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Foreign Business Act

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The Foreign Business Act B.E. 2542 (1999) (FBA) is the primary legislation governing foreign investment and business activities in Thailand. It establishes clear restrictions on foreign ownership, defines regulated industries, and outlines licensing requirements for foreign entities seeking to operate within the country.

Understanding the Foreign Business Act (FBA) is essential for foreign investors, as non-compliance can lead to severe legal consequences, including fines, imprisonment, and forced business dissolution.

This guide provides an in-depth legal analysis of the Foreign Business Act, covering restricted industries, foreign ownership structures, licensing procedures, legal loopholes, and strategies for compliance.

1. Legal Framework Governing Foreign Business Operations

1.1 Purpose of the Foreign Business Act

The FBA B.E. 2542 (1999) was enacted to:
✔ Protect Thai industries from excessive foreign control.
✔ Define business activities that require government oversight.
✔ Provide legal pathways for foreign investment in restricted sectors.
✔ Encourage regulated foreign participation in Thailand’s economy.

The Department of Business Development (DBD) under the Ministry of Commerce is the primary regulatory body enforcing the FBA.

1.2 Definition of a “Foreign Business”

Under the FBA, a business is considered foreign if:
✔ A non-Thai individual or entity holds 50% or more of the shares in a company.
✔ The company is registered outside Thailand but conducts business in the country.
✔ A majority of directors or authorized signatories are foreign nationals.

This classification determines whether a company must apply for a Foreign Business License (FBL) or qualify for an exemption under investment promotion programs.

2. Business Activities Restricted Under the Foreign Business Act

The FBA divides restricted industries into three categories (Lists 1, 2, and 3) based on the level of restriction and the possibility of obtaining permission for foreign ownership.

2.1 List 1: Activities Absolutely Prohibited to Foreigners

Foreigners cannot engage in these industries under any circumstances, as they are considered essential to national security, cultural identity, or strategic resources.

Restricted Activities (List 1)
Media (newspapers, radio, TV broadcasting)
Land ownership and land trading
Agriculture, forestry, and animal husbandry
Fisheries and marine life conservation
Traditional Thai handicrafts and art trade

Even BOI promotion or government approval cannot override these restrictions.

2.2 List 2: Restricted Sectors Requiring Cabinet Approval

Foreigners may operate in these industries if Cabinet approval is granted and at least 40% of the company shares are Thai-owned.

Restricted Activities (List 2)
National defense industries
Domestic transportation (air, rail, and maritime)
Mining, energy exploration, and mineral extraction
Businesses affecting Thai culture and heritage

Due to bureaucratic complexities, Cabinet approvals for List 2 businesses are rarely granted to foreign investors.

2.3 List 3: Restricted Sectors Requiring a Foreign Business License (FBL)

Foreigners can operate in these industries if they obtain an FBL from the Department of Business Development (DBD).

Restricted Activities (List 3)
Legal, accounting, and architecture services
Retail and wholesale trade (if capital is below THB 100 million per store)
Hotel business (except for hotel management services)
Advertising and media production
Brokerage and agency businesses
Construction (except for government projects)

Foreign investors can apply for an FBL if they can demonstrate economic benefits to Thailand, such as job creation, technology transfer, or infrastructure investment.

3. Legal Pathways for Foreign Investors to Operate in Thailand

Despite the FBA’s restrictions, foreign investors have several legal options to establish and operate businesses in Thailand:

3.1 Obtaining a Foreign Business License (FBL)

✔ Required for List 3 businesses.
✔ Applications are submitted to the DBD, Ministry of Commerce.
✔ Approval depends on economic impact assessments.
✔ Processing time: 3–6 months, depending on the industry.

3.2 Board of Investment (BOI) Promotion

✔ BOI-approved companies are exempt from foreign ownership restrictions.
✔ Benefits include:

  • 100% foreign ownership approval.
  • Corporate tax exemptions for up to 8 years.
  • Work permits and visa privileges for foreign executives.
  • Import duty exemptions on machinery and raw materials.

