Investing in Thailand: Obtaining a Foreign Business License

May 24 2010 Categories: Thailand Business, Thailand Foreign Business Act No comments yet

What is a Foreign Business License?

As explained above, if you wish to invest into an activity, which is controlled under FBA List 2 or 3, and own more than 50% of the share equity of your business, then one of the options available to you is to apply for a foreign business license. If you obtain the license, you will then be allowed to exercise a business listed under list 2 or 3 in the form of a foreign majority company.

Is the Foreign Business Licensing System Popular with Foreign Investors?

No, the foreign business license is not popular at all with foreign investors.

Now the authorities will tell you that the foreign business license system is a success and that 80% of the foreign businessmen that actually apply for one receive it.

The way I see it is that the authorities are not seeing the whole picture. My personal experience is that, since the enactment of the Foreign Business Act and despite having provided services over the period to hundreds of foreigners,

Since 2000 I have only filed one application for a foreign business license on behalf of a client (not taking into account application of foreign business licenses for Representative Offices as we do a few of those). We did not even go through the end of this application because the client asked us to withdraw it out of frustration.

Therefore, the significance of the government 80% success ratio is only relative because it does not include the hundreds or maybe thousands of foreign investors that never applied for a foreign business license in the first place. In addition, as a lawyer will only apply for a foreign business license if he is 100% sure that he will obtain it the 80% success ratio does not even look good.

What are the conditions applicable to obtain the foreign business licenses?

In order to obtain a foreign business you will have to go through a time consuming process and to fulfill numerous conditions, regulations and guidelines.

Futhermore, you will have to convince the authorities that the proposed business:

could not be competently carried out by a majority Thai-owned company;
is not contrary to the country’s security and stability, good morals or public order;
is beneficial to Thai economy (which will be depend on how the business affects the natural resources, conservation, energy and environment, consumer protection, size of the enterprises, employment); and
is beneficial in terms of technology transfer, research, and development.

As a result, while you may in theory applies for a foreign business license to operate a restaurant business under the form of a 100% foreign owned business your chances to obtain a foreign business license are very remote.

How can a foreign investor possibly demonstrate that a pizzeria could not be competently carried out by a majority Thai-owned company and is beneficial in terms of technology transfer, research, and development?

The same problem arises even in sectors where Thailand encourages foreigners to invest, as it is the case with the purchase of condominiums. A foreign investor could, if all legal requirements are fulfilled, legally purchase ten condominiums in Thailand. However, could this foreign investor rent them out?

No, because the landlord business is a service business which exercise by a foreigner would requires a foreign business license which license cannot be obtained because this activity do not bring technology transfer, research, and development.

The Ministry of Commerce is currently considering removing the know how requirement for some time of businesses and to remove some of the activities currently controlled under FBA list 3 from the list.

Are the new guidelines of the Foreign Business Committee not helpful?

Yes they are as useful as a plaster on a wooden leg.

In January 2008, the Foreign Business Committee (“FBC“) has issue a new regulation stipulating the documents and guidelines applicable to the obtaining of foreign business licenses in relation to 5 businesses categories.

While any new regulation that help to make the foreign business license process easier and more transparent are a progress, the new guidelines only apply to 5 much delimited categories of activities such as service businesses in the category of Regional Office, Representative Office, Services to Affiliated Company and they will, as a consequence, not have a major impact on the foreign business license process.

Is the process itself complicated?

At first, the process to obtain a foreign business license seems easy.

If you wishes to exercise an activity under FBA List all you needs to do is submit an application with the Ministry of Commerce prior to the start of your business operations.

Your application once received will be reviewed by the Foreign Business Committee. Being specified that the Committee is legally bound to rule on the application within 60 days of submission.

Therefore, at first looks the process seems straightforward, uncomplicated and 60 days seems reasonable delay.

What is the procedural reality?

Now, the reality is quite different.

My guess is that it will take you several months to prepare the application.

Secondly, if you file the application for the foreign license application under the name of your foreign company you will have to certify your company corporate documents successively by a public notary, the local foreign ministry, and the Thai Embassy.

Finally the delay of 60 days will start to run only after the date when the official of the Ministry of Commerce who is in charge to accept your application is satisfied that all your documents are in order.

The law does not specify a timeframe for the review of the application by the official and this process can take long time, especially if additional documents are required. One of the most frequent problems we have to deal with when applying for Representative Office licenses is that Thai authorities recognize only 6 months of validity to the certification by Thai Embassies of foreign documents such as power of attorney or affidavits.

Now we have seen many cases when the validity of the certification has expired by the time the government officials were finally ready to accept the applications. In such cases, there is no other solution than to have all the foreign documents executed and certified again, adding another month to the process. It is easier (when possible) to set-up a Thai company and then to have the Thai company filing the application for the license.

Is this why so many foreign investors do not bother to apply for a foreign business license?

Absolutely, if you add conditions that are too restrictive and a process that is time consuming you understand why a majority of foreign investors don’t even bother to apply in the first place and why the government statistics are so far from the reality.

What happen if the application is rejected?

If the application is rejected, then the FBC will inform the applicant in writing within 15 days of the decision with the reasons. The applicant can then appeal the decision by submitting an appeal within 30 days of the date of reception of the rejection notice. The ruling on the appeal shall be made within 30 days of receipt.

What happen if the application is accepted?

If the application is accepted, the license will be subject to conditions, such as the minimum capital requirement; the number of foreign directors who shall have domicile in the country; and the ratio between capital and loan to be used to finance the business.

Furthermore, the license will set the minimum initial capital that will need to be transferred to Thailand. The minimum initial capital to operate a business under foreign business license shall be either THB 3 million or 25% of the annual expenditure projection of the business for a period of 3 years, whichever is greater. The minimum capital requirement does not apply to the issuance of a certificate under the FBA only to licenses.

May I need more than one license?

Like if it was not complicated enough as it is.

Yes it can happen, therefore be careful to explain to your lawyer in details what your activity is. Because you think about your company as one entity does not mean that you will need only one license.

For example, your business is selling products and providing after sales services. You think about it as one business but technically, it is two different activities (retail and service) so technically you should apply for two licenses and the minimal capital requirement will apply 2 times.

Finally, you have to understand that your foreign license is only valid in relation to the business mentioned in your application and that if you want later to exercise other businesses activities you might have to apply for an additional license or to restructure your company.

Do I need a foreign business licenses for any activities?

No, you only need a foreign business license if you want to exercise under the form of a foreign majority an activity under FBA list 2 or 3. In practice yes because most of the activities that foreign businessmen want to exercise in Thailand are on the FBA list3.

If an activity is promoted by the BOI then the BOI promotion will override the FBA. Finally any activities not listed in FBA List 1, 2 or 3 can be exercised by foreign companies without needing to apply for a foreign business license.

However, do not forget the carryall service clause in FBA list 3 which submit to control any “other service businesses” not expressly authorized.

Note: This post is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

Originally posted 2009-07-21 13:07:21.

Doing Business in Thailand