Legal Issues for Foreign Investors
1. Foreign
Business Act of 1999 and Activities Restricted to
Thai Nationals
Thai law regulates the activities in which companies
designated as “foreign” may engage in.
While some activities are completely prohibited, some
may be engaged in with prior approval from a designated
government agency, and some do not require any special
approval at all.
1.1 Definition
of a Foreign Company
According to Thai law, a company is foreign if it
is registered under the laws of:
– Another country
(including all branches, representative offices, and regional offices of overseas
companies operating in Thailand)
– Thailand, and
50% or more of its shares are held by non-Thais (individuals or business entities)
The Foreign Business Act of 1999 has identified three
lists of activities in which foreign participation
may be prohibited or restricted.
Activities stated in List 1 are designated as “businesses
not permitted for foreigners to operate due to special
reasons”. Foreign companies are completely restricted
from engaging in the activities contained in List 1.
Activities stated in List 2 are designated as “businesses
related to national safety or security, or affecting
arts and culture, traditional and folk handicraft,
or natural resources and environment”. Foreign
companies may only engage in the activities stated
in List 2 with prior Cabinet approval.
Activities stated in List 3 are designated as “businesses
[in] which Thai nationals are not yet ready to compete
with foreigners”. To engage in activities stated
in List 3, the foreign company must apply for and obtain
a Foreign Business License prior to commencing the
activity.
There are two common exceptions to the above stated
rules:
– If the foreign
company obtains an exemption from the above stated rule from the Board of Investment
or the Industrial Estates Authority of Thailand
– If the foreign
company is a US company which qualifies for Treaty of Amity protection
1.2. Restricted Business Activities under
the Foreign Business Act of 1999
List 1 – Businesses that foreigners
are not permitted to engage in for special reasons:
– Newspaper business,
radio-broadcasting station or radio/television business
– Farming, cultivation
or horticulture
– Animal husbandry
– Forestry and
timber conversion from natural forests
– Fisheries, especially
fishing in Thai territorial waters and in specific economic areas of Thailand
– Extracting Thai
herbs
– Trade and auction
sale of Thai antiques or objects of historical value
– Making or casting
Buddha images and alms bowls
– Trading in land
List 2 – Businesses concerning national
security or safety that could have an adverse effect
on art and culture, customs, or native manufacture/handicrafts,
or with an impact on natural resources and the environment:
Group 1 – Businesses concerning national
security or safety
– Manufacturing,
distribution, repair or maintenance of:
- Firearms,
ammunition, gunpowder, and explosive materials
- Components
of firearms, ammunition, and explosive materials
- Armaments,
ships, aircraft, or vehicles
- Equipment,
or parts of any type of military equipment
– Domestic land
transport, water transport, and air transport, including domestic aviation.
Group 2 – Businesses that could have
an adverse effect on arts and culture, customs,
and native manufacturing/handicrafts
– Trading of antiques
or artifacts that are Thai works of art or Thai handicrafts
– Wood carving
– Silkworm rearing,
manufacture of Thai silk, Thai silk weaving, or Thai silk printing
– Manufacturing
of Thai musical instruments
– Manufacturing
of gold-ware, silverware, nielloware, bronzeware, or lacquerware
– Making bowls
or earthenware which are of Thai art and culture
Group 3 – Businesses concerning natural
resources and the environment
– Manufacturing
of sugar from cane
– Salt farming,
including rock salt farming
– Mining of rock
salt
– Mining, including
stone quarrying or crushing
– Timber processing
for making furniture and utilities
List 3 – Businesses in which Thais are
not ready to compete in undertakings with foreigners:
– Rice milling
and flour production from rice and plants
– Fisheries, specifically
breeding of aquatic creatures
– Forestry from
re-planting
– Production of
plywood, veneer, chipboard or hardboard
– Production of
lime
– Accountancy
– Legal services
– Architecture
– Engineering
– Construction,
except:
- Construction
of infrastructure in public utilities or communications requiring tools,
technology or special expertise in such construction, except where the minimum
foreign capital is 500 million baht
- Other
construction, as prescribed in regulations
– Agency or brokerage,
except:
- Brokerage
or agency of securities or service related to agricultural commodities
futures or financial instruments or securities
- Brokerage
or agency for the purchase/sale or procurement of goods or services
necessary to production or providing services to affiliated enterprises
- Brokerage
or agency for the purchase or sale, distribution or procurement of markets,
both domestic and overseas for the distribution of products made in Thailand,
or imported from overseas in the category of international business, with
minimum foreign capital of not less than 100 million baht
- Other
brokerage or agency activities, as stipulated in regulations
– Auctioneering,
except:
- Auctioneering
by international bidding, not being auctions of antiques, ancient
objects or artifacts that are Thai works of art, Thai handicrafts or antique objects,
or with Thai historical value
- Other
types of auctioneering, as stipulated in regulations
– Domestic trade
in local agricultural products not prohibited by law
– Retailing, unless
not less than 100 million baht capital is invested, or having minimum capital
for each shop of not less than 20 million baht
– Wholesaling,
unless the capital is not less than 100 million baht
– Advertising
– Hotel operation,
excluding hotel management
– Tourism
– Sale of food
and beverages
– Planting and
culture of plants
– Other services,
except those exempted under ministerial regulations
“Other service businesses” stated in List
3 effectively serves as a “catch-all” service
category. If the foreign company is to provide a service,
not otherwise contained in List 3, the company must
still apply for and obtain a Foreign Business License
prior to commencing operation. This category includes
the business activity of leasing both fixed and non-fixed
assets. Additionally, the activities in which representative
offices and regional offices are allowed to engage
in are all services that fall under this category.
