Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

The fundamental law governing foreign investment in or ownership of project companies is the Foreign Business Act BE 2542 (1999) (FBA). Under the FBA, foreign nationals, whether individuals or corporations, may not engage in restricted business activities listed thereunder unless a foreign business licence is obtained prior to operation of the respective restricted business. A corporation is considered as a foreigner under FBA if at least one-half of its share capital is owned by a foreigner (either foreign individual or foreign entity) that is owned by a foreign individual by one-half of its share capital.

The restricted businesses pursuant to the FBA are divided into three categories as follows:

  • Businesses under List 1 strictly prohibited to foreign nationals by special reason, for instance, rice farming, forestry and land trading.
  • Businesses under List 2 related to national safety or security or having impacts on arts, culture, traditions, customs and folklore handicrafts or natural resources and the environment; for instance, production of firearms, ammunition, gun powders and explosives; production of wood carvings and mining are prohibited from being carried out by foreign nationals unless permission is granted by the Ministry of Commerce.
  • Businesses under List 3 in respect of which Thai nationals are not ready to compete with foreign nationals; for instance, service businesses, construction and advertising business are prohibited from being carried out by foreign nationals unless permission is granted by the Department of Business Development.

Kindly note that providing loans or a guarantee may be considered as providing service business pursuant to restricted business per List 3. Thus, the foreign entity that provides loans to other persons in Thailand or provides a guarantee in favor of a creditor in Thailand may be required to obtain the foreign business licence prior to the entry of the guarantee agreement. The Ministry of Commerce has recently enacted a Ministerial Regulation exempting the following services provided to affiliates and group companies in Thailand from requiring the foreign business licence prior to operation of the services: domestic loans, office space rent and utilities services, management advisory services, marketing advisory services, human resources advisory services and IT advisory services. This regulation significantly opens up businesses that offer the above services to free competition and allows foreigners to freely invest in such businesses without needing authorisation from the Ministry of Commerce.

Foreign nationals may be exempted from the restriction imposed by the FBA, if such foreign nationals do the following:

  • operate allowed business under the protection of a treaty to which Thailand is a party, for instance, Thailand-US Treaty of Amity and Economic Relations;
  • engage in regulated businesses permitted by the Thai government for a specific duration; and
  • engage in businesses permitted by the Board of Investment (BOI) and foreign business certificates have been obtained.

The Land Code BE 2497 also restricts foreign ownership of land unless other specific laws and regulations allow otherwise under certain conditions, (eg, obtaining approval from the Board of Investment, Industrial Estate Authority of Thailand). However, a foreign national may lease land. The maximum lease term is 50 years if the lease is for operating certain industrial or commercial businesses.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

Insurance for projects in Thailand must be placed with Thai licensed insurers, and may not be placed with foreign insurers. However, foreign insurers may write reinsurance of Thai licensed insurers.

A project company may assign its right to insurance proceeds from an insurer to the lenders or its agent, whether foreign or domestic.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

According to the Working of Alien Act BE 2551 (2018), to work on a project in Thailand, foreign workers are required to obtain necessary work permits from the Ministry of Labour. To be qualified for obtaining a work permit for a foreign worker, the project company shall have at least 2 million baht for each foreign worker the project company has hired; and a ratio of Thai workers to foreign workers shall be 4:1. BOI-promoted project companies may hire foreign experts exceeding the above limit if the BOI’s committee considers appropriate.

Workers from Myanmar, Laos, Cambodia and Vietnam may receive benefit from the memoranda of understanding entered into between Thailand and Myanmar, Laos, Cambodia, and Vietnam. Those workers may be subject to less restrictive permit requirements for working in Thailand, in specific industries, including construction.

Equipment restrictions

What restrictions exist on the importation of project equipment?

Customs Act BE 2560 (2017) prohibits any importation, trans-­shipping, exportation or transiting through Thailand of prohibited goods. Restricted goods may be imported subject to permission from the competent authority. For example, to import vehicle parts, permission from the Ministry of Industry is required. The import of any goods shall pass the custom clearances and controls process where the duties and taxes may be imposed on the person who imports such goods. A BOI-promoted project company shall be entitled to the exemption or reduction of the taxation for the import of the machinery.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

The laws regarding the nationalisation or expropriation of project companies and their assets include the Thai Constitution BE 2560 (2017), the Expropriation of Immovable Property Act BE 2530 (1987) and the Administrative Procedure Act BE 2539. The expropriation of immovable property shall not be permitted except by virtue of law enacted for the purpose of public utilities, national defence or acquisition of national resources, or for other public interests. Should there be any nationalisation or expropriation of the assets or projects, fair compensation of the investment shall be paid to the owner or the affected investors as well as to all persons having rights who suffer loss from such expropriation. Other than domestic laws mentioned above, Thailand is also a party to a number of trade or investment agreements, such as the Thailand-Australia Free Trade Agreement, which has provision with respect to nationalisation or expropriation of the investment made by Australian nationality. In the event of nationalisation or expropriation, the criteria as stipulated in the trade investment agreement must be met (eg, to protect public interest purposes, to not be on a discriminatory basis, and to ensure fair compensation is provided).