banking and finance, insurance,
securities, telecommunications, airlines and shipping. Thailand has also
entered into Free Trade Agreement with a number of countries and these may also
contain provisions that apply to foreign ownership of business in Thailand.
Each of these will be discussed in
turn. The United States -Thailand Treaty of Amity is discussed separately in
Chapter 2.
The Foreign Business Act The Foreign Business Act (1999) came into force on March 3, 2000. The
Act places restrictions on 43 categories of business activity divided into
three Schedules.
Definition of ‘Alien’ The Act places restrictions on the businesses that may be carried on by
an Alien. The definition of Alien is complex, but it includes a company or
partnership which has at least half its shares owned by foreigners, a foreign
company or a foreign individual. Accordingly, a Thai company
which has only a minority of its shares owned by foreigners is not an ‘Alien’
for the purposes of the Act.
Regulation The Act sets up a new regulatory authority, the Alien Business Board,
to supervise and enforce the new Act, make proposals to the Minister concerning
any regulations to be made under the Act, and grant approval for majority
foreign ownership of Schedule 3 businesses.
Framework of the Act The new Act imposes restrictions on 43 categories of business activity
divided into three Schedules.
For businesses listed in Schedule 1,
only minority foreign ownership is permitted and there is no right to apply for
majority foreign ownership.
For businesses listed in Schedule 2,
minority foreign ownership is possible without permission. Up to 60% (with a
possibility of applying for up to 75%) foreign ownership is possible with
ministerial approval. At least 40% of the directors must be Thai nationals.
For businesses listed under Schedule
3, minority foreign ownership is possible without permission. Majority foreign
ownership is possible with permission of the Commercial Registration Department
and approval of the Alien Business Board.
Where permission for majority
foreign ownership is granted, other conditions may be imposed under the Act.
Procedure Any application submitted for majority foreign ownership must be considered
within 60 days, subject to a further 60-day extension, if required. The formal
permit must be issued within 15 days of being granted.
Under a regulation issued in 2004,
an application must also include proposals for transfer of technology by the
foreign parent to the company.
Criteria for approval of majority
foreign ownership To obtain approval for
majority foreign ownership of a Schedule 2 or 3 business, a foreign investor
will have to demonstrate that the nature of the business contributes to a
number of matters, including: national safety and security; economic and social
development; natural resources and energy conservation; environmental
protection and consumer protection. Other matters that will be taken into
account include: the size of the business; the creation of employment, the
transfer of technology, and research and development.
Conditions on licenses Any license granted may include conditions in relation to the following
matters: the debt to asset ratio of the business, the number of alien directors
to reside in Thailand, the minimum capital levels to be maintained and the
period during which such levels should be maintained, requirements concerning
technology or property, and other conditions.
Capital requirements The Act, and subsequent regulations, impose requirements for minimum
paid up capital. Foreign shareholders also have to show evidence that such
capital has actually been brought into Thailand.
Anti-nominee
provisions A regulation was issued in 2006 to
discourage the use of Thai nominee shareholders by foreigners. In relation to
any partly foreign-owned partnership or
company in which the foreign shareholders or partners:
(a)
own 40 - 50% of the shares, or
(b)
own less than 40% of the capital, but a foreigner is a
director authorised to sign on behalf of the company,
then all the Thai shareholders or partners must submit
information concerning their source of capital to acquire their shareholding,
with the application to register the company. The documents should identify the
money for investment or share purchase and should include: bank passbooks or
statements for the previous six months; and evidence showing the source of
money used for investment.
There is no reference in the
regulation to penalties. But note that under the FBA, if evidence of nominee
activities is discovered, the Thai nominees can be fined or imprisoned, and an
order can be made for the business to be closed.
Certificates If a business is formed under the provisions of the United States –
Thailand Treaty of Amity (see Chapter 2) or has promotional privileges granted
by the Board of Investment (see Chapter 3), it is also required to apply for a
certificate under the Foreign Business Act.
