Introduction
For investors contemplating entry into the Thai market, a primary concern often revolves around the possibility of achieving 100% ownership of their businesses within Thailand. While the typical requirement entails Thai partners holding over 50% of the shares, some avenues allow 100% foreign ownership.
This article delves into the various avenues available to foreign entrepreneurs seeking to establish their enterprises in Thailand while benefiting from full foreign ownership.
Key Points
- When foreign individuals or entities own over 49 percent of a company’s shares, obtaining a Foreign Business License (FBL) is typically required (subject to certain exceptions such as import/export) .
- The Foreign Business Act restricts foreigners from undertaking approximately 50 different business categories.
- Businesses that qualify for Board of Investment (BOI) promotion have the opportunity to secure a Foreign Business Certificate (FBC). This certificate allows them to operate activities that are otherwise restricted by the Foreign Business Act,
- Certain activities, such as export-related endeavors, remain open to foreign ownership and do not fall under the restrictions outlined by the Foreign Business Act.
- Businesses predominantly owned by U.S. citizens can benefit from the Treaty of Amity, which grants them the privilege of operating in Thailand without requiring an FBL. However, these companies are subject to specific sectoral limitations.
How does the Foreign Business Act affect the Foreign Ownership of a Business?
The Foreign Business Act (FBA) categorizes business activities in Thailand into three distinct lists, each subject to specific regulatory constraints. These regulatory measures primarily pertain to the extent of foreign ownership and operational involvement permitted within these business categories.
Here is a detailed overview of the three lists and their respective implications:
List One: This category encompasses businesses such as newspaper operations, animal farming, land trading, and various other activities. Foreign individuals or entities are generally prohibited from engaging in List One businesses except under specific circumstances deemed as “special reasons.” Approvals for foreign involvement in List One activities are generally unavailable.
List Two: List Two consists of three groups of businesses, including those related to national security and activities concerning domestic land, waterways, or air transportation (including domestic airlines). While foreign individuals or entities can potentially operate businesses falling under List Two, such endeavors necessitate approval from both the Minister of Commerce and the Cabinet. However, securing such approvals can be a challenging process.
List Three: List Three primarily comprises service-related business categories, excluding those specifically designated by ministerial regulations. Foreign individuals or entities are typically prohibited from participating in List Three activities due to the perceived unpreparedness of Thai nationals to compete in these sectors. Nevertheless, foreign entities can seek approval for List Three activities from the Director-General of the Commercial Registration within the Department of Business Development and the Foreign Business Committee.
These distinctions within the FBA framework outline the various business sectors and their associated restrictions, forming the basis of foreign involvement regulations in Thailand.
How can an Investor Achieve 100% Foreign Ownership?
Despite the limitations imposed by restricted business activities, there are three viable avenues through which foreigners can pursue the goal of achieving 100% foreign ownership:
Obtaining a Foreign Business Licence (FBL): Individuals or entities interested in engaging in business activities governed by the Foreign Business Act may apply for a Foreign Business License (FBL). This license allows foreign investors to navigate the regulatory framework and participate in restricted activities within specified conditions.
In practice, the FBL is challenging to obtain, with an average approval rate of approximately 50%. To be successful, you need to be able to show a transfer of technology to improve the Thai economy or operate a business in which Thai people and businesses cannot compete.
Board of Investment (BOI) Promotion: Thailand’s Board of Investment (BOI) plays a pivotal role in promoting foreign investment. Under BOI promotion, businesses can secure a Foreign Business Certificate (FBC) and operate as 100% foreign-owned entities. This avenue is particularly advantageous, as it provides a range of incentives and benefits to qualifying projects.
Registration through the Treaty of Amity (for U.S. Citizens Only): U.S. citizens enjoy a distinct advantage regarding foreign ownership in Thailand. Through the Treaty of Amity, companies predominantly owned by U.S. citizens can operate within Thailand without necessitating an FBL or BOI promotion. However, certain sector-specific restrictions still apply to maintain compliance with the treaty.
