Foreign Business Act : Who are considered foreigners?

Thailand remains an attractive destination for foreign investors and business owners seeking out new markets to open a new or expand an existing business. Nevertheless, those who wish to establish majority or wholly foreign-owned business entities need to be aware of Thailand’s laws and regulations regarding foreign investment.

Thailand’s Foreign Business Act B.E. 2542 (FBA) divides business activities into three lists that either forbids foreigners from engaging in entirely or requires them to seek varying degrees of permission prior to engaging in the listed activities. Over the years, Thailand’s government has been slowly removing business activities from these lists as Thai businesses become more competitive.

Who are considered foreigners under the Foreign Business Act?

Section 4 of the FBA defines a foreigner as the following:

1. A natural person who is not of Thai nationality;
2. A juristic person not registered in Thailand;
3. A juristic person registered in Thailand, being of the following descriptions:
   1. Being a juristic person at least one-half of capital shares of which are held by persons under (1) and (2) or a juristic person in which investment has been placed by the persons under (1) or (2) in the amount at least equivalent to one half of the total capital thereof; and
   2. Being a limited partnership or a registered ordinary partnership, the managing partner or the manager, of which is the person under (1).
4. A juristic person registered in Thailand at least one-half of the capital shares of which are held by persons under (1), (2) or (3) or a juristic person in which investment has been placed by the persons under (1), (2) or (3) in the amount at least equivalent to one half of the total capital thereof.

List 1: Business Not Permitted to Foreigners

The FBA strictly prohibits foreign entities in Thailand from undertaking the following activities:

1. Newspaper publishing and radio or television broadcasting stations.
2. Rice farming, plantation, or crop growing.
3. Livestock farming.
4. Forestry and timber processing from a natural forest.
5. Fishery, specific only to catching aquatic animals in Thai waters and specific economic zones of Thailand.
6. Extraction of Thai medicinal herbs.
7. Trading and auction sale of antique objects of Thailand or objects of historical value to Thailand.
8. Making or casting Buddha images and monk alms bowls.
9. Land trading.

Generally, a registered non-Thai entity cannot embark on any activities from List 1, but there are some exceptions, such as US Amity Treaty companies and foreign companies that meet certain investment and partnering conditions.

List 2: Business Permitted to Foreigners under Conditions

The FBA lists activities under three different categories that foreign entities must receive government approval or meet certain ownership conditions before commencing.

Group 1 – Businesses related to Thai national safety or security: production, sales, or maintenance of firearms, ammunition, gun powder, or explosives; or the domestic transportation by land, water, or air of such products.

Group 2 – Businesses affecting Thai arts, culture, traditions, folk handicrafts: trading in Thai art, art objects, or handicrafts; or production of carved wood, etc.

Group 3: Business affecting Thai natural resources and environment: manufacturing sugar from sugar cane, salt farming, or rock salt mining, etc.

Foreign entities can operate businesses categorized under List 2 once they have received proper licensing and approval from the Ministry of Commerce, the Board of Investment, or the Industrial Estate Authority of Thailand. There is a list of other factors that will determine which regulatory body should be involved.

List 3: Businesses in Respect of Which Thai Nationals Are Not Yet Ready to Compete with Foreigners

The FBA classifies these activities as businesses in which Thai nationals may not yet be ready to compete alongside foreigners.

1. Rice milling and flour production from rice or farm plants
2. Fisheries, only in respect of the hatching and raising of aquatic animals
3. Forestry, from a replanted forest
4. Production of plywood, veneer boards, chipboards or hardboards
5. Production of (natural) lime
6. Provision of accounting, legal, architectural, and engineering services
7. Construction, with some exceptions
8. Brokerage or agency business, with some exceptions
9. Sale by Auction, with some exceptions
10. Domestic trade related to native agricultural products or produce not yet prohibited by law
11. Retail sales with an aggregated minimum capital of less than 100 million Baht, or with a minimum capital of each store of less than 20 million Baht
12. Wholesale trading with a minimum capital of each store less than 100 million Baht
13. Advertising business
14. Hotel business, except for hotel management services
15. Guided touring
16. Sale of food and beverages
17. Cultivation, propagation and development of plant varieties
18. Other service businesses, except those otherwise prescribed by Ministerial Regulations

A foreign entity seeking to engage in any of these business activities must first obtain a Foreign Business License (FBL) from the Foreign Business Committee and the Director-General of the Department of Business Development (DBD). There are also cases for exemptions or special permissions from the Board of Investment or Industrial Estate Authority of Thailand, as well as through free-trade agreements and treaties between Thailand and certain nations.

Application of Foreign Business License in Thailand

Foreigners wishing to engage in businesses indicated in List 2 or List 3 of the Foreign Business Act in Thailand need to obtain a “Foreign Business License” from the relevant authorities before starting their business operations.

An application should be filed with the Business Department, which will be reviewed by the Cabinet or Foreign Business Committee, as the case may be. Various criteria are used to consider the impact of the proposed business operation, such as the advantages and disadvantages to the nation’s safety and security, economic and social development, size of the enterprise, local employment, etc. Approval of business license application is more likely when the authorities view the business as providing significantly more benefits and protect and promote Thai interests.