Appeals against refusal, and
stay of enforcement If an application for a
permit under Schedule 2 is refused, the Minister must give written notice of
refusal with reasons within 30 days.
There is no right of appeal. If an application for a permit under Schedule 3 is
refused, the Commercial Registration Department must give written notice of
refusal with reasons within 15 days. There is a right of appeal to the
minister, exercisable within 30 days of the refusal. The minister can grant a stay
of enforcement, pending the appeal.
Transitional provisions,
grandfathering clause The Act contains some
transitional provisions. If an Alien has the right or permission to carry on a
business under the old Alien Business Law, it may continue its business in
accordance with the original permission. If an Alien is already carrying on a
business that is listed in one of the Schedules of the Act, then, if that
business was not restricted under the old ABL, it was necessary to apply to the
Commercial Registration Department for a certificate under the new Act.
Such businesses were permitted to
continue operations for a period of one year after the Act came into operation.
Enforcement The Act sets out various enforcement mechanisms. There is a right of entry
into businesses in order to obtain information and documents, which applies
against any person. A compliance notice can be issued that may impose a time
limit to remedy violations. Nominees and evaders face severe punishment -
imprisonment and fines. The Act also provides for fines and imprisonment for
breaches of other sections of the Act.
Retailing businesses In
late 2006, the Ministry of Commerce announced that it intended to promote a
Retailing Act to regulate the opening of new retailing businesses, on the
grounds that the rapid expansion of foreign retailers such as Tesco, Carrefour and Makro
threatened the livelihoods of small Thai family owned retailers. A draft of the legislation is not yet available
for discussion.
Comment The most significant achievement of the Act is that manufacturing is
now almost completely de-restricted, with the exception of a small number of
sensitive industries or products.
However, services are still
generally restricted to minority foreign ownership only, unless a successful
application is made for majority foreign ownership. In addition, the Act
partially de-restricts certain services, including; construction; trading;
wholesaling; distribution and retailing, subject to minimum investment and
other requirements.
If a business activity is listed in one
of the three Schedules, then provided that foreign ownership is maintained at
less than 50%, no license is required under the Act.
If the particular business activity
is not restricted under any of the three Schedules, or under any other law,
then there are no limitations on foreign ownership.
Board of investment The Board of Investment is the key government agency that promotes
investment in Thailand. It has power to grant certain tax privileges and
benefits to Thai registered companies, whether Thai or foreign owned. It also
has a general power to grant permission for majority foreign ownership of a
Schedule 2 or Schedule 3 business.
The United States – Thailand Treaty
of Amity Under this Treaty, American and
Thai citizens and corporations are granted special preferential rights
concerning the ownership of businesses in each other’s countries. Such rights
are granted on the basis of reciprocity. Since the United States allows Thai
citizens and companies to have majority Thai ownership of an American company,
Thailand in return grants American citizens and companies the right to have
majority ownership of a Thai company. This is subject to a number of specific
exceptions referred to in the Treaty, in which each country may still impose
domestic legal restrictions. Note that the Treaty does not confer any
special rights in relation to ownership of land in Thailand, which is still in
general prohibited to foreigners.
For further discussion of the Treaty
see Chapter 2 The United States - Thailand Treaty of Amity.
Specific legislation There are a number of business activities where the foreign ownership
limitations are to be found in a specific Act or regulation. Under a special
decree issued in 1997, Thai banks and finance businesses may, subject to Bank
of Thailand permission, be majority foreign owned for a period of up to ten
years. After that, foreigners will not be permitted to participate in capital
increases, and their percentage ownership will face gradual dilution. General
insurance and life assurance companies limit foreign ownership to a maximum of
25%. Securities businesses may be 49% foreign owned. Companies owning Thai
flagged ships must be at least 70% Thai owned. Licensed air carriers may be up
to 30% foreign owned, and there must be a majority of Thai directors on the
board. Telecommunications companies that have a category 2 or 3 license (see Chapter 23 Telecommunications,
IT and e-commerce) may have up to 49% foreign
ownership.
