Thailand Legal Basics

Starting a Business

1.1 Foreign Investment

Foreign nationals are generally permitted to start businesses in Thailand, subject to the applicable laws. This chapter discusses some key legal requirements for establishing a business in Thailand, including: 

• The Foreign Business Act, which restricts or prohibits foreigners from undertaking various business activities and sets licensing requirements for other types of businesses;
• Other restrictions that may limit foreign participation in specific sectors;
• Investment incentives offered under Thailand's Board of Investment, the Industrial Estate Authority of Thailand, treaties, and free trade agreements; and
• Forms of business organization under Thai law.
  • Foreign Business Act

The most important law governing foreign direct investment in Thailand is the Foreign Business Act B.E. 2542 (1999)—or the FBA. The FBA reserves certain business activities for Thai nationals and limits the ability of foreigners to engage in those activities. Under the FBA, a company is considered foreign (sometimes translated as "alien") if at least half of its shares are held by non-Thai natural or juristic persons.

The FBA has prescribed three categories of restricted businesses, laid out in schedules.

• Schedule 1 covers businesses that are strictly prohibited to foreigners:
  • Newspaper business, radio broadcasting, or television station business
  • Rice farming, farming, or gardening
  • Animal farming
  • Forestry and wood fabrication from natural forests
  • Fishery for marine animals in Thai waters and within Thailand specific economic zones
  • Extraction of Thai herbs
  • Trading and auctioning Thai antiques or national historical objects
  • Making or casting Buddha images and monks' alms bowls
  • Land trading
• Schedule 2 covers businesses that are prohibited to foreigners unless they receive permission to operate from the minister of commerce with the approval of cabinet. Foreigners may operate a business under schedule 2 only if Thai nationals or juristic persons not considered to be foreigners under the FBA hold shares of no less than 40% of the capital of that foreign juristic person. Unless there is reasonable cause, the minister of commerce, with the approval of the cabinet, may reduce the proportion requirement, down to a minimum of 25%. The number of Thai directors must not be less than two-fifths of the total number of directors. If the cabinet approves the application, a permit will be issued within 15 days. The minister may attach to it any conditions imposed by the cabinet, or stipulated by ministerial regulations issued under section 18 of the FBA. 
• The following activities are included on this list:
  • Group 1: Businesses related to national safety or security:
    • Production, sale, repair, and maintenance of:
      • firearms, ammunition, gunpowder, and explosives;
      • accessories of firearms, ammunition, and explosives;
      • armaments, ships, aircraft, or military vehicles; or
      • equipment or components and all categories of war materials.
    • Domestic land, waterway, or air transportation, including domestic airline business
  • Group 2: Businesses affecting arts and culture, including traditional and folk handicrafts:
    • Trading antiques or art objects that are Thai arts and handicrafts
    • Production of carved wood
    • Silkworm farming, production of Thai silk yarn, Thai silk weaving, or Thai silk pattern printing
    • Production of Thai musical instruments
    • Production of gold ware, silverware, nielloware, bronze ware, or lacquer ware
    • Production of crockery of Thai arts and culture
  • Group 3: Businesses affecting natural resources or the environment:
    • Sugar manufacturing from sugarcane
    • Salt farming, including underground salt
    • Rock salt mining
    • Mining, including rock blasting or crushing
    • Wood fabrication for furniture and utensil production
• Schedule 3 covers businesses that are prohibited to foreigners unless permission is granted by the director-general of the Department of Business Development (DBD). Foreigners seeking to perform a schedule 3 activity must apply for permission in accordance with regulations issued under section 17 of the FBA. The director-general will issue a foreign business license within 15 days after permission has been granted. The director-general may attach conditions to it as imposed by any ministerial regulations issued under section 18 of the FBA.