Industries eligible for BOI promotion include:
✔ Technology, automation, and digital economy.
✔ Renewable energy and environmental industries.
✔ Advanced manufacturing and high-tech production.
✔ Research and development (R&D) sectors.

3.3 U.S.-Thailand Treaty of Amity (For U.S. Investors Only)

✔ Allows U.S. companies to own 100% of a Thai business.
✔ No need for a Foreign Business License.
✔ Applies to most industries, except those in List 1 and List 2.

3.4 Thai-Registered Joint Ventures

✔ Foreigners can establish a joint venture with a Thai partner (owning at least 51%).
✔ Must be a genuine ownership arrangement, as nominee shareholding is illegal under Thai law.

3.5 Representative Offices and Branch Offices

✔ Representative Offices:

  • Allowed for market research, liaison activities, and sourcing.
  • Cannot generate revenue.

✔ Branch Offices:

  • Allowed to engage in commercial activities but require an FBL.

4. Penalties for Violating the Foreign Business Act

Non-compliance with the FBA carries severe penalties, including:

Violation Penalty
Operating a restricted business without an FBL Up to 3 years imprisonment and/or THB 1 million fine
Using Thai nominee shareholders to bypass foreign ownership rules Up to 3 years imprisonment and/or THB 1 million fine
Violating BOI or Treaty of Amity privileges Revocation of business license and deportation

The Thai government actively monitors foreign business structures, and fraudulent nominee arrangements are highly scrutinized.

5. Conclusion

The Foreign Business Act (FBA) is a crucial regulation defining foreign participation in Thailand’s economy. While the law imposes restrictions, it also provides legal pathways for foreign investors through BOI incentives, joint ventures, FBL applications, and international treaties.

Foreign entrepreneurs and corporations must carefully structure their business entities to comply with the FBA while maximizing investment opportunities. Given the complexity of Thai business regulations, working with legal experts and business consultants is essential to ensure full compliance and long-term business success in Thailand.

Property Mortgage in Thailand

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A property mortgage in Thailand provides financing options for individuals looking to purchase real estate, whether for residential or investment purposes. While Thai nationals have relatively easy access to mortgage loans, foreigners face additional restrictions due to regulations governing land and property ownership. However, various financial solutions are available, including loans from local Thai banks, foreign bank branches, and developer-backed financing.

1. Who Can Apply for a Property Mortgage in Thailand?

1.1 Thai Nationals and Permanent Residents

  • Full access to mortgage financing from Thai banks.
  • Flexible repayment terms, typically up to 30 years.
  • Lower interest rates compared to foreign buyers.

1.2 Foreigners

Foreigners face more restrictions but can still obtain property financing under specific conditions:

  • Condominiums: Foreigners can obtain mortgages for condos if the property complies with the foreign ownership quota (not exceeding 49%).
  • No Land Financing: Foreigners cannot directly mortgage land but may lease it for long-term use.
  • Proof of Income: Foreign applicants must provide documented proof of stable income and financial statements.

2. Mortgage Providers in Thailand

2.1 Thai Banks

Some Thai banks offer mortgage loans to foreigners, but most require:

  • A valid work permit in Thailand.
  • Proof of employment or business activity in the country.
  • Loans in Thai baht (THB) only.

Popular Thai banks offering mortgages include:

  • Bangkok Bank
  • Siam Commercial Bank (SCB)
  • Krungsri Bank

2.2 Offshore Financing

Foreigners who cannot meet local banking requirements may opt for offshore banks or private financing solutions from foreign financial institutions. These loans are typically issued in USD or other foreign currencies.

2.3 Developer Financing

Some real estate developers offer installment-based payment plans or short-term financing for foreign buyers, particularly for condominiums and new projects.

3. Key Mortgage Terms and Conditions

3.1 Loan-to-Value Ratio (LTV)

  • For Thai nationals, LTV can reach 80%–90% of the property’s appraised value.
  • Foreigners are usually offered a lower LTV, around 50%–70%.

