Those at least partly knowledgeable with conducting a business in Thailand know that foreign businesses are strictly regulated by the government.
The Foreign Business Act (FBA) established in 1999 was set to organise business activities into three categories upon which various restrictions are placed. These predominantly concern the degree of severity on foreign ownership and operation of these businesses.
Majority-Thai private limited company as a baseline of doing business in Thailand
As a general rule, a Thai limited company limits foreign business ownership to a maximum of 49%, meaning foreigners can hold no more than 49% of the shares. Inexperienced or misinformed investors may try to get over this obstacle by engaging Thai nominee shareholders to hold a 51% stake in the business on their behalf, however, this action is in violation of the FBA and should be treated with caution.
Despite the ownership drawback, Thai companies have a number of advantages over foreign-owned companies, such as no restrictions on the type of business they are engaged in, lower setup costs, ability to buy and own land and many others. It is, however, understandable that this structure may not suit all foreign entrepreneurs and those who want to possess greater control of their company have to look out for different solutions.
Legal ways to 100% foreign ownership in Thailand
The good news for foreign investors and entrepreneurs is that there ARE legal ways of achieving majority or even 100% foreign ownership of a company in Thailand. Even though some of them are time-consuming and their outcome is unpredictable, they should be a starting point of every serious company seeking to establish foreign ownership.
The three methods are:
- Obtaining a Foreign Business License
- Board of Investment (BOI) promotion
- Registration through the Treaty of Amity (for the US citizens only)
*Exceptions to these rules are certain businesses in non-restricted categories, such as exporting or some manufacturing business.
Ultimately, a company the foreign ownership of which exceeds 50% is no longer a Thai company but rather a foreign (majority) company and as such is subject to different laws.
In the next two parts, we will explore pros and cons of a foreign company, all three legal ways of achieving 100% foreign business ownership in Thailand and advise what to do should your Foreign Business License application get rejected.
Majority-foreign company and the strict ruling of the Foreign Business Act
Alternative to Thai company is a foreign company. As mentioned above, such juristic person is an entity where foreign shareholders are in possession of most of its shares (more than 50%).
One of the biggest differences between foreign and Thai company lies in the fact that business operations of a foreign company are greatly limited by the Foreign Business Act (FBA). FBA prohibits foreigners from engaging in most business categories and those that are open to foreign entrepreneurs can be operated in only after obtaining a Foreign Business License (FBL) issued by the Department of Commercial Registration. Additionally, foreigners may be granted an exemption based on a treaty (US Treaty) or specific act (BOI).
Apart from the obvious limitation, foreign companies are, moreover, subject to special laws and regulations, for example, the minimum registered capital has to exceed 3M THB, and the company is prohibited from owning land*. On the other hand, companies holding FBL have full or majority business ownership and a more advantageous work permit ratio than Thai companies.
Method #1: Obtaining a foreign business license
Nowadays, FBA divides businesses into three categories — under List 1, 2 and 3 — out of which only those in List 3 can be entered by foreigners*. Foreign companies-to-be interested in pursuing business opportunities in one of the available categories are required to apply for FBL prior to commencing any operations and then have to wait for the verdict of the Foreign Business Committee. It is important to note that this process can be quite lengthy and rejections are commonplace. However, if the business is unique, does not compete with Thai business, or involves dealings among members of affiliated companies, its chances of obtaining the license will rapidly increase.
Foreign Business License can be loosely understood as a Work Permit for companies. Just as foreigners in Thailand can only engage in certain occupations and are required to have a Work Permit to be able to work, foreign companies can also operate merely in the selected categories and need an FBL. This way, Thai government can control the influx of foreign businesses into the country and thus protect Thai nationals and their interests. Failing to acquire an FBL prior to starting a business can result in a fine ranging from 100,000 THB to 1M THB and imprisonment of up to three years.
Business categories open to foreigners
In general, foreigners in Thailand prefer to engage in four main types of businesses, namely manufacturing, trading, export, and services. While most manufacturing, export and trading (goods only sold to the export market) is not restricted by the FBA and, therefore, foreigners can have full ownership, opportunities in services are greatly limited. The service business is considered to be a business where Thais are not ready to compete just yet and the only way to full own a foreign company is through BOI promotion. We will explore this route and also the US Treaty in the next article.
*Some exceptions may apply
Method #2: BOI company promotion
The second method of achieving 100% foreign business ownership is to have your business promoted by BOI. Thailand Board of Investment (BOI) is a division of Thai government that promotes business start-ups and projects in areas that are deemed desirable for the economic outlook of Thailand. By promoting businesses in the key sectors, Thai BOI ultimately aims to increase the competitiveness of Thailand within Southeast Asia and bring it on par with countries such as Hong Kong and Singapore.
As a general rule, foreign entrepreneurs may find it restrictive to establish their business in Thailand, however, with the help of BOI, operating in selected sectors can become a lot easier. Benefits of being part of this scheme are not necessarily just monetary but extend well beyond.
Business activities eligible for promotion
- Agriculture and agricultural products
- Mineral, ceramics and basic metals
- Light industry
- Metal products, machinery and transport equipment
- Electronics and electrical appliances industry
- Chemicals, paper and plastics
- Services and public utilities
Benefits of BOI promotion
Companies interested in BOI promotion must meet the eligibility criteria and propose an investment project. Once completed and successfully promoted, the company can enjoy a number of benefits, such as tax holidays, reliefs or reductions of import taxes, deductions of transportation, electricity and water costs (these are specific for each company). Moreover, the BOI company can now be under foreign ownership (up to 100%), own land (industrial projects only) and get Work Permits for foreign employees much easier. Compared to a regular Thai company, the BOI benefits are as follows:
|REGULAR THAI COMPANY||BOI COMPANY|
|Ratio of Thai to foreign employees||4:1||Negotiable based on requirements*|
|Effective corporate tax rate||20%||0%**|
|Maximum foreign ownership||Restricted to 49%||100% is allowable|
|Import of machinery||VAT tax||No tax|
|Ongoing Requirements||On-site inspections from Immigration||BOI update form submissions|
Method #3: US Treaty of Amity
Thai-US Treaty of Amity and Economic Relations is a special agreement between the USA and the Thai Kingdom that allows American companies or entrepreneurs to maintain a majority of shareholding or full ownership of a company in Thailand. Companies seeking protection under this treaty are in many ways treated a lot like their Thai counterparts and are exempt from most of the restrictions on foreign investment imposed by the FBA (some restrictions still apply).
Businesses operating under BOI or US Treaty are still required to hold an FBL, however, their participation in these scheme overrides the usual process and they are being granted the license automatically.
What if none of the above works?
Business failing to obtain an FBL by any of the three methods have generally a few more options available. Firstly, foreign companies can establish their presence in Thailand via a branch, regional or representative office although this solution will only work for established foreign companies.
The second choice is to register a Thai company with Thai majority ownership. Foreigners are under the current FBA allowed to have majority voting rights and control in a Thai limited company through preference shares and weighted voting rights, making it the most popular form of business entity among foreign investors. Even though you won’t be able to fully own the company, you can, at least, be the majority shareholder.