Any foreign business licenses granted for businesses under schedules 2 or 3 may be accompanied by license conditions. Violation of the FBA is punishable by imprisonment for up to three years, a fine of up to THB 1 million, or both. Further, the court will order termination of the business operation, dissolution of the business, or termination of the status of the shareholders or partners. If a company commits the offense, the directors or persons authorized to act on behalf of the company who collaborate with it in committing the offense, or failing to reasonably act to prevent such offense, are subject to imprisonment for up to three years, a fine ranging from THB 100,000 to THB 1 million, or both.

Limitations on Foreign Participation in Specific Sectors

In addition to the FBA, various statutes impose additional foreign-ownership restrictions the requirement for management by Thai nationals in companies that are operating in certain restricted and sensitive business sectors, the key examples of which are provided below.

• Financial institutions
• The Financial Institution Business Act B.E. 2551 (2008), as amended, (FIBA) stipulates that Thai nationals must hold a minimum of three-fourths of the total issued voting shares in financial institutions, and at least three-fourths of the total number of directors must be Thai nationals.
• However, under the FIBA, the Bank of Thailand has the power to grant permission for non-Thai nationals to hold up to 49% of a company's voting shares and to make up more than 25% but less than 50% of a company's directorship.
• Insurance
• The Life Insurance Act B.E. 2535 (1992), as amended, and the Non-life Insurance Act, B.E. 2535 (1992), as amended, require that Thai nationals constitute at least three-fourths of the total number of directors and Thai nationals hold at least 75 percent of the total number of voting shares in an insurance company.
• These two laws empower the Office of the Insurance Commission to permit non-Thai nationals to hold up to 49 percent of a company's voting shares and to allow foreigners to comprise more than 25 percent, but less than 50 percent, of the directorship of a company.
• Education
• The Private School Act B.E. 2550 (2007), in regulating applicants for a license to establish a formal school as a legal entity, requires public and private limited companies and partnerships to have at least half of their shares or capital owned by Thai nationals and at least half of the shareholders or partners to be Thai nationals. As for foundations that are juristic persons, at least half of the directors must be Thai nationals, while for associations and cooperatives that are juristic persons, at least half of the directors must be Thai nationals and at least half of the members must be Thai nationals.
• Land Transportation
• Under the Land Transportation Act B.E. 2522 (1979), most types of transport business are reserved for Thai nationals and require a transport license from the Department of Land Transport. Applicants for a land transport business license must meet the following criteria:
  1. The applying company must be registered under Thai laws and have its head office in Thailand;
  2. At least one-half of the total number of the directors of the company must be Thai citizens;
  3. At least 51% of the company's capital must be held by individual Thai-citizen shareholder(s), by a qualified (see below) registered partnership or a limited company, or by a Thai ministry, subministry, department, local government, state enterprise, or state organization;
  4. The company's articles of association must not allow for the issuance of "certificate to bearer" shares (i.e., bearer shares); and
  5. Any corporate shareholders of the land transport business license applicant must also meet the requirements under (b), (c) and (d) above.
• Real Estate
• Foreign nationals are prohibited from owning land in Thailand, according to the Land Code. Foreign nationals (as defined in the FBA) are also prohibited from engaging in the following types of business related to real estate development:
  • Land Trading
• Foreign nationals are forbidden from participating in land-trading businesses and cannot obtain licenses to engage in these activities. Land trading business is categorized in Schedule 1 of the FBA.
  • Hotel and Condominium Development
• Foreign nationals are prohibited from engaging in hotel businesses unless they obtain a Foreign Business License, as "hotel business" is categorized in Schedule 3 of the FBA. However, businesses related to "hotel management" are exempt from this restriction, allowing foreigners to operate hotel management businesses freely.
• Although condominium development is not explicitly listed as a restricted business in the FBA, it is still restricted for foreigners because applicants for condominium registration must have ownership of the land and building(s) intended for registration. As noted above, foreign nationals are not permitted to own land under the Land Code.