These three distinct methods offer prospective investors and entrepreneurs various means to achieve 100% foreign ownership within Thailand’s regulatory framework. Each avenue presents unique advantages and considerations, making it imperative to assess which approach aligns best with specific business objectives.
What is a Foreign Business License?
Foreign companies seeking to engage in business activities subject to restrictions under the Foreign Business Act must apply for a Foreign Business License (FBL) before initiating their operations. The FBL application involves submitting requisite documentation to the Foreign Business Committee, after which the applicant awaits a determination.
It is essential to note that this procedure may be time-intensive, and rejections are not uncommon, with successful applications standing at about 50%. However, businesses that present unique and non-competitive propositions within the Thai market, demonstrate a significant transfer of technology, or engage in transactions with affiliated companies stand a significantly improved chance of securing the FBL.
The FBL allows the Thai government to supervise and manage the entry of foreign businesses into the local landscape. It is vital to underscore that failing to secure the necessary FBL before commencing business activities carries severe consequences, including fines ranging from 100,000 THB to 1M THB and the possibility of a prison sentence of up to three years. Compliance with the regulatory process is, therefore, imperative to ensure a lawful and secure market entry for foreign companies.
Which business activities do not require a Foreign Business License (FBL)?
Foreign entrepreneurs in Thailand frequently express interest in establishing ventures in key sectors such as manufacturing, trade, export, and services. Under the Foreign Business Act (FBA), most manufacturing and export activities, particularly those geared toward the export market, remain largely unrestricted, permitting foreign investors to retain full ownership.
However, it is essential to know that the service sector presents limited opportunities for foreign ownership. Thai businesses within the service industry are perceived as not yet prepared to engage in full-fledged competition with foreign counterparts.
What are Board of Investment (BOI) Promotions?
Thailand’s Board of Investment (BOI) plays a vital role in encouraging foreign investments. The BOI offers various incentives to qualifying projects, making it an attractive avenue for foreign investors seeking opportunities in Thailand. It is highly recommended to consider a BOI promotion as the first step when looking to enter the Thai market.
Key Incentives Provided by BOI
100% Foreign Ownership: One of the primary advantages of obtaining a BOI promotion is the opportunity for foreign investors to achieve full ownership (100%) of a company operating in Thailand. This ownership structure offers greater control and flexibility to foreign investors.
Reduced Work Permit Requirements: BOI-promoted projects benefit from streamlined processes, which include the removal of work permit quotas for hiring foreigners. This simplifies the employment of foreign personnel, ensuring that qualified individuals can contribute to the success of the project.
Land Ownership: BOI promotion enables foreign investors to own land in Thailand. This is a significant advantage, especially for businesses that require physical infrastructure and land-based operations.
Tax Benefits: The BOI offers tax incentives, including income tax exemptions, for a specified period. It is important to note that the availability of tax incentives may vary depending on specific promotions and is not applicable to all projects.
BOI-Promoted Business Activities
BOI promotions serve to eliminate many of the barriers posed by the Foreign Business Act. Businesses engaged in various sectors can benefit from BOI promotion, including but not limited to:
Agriculture and Agricultural Products: Projects related to agriculture and the production of agricultural goods.
Mineral, Ceramics, and Basic Metals: Businesses involved in mineral extraction, ceramics production, and the manufacturing of basic metals.
Light Industry: Companies engaged in light industrial activities such as textiles, clothing, and food processing.
Metal Products, Machinery, and Transport Equipment: Projects related to the production of metal products, machinery, and transportation equipment.
Electronics and Electrical Appliances Industry: Businesses involved in the manufacturing of electronics and electrical appliances.
Chemicals, Paper, and Plastics: Companies engaged in the production of chemicals, paper, and plastics.
Services and Public Utilities: Various service-based businesses and public utility services can obtain BOI promotion.
Technology and Innovation Development: Projects focusing on technology and innovation development are eligible for BOI incentives, fostering innovation within Thailand.
