For conducting business in Thailand it is mandatory for foreigners to be in the possession of a Foreign Business Operating License issued by the competent Thai authorities according to the provisions of the Foreign Business Act B.E. 2542 (A.D. 1999).
- Definitions under the Foreign Business Act B.E. 2542 (A.D. 1999)
According to Sec.4 "Foreigner" means:
- Natural person who does not have Thai nationality;
- Juristic person not registered in Thailand;
- Juristic person registered in Thailand having the following characteristics:
- Having half or more of its capital shares held by persons under (1) or (2) or a juristic person having the persons under (1) or (2) investing with a value of half or more of the total capital of the juristic person
- Limited partnership or registered ordinary partnership having the person under (1) as the managing partner or manager;
- Juristic person registered in Thailand having half or more
of its capital shares held by the person under (1), (2) or (3)
investing with the value of half or more of its total capital.
For the purpose of the definitions, the shares of a limited company represented by share certificates that are issued to bearers shall be deemed as the shares of foreigners unless otherwise provided by ministerial regulations.
The definition of "Foreigner", as specified in Section 4 of the Foreign Business Act, reveals that the law separates foreign juristic persons into 2 different kinds as follows:
- Juristic person not registered in Thailand
- Juristic person registered in Thailand having the characteristics as follows:
- Limited company or public limited company given that over 50% of its capital shares are owned by foreigner(s),
- Limited partnership or registered ordinary partnership given that over 50% of its capital is invested by foreigner(s), or
- Limited partnership or registered ordinary partnership having a foreigner as the managing partner or manager.
Section 4 of this Act also specifies the meaning of "Capital" concerning the 3 different kinds of a juristic person registered in Thailand as follows:
- Relevant Clauses
The relevant clauses are annexed to the Foreign Business Act B.E. 2542 (A.D. 1999).
- Annex 1 – Businesses Not Permitted to Foreigners
Foreigners shall be prohibited from operating a business as prescribed in Annex 1 due to special reasons (Sec. 8(1))
- Newspaper publication, radio broadcasting or television station business
- Land trading
- Trading and auctioning of Thai antiques or national historical objects.
These kinds of businesses are exclusively reserved to Thai companies. It is not possible to obtain the Foreign Business Operating License.
- Annex 2 – Businesses Permitted to Foreigners under certain Conditions
Annex 2 contains businesses related to the national safety or security or affecting arts, cultures, traditions, folk handicrafts or natural resources and the environments (Sec. 8 (2)). Businesses in this Annex have been divided into 3 categories:
- Category 1: The businesses related to the national safety or
- Production, selling, repairing of firearms, gun powder and explosives
- Production, selling, repairing of ships, aircrafts or military vehicles
- Domestic land, waterway or air transportation, including domestic airline business, etc.
- Category 2: The businesses affecting arts and cultures,
traditional and folk handicrafts
- Trading of antiques or handicrafts
- Production of Thai musical instruments
- Production of goldware, silverware, nielloware, bronzeware or lacquerware
- Category 3: The businesses affecting natural resources or
- Manufacturing of sugar from sugarcane
- Mining, including stone blasting or crushing
- Wood fabrication for furniture and utensil production.
A foreign juristic person may be allowed to operate business as prescribed above in the following cases:
- Juristic person, whereby over 40% of its capital is held by Thai (ordinary person or juristic person)
- The Minister (with the approval of the Cabinet) grants permission that the juristic person, having less than 40% of the capital held by Thai, may operate the above businesses. However, the proportion of foreign and Thai shareholders shall not be less than 75% to 25% and the number of Thai directors shall not be less than 2/5 of the total number of directors.
- Annex 3 – Businesses not yet Permitted to Foreigners
Foreigners shall be prohibited from operating the businesses prescribed in Annex 3 in which Thai nationals are not yet ready to compete with foreigners (Sec.8 (3)).
- Production of plywood, veneer board, chipboard or hardboard
- Production of lime
- Engineering service business
- Architecture service business
- Legal and accounting service business
- Tour agency
- Selling food or beverages
- All other service businesses, except those prescribed in the Ministerial Regulations (Annex 3 (21)).
Until today, Ministerial Regulations have been neither promulgated nor even drafted. So far, foreigners may operate the businesses prescribed in Annex 3 in the case of receiving permission by the DirectorGeneral of the Department of Business Development with the approval of the Committee. This means that foreigners who want to operate a business which has been prescribed in Annex 2 or 3 in Thailand need to seek permission from the Minister with the approval of the Cabinet or from the DirectorGeneral with the approval of the Committee, as the case may be.
- How to Get a Foreign Business Operating License
Foreigners operating businesses in Thailand can be divided into 4 groups as follows:
- Group 1: Foreigners operating a business in Thailand with a temporary permission granted by the Government
- Group 2: Foreigners operating a business under a treaty to which Thailand is a party or by which Thailand is obligated to abide, such as the Thai American Treaty of Amity and Commerce
- Group 3: Foreigners operating a business that is promoted under the Investment Promotion Act B.E. 2520 (A.D. 1988) or permitted in writing to operate the industry or trade for export under the law governing the Industrial Estate Authority of Thailand or under other laws
- Group 4: Foreigners operating business in all other cases.
In case a foreigner under Group 13 desires to operate a business under Annex 2 or 3, such foreigner shall apply for a Business Operating License to the DirectorGeneral in accordance with the rules and procedures as prescribed in the Ministerial Regulations.
