Question: What limitations are there on foreign business activities in Thailand?
Answer: The Foreign Business Act, B.E. 2542 (1999) (the FBA) is the primary legislation governing foreign business activities within the Kingdom of Thailand. The statute includes three schedules of 43 regulated activities with foreign ownership limits in place depending on the schedule in which the business is described. Generally speaking manufacturing businesses are open to 100% foreign capital ownership. A 49% foreign capital limit is placed on service-oriented businesses either under the FBA or under legislations regulating specific industries. Businesses not included in the three lists can be operated and controlled freely by foreigners, subject to a minimum capitalization requirement of THB 2 million. The act is supplemented by Ministerial notifications which operate in the form of delegated legislation.
Schedule One describes businesses that are not open to foreigners for ‘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 monks’ alms bowls
9. Land trading
Schedule Two describes businesses that Foreigners may operate subject to permission from the Minister of Commerce, who in turn must obtain Cabinet Approval. These are typically businesses relating to national safety, security, arts and culture, traditional and folk handicraft, national resources and the environment:
Group 1: Businesses related to national safety or security:
1. Production, selling, repairing and maintenance of:
(a) Firearms, ammunition, gunpowder, explosives
(b) Accessories of firearms, ammunition, and explosives
(c) Armaments, ships, aircraft 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: Businesses affecting the arts and culture, traditional and folk handicrafts:
1. Trading antiques or art objects being Thai arts and handicrafts
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 gold ware, silver ware, niello ware, bronze ware or lacquer ware
6. Production of crockery of Thai arts and culture
Group 3: 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
Schedule Three describes specific businesses which the legislature at the time and the Committee established under the auspices of FBA considered Thai nationals unready for foreign competition. However, in order to operate businesses under this schedule, permission must be obtained from the Director General of the Department of Business Development with the approval of the FBA Committee.
1. Rice milling and flour production from rice and farm produce
2. Fisheries, specifically marine animal culture
3. Forestry from forestation
4. Production of plywood, veneer board, chipboard or hardboard
5. Production of lime
6. Accounting services
7. Legal services business
8. Architecture services
9. Engineering services
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 an alien’s minimum capital of THB 500 million or more
(b) Other categories of construction as prescribed by ministerial regulations.
11. Brokerage or agency, except:
(a) Being a broker or agent for underwriting securities or services connected with future trading of commodities of financing instruments or securities
(b) Being a broker or agent for trading or procuring goods or services necessary for production or rendering services amongst affiliated enterprises
(c) Being a 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 aliens’ minimum capital THB 100 million or more
(d) Being a broker or agent in any other category as prescribed by ministerial regulations.
12. Auctioneering, except:
(a) Auctions by international bidding not being an auction of antiques, historical artifacts or art objects which are Thai works of art, handicrafts or antiques or having historical value
(b) Other categories of auction as prescribed by ministerial regulations
13. Internal trade connected with native products or produce not yet prohibited by law
14. Retailing all categories of goods having total minimum capital less than THB 100 million, or having minimum capital of each shop less than THB 20 million
15. Wholesaling of all categories of goods having a minimum capital for each shop of less than THB 100 million
17. Hotel business, except for hotel management
18. Guided tour
19. Selling food or beverages
20. Plan cultivation and propagation
21. Other categories of services, except as prescribed in ministerial regulations
In 2013, the Ministry of Commerce issued a notification removing FBA license requirements on the following business activities:
1. Trading on the Agricultural Futures Exchange of Thailand
2. Securities dealing
3. Investment advisory services
4. Securities underwriting
5. Securities borrowing and lending
6. Mutual fund management
7. Private fund management including provident funds
8. Venture capital management
9. Funding for securities business
10. Financial advisor
11. Securities registrar
12. Custodian of securities company’s customers or derivatives business operator’s customers
13. Custodian of private fund
14. Mutual fund supervisor
15. Bond holders’ representative
16. Derivatives dealer
17. Derivatives advisor
18. Derivatives capital manager
19. Trustee business under law on trust for transaction in capital market
In 2016, the Ministry of Commerce issued a notification removing FBA license requirements on the following business activities:
1. Life insurance and non-life insurance operations
2. Commercial banks and representative offices of foreign banks
Effectively, these activities still require approval by regulatory bodies under existing law. However, opening up the financial business sector by reducing the licensing requirement is in fact an excellent indicator of where public policy on foreign participation in business is headed. As part of Thailand’s commitment to the ASEAN Economic Community (the AEC), foreign nationals from other ASEAN member nations will be able to own up to 70% of the registered capital of a company. Fortunately, the FBA also carves an exception for international treaty obligations.
Question: I understand that the Board of Investment (BOI) offers one way around the restrictions of the Foreign Business Act. Could you explain more about the BOI and the privileges it offers?