1.2 Investment Incentives

Incentives for investing in Thailand are generally available through the following:

• The Board of Investment (BOI)
• The Industrial Authority of Thailand (IEAT)
• Treaties and free trade agreements

Foreign enterprises granted promotional privileges by the BOI or the IEAT are permitted to engage in certain business activities specified in schedules 2 and 3 of the FBA. Additional regulations determine the conditions that may be fixed for qualifying businesses, such as minimum percentage of Thai ownership, amount of investment, permitted activities, and so on. After the business has obtained approval from either of the above authorities, the business should apply for a foreign business certificate in accordance with the procedures stipulated by the director-general pursuant to section 12 of the FBA. Unlike the process of foreign business license application under Section 17 of the FBA, the application process for the foreign business certificate is an administrative rather than approval procedure.

Board of Investment

Thailand was the first country in Asia to introduce investment promotion laws (tax and non-tax incentives) to encourage investment in Thailand. Investment promotion laws were first enacted in 1954 and have been revised several times since then. 

Under the Investment Promotion Act B.E. 2520 (1977), the BOI—a policy-making body—was established to promote domestic and foreign investments considered important and useful to the country's economic and social development.

BOI privileges are granted based on the project, not the entity. Thus, each entity can obtain multiple BOI promotions, with no limit on the number of BOI incentives it can receive. The BOI periodically announces and revises its list of eligible activities in line with investment promotion policies. Each activity may qualify for either full (both tax and nontax) or partial (only nontax) incentives, depending on the category applied for by the company

BOI incentives include (1) tax privileges, such as exemption of corporate income tax and exemption of import duties on machinery, and (2) non-tax privileges, such as the right to own land and the right to bring in foreign experts.

The privileges that the BOI offers are not absolute. The BOI still retains the right to stipulate certain conditions, such as amount and source of capital, nationality and number of shareholders, manpower training, and distribution of products, all of which investors must comply with to qualify for privileges.

The BOI has listed activities that are eligible for promotion, divided into five categories:

• Category 1: Agriculture, biotechnology, and medical industries;
• Category 2: Advanced manufacturing industries;
• Category 3: Basic and supporting industries;
• Category 4: Digital and creative industries and high-value services; and
• Category 5: Research and development, targeted core technology development.

In granting privileges, the BOI does not discriminate between foreign and Thai investors. Under certain circumstances, however, the BOI may impose conditions on foreign investors who wish to enter into joint ventures with Thai investors.

Potential investors who wish to explore business opportunities in Thailand may contact the Investment Service Center of the BOI for information and advice. The center also offers matchmaking services to both Thai and foreign potential investors who seek cooperation in technology, marketing, or joint venture partnerships.

A detailed manual on how to apply for investment promotion is available to assist investors in preparing their applications. The applications typically take 2–3 months to process. If an application is not approved, the applicant can appeal to the secretary-general of the BOI within 30 days of being notified.

Industrial Estate Authority of Thailand

The Industrial Estate Authority of Thailand (IEAT), established under the Industrial Estate Authority of Thailand Act B.E. 2522 (1979), grants incentives to investment projects located in industrial estates. These estates, which are located throughout the country, are managed by the IEAT either independently or in partnership with private companies or government agencies. In addition to benefits from the industrial environment and infrastructure, promoted investors are granted special incentives and privileges, including the right to own land in the industrial estate area, obtain work permits for foreign technicians and experts, and take or remit foreign currency abroad. Industrial operators within the IEAT Free Zone are granted a number of additional tax-based incentives and privileges.

Treaty/Free Trade Agreements (FTAs)

Thailand has entered into five treaties or FTAs—with the United States, Australia, Japan, and ASEAN countries—which may allow their nationals to own more than 50% of some businesses in Thailand without being subject to a foreign business license under the FBA. Qualified investors wishing to operate a business in Thailand under a treaty or FTA must notify the director-general to obtain a foreign business certificate in accordance with the rules and procedures stipulated by the relevant ministerial regulations.