3.2 Interest Rates

  • Mortgage interest rates in Thailand are generally variable, based on the Minimum Retail Rate (MRR) or Minimum Loan Rate (MLR).
  • Fixed-rate periods may apply for the first 3–5 years, followed by variable rates.

3.3 Repayment Period

  • Typically, up to 30 years for Thai nationals.
  • Foreigners may have shorter repayment terms, usually 10–15 years.

4. Application Process for a Property Mortgage

Step 1: Initial Assessment

  • Check eligibility with the chosen bank.
  • Gather required documents, such as proof of income, financial statements, and property details.

Step 2: Submit Application

  • Submit a loan application along with necessary documents.
  • The bank will assess your creditworthiness, employment history, and income stability.

Step 3: Property Valuation

  • The bank conducts an independent valuation to determine the property’s market value.

Step 4: Loan Approval and Contract Signing

  • Once approved, the bank issues a loan agreement and outlines the terms and repayment schedule.

Step 5: Registration at the Land Department

  • The loan is registered with the Land Department, and the bank holds the property as collateral.

5. Common Challenges and How to Overcome Them

5.1 Documentation Requirements

Foreigners may struggle to meet the documentation standards required by Thai banks. Solution: Work with a real estate lawyer and provide accurate, translated financial documents.

5.2 Currency Risks

Loans in foreign currencies can expose borrowers to currency exchange risks. Solution: Choose a loan in Thai baht if you have long-term financial commitments in Thailand.

5.3 Shorter Loan Terms for Foreigners

Shorter loan terms result in higher monthly repayments. Solution: Negotiate terms with multiple banks and compare offers to secure the best deal.

6. Legal Considerations

  • Foreign Ownership Restrictions: Foreigners can only own condominiums, not land. Ensure that the property is part of the foreign ownership quota.
  • Mortgage Registration Fee: Typically 1% of the loan amount.
  • Legal Advice: Consult a real estate lawyer to review the mortgage contract and assist with registration at the Land Department.

7. Conclusion

A property mortgage in Thailand is an attractive option for both locals and foreigners seeking to invest in real estate. While foreigners face additional restrictions and requirements, careful planning and the right financing solution can help secure a dream home or investment property. It is crucial to understand the terms, legal requirements, and risks involved to make an informed decision. Working with experienced financial institutions and legal advisors can ensure a smooth and secure mortgage process.

Thai Business Partnerships

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Thai business partnerships are governed by the Civil and Commercial Code (CCC), offering entrepreneurs flexible and straightforward structures to establish their ventures. Partnerships are widely used in small to medium-sized enterprises (SMEs), as they allow for collaborative management, shared responsibilities, and pooled resources. However, different types of partnerships come with distinct legal implications and operational requirements.

1. Types of Business Partnerships in Thailand

1.1 Ordinary Partnerships

  • Definition:
    • Unregistered partnerships where partners share unlimited liability for debts and obligations.
  • Key Features:
    • Informal, easy to establish, and low in operational complexity.
  • Usage:
    • Suitable for small, short-term projects or informal ventures.

1.2 Registered Ordinary Partnerships

  • Definition:
    • Partnerships registered with the Department of Business Development (DBD), gaining legal personality.
  • Key Features:
    • Partners retain unlimited liability.
    • Registration enhances credibility with financial institutions and third parties.
  • Usage:
    • Preferred for formal ventures needing recognition and legal standing.

1.3 Limited Partnerships

  • Definition:
    • A partnership with two types of partners: general partners (with unlimited liability) and limited partners (liable only to the extent of their investment).
  • Key Features:
    • Legal registration with the DBD is required.
    • Limited partners cannot participate in management.
  • Usage:
    • Common for partnerships seeking external investors or risk-limiting structures.

2. Formation Process

  1. Draft a Partnership Agreement:
    • A well-defined agreement is essential, covering capital contributions, profit-sharing arrangements, roles, and responsibilities.
  2. Register with the DBD (if applicable):
    • Submit required documents such as partner identification, capital structure, and business objectives.
  3. Obtain a Tax Identification Number:
    • Required for partnerships engaging in taxable activities.
  4. Comply with Labor Laws:
    • Partnerships employing workers must adhere to Thai labor regulations, including minimum wage and social security contributions.

