The Thai Civil and Commercial Code treats Thai and Foreign Shareholders equally when it comes to start a business in Thailand. Due to this, foreigners are free to start their own business in Thailand without a Thai partner. Foreign Business Act B.E. 2542 (1999) (FBA) imposes some limitations on the types of business activities that foreign nationals may conduct in Thailand. Moreover, List 3 of FBA prohibts a majority of of service activities for foreigners to start a business for. On the other hand, the Board of Investment permits up to 100% foreign ownership in businesses that engage in commercial endeavors that are crucial to Thailand’s development.
Restriction under the Foreign Business Act
List 1 of the FBA prohibits certain business activities, while Lists 2 and 3 restrict them to foreign-owned businesses. The foreign company must obtain a Foreign Business License before engaging in any of the List 2 or 3 business activities. Foreigners are increasingly choosing to form joint ventures with local partners due to the prevalent challenges and costs in obtaining a foreign business license.
Foreign Business License (FBL)
The foreign company must be able to prove that it will bring expertise and teach local staff new skills. This is one of the most important factors to apply for and obtain a FBL. The procedure, which involves numerous questions from the authorities, lasts for about six months. A discretionary decision precedes the approval.
Set-up a Joint Venture
A company where foreign shareholders hold 50% or more of the share capital is a foreign company under the FBA. Therefore, a company can be a Thai company and is exempt from the FBA’s restrictions. It is possible only if Thai shareholders own 50% or more of the company’s shares. Note that, ownership of the capital is major parameter to decide whether a company is foreign. Furthermore, control of the business is never the deciding factor for the same.
100% Foreign Ownership by the Board of Investment Promotion
The Board of Investment of Thailand promotes a variety of commercial activities that are crucial for the development of Thailand. This includes factories, electronics, pharmaceuticals, regional financial centers, and more recently, digital. The full list of activities eligible for a BOI promotion can be found here. One of the advantages of the BOI promotion is foreign ownership. Additionally, it grants with tax regulations for hiring foreign workers with special skills and tax exemptions. It typically takes 3 to 6 months to apply for a BOI promotion.
The majority of business activities are restricted under the FBA. Therefore, a foreign investor should always confirm their eligibility for a BOI before proceeding. A business activity may not be sufficiently innovative and hence, cannot qualify under the BOI. In this case, a foreign business license is an alternative. Nevertheless, a company with a local partner continues to be the most popular investment vehicle for foreigners.
Who are Foreign Shareholders in Thailand?
Section 4 of the FBA defines a foreigner:
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:
- 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
- Being a limited partnership or a registered ordinary partnership, the managing partner or the manager, of which is the person under (1).
- A juristic person in Thailand with 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.
Control of the Company in Partnership with a Thai
Sections 36 and 37 of the FBA state that it is against the law to use Thai nominee shareholders. Due to the non-application of this law, there is no precise definition of what a nominee is. In reality, however, a nominee is a natural person or legal entity that holds stock in a company. The company can be partially owned by a foreign nation but does not make any direct investments in it. A Nominee cannot have the financial resources to do so nor can have a beneficial ownership interest in it. Furthermore, the nominee cannot exercise any form of control over it.
The Bottomline
However, there are other methods like setting up a Branch Office or Representative Office in Thailand. A foreigner can set up these types of organizations to represent their existing businesses in any part of the world.
But to accomplish the feat, you will need a reliable Thai law firm for your guidance and assistance. Therefore, to start your business in Thailand, contact us by emailing your requirement in details to [email protected].
