A private limited company is the most popular business structure in Thailand not just amongst foreign businesses and entrepreneurs looking to expand into the Thai market but, also amongst foreigner investors as it opens doors to a variety of opportunities, like the ability to purchase property, live or work in Thailand.
Although foreign investment is generally welcomed in Thailand, foreign investors seeking to establish a private limited company will need to navigate a number of restrictions under the Foreign Business Act (FBA). For starters, foreign ownership of a limited company is capped at 49%, meaning that Thai nationals must own the majority of the shares. In addition to that, the FBA reserves certain business activities exclusively for Thai nationals and prohibits various business activities to foreigners.
Despite the existing limitations, there are a number of exceptions to the restrictions set out in the FBA that would allow foreigners to own a private limited company in Thailand that would otherwise be prohibited including: (1) obtaining a Foreign Business License, (2) gaining Board of Investment promotion, (3) obtaining a license from the Industrial Estate Authority of Thailand or (4) obtaining a Certificate of Business Operations (only applicable to Americans, Australians, Japanese and nationals from ASEAN countries engaged in specific businesses).
This article provides further detail into these options however, foreign investors will be well advised to seek the assistance of experienced lawyers prior to forming a limited company in Thailand.
1) Foreign Business License
The threshold that a foreign investor can only own up to 49% of a Thai company can be exempted or exceeded if the company's business obtains a Foreign Business License (FBL). An FBL is generally granted to foreign-owned businesses that are unique and do not compete with Thai businesses. To qualify for a FBL, the minimum capital requirement is THB 2 million (approx. USD 60,500) and that the company's business activity must fall under the permitted category under the FBA which includes the following services, accounting, legal, architecture, engineering, agent or broker, F&B, and the list goes on.
2) Board of Investment
The Board of Investment (BOI) is a government body that encourages foreign investment in Thailand. Unlike obtaining an FBL, BOI certified companies can enjoy from a range of benefits such as exemption from corporate income tax up to 8 years, an exemption or reduction in import duties, and expedited procedure for non-immigrant visas and work permits. Above all, BOI certification can permit 100% foreign ownership even where the company's business activities would otherwise be reserved to locals or locally owned companies.
Companies wishing to apply for BOI promotion must have a capital investment of at least THB 1 million (approx. USD 30,000), a minimum of 3 registered shareholders, be a registered company in Thailand and apply in one of the eligible industries which includes but is not limited to, digital, manufacturing, agricultural, mineral exploration, technology development.
3) Industrial Estate Authority of Thailand
Although foreigners are generally prohibited from owning land in Thailand there is a notable exception under the Industrial Estate Authority of Thailand Act (IEAT) which allows foreign entrepreneurs the ability to own industrial estate land to conduct business. This right however is contingent upon the foreign investor obtaining a license from the Industrial Estate Authority of Thailand. There are similar incentives granted to foreign investors operating a company in an industrial estate that are comparable to the BOI certification such as the ability to obtain work permits for foreign skilled workers and their dependents, exemptions from import/export duty, and VAT and excise tax on imported materials, machinery and supplies.
To obtain an IEAT license, the investor must provide details about the company, the specific plot of land the applicant is interested in purchasing, and the manufacturing process. After a license is obtained, the investor needs to start the process of purchasing the plot of land which is carried out by a different government body. It is important to note that once operations begin, the investor must comply with the conditions placed on the land by the IEAT.
4) Certificate of Business Operations
Thailand has entered into various Free Trade Agreements with the United States, Australia, Japan and ASEAN members which give investors from those countries reciprocal rights to own a majority shareholding in a private limited company in Thailand. More specifically, foreign investors of American, Australian or Japanese nationality will be permitted, through existing treaties with Thailand, to apply for a Certificate of Business Operations which would grant them the ability to own majority shares in an entity. There are various business types that are permitted to request a Certificate of Business Operations here are a few: mining, distribution services, constructions, restaurants or hotels. Thailand has also granted the same privilege to ASEAN nationals when they engage in specific activities such as mining, fishery, legal services, accounting or architectural. The easy and fast process of the Certificate of Business Operations makes is more attractive than the FBL whenever both options are feasible.
The application process to obtain any of the aforementioned licenses or certificates can be very lengthy and complex hence why, it is essential for foreign investors to engage the services of an experienced law firm.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.