3. Taxation and Compliance

  1. Ordinary Partnerships:
    • Taxed at the partner level unless registered.
  2. Registered Partnerships and Limited Partnerships:
    • Subject to corporate income tax and annual financial reporting.
  3. VAT Registration:
    • Required if annual revenue exceeds 1.8 million THB.

4. Foreign Participation in Partnerships

4.1 Restrictions under the Foreign Business Act (FBA):

  • Foreigners are restricted in certain industries unless they qualify for exemptions or special promotions.

4.2 BOI Promotions:

  • Partnerships in industries promoted by the Board of Investment (BOI) enjoy relaxed restrictions, tax incentives, and other benefits.

4.3 Nominee Structures:

  • The use of Thai nominees to bypass ownership restrictions is illegal and subject to penalties.

5. Advantages of Partnerships

  1. Ease of Formation:
    • Partnerships require less administrative work compared to corporations.
  2. Flexible Management:
    • Partners can structure management roles and responsibilities to suit their expertise.
  3. Resource Pooling:
    • Partnerships allow for shared financial and human resources, reducing individual burdens.
  4. Cost-Effectiveness:
    • Partnerships incur fewer regulatory and operational costs than larger business structures.

6. Risks and Challenges

  1. Unlimited Liability:
    • General partners are personally liable for debts and obligations, exposing their assets to risks.
  2. Disputes Among Partners:
    • Disagreements can arise over profit distribution, management, or strategic decisions.
  3. Foreign Ownership Restrictions:
    • Non-Thai partners face limitations in certain sectors under the FBA.
  4. Lack of Continuity:
    • Unregistered partnerships dissolve upon a partner’s death or withdrawal unless otherwise stated in an agreement.

7. Key Considerations for Establishing a Partnership

  1. Legal Advice:
    • Engage a qualified lawyer to draft partnership agreements and ensure compliance with Thai regulations.
  2. Due Diligence:
    • Verify the qualifications and reputation of potential partners.
  3. Risk Mitigation:
    • Consider a limited partnership structure to limit liability for specific partners.
  4. Compliance with Thai Laws:
    • Ensure all registration, tax, and labor requirements are fulfilled.

Conclusion

Thai business partnerships provide a versatile and practical framework for establishing and managing businesses. Whether opting for an ordinary or limited partnership, understanding the legal, financial, and operational implications is vital. By adhering to local regulations and establishing clear agreements, entrepreneurs can leverage partnerships to achieve sustainable growth and success in the Thai market.

US-Thai Treaty of Amity

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The US – Thailand Treaty of Amity allows American citizens and businesses incorporated in the US or majority-owned by Americans to enjoy privileges when doing business in Thailand. Some of these include being exempt from import duties and remitting profits, dividends and royalties without restrictions.

However, it’s important to understand the limitations of the US-Thai Treaty of Amity. GPS Legal has extensive experience helping clients obtain certification under this treaty.

Benefits

The US-Thai Treaty of Amity provides distinct registration advantages to American companies operating in Thailand. The benefits include:

National Treatment: American businesses incorporated under the treaty are treated as Thai entities, providing a competitive advantage and greater flexibility for business operations. The treaty also protects investments and intellectual property rights.

Streamlined Process: Applying for the treaty is a quick and simple process that can be completed in 90 days or less from submission of your application to approval. This is a significant advantage over the Foreign Business License (FBL) process, which typically takes up to six months.

Exemptions and Incentives: The treaty allows US citizens to establish sole proprietorships, partnerships, representative offices or branch offices in Thailand without having to comply with the Foreign Business Act (FBA). The treaty also exempts companies registered under it from the requirement of having a Thai partner to sponsor Non B visas or work permits for foreign employees.

Limitations: A company registering under the treaty must have at least 51% of its shares owned by Americans. Additionally, a company cannot directly buy land in Thailand unless it has a Thai subsidiary that owns the land. This can be circumvented by establishing a leasehold arrangement with the landowner, however this has legal and tax implications that should be discussed in detail with your advisors.

