Please provide a short summary of the Foreign Investment Restrictions adopted by your jurisdiction.
The main legislation that governs and imposes restrictions on foreign investment in Thailand is the Foreign Business Act B.E. 2542 (1999) ("FBA"). The FBA provides a list of business activities that are reserved for Thai nationals and thus, limits the ability of the foreigners to engage in such reserved business activities. These reserved business activities are categorized into 3 categories which are as follows:
- List 1 consists of the business activities in which the foreigners are strictly prohibited from engaging for a special reason.
- List 2 consists of the business activities which are related to national safety or security or having impacts on arts, culture, traditions, customs and folklore handicrafts, or natural resources and the environment. Any foreigner wishing to engage in the business activities under this List 2 must obtain permission from the Minister with the approval of the Council of Ministers, and at least 40% of its total shares must be held by Thai nationals or legal entities which are not regarded as foreigners under the FBA, and at least two-fifth of the directors must be Thai nationals.
- List 3 consists of the list of business activities to which Thai nationals are not ready to compete, including, among others, wholesale business, retail business and service business. Any foreigner wishing to engage in the business activities under this List 3 is required to obtain permission i.e. Foreign Business License ("FBL") from the Director-General of the Department of Business Development ("DBD") at the Ministry of Commerce ("MOC").
The exemptions to the operation of business activities under List 2 or List 3 of the FBA include where the foreigner receives investment promotion from the Board of Investment ("BOI"), obtains approval from the Industrial Estate Authority of Thailand, or is qualified for treaty exemptions such as the US Treaty of Amity and Economic Relations, the ASEAN Comprehensive Investment Agreement, ASEAN Trade in Goods Agreement, etc.
After the business has obtained approval from either of the aforementioned authorities, the business operators shall apply for a Foreign Business Certificate ("FBC"). The FBC application process is an administrative rather than an approval procedure.
Is your regime focused on economic protectionism, national security, or a combination?
Thailand's regime focuses on both economic protectionism and national security.
Who is considered a "foreign investor" and are only investments from particular countries covered?
Pursuant to the FBA, a foreigner is defined as follows:
- A natural person who is not a Thai national;
- A legal entity that is not registered in Thailand; or
- A legal entity which is registered in Thailand with at least 50% of its shares are held by persons under (i) and/or (ii), or a legal entity being a limited partnership or a registered ordinary partnership, having a person under (i) as the managing partner or the manager; or
- A legal entity that is registered in Thailand with at least 50% of its shares is held by persons under (i), (ii) and/or (iii).
These apply and cover investments from any country.
What sectors are subject to Foreign Investment Restrictions screening?
As described in response to Question 1 above, foreigners are restricted from engaging in the reserved business activities under the FBA, unless the license or permission has been obtained, or the operation of such activity falls within the exemption.
Under the FBA, the reserved businesses are not categorized based on the sectors, but rather on the types of business activities. In other words, any sector could be subject to the provisions of the FBA if the activities to be carried out are reserved business activities.
Apart from the FBA, foreign investors could also be further subject to specific laws regulating certain sectors – for example, laws on the banking business, insurance, telecommunication, or land.
What are the relevant thresholds?
Generally, the shareholding structure would be a relevant threshold in determining whether the investor is considered as a foreigner (i.e. with at least 50% of its shares are held by foreigners) and thus, subject to the Foreign Investment Restrictions. In addition to the shareholding structure, certain business activities may also be subject to other requirements such as the nationality of directors such as the business activities which are listed in List 2 of the FBA, or the minimum registered capital.
Is notification under Foreign Investment Restriction rules mandatory?
Yes, an operation of reserved business activities under the FBA requires permission and/or license from the DBD, except where the operation falls within the exemptions provided under the FBA.
However, there are certain types of service activities that are currently exempted from license requirements under the FBA e.g. providing loans to its affiliates or subsidiary companies, engaging in the business as a representative office or regional office, providing advice and support to its affiliates or subsidiaries companies in relation to the administration, marketing, human resources and information technology, etc.
Is the relevant authority's approval required prior to closing?
Where the foreign investor is subject to the licensing or permission requirement, approval from the relevant authority would be required prior to the closing. For example, in the event that a foreign investor would like to engage in the reserved business under List 3 of the FBA, the application must be submitted to the Foreign Business Administration Division, DBD, for consideration and approval; or where the foreign investor would like to operate a business under the BOI promotion scheme, the application must be submitted to the BOI for consideration and approval prior to closing.
What was the impact of COVID-19 on your foreign investment regime?
There was no impact of COVID-19 on the foreign investment regime in Thailand.
In December 2021, the Joint Foreign Chambers of Commerce and the MOC have discussed the possibility to grant permission to the foreign investors in operating certain types of service businesses under List 3 of the FBA in order to urge more investment during the COVID-19 pandemic. However, there is still no further development on said relaxation.
How active has your agency been in reviewing, delaying, modifying or blocking foreign investments?
The agency in Thailand does review the rules relating to foreign investments on a regular basis. However, based on the past practices, rather than delaying or blocking, the agency seems to encourage more foreign investment by providing relaxation to the business restrictions over the past years – for example, a license under the FBA is no longer required if the foreigner will engage in the service business to provide loans to its affiliates or subsidiary companies, engage in the business as a representative office of the bank, provide advice and support to its affiliates or subsidiaries companies in relation to the administration, marketing, human resources and information technology, etc.
In November 2020, it was widely reported by the media in Thailand that the DBD has drafted ministerial regulations to remove three business activities from the licensing requirements under List 3 of the FBA, i.e. the telecommunication business of which the telecommunication operator does not have its own network, treasury center activities under the Exchange Control Law, and the software development business for data management or data analytics, includign predictive analytics. However, there is curretly still no further development on when this draft ministerial regulations will be finalized and enacted.
Further to the above, the BOI also focuses on stimulating economic investment and attracting new foreign investors by offering both tax and non-tax incentives to the eligible investors, particularly for those investors with advanced technologies which would be beneficial to the development of Thailand.
According to the Thailand 4.0 initiatives, the Thai government aims to transform the economy of Thailand into an innovative and valued-based economy and turn the Eastern region of Thailand into a leading ASEAN economic zone. The Eastern Economic Corridor Act B.E. 2561 (2018) has thus been enacted to support and drive such objectives by providing attractive incentives to the foreign investors who will be investing in the Eastern region which initially includes 3 provinces, i.e. Chachoengsao, Chon Buri and Rayong. The Eastern Economic Corridor Project is targeting 12 fields such as automation and robotics, biofuel and biochemicals, food for the future, medical and comprehensive healthcare, advanced agriculture and biotechnology, etc.
On what grounds can enforcers review and block a foreign investment? How active have they been in the past 6 months?
Please refer to the response above.
Do you expect any regulatory developments over the next 6 months?
No, we do not expect that there will be any regulatory developments over the next 6 months.
Originally published by Lex Mundi Foreign Investment Restrictions Guide 2021.
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.
