Newsletter No. 1 (EN)

Who Requires a
Foreign Business License
in Thailand?

 

October 2015

 

I. Introduction

 

For conducting business in Thailand it is man­datory for foreigners to be in the posses­sion of a Foreign Business License issued by the competent Thai authori­ties according to the provisions of the Foreign Business Act B.E. 2542 (A.D. 1999) (“FBA”).

 

 II. Definitions under the FBA

 

According to Sec.4 FBA “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 Sec. 4 FBA, re­veals that the law separates foreign juristic per­sons into 2 different categories:

 

  • Juristic person not registered in Thailand
  • Juristic person registered in Thailand having the characteristics as follows:
  • Limited company or public limited com­pany with over 50% of its capital shares owned by foreigner(s),
  • Limited partnership or registered ordi­nary partnership with over 50% of its capital invested by foreigner(s), or
  • Limited partnership or registered ordi­nary partnership with a foreigner as the managing partner or manager.

 

Sec. 4 FBA also specifies the mean­ing of “Capital” concerning the 3 different kinds of a juristic person registered in Thai­land as follows:

“Capital” means the registered capital of a lim­ited company or paid-up capital of a public lim­ited company or the money invested in a partner­ship or juristic person by its partner(s) or its mem­ber(s).

 

III.    Relevant Clauses

 

The relevant clauses are annexed to the FBA.

 

1.       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) FBA).

For example:

  • Newspaper publication, radio broad-cast­ing or television station businesses
  • 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 Li­cense.

 

2.      Annex 2 – Businesses Permitted to For­eigners under certain Conditions

 

Annex 2 contains businesses related to the na­tional safety or security or affecting arts, culture, traditions, folk handicrafts, natu­ral resources or the environment (Sec. 8 (2) FBA). Businesses in this Annex are di­vided into 3 categories:

 

  • Category 1: Businesses related to national safety or security

 

For example:

  • 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.

 

(2) Category 2: Businesses affecting arts and culture, traditional and folk handicrafts

 

For example:

  • Trading of antiques or handicrafts
  • Production of Thai musical instruments
  • Production of goldware, silverware, nielloware, bronzeware or lacquerware

 

(3) Category 3: Businesses affecting natu­ral resources or the environment

 

For example:

  • 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 a business as described above in the following cases:

  • Juristic person with over 40% of its capital held by Thai (natural 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 more than 75% to 25% and the number of Thai directors shall not be less than 2/5 of the total number of di­rectors.

 

3.      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) FBA).

 

For example:

 

  • 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)).

 

The service businesses that do not require a Foreign Business License as prescribed in the Ministerial Regulations B.E. 2556 (A.D.2013) are divided into 3 categories:

 

(1) Category 1: Securities business and other businesses under the law on securities and securities exchange

 

For example:

 

  • Securities trading
  • Acting as an investment or financial consultant
  • Mutual or private fund management
  • Granting loans for a securities business
  • Acting as private fund custodian

 

(2) Category 2: Derivatives business under the law on derivatives

 

For example:

 

  • Acting as derivatives dealer, advisor or fund management

 

(3) Category 3: Acting as a trustee under the law on trust for transactions in the capital market

 

According to the FBA, the aforementioned service businesses do not require application for a Foreign Business License, however, it is still required to comply with the criteria of other relevant laws.

 

So far, foreigners may operate the businesses prescribed in Annex 3 in the case of receiv­ing permission by the Director-General 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 Direc­tor-General with the approval of the Commit­tee, as the case may be.

 

IV.   How to Get a Foreign Business 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-US 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 businesses in all other cases

 

In case a foreigner under Group 1-3 desires to operate a business under Annex 2 or 3, such foreigner shall apply for a Foreign Business Certificate to the Director-General 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 License in accordance with the rules and procedures as prescribed in the Min­isterial Regulations.

 

  V.   Requirements for Getting the Foreign Business Li­cense

 

1.       Minimum Capital

 

Sec. 14 FBA 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 Sec. 14 FBA, the minimum capital can be calculated 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.
  • 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.

 

“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 FBA).

 

The Ministerial Regulation issued by virtue of Sec. 14 FBA prescribes the minimum capital that needs to be brought into Thailand as fol­lows:

 

(1)  For businesses which are not listed in an Annex: 2 million Baht.

(2) For businesses which are listed in an An­nex: 25% of the average annual esti­mated expenditure for each business for a period of three years, but not less than 3 million Baht.

For example, the estimated expenditure of the company is 300 million Baht 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, which is 25 million Baht.

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.

(3)  The estimated expenditure means the amount of money that the foreigner will spend in Thailand in order to carry out the 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 License.

(4)  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 follows:

  • 25% of the minimum capital shall be brought into Thailand during the first 3 months.
  • Another 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 year and 25% in the 3rd year).

(5)  In case the period of business opera­tion is 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.

 

2.      Transfer of “Know-How”

 

The application has to describe in which way the foreign company transfers “know-how” to Thai workers.

 

3.      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).

 

4.      Employment of Foreign Staff

 

Every employee who is not of Thai nationality needs a work permit to be able to legally work in Thailand. Generally, the ratio between Thai and foreign employees has to be 4 :1.

 

5.      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.

 

VI.   The Establishment of a Representative Office

 

Although the FBA does not explicitly refer to Representative Offices (in contrast to the legislative instruments it replaced), such entities can be established by lodging an application for an “Other Service Business” in accordance with List 3, No. 21, FBA.

 

A Representative Office is per­mitted for only 5 business activities as fol­lows:

 

(1)  Sourcing of goods or services in Thai­land for the head office

(2)  Checking and controlling the quality and quantity of goods purchased or hired to manu­facture in Thailand by the head office

(3)  Giving advice concerning goods of the head office sold to agents or consumers

(4)  Providing information concerning new goods or services of the head office

(5)  Reporting 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.

 

For example:

  • Purchasing, ordering or paying for goods on behalf of the head office or its affiliated companies or any activities concerning the purchase
  • Exporting goods which have been bought by the head office or its affiliated companies
  • Rendering after-sales services in terms of installation and maintenance
  • Receiving purchase orders or services on behalf of the head office
  • Coordinating purchasing and selling on behalf of the head office, etc.

 

The Foreign Busi­ness Committee has formed an in­vestigation team in order to check on foreign business operations whether they are operating as permitted by the Department of Busi­ness Development.

If the foreigners are found to be operating a business other than those permitted, the Di­rector-General may temporarily suspend or revoke the license, as the case may be.

 

We hope that the information provided in this newsletter was helpful for you.
 If you have any further questions please do not hesitate to contact us.

 LORENZ & PARTNERS Co., Ltd.
27th Floor, Bangkok City Tower
179 South Sathorn Road, Bangkok 10120, Thailand

Tel.: +66 (0) 2-287 1882
E-Mail: [email protected]

 

 

 

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