Individuals with even a basic understanding of operating businesses in Thailand are aware of the strict governmental regulations imposed on foreign enterprises. The 1999 Foreign Business Act (FBA) was designed to classify business activities into three distinct categories, each subject to a spectrum of specific restrictions. These limitations primarily revolve around the level of foreign ownership and the manner in which these businesses are operated.
Majority-Thai Private Limited Companies: A Gateway To The Thai Market
As a general practice, a Thai limited company typically restricts foreign business ownership to a maximum of 49%, meaning that foreigners cannot hold more than 49% of the company’s shares. Some inexperienced or misinformed investors may attempt to overcome this limitation by involving Thai nominee shareholders to hold a 51% stake in the business on their behalf. However, it’s crucial to note that such an action is a violation of the Foreign Business Act (FBA) and should be approached with caution.
Despite this ownership limitation, Thai companies offer several advantages over foreign-owned enterprises, including the absence of restrictions on the type of business they can engage in, lower initial setup costs, the ability to purchase and own land, and various other benefits. Nevertheless, it’s important to acknowledge that this structure may not be suitable for all foreign entrepreneurs, and those seeking greater control of their company will need to explore alternative solutions.
Legal Options For 100% Foreign Ownership In Thailand
The encouraging news for foreign investors and entrepreneurs is that there exist legal avenues to attain majority or even 100% foreign ownership of a company in Thailand. While some of these methods can be time-consuming and their outcomes unpredictable, they should serve as the initial steps for any serious company aspiring to establish foreign ownership.
These three primary methods include:
- Obtaining a Foreign Business License
- Board of Investment (BOI) promotion
- Registration through the Treaty of Amity (exclusive to US citizens)
*Exceptions to these regulations apply to specific businesses falling within non-restricted categories, such as export or certain manufacturing enterprises.
It’s important to note that once a company’s foreign ownership surpasses 50%, it ceases to be classified as a Thai company and is instead considered a foreign (majority) company, subject to distinct legal regulations.
In the following two sections, we will delve into the advantages and disadvantages of a foreign company, discuss all three legal routes for achieving 100% foreign business ownership in Thailand, and provide guidance on what to do in case your Foreign Business License application is declined.
The Foreign Business Act And The Challenges Of Foreign Majority Companies In Thailand
An alternative to a Thai company is a foreign company, where foreign shareholders hold the majority of its shares, typically more than 50%. One of the most significant distinctions between foreign and Thai companies is the substantial constraints imposed on the business operations of foreign companies by the Foreign Business Act (FBA). The FBA restricts foreigners from participating in many business categories, allowing them to engage only after obtaining a Foreign Business License (FBL) issued by the Department of Commercial Registration. Alternatively, foreigners may qualify for exemptions based on specific treaties (e.g., the US Treaty) or acts (e.g., BOI).
In addition to these evident limitations, foreign companies are also subject to distinct laws and regulations. For instance, they must meet a minimum registered capital requirement exceeding 3 million THB, and they are generally prohibited from owning land*. On the upside, companies holding an FBL enjoy the benefits of full or majority business ownership and more favorable work permit ratios compared to Thai companies.
Method 1: Obtaining A Foreign Business License In Thailand
In the present day, the Foreign Business Act (FBA) categorizes businesses into three distinct lists: List 1, List 2, and List 3. Among these, only List 3 is accessible to foreigners*. For foreign companies aspiring to engage in business activities within these available categories, the essential step is to apply for a Foreign Business License (FBL) before commencing operations. Subsequently, they must await the decision of the Foreign Business Committee. It’s worth noting that this process can be time-consuming, and rejections are not uncommon. However, if the business is unique, non-competitive with Thai enterprises, or involves transactions among affiliated companies, its chances of securing the license are significantly higher.
Conceptually, the Foreign Business License can be likened to a Work Permit for companies. Just as individual foreigners in Thailand are restricted to specific occupations and necessitate a Work Permit to work, foreign companies can only operate within designated categories and thus require an FBL. This regulatory approach allows the Thai government to manage the entry of foreign businesses into the country, thereby safeguarding the interests of Thai nationals. Failing to obtain an FBL before initiating a business venture can result in penalties ranging from 100,000 THB to 1 million THB and potential imprisonment for up to three years.
