Introduction
When looking to start a business in Thailand, one question frequently gets asked: Does my business in Thailand require a Thai partner?
In this blog post, we will focus on whether or not partnering with a local is required. Thailand’s legal framework, especially the Foreign Business Act (FBA), requires careful consideration when answering this.
Key Points
- In Thailand, companies can be 100% foreign-owned and are not required to have a Thai Partner.
- However, 100% Foreign ownership may be restricted for many business activities, and a Thai partner may be required.
- The Foreign Business Act specifies which business activities are open to 100% foreign ownership and which are restricted to Thai companies
Does my business require a Thai partner?
Under the Thai Civil and Commercial Code, companies can be 100% foreign-owned and are not required to have a Thai Partner. However, the ability of a company such as this to operate and engage in business is entirely dependent on the business activities of the company.
The Foreign Business Act of 1999 (FBA) regulates foreign investment in Thailand and is designed to protect and promote the interests of Thai businesses. The law specifies which industries are open to foreign investment and the conditions under which foreign businesses can operate in Thailand. Furthermore, it restricts foreign companies from undertaking about 50 types of businesses, including service activities, consulting, finance, etc.
For the 50 restricted business activities established under the FBA, foreign ownership of a limited company is capped at a maximum of 49.99% (unless a Foreign Business Licence or a BOI promotion has been obtained). Therefore, a Thai partner will be required to hold the majority share.
Businesses that are not restricted do not fall into prohibited or restricted categories, such as import/export companies (depending on what they are trading), which can be fully owned and operated by foreign investors in Thailand.
Can a 100% owned company undertake restricted activities under the FBA?
The Foreign Business License (FBL) is a license issued by the Department of Business Development that allows foreign businesses to engage in restricted business activities under the Foreign Business Act. However, it is important to note that the FBL is often difficult to obtain approval for.
To obtain an FBL, the foreign business must apply to the Department of Business Development, along with supporting documents such as the company’s registration certificate, articles of association, and proof of shareholding. The applicants will also be required to show evidence of a transfer of technology as well.
100% Foreign ownership under a BOI company
The Board of Investment (BOI) in Thailand is a department of the Thai government whose focus is to develop foreign investment and economic growth in Thailand. The benefits of pursuing BOI promotion offer significant advantages for eligible companies, such as; 100% foreign ownership, ease of recruiting foreign employees, and the availability of the Foreign Business Certificate.
One key consideration is that BOI-promoted companies can apply for a Foreign Business Certificate. This is a significant advantage because if the proposed business activity of the BOI company is restricted under the Foreign Business Act, once the company has received its BOI license, it can apply for the Foreign Business Certificate from the Ministry of Commerce. In practice, Foreign Business Certificates are typically granted to all companies with a BOI license. Obtaining a Foreign Business Certificate allows BOI-promoted companies to undertake activities restricted by the Foreign Business Act as a 100% foreign-owned company.
Yet, while BOI promotion presents many advantages, it’s crucial to understand that only a few business activities fall within the purview of the Foreign Business Act. As such, foreign investors must carefully ascertain their eligibility for BOI promotion before proceeding.
The Foreign Business Act and Control of Majority Thai-Owned Companies
A question that frequently comes to the minds of foreign investors is whether they can assume control of a majority Thai-owned company without running short of the Foreign Business Act’s ownership requirements.
Under the provisions of the Foreign Business Act, the focus is on the ownership of the shares and not the company’s control. Therefore, it is possible for foreign investors to have control of the company by having additional voting rights and other carefully and clearly drafted agreements. It is important to note that this has to be done properly and cannot deprive the Thai shareholders of their economic interests in the company as a shareholder.
It is vital to note that under the Foreign Business Act, the use of nominee shares is expressly forbidden. For more information about nominee shareholders in Thailand, please see here.
Our Thoughts
In most cases, big international companies will sometimes have worldwide policies in place that require the international entity to be fully foreign-owned. In such cases, these companies will more than likely be able to obtain one or multiple BOI licenses to ensure they are fully foreign-owned. However, this may come with a high structuring cost and not be achievable for smaller SMEs.
In such a case, SME companies may consider a more pragmatic approach with a hybrid solution of having part of the business foreign-owned through a BOI license. If that is not possible or unachievable, they may be suited to partnering with a local Thai partner. However, as mentioned above, if the company were to work with a local Thai partner, then they would need to ensure the company is structured in a proper way to ensure the Thai partner wouldn’t be considered a nominee shareholder, which is illegal in Thailand, and run into potential trouble.
