Investing in Thailand: Prohibited or controlled businesses

February 1 2010 Categories: Thailand Foreign Business Act No comments yet

What is the Foreign Business Act?

The Foreign Business Act B.E. 2542 (A.D.1999) (“FBA”) was enacted on March 4, 2000 to replace the Alien Business Act of 1971. The FBA does not regulate the entire matter of foreign investment in Thailand. The FBA purposes are:

to define businesses activities, which exercise by foreigners, is prohibited or controlled and
to define what a foreigner is.

What are the FBA Lists?

At the end of the FBA Act are attached three lists of activities that are either completely prohibited to foreign investors or controlled. Those lists are referred to as FBA List 1 (prohibited activities) and FBA List 2 and List 3 (controlled activities). Note that you can freely exercise any activity, which is not expressly mentioned in the FBA.

Is there an override?

There is more than one actually.

The Thai Government has instituted two special agencies that have the power to override the Foreign Business Act by granting special privileges called “promotions” to foreign investors. These authorities are the Board of Investment (BOI) or the Industrial Estate Authority of Thailand (IEAT).

Another override for US citizens was the US Thai Amity treaty. The treaty has not been renewed and a new free trade agreement is being negotiated. For the time being, it is still possible to set-up companies under the override of the US Thai Amity treaty.

Are the FBA prohibitions absolute?

The FBA establishes a relative prohibition and not an absolute one. Briefly, you may freely invest in any business prohibited or controlled under FBA if you hold only a minority share participation in the prohibited or controlled business (less than 50% or 25% depending of the activity.

Is the FBA prohibition only limited to majority control?

Yes, prohibition means that you cannot own the majority of the share capital of a prohibited business. As long as you keep your participation under the share majority ceiling, you can invest in any prohibited activities without problems.

What about participation to controlled activities?

It is the same as above. You can take a minority share participation in any controlled activities without having to ask for any kind of permission. In addition the FBA or the overriding agencies or the US Thailand Amity Treaty may gives you the option to apply for the permission to operate specific controlled businesses under the form of a foreign owned company (a company where a foreign investor own more than 50% of the shares).

May you start a controlled business while waiting for permission?

No, as with work permits you will need to have received the permission before you can start to exercise your controlled business under the form of a foreign majority owned company.

[A Thai company is a company registered in Thailand that has Thai shareholders owning the majority (51%) of the shares. A foreign company is a company registered in Thailand that has foreign shareholders owning the majority (51%) of the shares or a foreign company registered outside Thailand]

Who are the authorities that may grant the permission to exercise a controlled activity?

If the activity is controlled under List 2, the authority responsible for granting permission is the Minister of Commerce with approval of the Council of Ministers.

If the activity is controlled under List 3, the authority is the Director-General of the Company Registration Office of the Ministry of Commerce, with approval of the Foreign Business Committee.

If you apply for an FBA override, the authorities are the Board of Investment (BOI) or the Industrial Estate Authority of Thailand (IEAT).

How many activities are prohibited to foreign investors under FBA list 1?

There are only nine activities where foreign investors cannot own majority share participation and they are Newspaper, Radio, Television, Farming, Animal Farming, Forestry and Wood Fabrication from natural forest, Fishery for marine animals, Antiques Trading or Auctioning, Making or Casting Buddha images, and Land Trading.

What are the reasons for the prohibition?

The prohibition is motivated by “Special Reasons” and Thailand is not the only country that prohibits foreigners to exercise those kinds of activities for special reasons. Furthermore, most activities that are prohibited do not interest foreign investors.

I have never met a foreign investor interested to invest in the making of Buddha images. Activities such as farming, animal farming, forestry and fishery for marine animals are typically activities that are by definition better left to locals.

Just see how the US or France are protective of their farmers. I mean farmers are the original foundation of any nation and deserve all the protection they can get.

What about the press?

Should foreign investors be allowed majority participation in the press or news businesses? I do not think so.