Requirements

While companies registered under the Amity Treaty do have a lot of advantages, it does come with some requirements that should be considered carefully. First and foremost, the majority of shares and decision-making power must be held by US citizens. This is not a requirement for most businesses, but it may be required for certain investment promotion programs. Additionally, the company cannot directly own land in Thailand, which can be a drawback for some sectors like agriculture or inland transportation. Fortunately, there are alternatives like leasehold arrangements and setting up a Thai subsidiary to purchase land.

To qualify for the Amity Treaty, a company must be an American sole proprietorship, partnership, representative office, branch office, joint venture or Thai limited company. A minimum of 50% of the shareholders must be American citizens, and the majority of directors must also be Americans. The company must submit a variety of documents, including corporate bylaws, lists of shareholders with their nationalities and articles of incorporation. The company must also submit notarized copies of the shareholders’ and directors’ passports.

In addition, an Amity Treaty company must hire four Thai workers to one foreign worker and comply with work permit rules. This can be a challenge for some companies, but it is a necessary requirement for those looking to maximize the benefits of the Amity Treaty. The registration process contains many legal complexities and it is best to consult with Emerhub’s advisors to ensure your business is compliant.

Procedures

The US-Thai Treaty of Amity allows American companies to maintain a majority shareholding in or wholly own a business in Thailand and engage in the same business activities as Thai companies with few restrictions. It also grants them national treatment, removing the need to obtain an alien business license (FBA).

To be eligible for the benefits of the US-Thai Treaty of Amity, a company must have American shareholders with over 50% ownership. In addition, the company must have authorized American directors. It must also be incorporated in the United States and registered with the Department of Business Development, Ministry of Commerce. The application process requires a number of documents, including the company’s articles of incorporation, lists of shareholders with their passport numbers, and notarized copies of all shareholder and director passports.

In addition to the US-Thai Treaty of amity, the US and Thailand have bilateral trade and investment framework agreements called Trade and Investment Framework Agreements (TIFA) and a Generalized System of Preferences program that provides duty-free entry for certain products. Despite these advantages, it is important to note that Amity treaty companies are still subject to the same foreign investment laws as non-Amity treaty companies. They are also not allowed to own land and must comply with work permit rules. These requirements can add time and cost to the registration process.

Limitations

The US-Thai Treaty of Amity has facilitated billions in trade and investment between the two nations, establishing strong economic collaboration. While the treaty offers American companies substantial privileges, it also restricts their activities in certain sectors. Understanding these limitations and staying updated on Thai legal changes is key to ensuring compliance.

The treaty allows Americans and American companies to maintain majority ownership of their businesses in Thailand and receive national treatment, exempting them from restrictions set out by the Foreign Business Act. In order to qualify, a company must present evidence that it is registered in the United States and that the majority of shareholders are American citizens.

Additionally, the company must have a minimum of 51 percent of ordinary shares to be considered as a treaty-protected entity in Thailand. A minimum of 51 percent of voting rights must also be held by the company’s American shareholders. If the company has directors of a third nation, they must co-sign documents with their American counterparts.

Companies that are protected under the US-Thai treaty can still face restrictions in other sectors, such as land ownership and taxation. In these cases, alternative solutions like leasehold arrangements or a Thai subsidiary can be used to gain the advantages of a fully owned treaty-protected company in Thailand without the restrictions. This option can be complicated, and professional guidance is recommended.

Registering a Company Under the Thailand Board of Investment

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Registering a company under the Thailand Board of Investment (BOI) opens up a whole host of fiscal and non-fiscal incentives for foreign investors. However, achieving BOI status takes time and care.

Documents like a memorandum of association, details about shareholders, and copies of passports or IDs are required. Other files include a business plan and forecasts for investments and profits.

Requirements

If you are planning to register a company under the Thailand Board of Investment, it is advisable to seek guidance from legal and business professionals to ensure that your application meets all requirements. These requirements include the preparation of a detailed business plan. This document will be scrutinized by the reviewing BOI official, so it must be exhaustive and accurate. It should cover every aspect of the company’s business in Thailand, including management, ownership, processes, financing, human resources, investment, technology, and profitability.