Also, note that special rules apply if the foreign
company plans to engage in the activities of “retail
sale of goods” or “wholesale sale of goods”.
Both of these activities are contained in List 3; therefore,
in order for a foreign company to engage in either
of these activities the company must first apply for
and obtain a Foreign Business License.
Thai law, however, grants narrow exceptions to the
Foreign Business License requirement for those foreign
companies seeking to engage in retail selling and/or
wholesale selling.
For a foreign company to engage in the activity of
retail selling, the exception is that if the company
has a registered capital of 100 million baht (fully
paid up) or more or capital for each retail store of
20 million baht or more, the company is exempt from
the Foreign Business License requirement.
For a foreign company to engage in wholesale selling,
the exception is that if the company has 100 million
baht capital or more for each of its wholesale stores,
the company is exempt from the Foreign Business License
requirement.
1.2.1 Foreign Business License Application
As stated above, foreign companies seeking to engage
in List 3 activities are required to apply for and
obtain a Foreign Business License prior to commencing
operations.
The Foreign Business Act sets forth the process by
which the Foreign Business Committee (“Committee”)
reviews the application. It states that the Committee
is required to rule on the application within 60 days
of submission. However, practically speaking, the application
process has two distinct steps. The first is the process
by which the presiding official at the Ministry of
Commerce (MOC) accepts the application for review by
the Committee, and the second is the Committee’s
actual review of the application.
Acceptance by the MOC Official
An application for a Foreign Business License is submitted
to the MOC together with all required documents and
information. The presiding MOC official charged with
accepting the application normally will not do so until
he is satisfied that all documents are in order. Sometimes
the official will perform the preliminary inspection
upon presentation, but usually he will require the
person submitting the application to leave it for later
inspection. The time frame for the official’s
review of the application is not specified by statute.
In order to avoid these delays, make sure that the
person designated to submit the application is familiar
with the intended operations of the company to respond
on the spot to the official’s questions regarding
the application. In the case that the official requests
additional documents and/or information, make sure
the designated person supplies those documents in a
timely fashion.
Review by the Board
Once the official accepts the application and issues
a receipt, the 60-day consideration period begins.
Factors considered by the Committee when reviewing
applications are:
– The advantages
and disadvantages to the nation’s safety and security
– Economic and
social development
– Public order,
good morals, art, culture and traditions of the country
– Natural resources,
conservation, energy and environment, consumer protection, size of the enterprises,
employment
– Technology transfer
and research and development
Technology transfer and research and development (R&D)
are probably the most important. In 2004, the Ministry
issued a document advising foreign investors on how
they should describe technology transfer in the license
application. Technology here is not just limited to
R&D and use of sophisticated equipment, but also
specifically includes “administration, management
and marketing”. In addition, any planned programs
the company has with Thai universities are taken under
consideration by the committee.
In the event the Foreign Business License application
is rejected, the law requires that the MOC inform the
applicant within 15 days of the decision. The notification
of rejection must be in writing and expressly state
the reasons why the application was rejected.
If the application is rejected, the applicant has
the right to appeal the decision. The appeal must be
submitted within thirty days of the date on which the
applicant received the rejection notice. The Minister
of Commerce is required to rule on the appeal within
thirty days of receipt.
2. Work
Permits
The Alien Occupation Law, adopted in 1973, requires
all aliens working in Thailand to obtain a work permit
prior to starting work in the Kingdom. An updated version
of the Act, adopted in 1978, describes the procedures
for issuance and maintenance of work permits and lists
certain occupations from which foreigners may be excluded.
2.1. Exemptions
The Act grants exemptions from the work permit requirement
to persons occupying the following professions:
– Members of the
diplomatic corps
– Members of consular
missions
– Representatives
of member countries and officials of the United Nations and its specialized
agencies
– Personal servants
coming from abroad to work exclusively for persons listed under the above items
– Persons who perform
duties on missions in the Kingdom under an agreement between the government
of Thailand and a foreign government or international organization
– Persons who enter
the Kingdom for the performance of any duty or mission for the benefit of education,
culture, arts, or sports
– Persons who are
specially permitted by the Thai Government to enter and perform any duty or
mission in the Kingdom
Updated 15 September 2009
