THE FOREIGN BUSINESS ACT

Prior to the adoption in 1972 of the Alien Business Law (also known as National Executive Council Decree 281) foreigners were generally permitted to do business in Thailand without restrictions. In 1999, a new Act was passed which supercedes the earlier Alien Business Law. The new Act is entitled The Foreign Business Act, B.E. 2542 (1999). The Foreign Business Act divided various types of business into three categories and subjected each category to different limitations with respect to foreign ownership. Separate laws control the foreign ownership of land as well as such activities as banking, insurance, finance and shipping. In some areas, the new Act has liberalized the areas in which a foreigner may to do business in Thailand. However, the Act also appears to be more restrictive in other regards.

Categories. Business covered by the Foreign Business Act are divided into Categories One, Two and Three. Generally those business listed in Category One are absolutely prohibited to foreigners unless there is an exception contained in a special law or treaty.

Category Two businesses owned by aliens which were in existence and actually operating prior to the enactment of the law were permitted to apply for a special Alien Business License and to continue operating. Aliens, however, are not permitted to start new businesses listed in this category unless they obtain special permission from the Minister with the approval of the Cabinet. 

The businesses listed in Category Three are treated in a manner similar to those in Category Two except that the Director General, with the approval of a committee, has the power to grant an Alien Business License to foreigners who wish to start a new business. 

Companies that have Alien Business Licenses are sometimes sold to foreigners who wish to use the company's license. While this transfer is generally permitted, a purchaser should be careful to examine the nature of the Alien Business License a particular company possesses. For the most part, the parameters of the Alien Business License cannot be changed.

At various times since the enactment of the Alien Business Law, the growth rate of companies with Alien Business Licenses was restricted. Such companies were allowed to increase their sales by no more than 30% per year. Presently, these restrictions do not apply.

Definition of "Foreigner" A business is considered " foreigner if:

- it is established under foreign law; or

- half or more of its capital is owned by foreigners even if the company is incorporated under Thai law, or

- half or more of the value of the total capital being invested foreigners even if more than half the capital is owned by Thai nationals

Thus, even though a company may have its capital shares held by a majority of Thai nationals, if the majority of the value of the capital was invested by a foreigner, the company would be deemed to be foreign.

Under the earlier Alien Business Law there was a requirement that both the shareholding and the shareholders be predominantly Thai for the company to qualify as Thai. Thus, in companies with seven shareholders (7 is the minimum number of shareholders for a limited company) in order to be considered Thai, at least four of the shareholders must be Thai and the Thai shareholders must own more than 50% of the shares. This requirement of majority Thai shareholders is not present in the current Foreign Business Law.

Banking and finance businesses under their own special laws must be at least 75% Thai owned. Likewise companies engaged in domestic shipping must be at least 70% Thai. By regulation, insurance companies and insurance brokers must be at least 75% Thai.

Companies which own land must under the provisions of the Land Law be a full 51% Thai owned unless they have special promotional privileges. Consideration is being given to requiring a greater degree of Thai ownership.

New Alien Business Licenses. Foreign businesses may apply for an Alien Business License if they wish to engage in an activity covered by List Two provided that they have been granted approval by the Minister along with the approval of the Cabinet. Foreign businesses may apply to operate businesses covered by List Three provided that they have permission for the Director-General with approval of the Committee.

Representative Offices established in accordance with Ministry of Commerce regulations and other types of business such as petroleum service companies and those engaged in activities involving high technology are routinely obtain licenses.

The Ministry of Commerce will attach conditions to the Foreign Business License. These conditions will, amongst others,  require that the business bring into Thailand Baht 3,000,000 in capital during the first year. In cases where the businesses require licenses under the Lists Two and Three the minimum capital prescribed by the ministerial regulations is three million Baht. Retail and wholesaling business are covered by List Three and have much higher capital requirements. Foreigner may operate businesses under List Two only if at least 40% of the capital is Thai owned. Other conditions have not yet been announced.

The following are the categories of the Foreign Business Act:

List One

List Two

The businesses related to the national safety or security or affecting arts and culture, tradition, folk handicraft or natural resource and environment.

List Three

The businesses which Thai nationals are not yet ready to compete with foreigners:

Exceptions. Americans, for the most part, are exempted from the nationality requirements of the Alien Business Law under the provisions of the Treaty of Amity and Economic Relations Between the Kingdom of Thailand and the United States of America. Also, the Board of Investment may grant exceptions for businesses covered by Lists Two and Three.

Interpretation under the old Alien Business Law. The Thai Juridical Council gave an opinion concerning how to determine whether or not a Thai registered company is an alien company within the meaning of the earlier Alien Business Law.

Before the ruling, any company which was Thai, as defined, counted as Thai if it was a shareholders in another Thai company. Thus a company registered in Thailand (the "Operating Company") would be considered Thai if 49% of its shares were directly held by aliens and the other 51% were held by another company (the "Holding Company") which itself was 51% Thai and 49% Alien. It was thus possible for foreigners using a two‑tier company structure to directly or indirectly own approximately 74% of the capital of the Operating Company and for the Operating Company to be considered Thai and thus permitted to conduct businesses prohibited to aliens.

If this ruling had been implemented the capital of the two companies would have been considered together and in the above case, the Operating Company would have been considered alien. The Ministry of Commerce after much consideration has decided not to implement the ruling.

Penalties: Unlike the previous Alien Business Law, the new Foreign Business Act provides for more severe criminal penalties.Any foreigner who operates a business excluded to foreigners by the Foreign Business law and without an Alien Business License is liable for a fine from 100,000 to 1,000,000 Baht and imprisonment of up to three years. Further, a Thai national or juristic person that assists a foreigner in avoiding the Foreign Business Act by means of holding shares as a nominee or being a nominal owner of the company shall also be liable for a fine of 100,000 to 1,000,000 Baht and imprisonment of up to three years.