The Foreign Business Act (FBA), established in 1999, regulates foreign business activities in Thailand. Designed to protect Thai industries, the FBA limits foreign ownership and controls the operations of foreign companies within specific sectors. For foreign investors, the FBA sets clear restrictions on direct ownership, especially in industries deemed critical to the country’s economy, culture, or security. Compliance with the FBA is essential for foreign entities seeking long-term operations in Thailand.
The FBA's primary objectives include:
These objectives ensure that foreign involvement aligns with Thailand’s economic development goals, while safeguarding local industries from excessive competition.
The FBA divides restricted business activities into three categories, each with specific limitations:
List 1 includes sectors where foreign participation is entirely prohibited. These sectors are considered integral to Thailand’s cultural, social, and economic stability and include:
Foreign businesses cannot operate in these sectors under any circumstances, as they are reserved exclusively for Thai nationals.
List 2 includes sectors where foreign ownership is restricted but can be permitted with approval from the Thai Cabinet and relevant ministries. These sectors often involve national interests, including:
Foreign investors in List 2 sectors must partner with a Thai entity or seek special government approval, typically requiring majority Thai ownership.
List 3 sectors are open to foreign investors but require permission from the Department of Business Development (DBD) under the Ministry of Commerce. Examples include:
Foreign businesses can operate in List 3 sectors with a Foreign Business License (FBL) if they meet the criteria and receive approval from the Ministry of Commerce.
Foreign investors seeking to operate in List 2 or List 3 sectors must apply for an FBL. The process involves several steps:
Applicants must provide detailed documents, including:
Applications are submitted to the DBD. For List 2 activities, Cabinet approval is required, making the process lengthier. For List 3 activities, the Ministry of Commerce conducts a review to assess the investment’s benefit to Thailand.
Approval can take between 60-90 days or longer, depending on the sector and complexity of the business activities. Upon approval, foreign companies can operate legally, provided they comply with ongoing FBA requirements.
While the FBA imposes restrictions, certain incentives and exemptions allow greater flexibility:
These incentives support foreign investment in industries that align with Thailand’s economic goals while safeguarding sensitive sectors.
Foreign companies operating under the FBA must meet specific compliance obligations:
Failure to comply with these requirements may lead to penalties, suspension of business licenses, or even revocation of the FBL.
Operating under the FBA requires careful consideration:
Foreign companies should work closely with local legal advisors to ensure compliance and understand the nuances of Thai business regulations.
Thailand’s Foreign Business Act sets a structured framework for foreign businesses operating in the country, balancing investment opportunities with national interests. For foreign investors, understanding the FBA’s structure, restrictions, and licensing process is crucial for long-term success. By navigating the FBA strategically and exploring available exemptions, foreign businesses can leverage Thailand’s economic potential while adhering to its regulatory standards.
Mergers & Acquisitions in Thailand. Thailand has emerged as a key player in Southeast Asia's mergers and acquisitions (M&A) market. This article explores the recent trends, legal framework, and common deal structures for M&A activity in Thailand.
Thailand's M&A landscape has undergone significant transformations in recent years. Here's a glimpse into the trends:
Thailand's M&A environment is governed by several key regulations:
While mergers were traditionally not permitted, a 2023 amendment to the Thai Civil and Commercial Code introduced the concept of a legal "merger." Here are the common deal structures:
Thailand's M&A market presents exciting opportunities for domestic and foreign investors. As the economy continues to recover, we can expect to see increased M&A activity across various sectors. However, navigating the legal complexities and understanding the common deal structures are crucial for a successful M&A transaction in Thailand. Consulting with legal professionals specializing in Thai M&A is highly recommended.
Thailand Board of Investment helps foreign businesses establish their companies in Thailand and ensures that their activities and business practices will benefit the kingdom.
The process of the BOI application is quite strict in that it must comply precisely with the regulations and the requirements of the application because its focus is on providing new technology and benefits to Thailand through foreign investors.
The Board of Investment Law is a promotional policy created by the Thai government in 1954 upon the announcement of its Industrial Promotion Act.
The government began actively promoting and subsidising incentives for foreign businesses willing to open and operate in the Kingdom of Thailand.
The BOI law is still enforced today, and through it, the government guarantees to neither interfere with nor nationalise foreign businesses. It is interesting to note that the Kingdom of Thailand was the first country in this region to have such an investment law.
The BOI has three key roles to play:
The Board of Investment operates directly under the office of the Prime Minister.
A BOI Company is a company that is a foreign investment company that has been certified by the Thailand BOI, a government body whose aim is to encourage foreign investment in Thailand.
Your business can enjoy a range of benefits by being certified by the BOI. There are many many advantages of setting up your BOI company in Thailand. Among these are significant tax waivers, multiple work permits, reduced processing times for work permits, and the ability to own land even if your company is majority-owned by non-Thai nationals.
BOI companies can enjoy specific tax and non-tax incentives. These incentives may be specifically attractive to foreign investors, without which they may be subject to stringent rules and regulations in conducting their business in Thailand.
A BOI certified company may be eligible for an exemption of Corporate Income Tax for a period of up to 8 years. They may also qualify for an exemption from or reduction of import duties for raw materials, as well as a tax decrease on the payable dividends to shareholders.