The
foreign ownership restrictions discussed above are summarised
in the table below.
|
Business and relevant law |
Minority foreign
ownership |
Majority foreign
ownership |
Notes |
|
FBA
Schedule 1 businesses |
No
permission required |
Not
possible |
|
|
FBA
Schedule 2 businesses |
No
permission required |
With
permission of the Cabinet, up to 60% and possibly up to 75% but three fifths
of directors must be Thai.1 |
BOI
may also grant permission subject to 1 |
|
FBA
Schedule 3 businesses |
No
permission required |
With
permission of the Foreign Business Registrar, up to 100% foreign ownership no
nationality requirement for directors.2 |
BOI
may also grant permission subject to 2 |
|
USA
- Thailand Treaty of Amity - any businesses |
No
permission required |
No
permission required |
Businesses excluded from the
Treaty: telecommunications, transportation, fiduciary functions (includes warehousing and security services, banking involving depository
functions (includes finance businesses), exploitation of land or natural resources, domestic trade in indigenous
agricultural products, liberal professions |
|
Banking
and finance businesses |
No
permission required |
100%
foreign ownership with permission of Bank of Thailand |
Right
expires in 2008. After that, foreign shareholders are disqualified from
participating in further capital increases
|
|
Securities
businesses |
No
permission required |
Not
possible |
|
|
Insurance
businesses |
Foreign
ownership up to 25% only permitted |
Not
possible |
|
|
Shipping
businesses |
Foreign
ownership up to 30% only permitted where the company owns Thai flagged
vessels |
Not
possible |
|
|
Telecommunications businesses |
For
category #2 and #3 licenses under the Telecommunications Act, foreign
ownership up to 49% only |
Not
possible |
Three quarters of the applicant's
directors must be Thai nationals, and the applicant's authorised directors
who have power to bind the company must be Thai nationals |
Free Trade Agreements Since 2003, Thailand has entered into a number of Free Trade Agreements
with different countries, namely: India, China, Australia, Bahrain
and New Zealand.
As at 1 October 2006, a free trade agreement
with Japan has been agreed in principle, but not yet signed. Negotiations were
also in progress for free trade agreements with the United States and Peru.
Whilst such agreements usually deal
with matters such as reduction of import duties, the rules of origin of goods,
intellectual property and e-commerce, they may also contain provisions relating
to foreign ownership of businesses. For example, the Australian-Thailand Free
Trade Agreement (“TAFTA”) contains provisions that grant preferential rights to
Australian investors and companies in a number of different industries in
Thailand, but subject to detailed conditions. Such rights may be greater than
the rights available under the Foreign Business Act or other applicable laws
(see above).
Accordingly, where an Australian
individual or company is considering the setting up of a company in Thailand,
it may also be necessary to refer to TAFTA, to ascertain whether Australian
investors have any special rights to own such a business.
The enhanced rights of business
ownership enjoyed by Australian investors are summarised in the table below.
|
Nature of business |
Previous foreign ownership limit |
New foreign ownership limit under TAFTA |
|
Mining operations |
49%
(see FBA Schedule 2) |
60% |
|
Distribution |
49%
(see FBA Schedule 3) |
100%
where the goods are manufactured in Thailand |
|
Construction |
49%
(see FBA Schedule 3) |
100% but must relate to services to the public in utilities
or transport requiring special tools, machinery, technology or construction
expertise. |
|
Management consulting
services |
49% (a service business under FBA Schedule 3) |
100%
but must be provided by a regional
operating headquarters or associated company or branch. |
|
Major
Restaurants or hotels |
49%(see
FBA Schedule 3) |
60% |
|
Tertiary education
institutions specialising in science and technology |
49%
(a service business under FBA Schedule 3) |
60%
but must be located outside
Bangkok |
|
Maritime
cargo services |
49%
(a service business under FBA Schedule 3) |
60%
but limited to port and
waterway operation services including marina facilities, provided the
facilities included a ship lifter, inland berthing and a ship yard for
maintenance and repair. |
Future FTAs
should be scrutinised carefully, to ascertain whether they contain provisions
that liberalise existing foreign ownership restrictions.