United States-Thailand Treaty of Amity and Economic Relations

The Treaty of Amity and Economic Relations B.E. 2509 (1966) between the United States and Thailand allows certain businesses in which foreign ownership may exceed 50% to be exempt for the foreign business license requirements under the FBA. With respect to most businesses, the word "foreigner," as used in the FBA, does not include American natural persons or American juristic persons who qualify for the privileges under the provisions of the Treaty of Amity. Under this treaty, an American-owned Thai company or branch office of an American company is permitted to do almost anything a Thai company does, except for the following:

• Own land
• Engage in the business of inland communications
• Engage in the business of inland transportation
• Engage in fiduciary functions
• Engage in banking involving depository functions
• Exploit land or other natural resources
• Engage in domestic trade in indigenous agricultural products

To receive protection under this treaty, the qualifying party must pursue the administrative processes to show registration thereunder. Although on paper the treaty appears self-executing, in practice the Thai government will not recognize an American company or branch office until it is officially registered, as required by section 11 of the FBA.

Copies of the treaty can be found at the American Chamber of Commerce, the Commercial Affairs Section of the United States Embassy, and international law firms in Bangkok.

Australia-Thailand Free Trade Agreement

The Australia-Thailand FTA was implemented in January 2005. Under this FTA, an Australian-owned Thai company engaging in any of the 12 businesses below is permitted to have Australian ownership exceeding 50% without being subject to the foreign business license requirements of the FBA.

• Onshore and offshore mining
• Construction rendering basic services to the public in public utilities and transport requiring special tools, machinery, technology, or construction expertise
• Luxury hotel business
• Restaurant
• Advisor to regional operating headquarters, branches, or affiliates of regional operating headquarters
  • Convention hall
• International exhibition center
• Wholesale and retail service relevant to the sale and installation of goods manufactured by an Australian-owned Thai company
• Higher education institution specializing in life sciences, biotechnology, and nanotechnology
• Amusement park and zoo
• Marine park
• Pier and anchor service for tourism ships
• The required percentage of Australian shareholding varies by business type. For example, an Australian can hold up to 60% of shares in land- and marine-mining businesses, as well as in luxury hotel and resort services. In public utility businesses, Australians can hold up to 100% of the shares.

Japan-Thailand Economic Partnership Agreement

Thailand signed the Japan-Thailand Economic Partnership Agreement (JTEPA) in November 2007. Under the JTEPA, a Japanese-owned Thai company engaging in the following eight types of business is permitted to have Japanese ownership exceeding 50% without being subject to the foreign business license requirements of the FBA:

• Retailing business (except distilled alcohol) for products manufactured by the company or subsidiaries located in Thailand under the same brand or automobile products manufactured by subsidiaries in Japan under the same brand
• Wholesaling business (except distilled alcohol) for products manufactured by the company or subsidiaries located in Thailand under the same brand or automobile products manufactured by subsidiaries in Japan under the same brand
• Advertising business
• Hotel business
• Restaurant
  • General management consultancy
• Logistics advisor (except transportation)
• Household electronic equipment repair and maintenance
• The required percentage of Japanese shareholding varies by business type. For example, companies offering general management consulting services, excluding legal and audit consulting services, can be wholly owned by Japanese individuals or entities, and companies engaged in logistics consulting, excluding transportation businesses, can have up to 60% of their shares owned by Japanese nationals, while the remaining shares must be held by Thai nationals.

ASEAN Comprehensive Investment Agreement

Thailand signed the ASEAN Comprehensive Investment Agreement (ACIA) in February 2009. Under the ACIA, a Thai company engaging in the following four businesses is permitted to have more than 50% of its ownership held by non-Thai ASEAN nationals without being subject to the foreign business license requirements of the FBA:

• Mining
• Production of flour from rice and economic plants
• Fishery (only in respect to the hatching and raising of tuna sea cage culture and certain types of spiny lobsters)
• Cultivation, propagation, or development of onions

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