Foreign Business Act

The Foreign Business Act B.E. 2542 (1999) is the primary law regulating the scope of business activities that foreign nationals and foreign-controlled companies may conduct in Thailand. It replaced the earlier Alien Business Law (1972) and serves both protective and regulatory functions—restricting certain sectors to Thai nationals while allowing conditional foreign participation in others.

The law is administered by the Department of Business Development (DBD) under the Ministry of Commerce, with oversight from the Foreign Business Committee.

II. Definition of a Foreign Entity

Under Section 4 of the Act, a “foreigner” is defined broadly to include:

• Natural persons who are not of Thai nationality;

• Juristic persons established under foreign law;

• Juristic persons registered in Thailand in which foreigners hold 50% or more of the capital or voting shares;

• Partnerships with foreign majority ownership or control.

Foreign control is determined not only by equity participation but also by voting rights, management powers, and contractual arrangements, such as nominee structures.

III. Structure of Restricted Business Activities

The Foreign Business Act divides restricted business activities into three annexed schedules:

● List 1: Absolutely Prohibited Activities

These sectors are off-limits to all foreign participation for reasons of national security or cultural protection.

Examples:

• Newspaper publishing and broadcasting

• Land trading

• Farming and rice cultivation

• Forestry and natural resource exploitation

No license or exemption is available under this category.

● List 2: Activities Related to National Safety, Arts, Culture, and Natural Resources

Foreign participation is allowed only with Cabinet approval and requires that:

• At least 40% of the shares are held by Thai nationals (or 25% with ministerial waiver), and

• At least two-fifths of the board of directors are Thai nationals.

Examples:

• Domestic transportation

• Manufacturing firearms or military equipment

• Thai traditional medicine

• Mining and gemstone trading

Licensing in List 2 is rarely granted, and the process is politically sensitive.

● List 3: Activities in Which Thai Nationals Are Not Yet Ready to Compete

Foreigners may engage in these businesses with a Foreign Business License (FBL) granted by the DBD. List 3 includes a wide range of professional and service sectors.

Examples:

• Accounting

• Legal services

• Architecture

• Engineering

• Construction

• Retail and wholesale with low minimum capital

• Restaurants (under certain conditions)

This list is subject to modification by ministerial regulation, and activities may be removed if deemed no longer sensitive.

IV. Licensing Process

A. Foreign Business License (FBL)

Foreigners wishing to operate a List 3 business must obtain an FBL, which requires:

1. Submission of a detailed application to the DBD;

2. Review by the Foreign Business Committee, which evaluates:

   • Technological benefits

   • Capital and employment contributions

   • Business feasibility and economic impact;

3. Issuance of the license, if approved.

Processing typically takes 60 to 90 days, but can be longer depending on complexity and need for clarification.

B. Exemptions to Licensing Requirements

Foreigners may operate without an FBL in the following cases:

• Treaty Exemptions:

  • Treaty of Amity (USA–Thailand, 1966): U.S. citizens and companies can own up to 100% of Thai companies, subject to limitations (e.g., land, banking, telecommunications excluded).

  • JTEPA and TAFTA: Japanese and Australian companies may access certain service sectors without a license under bilateral economic partnership agreements.

• BOI Promotion:

  • Companies promoted by the Board of Investment (BOI) are exempt from FBA restrictions in approved sectors and enjoy various tax and non-tax incentives.

  • BOI-promoted companies may be 100% foreign-owned, including in otherwise restricted businesses.

• IEAT Zone Businesses:

  • Companies operating in Industrial Estates under the Industrial Estate Authority of Thailand Act may enjoy FBA waivers.

V. Capitalization and Ownership Requirements

Under the FBA:

• Minimum capital for foreign-owned businesses is THB 3 million (per activity).

• Foreign entities operating outside the restricted lists may still be subject to this minimum.

• Capital must be fully paid up and certified by the DBD.

The capital adequacy rules are in place to ensure business viability and prevent shell or nominee companies.

VI. Nominee Shareholding Prohibition

Section 36 of the Act prohibits foreigners from using Thai nominees to hold shares on their behalf, either directly or indirectly.

Violations include:

• Agreements to return shares or profits to the foreigner;

• Voting arrangements that deprive Thai shareholders of genuine control.

Penalties include:

• Imprisonment up to 3 years and/or fines up to THB 1 million;

• Revocation of business registration;

• Blacklisting of the responsible individuals.

The Thai government has intensified enforcement against nominee structures, especially in real estate and tourism sectors.

VII. Monitoring and Enforcement

The Ministry of Commerce has the authority to:

• Inspect corporate structures;

• Require disclosure of beneficial ownership;

• Investigate abuse of licenses or unauthorized activities;

• Issue administrative orders and file criminal complaints.

The burden of proof lies with authorities, but businesses are expected to maintain transparent records and permit inspection.

VIII. Practical Considerations

1. Corporate Structuring:

   • Common strategies include preferred shares, limited voting rights, or multi-tiered corporate structures, though these must avoid violating Section 36.

2. Licensing Delays:

   • The process for obtaining an FBL can be slow and opaque; legal assistance and government liaison may be advisable.

3. BOI vs. FBL:

   • A BOI-promoted project provides broader and faster access to restricted sectors than an FBL.

4. Audits and Compliance:

   • Foreign companies are subject to annual reporting, tax filings, and minimum capital compliance audits.

IX. Conclusion

The Foreign Business Act of Thailand reflects a deliberate policy to balance foreign investment with national economic protection. While it imposes significant constraints, especially in professional services and retail, it also allows regulated entry through licensing, treaty exemptions, and investment promotion mechanisms.

Foreign investors must assess:

• The nature of their business activity;

• Whether the activity falls under a restricted list;

• Whether exemptions apply through BOI or treaties;

• Their ability to meet capital, equity, and control requirements.

Failure to comply can result in criminal liability, license revocation, and reputational damage. Careful planning, legal structuring, and ongoing compliance are essential for foreign businesses operating in Thailand under the FBA regime.