Foreign Business Act Schedules The following are the three Schedules of the Foreign Business Act.
Schedule 1
(1)
Newspaper business, radio broadcasting station or radio/television business.
(2)
Farming, cultivation or horticulture.
(3)
Animal husbandry.
(4)
Forestry and timber conversion from natural forests.
(5)
Fisheries, especially fishing in Thai territorial waters and in specific
economic areas of Thailand.
(6)
Extracting Thai herbs.
(7)
Trade and auction sale of Thai antiques or objects of historical value.
(8)
Making or casting Buddha images and alms bowls.
(9)
Trading in land.
Schedule 2
Section 1
(1)
Manufacturing, distribution, repair or maintenance of:
(a)
firearms, ammunition, gunpowder, and explosive
materials;
(b)
components of firearms, ammunition, and explosive
materials;
(c)
armaments, ships, aircraft, or vehicles; and
(d)
equipment, or parts of any type of military equipment.
(2)
Domestic land transport, water transport, and air transport; including domestic
aviation.
Section 2
(1)
Trading of antiques or artifacts which are Thai works
of art or Thai handicrafts.
(2)
Wood carving.
(3)
Silkworm rearing, manufacture of Thai silk, Thai silk weaving, or Thai silk
printing.
(4)
Manufacturing of Thai musical instruments.
(5)
Manufacturing of gold-ware, silverware, nielloware, bronzeware, or lacquerware.
(6)
Making bowls or earthenware, which are of Thai art and culture.
Section 3
(1)
Manufacturing of sugar from cane.
(2)
Salt farming, including rock salt farming.
(3)
Mining of rock salt.
(4)
Mining, including stone quarrying or crushing.
(5)
Timber processing for making furniture and utilities.
Schedule 3
(1)
Rice milling and production of flour from rice and plants.
(2)
Fisheries, specifically breeding of aquatic creatures.
(3)
Forestry from re-planting.
(4)
Production of plywood, veneer, chipboard or hardboard.
(5)
Production of lime.
(6)
Accountancy.
(7)
Legal services.
(8)
Architecture.
(9)
Engineering.
(10)
Construction, except:
(a)
Construction of infrastructure in public utilities or communications requiring
tools, technology or special expertise in such construction, except where the
minimum foreign capital is 500 million Baht.
(b)
Other construction, as prescribed in regulations.
(11) Agency
or brokerage, except:
(a)
Brokerage or agency of securities or service related to agricultural
commodities futures or financial instruments or securities.
(b)
Brokerage or agency for the purchase/sale or procurement of goods or services
necessary to production or providing services to affiliated enterprises.
(c)
Brokerage or agency for the purchase or sale, distribution or procurement of
markets, both domestic and overseas for the distribution of products made in
Thailand, or imported from overseas in the category of international business,
with minimum foreign capital of not less than 100 million Baht.
(d)
Other brokerage or agency activities, as stipulated in regulations.
(12)
Auctioneering, except
(a)
Auctioneering by international bidding, not being auctions of antiques, ancient
objects or artefacts that are Thai works of art, Thai handicrafts or antique
objects, or with Thai historical value.
(b)
Other type of auctioneering, as stipulated in regulations
(13)
Domestic trade in local agricultural products which is not prohibited by law.
(14)
Retailing, unless not less than 100 million Baht capital is invested, or having
minimum capital for each shop of not less than 20 million Baht.
(15)
Wholesaling, unless the capital is not less than 100 million Baht.
(16)
Advertising.
(17) Hotel
operation, excluding hotel management.
(18)
Tourism.
(19) Sale of
food and beverages.
(20) Planting
and culture of plants.
(21) Other
services, except those exempted under ministerial regulations.
Revised 1 December 2006