Further tax incentives may include deductions on the company’s transportation, electricity and water usage, and the installation costs of the project’s infrastructure. Summarised below:
Non-Tax privileges allow a BOI promoted company to hire foreign skilled workers and experts instead of the non-BOI policy of hiring four Thai employees for every one foreign employee.
The BOI also provides an express procedure through its One-Stop visa process for both non-immigrant visas and work permits. These non-tax incentives also allow 100% foreign ownership of the BOI company and the option for the foreign company to own land in the Kingdom.
Should you wish to register your company for BOI, the following steps will be necessary to complete. These steps have been summarised, but you will access all the details once you begin the process.
1. Do a feasibility study.
2. The BOI application
3. Approval by the Board
After a successful BOI application, and if you wish to receive your BOI promotion certification, you must set up the Thai company within six months after being approved. At this time, you must submit the following documents:
To apply for your BOI promotion certification, you need to ensure that your company meets the following criteria:
As a foreigner to Thailand, whether you currently own a company and would like to set up a subsidiary, or whether you would like to start a new company - you will need to be aware of all the Thai subsidiary laws. You will also need to decide which business structures best suit your company and commit the necessary time and money for the whole incorporation process.
The first thing you’ll need to know in setting up a company in Thailand is that there are several specific business factors. The Foreign Business Act has placed several restrictions on foreigners and has defined several industries requiring individual permissions.
There are seven business types available for new companies or those looking to incorporate. These types of business structures are partnerships, limited companies, joint ventures, representative offices, branch offices, and international headquarters.
We will give more detail on the four main types below. Each business type has advantages and disadvantages unique to them. However, most businesses are opened as limited companies.
The Kingdom of Thailand has three general types of partnerships: Unregistered Ordinary Partnerships, Registered Ordinary Partnerships, and Limited Partnerships.
There are two types of limited companies in Thailand, namely Private Limited or Closely Held Companies, and Public companies. The first type of company is governed by the Civil and Commercial Code, while the Public Company Act governs the Public companies.
Private Limited Companies in Thailand have some basic characteristics similar to foreign corporations. Private Limited Companies are formed through a process leading to the registration of a Memorandum of Association (Articles of Incorporation) and also Articles of Association (By-Laws). These are the constitutive documents of the company.
Private Limited Companies need a minimum of 3 shareholders at all times and are allowed to be entirely foreign-owned. It is worth noting that in those activities reserved for Thai nationals, a foreigner’s participation is generally only allowed up to a maximum of 49%.
Public Limited Companies that are registered in Thailand (subject to their compliance with the prospectus, approval, and other requirements) may offer shares, debentures, and warrants to the public and may also apply to have their securities listed on the SET (Stock Exchange of Thailand).
Public Limited Companies need to have a minimum of fifteen promoters to form and register the Memorandum of Association. These shareholders must have held their shares for a minimum of 2 years before these can be transferred.
The Board of Directors of Public Limited Companies must be made up of a minimum of 5 members, of which at least half of them are Thai nationals.
A Joint Venture business can generally be described as a group of people (natural and/or juristic) that enter into an agreement to carry out business together. This type of business has not yet been recognised as a legal entity under the Civil and Commercial Code.
It is important to note that any income derived from the Joint Venture is subject to corporate taxation under the Revenue Code, as it classifies it as a single entity.
A Representative Office is only permitted to engage in non-profit activities. In order to form such a company, at least one of the following purposes would need to be sought, for the purposes of “non-trading” activities:
The name of the company you wish to register in Thailand may not be the same nor similar to that of existing companies. There are also specific names that are not permitted. Therefore, to be approved, the name reservation guidelines of the Department of Business Development of the Ministry of Commerce must be observed.
Should your chosen company name be approved, it is valid for a period of thirty days.
A Memorandum of Association bearing the successfully reserved company name must be filed with the Department of Business Development within the thirty-day validity period.
The memorandum must also include the province where the company will be located, the company’s business objectives, the capital to be registered, and the names and information of all the promoters.
A compulsory requirement is that the capital information includes the number of shares and par value. At the company formation step, the authorised capital (even if only partly paid) must all be issued.
Even though there are no minimum capital requirements, it is advisable that the capital amount should be reasonable enough and adequate for the intended company operations.
Once you have defined the share structure, a statutory meeting must be held; during which the following must take place:
Once you have successfully formed your company, you will need to register it at the Department of Business Development. This is typically done between 1-3 days, case dependent. The registration timeline varies depending on several factors, namely:
All companies liable for income tax must obtain a Tax I.D Card from the Revenue Department. If the company’s gross income in the same fiscal year is 1.8 million Baht) or more, the business is generally required to be in the Thai VAT system.
Specifically, Section 1206 of the Civil and Commercial Code provides rules that the accounts should be maintained as follows:
The company is obliged to timeously file financial statements and VAT reports with the Revenue Department.
Because of the presence of sufficient infrastructure and an efficient government-backed workforce, Thailand's economic growth and progress are continuous.
Suppose you would like to start your own company in the Kingdom of Thailand. In that case, you should acquire legal assistance to deal with the complex legalities of establishing a corporate entity under Thai law.