Answer: The Investment Promotion Act, B.E. 2520 (1977) offers various investment incentives to foreign and domestic investment considered important and useful to the social and economic development of Thailand. The Act is administered by the Board of Investment of Thailand (BOI). Promoted business activities include:
1. Agriculture and Agricultural Products
2. Mineral, Ceramics, and Basic Metals
3. Light Industry
4. Metal Products, Machinery and Transport Equipment
5. Electronics Electrical Appliances Industry
6. Chemicals, Paper and Plastics
7. Service and Public Utilities
As per the Announcement of the Board of Investment (No. 2/2557, No. 6/2558 and S.1/2559) pertaining to the Policies and Criteria for Investment Promotion Businesses described under Schedule One of the Foreign Business Act, B.E. 2542, must have a minimum domestic shareholding of 51%.Projects listed under Schedule Two and Three of the Foreign Business Act, B.E. 2542, have no equity restrictions for foreign investors except as otherwise stipulated by relevant industry specific regulations. Of course, the Board of Investment reserves the discretion to fix foreign shareholding limits for certain activities eligible for investment promotion.
Incentives offered under BOI promotion are now classified as:
1. Activity-based Incentives which are broadly classified into two groups with different incentives and applicable durations:
- Group A and its sub classifications which are eligible for corporate tax incentives, machinery and raw materials import duty incentives and other non-tax incentives.
- Group B and its sub-classifications which receive only import duty incentives for machinery and raw materials among other non-tax incentives.
2. Merit-based Incentives which are classified according to enhancement of competitiveness, decentralization, and industrial area development which typically aretax incentives either by way of permissible deductions or extensions of corporate income tax exemption
Non tax incentives are usually:
1. Permission to bring foreign expert personnel and their spouses or any person into the Kingdom in numbers and for a duration that is deemed appropriate by the BOI
2. Ownership of land as deemed appropriate for the promoted project by the BOI
3. Permission to bring in or expatriate money from the Kingdom in the form of foreign currencies
The latest policy offers a consolidation of Thai national interests, much in line with the 11th National Economic and Social Development Plan.
Companies that obtain BOI Promotion must still obtain a Certificate of Business Operation (as distinguished from a Foreign Business License) from the Director General of the Department of Business Development with the approval of the FBA Committee. Therefore it would be incorrect to opine that an investment routed through the BOI offers one way around the restrictions of the FBA.
Question: I understand that U.S. nationals enjoy special privileges vis-à-vis nationals of other countries. Is this true?
Answer: Essentially, yes. The 1966 Treaty of Amity and Economic Relations between the Kingdom of Thailand and the United States of America (Treaty of Amity) carves a distinct exception to the rigorous provisions of the FBA. The Treaty of Amity permits “American companies” entitlement to national treatment, meaning they must be treated the same as Thai majority owned businesses, except in the following six areas:
3. Fiduciary functions
4. Banking involving depository functions
5. Exploitation of land or other natural resources
6. Domestic trade in indigenous agricultural products
Local laws relevant to the above have been drafted with the objective of restricting foreign ownership. It is pertinent to note that American companies or American nationals cannot own land under the Treaty of Amity.
Question: Hasn’t the Treaty of Amity expired already? Why was this exception carved out for Americans? Doesn’t it violate Thailand’s most favorite nation obligations under the WTO?
Answer: While the Treaty has already expired, it has been renewed every 6 (six) months on a continuous basis, and this will likely continue until the U.S. and Thailand enter into a Free Trade Agreement. Whether the benefits of the current treaty are carried over to the new Free Trade Agreement remains to be seen. (See below).
The Treaty of Amity existed since 1966 before the passage of the FBA in 1999. Technically, the Treaty of Amity does violate Thailand MFN obligations under the WTO. It remains to be seen whether the benefits provided to American nationals under the Treaty of Amity will be expanded and granted to all other nationalities, or whether the benefits will be rescinded in any upcoming U.S.-Thailand FTA.
Companies that seek recognition under this Treaty must still obtain a Certificate of Business Operation (as distinguished from a Foreign Business License) from the Director General of the Department of Business Development with the approval of the FBA Committee.
Question: Doesn’t the Industrial Estate Authority of Thailand (IEAT) offer still another way around the Foreign Business Act?
Answer: The IEAT is a state enterprise affiliated to the Ministry of Industry whose mandate is to develop and manage designated industrial estates which are required to have the latest infrastructure required for industrial purposes. The IEAT offers non-tax incentives to interested investors by way of:
1. Permission for foreigners to own land in order to effectuate the promoted project
2. Expedited issuance of visas and work permits
3. Special rights to operate as foreign held company
Unfortunately, the number of designated industrial estates is fixed and the current estates are largely filled. It may, however, be possible to sublet or even purchase an industrial estate plot from a current owner.
Companies that seek incentives from the IEAT must still obtain a Certificate of Business Operation (as distinguished from a Foreign Business License) from the Director General of the Department of Business Development with the approval of the FBA Committee.
Question: What are the steps involved with BOI applications?
Answer: The BOI application procedure involves the following steps subsequent to submission of a completed application form.
1. An officer familiar a promoted business activity is assigned to the proposed project;
2. An interview is conducted, and the application is then evaluated in detail. Recommendations are then made for approval or rejection to be made by the investment sub-committee.
3. The evaluation period may range from 15-90 days depending on the scale of operations of the proposed project and the size of investment.
The key consideration that determines the success of any BOI application is whether the proposed project offers anything of value or contributes significantly to the national interest of the Kingdom. Other factors include:
1. Local employment that would be created by the project
2. Amount of investment
3. Project location
4. Technology transfer involved
5. International reputation of the applicant
6. Project activity