It should also include a detailed inventory of all equipment and materials used by the company, as well as a list of all employees and their job titles. The company should also prepare financial statements and projections for the first three years of operation. Lastly, the company must submit a list of directors and their nationalities. At least one of these must reside in Thailand to sign documents on behalf of the company.

Several incentives are available for companies registered under the Thailand Board of Investment. These incentives are based on the type of industry and region. For example, a five-year corporate income tax exemption is provided for high-technology activities that are vital to the development of Thailand. Incentives are also available for activities that contribute to the production of goods for export. Other benefits include a removal of the foreign worker quota and a reduction in value-added tax (VAT) registration fees for certain products.

Procedures

Before applying for a BOI certificate, investors must first prepare a business plan. This document should address every aspect of the business, including management, ownership, processes, finances, investments, and technology. The plan will be reviewed by a BOI official, and any shortcomings could result in the rejection of an application. Working with a professional to assist with this process is highly recommended.

After preparing a comprehensive business plan, investors must deposit a minimum of 1 million baht as capital. They must also open a bank account and choose an original name for their company. In addition, they must obtain a tax ID number and register for VAT if their revenue is above 1.2 million baht. They must also submit copies of the directors’ passports or IDs and the company’s registered address.

Once approved, the BOI will issue a business registration certificate that must be displayed in a prominent location. Additionally, companies must report any changes to the BOI within 30 days of those changes. Furthermore, BOI-promoted companies are required to make a tax prepayment of 50% of their estimated tax liability within two months after the end of their accounting period. In addition, these companies must display a business name board in both Thai and English on the front of their main office and any branch offices.

Taxes

The BOI is an agency under the Prime Minister’s Office that safeguards foreign investment in the country. It offers both fiscal and non-fiscal incentives to companies registered with it. For example, it waives corporate taxes for up to thirteen years. Incentives are based on a variety of criteria, including the company’s potential impact on Thailand’s economy and industry. However, a company must adhere to strict guidelines and ensure that its work doesn’t harm the environment.

The first step is to create a comprehensive business plan that meets the BOI’s requirements. This is essential, as an inadequate plan will likely get rejected. It should include details of all aspects of the company’s operations in Thailand, including management, ownership, production processes, financing, human resources, and technology.

Once the application is complete, it must be submitted to a BOI officer. The approval process can take between 40 working days for investments equal to or less than 200 million baht, and 90 working days for those exceeding 2,000 million baht. In some cases, the project must also be approved by the Ministry of Commerce, the National Economic Development Board (NEDB), or the Industrial Promotion Centers. It is best to consult with experts on the matter before submitting an application. They can help you navigate the process and avoid unnecessary delays.

Incentives

Incentives are available for registering businesses under the BOI, but they are dependent on the project’s location. Special economic zones (SEZs) are established in ten provinces bordering neighboring countries, where the government offers tax and non-tax incentives for logistical activities such as warehouses near the borders; distribution; services; manufacturers that use raw materials from nearby markets; and knowledge-based industries, like R&D centers.

Companies may also receive incentives for establishing regional operating headquarters and research and development centers in Thailand. To qualify, the company must meet certain minimum requirements for capital investment and debt-to-equity ratios. The company must also establish a technical and personnel management center in Thailand, or provide support, service, or training for its associated enterprises. The company must also have paid-up capital of at least THB 10 million on the last day of each accounting period, and at least ten knowledgeable and skilled employees working full time for its international business centre (IBC).

Generally, foreigners may not own majority stakes in most businesses under the FBA, but U.S. nationals are exempt from these restrictions under the U.S.-Thailand Treaty of Amity and Economic Relations. In addition, the Thai government has taken steps to become a leader on Responsible Business Conduct (RBC).

State-owned enterprise (SOE) investors can enjoy the same tax benefits as private enterprises. However, SOE senior managers report to a cabinet minister or SEPO and corporate board seats are typically given to politically affiliated individuals.

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