Businesses Allowed For Foreign Ownership In Thailand
Foreigners in Thailand typically gravitate towards four primary business categories: manufacturing, trading, export, and services. While most manufacturing and export activities, as well as trading exclusively for export purposes, are not subject to FBA restrictions, allowing foreigners to have complete ownership, the landscape for service-related businesses presents substantial limitations. The service sector is regarded as one where Thai businesses are not yet prepared to compete effectively, and the sole avenue for full foreign company ownership is through BOI promotion. We will delve into this pathway, as well as the US Treaty, in our forthcoming article.
Method 2: BOI Promotion – A Pathway To 100% Foreign Ownership In Thailand
The second approach to achieving 100% foreign business ownership involves securing promotion from the Thailand Board of Investment (BOI). The BOI is a government agency dedicated to advancing new businesses and projects in sectors that are strategically significant for Thailand’s economic development. By fostering enterprises in key industries, the Thai BOI seeks to enhance Thailand’s competitive standing within Southeast Asia, positioning it alongside nations like Hong Kong and Singapore.
Ordinarily, foreign entrepreneurs may encounter obstacles when establishing businesses in Thailand. However, with BOI’s support, venturing into select sectors can become notably more feasible. The advantages of participating in this program extend beyond monetary benefits, encompassing a broader range of advantages.
- Business Activities Eligible For Boi Promotion In Thailand
- Agriculture and Agricultural Products
- Minerals, Ceramics, and Basic Metals
- Light Manufacturing
- Metal Products, Machinery, and Transportation Equipment
- Electronics and Electrical Appliance Industry
- Chemicals, Paper, and Plastics
- Services and Public Utilities
Benefits Of BOI Promotion For Foreign Investors In Thailand
Enterprises seeking BOI promotion are required to satisfy the eligibility criteria and submit a comprehensive investment project proposal. Upon successful promotion, these companies gain access to a range of benefits, including tax holidays, import tax exemptions or reductions, and deductions related to transportation, electricity, and water expenses (tailored to each specific company). Additionally, BOI-approved companies can now operate with full foreign ownership (up to 100%), acquire land (limited to industrial projects), and facilitate the procurement of Work Permits for foreign employees. In comparison to a standard Thai company, the advantages of BOI promotion encompass the following:
| REGULAR THAI COMPANY | BOI COMPANY | |
| The 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 |
| On-going Requirements | On-site inspections from Immigration | BOI update form submissions |
Method 3: US Treaty Of Amity – A Comprehensive Guide For American Investors
The Thai-US Treaty of Amity and Economic Relations is a distinctive accord between the United States and the Kingdom of Thailand. It grants American businesses and entrepreneurs the privilege of retaining a majority shareholding or full ownership of companies in Thailand. These companies, seeking the protection of this treaty, enjoy many of the same privileges as their Thai counterparts and are relieved from most of the constraints on foreign investment imposed by the Foreign Business Act (FBA), though a few restrictions may still apply.
Businesses operating under the BOI or US Treaty are obligated to possess a Foreign Business License (FBL). However, their involvement in these programs streamlines the customary application process, resulting in the automatic issuance of the license.
Alternative Routes To 100% Foreign Ownership In Thailand
Businesses 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.
In conclusion, the prospect of achieving 100% foreign ownership in Thailand is not only possible but also a tangible reality, thanks to specific legal avenues provided by the government. While the Foreign Business Act (FBA) may present some initial challenges, the strategic use of methods such as obtaining a Foreign Business License (FBL), engaging in Board of Investment (BOI) promotion, or leveraging the Thai-US Treaty of Amity can lead to full ownership for foreign businesses.
Moreover, it’s worth noting that partnering with experts in this field can significantly expedite the process and help navigate the complexities of Thai business regulations. One such ally is Iris International, a seasoned organization well-versed in Thai market dynamics and legal nuances. Their expertise can serve as a valuable resource for entrepreneurs and companies seeking to establish and operate businesses in Thailand with the confidence of 100% foreign ownership.
In the evolving landscape of global business, Thailand’s openness to foreign investment is an encouraging signal for international entrepreneurs. With the right knowledge and strategic partners, the goal of 100% foreign ownership in the Land of Smiles can be achieved.
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