What are Treaty of Amity Companies?
In most cases, a 100% foreign-owned company faces limitations when seeking to operate in Thailand. Exceptions exist, and one such avenue is the Treaty of Amity. To qualify for this unique status, a company must meet specific criteria, especially regarding its ownership structure.
Qualifications for Treaty of Amity Status
To enjoy the benefits of Treaty of Amity protection, a company in Thailand must meet one of the following conditions:
Foreign Business License (FBL) Granted by the Ministry of Commerce: The Ministry of Commerce can issue an FBL, allowing a foreign-owned company to operate within Thailand. This license is typically required for businesses that do not meet other criteria for exemption.
BOI Investment Promotion and Foreign Business Certificate: Companies can also obtain permission to operate through an investment promotion by the Board of Investment (BOI) along with a Foreign Business Certificate issued by the Ministry of Commerce. This combination enables foreign ownership and operation.
However, there is a specific exemption route available for US citizens holding a majority of shares in a company.
US-Majority-Owned Companies and Treaty of Amity
When a US citizen is the majority shareholder in a company, holding the majority of shares, the business is deemed a US-majority-owned company. Such entities are eligible to apply for protection under the Treaty of Amity, allowing them to function as 100% foreign-owned companies in Thailand without the need for an FBL or BOI promotion.
Restrictions under the Treaty of Amity
It’s important to note that while Treaty of Amity protection offers advantages, there are restrictions. American investors operating under this treaty are prohibited from engaging in specific reserved activities in Thailand. These include:
Communications: Operations in telecommunications and related sectors.
Transportation: Activities within the transportation industry, excluding certain exceptions.
Fiduciary Functions: Providing fiduciary services is restricted under this treaty.
Banking Involving Depository Functions: Certain banking activities, particularly those involving depository functions, are off-limits.
Land Ownership and Exploitation of Natural Resources: Owning and exploiting land or other natural resources within Thailand are restricted under the Treaty of Amity.
Domestic Trade in Indigenous Agricultural Products: This treaty restricts the domestic trade of indigenous agricultural products.
Additional Requirements for Treaty of Amity Companies
In addition to these restrictions, certain ownership and directorship requirements apply to companies seeking Treaty of Amity protection:
American Shareholding: A minimum of 51% of shares must be held by American citizens.
Directorship: At least 50% of the directors in the company must be American citizens.
What options are available for a company that is not eligible for the above?
In cases where a foreign company does not qualify for the aforementioned options, a viable alternative remains: establishing a Thai company with majority ownership by Thai individuals. This solution involves ensuring that over 50% of the company’s shares are held by Thai nationals. Companies structured in this manner are exempt from the restrictions imposed by the Foreign Business Act (FBA) and gain the flexibility to engage in a wide range of business activities within Thailand.
Leveraging Thai Limited Companies
Under the prevailing regulations outlined in the FBA, foreign entities are permitted to exercise majority voting rights and maintain control over a Thai limited company. This is accomplished by utilizing preference shares and weighted voting rights. However, it’s essential that Thai shareholders in such arrangements must be genuine and not merely acting as nominees.
This strategy allows foreign investors to establish and manage businesses in Thailand while adhering to the legal framework. Foreign companies can navigate the regulatory landscape effectively and undertake various business activities in the country by ensuring majority Thai ownership and compliant corporate governance structures.
In summary, when other avenues for foreign business ownership in Thailand are not accessible, establishing a Thai company with majority Thai ownership provides a viable solution. This approach enables foreign investors to operate within the confines of Thai law, allowing for a diverse range of business activities while complying with the Foreign Business Act.
Our Thoughts
The Thailand Board of Investment should always be the first consideration for an investor looking to enter the Thai market. The BOI serves as a gateway for foreign investors, offering various incentives to promote investment and business growth in Thailand. These incentives encompass ownership benefits, streamlined workforce management, land ownership opportunities, and tax advantages. These incentives provide a valuable boost for investors and a great opportunity to take advantage of what Thailand offers.
