Who is a foreigner?
How to obtain a licence
Why use nominees?
Foreign companies that send their staff to work in Thailand, open a representative office or branch or establish a subsidiary to operate some categories of business in Thailand may need to obtain a foreign business licence under the Foreign Business Act (BE 2542). Otherwise, the company can be subject to criminal liability. The act allows foreigners to operate such prohibited businesses only if a licence has been obtained.
The act defines a 'foreigner' as:
- a natural person of non-Thai nationality;
- a legal person not registered in Thailand;
- a legal person registered in Thailand with:
- half or more of its shares held by a natural person of non-Thai nationality or a legal person not registered in Thailand, or with such persons providing investment to the value of half or more of its total shares; or
- a limited partnership or registered ordinary partnership with a natural person of non-Thai nationality as the managing partner or manager;
- a legal person registered in Thailand with half or more of its shares held by such persons listed above, or with such persons providing investment to the value of half or more of its shares.
Therefore, if a foreign person owns a half or more of the shares in a company or a partnership registered in Thailand, such Thai company or partnership is defined as a 'foreigner' under the act. As a foreigner, it cannot operate a restricted business in Thailand without obtaining a licence.
The act classifies restricted business activities into three categories as follows:
- businesses that are prohibited and for which no licence can be granted to a foreigner (List One);
- businesses related to national security or to Thai culture, local handicrafts, natural resources or the environment (List Two); and
- businesses in which Thai nationals are not ready to compete with foreigners (List Three).
A licence for a restricted business under the conditions of List Two or List Three will be granted if the requirements under the act and the accompanying regulations are met. Business activities not listed above are open to foreigners, except for those restricted under other laws.
A foreign company may operate a restricted business in Thailand without obtaining a licence if it:
- has been granted temporary permission from the Thai government to operate the business on a case-by-case basis for a specific project;
- is a national of a country that has entered into a treaty of amity and economic relations or a bilateral trade agreement with Thailand;
- has been promoted to do business in Thailand under the investment promotion law or permitted to operate industrial business activities in an industrial estate or an export processing zone under the law on the Industrial Estate Authority of Thailand or other laws; or
- is a foreigner that is allowed to operate some businesses in Thailand under other laws, such as banking, financing and insurance businesses.
Under the act, a foreign company can obtain a licence for operating a restricted business in Thailand from the Department of Business Development of the Ministry of Commerce following:
- approval of the Cabinet, if the business is categorised under List Two; or
- approval of the Foreign Business Committee, if the business is categorised under List Three.
An application, with supporting documents, must be filed with the Department of Business Development detailing, among other things:
- the category of the business;
- its operation procedures;
- estimated revenues; and
For a business categorised under List Three, the department may order the applicant to amend the application and its supporting documents several times until they meet the requirements as a complete application, and then submit the matter to the committee for approval. It will take between 60 and 120 days from the date on which a complete application is filed for the department to approve or reject such application.
Under the act, it is possible to obtain a licence for the business categories listed under List Two and List Three. However, in practice, the Foreign Business Committee has discretion to refuse an application for a licence for a number of reasons. Additionally, some foreign companies do not want to enter into a joint venture with Thai partners for a number of reasons. As a result, foreigners often use Thai nominee shareholders to hold shares for them in their Thai companies.
The Department of Business Development (and the Ministry of Commerce in general) does not often investigate and prosecute offenders of the act, mainly due to a lack of personnel. It carries out investigations and enforcement once in a while, usually where a nominee shareholding structure is alleged by or against major politicians or major businessmen. A nominee shareholding structure is illegal and, if prosecuted in court, both the Thai nominees and the foreigner can be subject to a fine or imprisonment under the act.
For further information on this topic please contact Kowit Somwaiya or Naddaporn Suwanvajukkasikij at LawPlus Ltd by telephone (+66 2 636 0662), fax (+66 2 636 0663) or email ([email protected] or [email protected]).