In case a foreigner under Group 4 desires to operate a business under Annex 2 or 3, such foreigner must apply for a Foreign Business Operating License in accordance with the rules and procedures as prescribed in the Ministerial Regulations.
- Requirements for Getting the Foreign Business Operating License
- Minimum Capital
Section 14 of the Act specifies that:
"The minimum capital used at the commencement of the business operation shall not be less than that prescribed by ministerial regulations and shall in no case be less than two million Baht. In the case where the businesses in the preceding paragraph require the licenses under the Annex attached hereto, the minimum capital to be prescribed in the ministerial regulations for each of the businesses shall in no case be less than three million Baht. Ministerial regulations issued by virtue of this Section may also prescribe the time for the minimum capital to be brought or remitted into Thailand. The provisions of this Section shall not apply in the events where the foreigners make the investment with the money or property derived from the business operation that has previously been in operation in Thailand in another business or use them as a share or an investment in other enterprises or juristic persons."
Considering Section 14 of the Act, we can calculate the minimum capital by dividing business operations into 2 categories:
- The minimum capital for businesses which are not listed in an Annex shall comply with the Ministerial Regulations but it shall not be less than 2 million Baht (ca.46,950 Euro)
- The minimum capital for businesses which are listed in an Annex shall comply with the Ministerial Regulations but it shall not be less than 3 million Baht (ca. 70,420 Euro).
"Minimum Capital" in these terms means the foreign currencies that the foreigner brings in and uses for the commencement of business operations in Thailand (Sec. 4). The Ministerial Regulation issued by virtue of Section 14 prescribes minimum capital that needs to be brought into Thailand as follows:
- For businesses which are not listed in an Annex, 2 million Baht (ca.46,950 Euro).
- For businesses which are listed in an Annex, 25% of the average annual estimated expenditure for each business for a period of three years, and must not be less than 3 million Baht (ca. 70,420 Euro). For example, the estimated expenditure of the company is 300 million Baht (ca. 7,042,000 Euro). for 3 years; the average annual estimated expenditure for this company is 100 million Baht. Then, the minimum capital that this company needs to bring into Thailand is 25% of 100 million Baht (ca. 2,347,400 Euro), which is 25 million Baht (ca. 586,850 Euro) However, in case that the period of business operation is less than 3 years, the minimum capital shall be averaged in accordance with the actual period of business operation on a per annum basis, but shall not be less than 3 million Baht (ca. 70,420 Euro).
- The estimated expenditure means the amount of money that the foreigner will spend in Thailand in order to carry out its business in Thailand. The list of estimated expenditure is required to be submitted to the Department of Business Development together with the application for a Business Operating License.
- The required minimum capital must be brought into Thailand from
abroad within 3 years. This period starts either with the date of
commencing the business or with the date the permission has been
granted. The single stages of transferring the capital are as
25% of the minimum capital shall be brought into Thailand during the first 3 months. 50% (including the first 25%) of the minimum capital shall be brought into Thailand within the first 12 months. At least 25% of the minimum capital shall be brought into Thailand each following year (25% each in the 2nd and the 3rd year).
- In case of the period of business operation being less than 3 years the minimum capital must be brought into Thailand within 6 months after the date of commencing business or from the date of permission.
The transfer of the minimum capital must be proved to the Department of Business Development within 15 days from the date prescribed above. This is done by handing in a copy of the Thor Thor 3 Form which is issued by the bank that has received the money.
- Transfer of "KnowHow"
The application has to describe in which way the foreign company transfers "knowhow" to Thai workers.
- Advantage for Thailand
The applicant has to expand on the advantage Thailand is going to gain from the engagement of the foreign company in Thailand (i.e. improvement of Thai economy; improvement of environment).
- Employment of Thai Staff
Most of all staff that the company intends to employ should be Thai.
- No Effect to other Thai Companies
There should be no effect on any Thai company competing in the same field of operation as the foreign company.
- The Establishment of a Representative Office
An operation as a representative office under the old Announcement of the Revolutionary Party No. 281 is somehow still possible under the Foreign Business Act B.E. 2542 (A.D. 1999) as a service business under Annex 3 (21).
Presently, a representative office (in accordance with its definition under the Regulations of the Office of the Prime Minister in Establishment of Work Permit and Visa Centre (No. 3) B.E. 2544 (A.D. 2001)) is permitted for only 5 business activities as follows:
- Sourcing of goods or services in Thailand for the head office
- Checking and controlling the quality and quantity of goods purchased or hired to manufacture in Thailand by the head office
- Giving advice concerning goods of the head office sold to agents or consumers
- Providing of information concerning new goods or services of the head office
- Report on business trends in Thailand to the head office.
- However, it is quite obvious that there are many foreigners who have applied for a permission to operate a representative office and have been operating their businesses outside the scope of activities of a representative office.
- Purchasing order or paying for goods on behalf of the head office or its affiliated companies or any activities concerning the purchasing
- Exporting goods which have been bought by the head office or its affiliated companies
- Rendering aftersale service in terms of installation and maintenance
- Receiving purchase order or service on behalf of the head office
- Coordinating purchasing and selling on behalf of the head office, etc.
Now, the Office of Secretary of Foreign Business Committee has been forming an investigating team in order to check on foreign business operations whether they are being done as permitted by the Department of Business Development or not.
If the foreigners are found to be operating a business other than those permitted, the DirectorGeneral may temporarily suspend or revoke the license, as the case may be.
Attachment: Application Form Business Operating License
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.