The Foreign Business Act and Other Foreign Business Restrictions

1.1. Background

The rights of aliens in Thailand are derived primarily from Thai domestic law, although international law and bilateral treaties impose on Thailand certain obligations toward resident aliens. Generally, aliens have the same basic rights as Thai nationals, unless a right is explicitly reserved for nationals or denied to or restricted to aliens.

Restrictions on the percentage of alien ownership for commercial banks, commercial fishing, aircraft, commercial transportation, commodity export, mining and other enterprises exist under various laws.

1.2. The Alien Business Law

The most important law governing alien-controlled businesses in Thailand is the Alien Business Law (National Executive Council Announcement No. 281) of 1972. Before the introduction of the Alien Business Law in 1972, foreigners were generally permitted to do business in Thailand with few restrictions. The Foreign Business Act divided various types of business into three main categories and subjected each category to different limitations with respect to foreign ownership. Other laws control the foreign ownership of land and specialized activities such as banking, insurance, finance and shipping.

In 1999, a new Act was passed which replaces the earlier Alien Business Law. The new Act is entitled The Foreign Business Act, B.E. 2542 (1999). 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 The Foreign Business Act divides businesses into three Categories. Generally, those businesses listed in Category One are absolutely prohibited to foreigners unless there is an exception contained in a special law or treaty. 

Category Two refers to businesses owned by aliens that were in existence and actually operating prior to the enactment of the Foreign Business law. These businesses were permitted to apply for a special Alien Business License and to continue operating. Foreigners, 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.

Category Three businesses are treated in a manner similar to those in Category Two except that the power to grant an Alien Business License to foreigners who wish to start a new business is vested with the Director General and a committee.

Moreover, although businesses in Category Three may be open to foreigners (subject to ministerial regulation), the authorities have observed a policy of issuing no new licenses to such incoming businesses unless they are convinced that these activities could not be competently conducted by firms in which the majority ownership is Thai.

A company with an alien business licenses may be sold to foreigners who then may continue with the use of the company's alien business license. Generally, transfers are permitted but due care and caution should be used to examine the details of the license to see whether restrictions may apply.

Definition of "Foreigner" A business is considered " foreigner" if: (1) it is established under foreign law; or (2) half or more of its capital is owned by foreigners even if the company is incorporated under Thai law, or (3)half or more of the value of the total capital being invested by foreigners even if more than half the capital is owned by Thai nationals. (The third requirement is effectively a bar on the use of Thai national as nominees.)

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. So for example, 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.

New Alien Business Licenses Foreign businesses seeking to engage in a Category Two business may apply for an Alien Business License provided that approval has been granted by the Minister and Cabinet. Foreign businesses may apply to operate businesses in Category 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 routinely apply for licenses.

The Ministry of Commerce will attach conditions to the Foreign Business License. These conditions include 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.

Exceptions:

Under a Royal Decree of 1973, an "alien" enterprise granted promotional privileges by the Board of Investment is permitted to engage in a Category Two business. In addition, the Law is not applicable to aliens engaging in business by permission of the Thai Government for a definite duration, or by agreement between the Thai government and foreign governments. Thus, several American-owned enterprises have invoked the provisions of the Treaty of Amity and Economic Relations between Thailand and the United States to claim exemption from the Law. There is an accelerated procedure for issuing the necessary license or permit for aliens who have been granted promotion by the BOI. The Law does not apply to businesses not falling within Categories A, B or C.

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.

Categories:

The following are the categories of the Foreign Business Act:

Category One

(1)	Newspaper business, radio broadcasting or television station business.
(2)	Rice farming, farming or gardening.
(3)	Animal farming.
(4)	Forestry and wood fabrication from natural forest.
(5)	Fishery for marine animals in Thai waters and within Thailand specific economic zones.
(6)	Extraction of Thai herbs.
(7)	Trading and auctioning Thai antiques or national historic objects.
(8)	Making or casting Buddha images and monk alms bowls.
(9)	Land trading.

Category Two 

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

Group 1: Businesses related to the national safety or security:
(1)	Production, selling and maintenance of:

(a)	Firearms, ammunition, gun powder, explosives.
(b)	Accessories of firearms, ammunitions and explosives.
(c)	Armaments, ships, air-crafts or military vehicles.
(d)	Equipment or components, all categories of war materials.

(2)	Domestic land, waterway or air transportation, including domestic airline business.

 

Group 2: The businesses affecting arts and culture, traditional and folk handicraft:
(1)	Trading antiques or art objects being Thai arts or handicraft.
(2)	Production of carved wood.
(3)	Silkworm farming, production of Thai silk yarn, weaving Thai silk or Thai silk printing.
(4)	Production of Thai musical instruments.
(5)	Production of goldware, silverware, nielloware, bronzeware or lacquerware.
(6)	Production of crockery of Thai arts and culture.

 

Group 3: The businesses affecting natural resources or environment:
(1)	Manufacturing sugar from sugarcane;
(2)	Salt farming, including underground salt;
(3)	Rock salt mining;
(4)	Mining, including rock blasting or crushing;
(5)	Wood fabrication for furniture and utensil production.

List Three 

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

(1)	Rice milling and flour production from rice and farm produce.
(2)	Fishery, specifically marine animal culture.
(3)	Forestry from forestation.
(4)	Production of plywood, veneer board, chip board or hardboard.
(5)	Production of lime.
(6)	Accounting or service business.
(7)	Legal service business.
(8)	Architecture service business.
(9)	Engineering service business.
(10)	Construction, except for:

(a)	Construction rendering basic services to the public in public utilities or transport requiring special tools, machinery, technology or construction expertise having the foreigner's minimum capital of 500 million baht or more.
(b)	Other categories of construction as prescribed by the ministerial regulations.

(11)	Broker or agent business, except:

(a)	Being a broker or agent for underwriting securities or services connected with future trading of commodities or financing instruments or securities.
(b)	Being broker or agent for trading or procuring goods or services necessary for production or rendering services amongst affiliated enterprises.
(c)	Being a broker or agent for trading, purchasing or distributing or seeking both domestic and foreign markets for selling domestically manufactured or imported goods in the manner of international business operations having the foreigners minimum capital 100 million baht or more.
(d)	Being broker or agent of other category as prescribed by the ministerial regulations.

 

(12)	Auction, except:

(a)	Auction in the manner of international bidding not being the auction of antiques, historical artifacts or art objects which are Thai works of art, handicraft or antiques having the historical value.
(b)	Other categories of auction as prescribed by the ministerial regulations.

(13)	Internal trade connected with native products or produce not yet prohibited by law.
(14)	Retailing all categories of goods having the total minimum capital less than 100 million Baht or having the minimum capital of each shop less than 20 million Baht.
(15)	Wholesaling all categories of goods having minimum capital of each shop less than 100 million Baht.
(16)	Advertising business.
(17)	Hotel business, except for hotel management service.
(18)	Guided Tour.
(19)	Selling food or beverages.
(20)	Plant cultivation and propagation business.
(21)	Other categories of service business except that prescribed in the  ministerial regulations.

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