We all have to be honest with ourselves. I mean if you were English how much would you enjoy a French businessman taking over the BBC or the Time; and if you were US citizens would you enjoy seeing USA Today’s fall into Japanese hands?

And if you are French would you enjoy the Figaro or Liberation or Canal plus taken over by German interests. Even in the time of a global society, national press and TV is national before being press.

Are there any prohibited activities that pose problem?

So the only activity of List 1 which pose problems as far as foreign investors are concerned is land trading.

Seeing that most of foreign developers operating in Thailand under cover of Thai owned companies (49% foreign, 51% Thai owned) are first time developers and also seeing that more than a few of them fail in their business endeavors I’m wondering whether this prohibition does not make sense after all…

I’m sure that the 230 clients of a foreign first time developer that have been left stranded by this first time developer only regret is that Thai authorities did not better enforce the prohibition at the time.

How many activities are controlled under FBA List 2?

Here again there are not so many activities controlled under List 2. This list includes businesses controlled for reason concerning “national safety or security or culture” and includes the manufacture, sale, and maintenance of firearms or ammunition; domestic land, water or air transport, including domestic aviation; manufacture of sugar, etc.

The exercise of those activities is prohibited to foreigners unless they are granted permission by (1) the Minister of Commerce with approval of the Council of Ministers; or (2) the Board of Investment (BOI); or (3) the Industrial Estate Authority of Thailand (IEAT).

Whenever a foreign investor receives the permission to exercise a business activity under List 2 the company shall met the following conditions: At least 40% or 25% of the shares are held by Thai nationals. At least two fifths of the board members must be Thai nationals.

Are there any problems with FBA List 2?

I do not have too many problems with List 2 because those activities are also controlled in other countries. The parallel I was making with the control of the press and television networks in Germany, England and the US could also apply to some of the activities mentioned above. I’m sure that the French would not be thrilled to see French arms manufacturing companies becoming German or to see Air France or the TGV controlled by English investors.

Are we not living in a global society?

That is what multinational companies would like us to believe. The truth is that we cannot help the weight of history behind us. We can take all the pan Europeanist baths we want, and try to scrub ourselves clean of it, nationalism and chauvinism will always stick to our skin somewhat. We are still a few generations from the loving global society we are promised by those who govern us. Just think how difficult it is for a transnational/cultural couple to live together (for each one that works how many have failed?) and you will realize how far away we still are from this ultimate panacea.

As far as I am concerned, I can live with List 2 and so should you too.

How many activities are controlled under FBA List 3?

The activities listed under List 3 are businesses in which Thais “are not ready to compete with foreigners” such as, wholesale, retail, trading, engineering, legal, accounting, food & beverage, entertainment and so on…..

I cannot tell you exactly how many activities are controlled under List3 because FBA List3 contains a carryall clause that subject to authorization all services activities that are not expressly authorized by law or by the ministry regulations (one example of service business expressly authorized by law is Hotel Service Management).

Therefore every service activity you can conceive will go into this carryall clause if it is not expressly authorized. You cannot exercise an activity under FBA list3 (under the form of a majority owned share investment) unless you have been granted permission by (1) the Director-General of the Company Registration Office of the Ministry of Commerce, with approval of the Foreign Business Committee; or (2) the Board of Investment (BOI); or the Industrial Estate Authority of Thailand (IEAT). Note that the permission will be subjected to conditions.

What is the problem with FBA List 3?

I believe that FBA List 3 is an anachronism from another time.

The motivation for list 3 is to cover “Activities where Thais are not yet ready to compete with Foreigners”.

I mean give me a break. The Thai Government should give more credit to Thai people and businessmen.

Thailand after all is now a developed country, with a market economy, an educated population and an efficient business community. Just look around and you will see that Thais have an innate talent for service and excel in this sector.

In other words, Thai are ready to compete in at least half of the activities listed and the Thai Government should take act of this fact and open more List 3 activities to foreign investment

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 08:54:44.

Doing Business in Thailand