Foreign Business Licence
Khun Phattharaphon Yomthaisong
Legal Consultant
of ZICO Insource
Foreign Business Licence
Khun Phattharaphon Yomthaisong
Legal Consultant
of ZICO Insource
What is a Foreign Business License
In Thailand, obtaining a Foreign Business License (the “FBL”) is a legal prerequisite for foreign individuals or entities wishing to engage in specific business activities regulated under the Foreign Business Act B.E. 2542 (1999) (the “FBA”). The FBL ensures compliance with Thai laws, particularly regarding foreign ownership limitations and restrictions on foreign participation in certain industries.
Under the FBA, foreign ownership is generally restricted to 49%, meaning foreign nationals or entities cannot hold more than half of a business’s shares. However, Thailand offers special provisions that allow foreign investors to exceed the 49% ownership threshold in certain circumstances, such as through specific business structures or government-approved programs. Consequently, foreign companies can operate in Thailand through various legal frameworks, each with distinct operational and legal implications.
Who is a Foreigner Under the FBA in Thailand?
The FBA of Thailand defines a “Foreigner” as follows:
1) Non-Thai Nationals:
• A natural person who is not a citizen of Thailand is considered a foreigner under the FBA.
2) Foreign Legal Entities:
• Foreign Companies: Any legal entity (juristic person) that is incorporated outside of Thailand is considered a foreign entity.
• Foreign Ownership: If more than 50% of the shares in a juristic person are owned by non-Thai nationals or by entities registered outside of Thailand, or if it is a limited partnership or registered ordinary partnership where the managing partner or manager is a foreign individual or foreign entity, it is deemed foreign.
• Foreign Control: Even if a juristic person is registered in Thailand, it is considered foreign if foreign nationals hold majority control over the business’s operations, management, or decision-making processes.
Exceptions to the Definition:
1) Treaties and Agreements: Foreigners conducting business under a bilateral treaty or trade agreement between Thailand and a counterpart (Section 11) may apply for a business operation certificate in categories one, two, and three, in accordance with the terms and conditions specified in the relevant treaty or trade agreement between Thailand and the counterpart.
2) Board of Investment Promotion: Foreigners conducting business with an investment promotion certificate may apply for a business operation certificate in categories one, two, and three, as outlined in the terms of the investment promotion certificate.
Types of Business Activities Under the FBA in Thailand
The FBA classifies business activities into three main categories based on the level of foreign ownership and the restrictions imposed. These categories help determine which business activities require an FBL for foreign investors or companies.
Under the FBA, there are three types of business activities:
• List 1: Businesses that are prohibited for foreigners to engage in.
This list includes sectors that are deemed critical to national identity and security, such as media, agriculture, and traditional arts. Foreign entities are entirely prohibited from participating in these sectors to preserve Thai culture and protect national interests.
For instance, activities like rice farming, newspaper publication, and land trading fall under this category.
• List 2: Businesses that may be permitted to foreigners under certain conditions, typically subject to specific limitations on foreign ownership or operational requirements.
Foreign ownership in these sectors is allowed only under special conditions, typically requiring a partnership with Thai nationals or explicit approval from the Thai Cabinet.
Examples include the production of firearms, the mining industry, and certain types of infrastructure development.
• List 3: Businesses that are not currently permitted for foreigners to engage in, though this list may evolve over time based on government policy and changes in economic or national interest considerations.
To operate in these sectors, foreign businesses must obtain a Foreign Business License. This list is broad and encompasses many service industries such as legal and accounting services, architecture, engineering, and retail.
The government’s intent is to protect nascent Thai industries while allowing foreign expertise and investment to contribute to their development.
(1) Rice milling and production of flour from rice and economic plants
(2) Fishery only in respect of the hatching and raising of aquatic animals
(3) Forestry from a grown forest
(4) Production of plywood, veneer wood, chipboards or hardboards
(5) Production of lime
(6) Provision of accounting services
(7) Provision of legal services
(8) Provision of architectural services
(9) Provision of engineering services
(10) Construction, with the exception of:
a) Construction of structures for delivery of infrastructure public services in the sphere of public utilities or transportation requiring the use of special apparatuses, machines, technology or expertise, with the minimum capital of five hundred million Baht or upwards from foreigners;
b) Construction of other types as prescribed in the Ministerial Regulation
(11) Brokerage or agency businesses, with the exception of:
a) being a broker or an agent in the sale or purchase of securities or in services related to futures trading of agricultural commodities or financing instruments or securities;
b) being a broker or an agent in the sale, purchase or procurement of goods or services necessary for the production or the provision of services amongst affiliated enterprises;
c) being a broker or an agent in the sale or purchase, procurement, distribution or acquisition of domestic and foreign markets for the distribution of domestically manufactured or imported goods, which is in character the operation of international trade, with the minimum capital of one hundred million Baht or upwards from foreigners
d) being a broker or an agent of other types as prescribed in the Ministerial Regulation
(12) Sale by auction, with the exception of:
a) a sale by auction which, in character, involves international bidding of items other than antiques, objects of antiquity or artistic objects that are artistic works or handicrafts or objects of antiquity of Thailand or of historical value of the country;
b) sales by auction of other types as prescribed in the Ministerial Regulation 20
(13) Internal trade related to traditional agricultural products or produce not yet prohibited by law, except agricultural futures trading in the Agricultural Futures Exchange of Thailand without delivery or taking delivery of agricultural commodities within the country
(14) Retail sale of goods of all types with the total minimum capital in the amount lower than one hundred million Baht or with the minimum capital of each store in the amount lower than twenty million Baht
(15) Wholesale of all types with the minimum capital of each store in the amount lower than one hundred million Baht
(16) Advertising business
(17) Hotel business, with the exception of the hotel management service
(18) Guided touring
(19) Sale of food and beverages
(20) Cultivation, propagation or development of plant varieties
(21) Other service businesses, with the exception of service businesses as prescribed in the Ministerial Regulation
Foreign Business License Application Process in Thailand
Capital Requirements under the FBA:
• In accordance with Section 14 of the FBA, the minimum capital required for the commencement of a business operation in Thailand is set at THB 2 million.
• For businesses listed under List 2 and List 3 of the FBA, which are subject to additional restrictions or conditions, the minimum capital requirement increases to THB 3 million. These higher capital thresholds reflect the additional regulatory requirements and the government’s desire to ensure that foreign investments contribute effectively to the Thai economy.
Foreign Business License Application Process in Thailand
The application for an FBL should be submitted to the Foreign Business Administration Bureau of Department of Business Development (the “DBD”) under the Ministry of Commerce. The DBD is responsible for reviewing and approving foreign business operations in Thailand, ensuring compliance with the FBA.
Steps for Submission:
1) Prepare Documents:
Before submitting the application, foreign businesses need to prepare all required documents, which may include a business plan, proof of capital, legal documentation, and other supporting materials to demonstrate compliance with the FBA.
2) Submit Application:
The completed application and all necessary documents should be submitted to the Foreign Business Administration Bureau at DBD’s head office, or alternatively, through the e-Foreign Business system on DBD’s official website.
3) Review Process:
The DBD will assess the submitted application, including evaluating the business plan, legal documentation, and compliance with the FBA. This review process may take several months, depending on the complexity of the application and the nature of the business.
4) Approval and Issuance:
If the application meets all requirements and is approved, the DBD will issue the Foreign Business License. The FBL is typically valid for one year, after which it can be renewed, subject to continued compliance with relevant regulations.
