Q&A: foreign investment issues for project companies in Thailand

Foreign investment issues

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 the operation of the respective restricted business. A corporation is considered as foreign status under the FBA if at least one-half of its share capital is owned by a foreigner (either a foreign individual or foreign entity).

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

• businesses under List 1 are strictly prohibited to foreign nationals for special reasons, 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 (eg, the production of firearms, ammunition, gun powder and explosives, the 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 (eg, 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).

The provision of loans or guarantees may be considered a service business pursuant to List 3. Thus, a foreign entity that provides loans to other persons in Thailand or provides a guarantee in favour of a creditor in Thailand may be required to obtain the foreign business licence prior to the entry of the guarantee agreement. Foreign nationals may be exempted from the restriction imposed by the FBA, if such foreign nationals:

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

In addition to the FBA, foreign restrictions may be imposed by other specific legislation for specific business sectors. For example, the Land Code restricts foreign ownership of land unless stated otherwise in specific laws and regulations (for instance, after obtaining approval from the Board of Investment, Industrial Estate Authority of Thailand, etc).

If a foreign creditor wishes to enforce a security, owing to the limitations of foreign ownership in real property (mentioned earlier), it may not be able to foreclose or take ownership of the mortgaged property.

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 for 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.

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 it appropriate.

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

What restrictions exist on the importation of project equipment?

The Export and Import Act BE 2522 (1979) is the main legislation that imposes restrictions on the importation of goods. Certain goods are prohibited from being imported into Thailand while other goods may require a licence or are subject to other control restrictions. In addition to the Export and Import Act, import restrictions may exist in specific legislation. For example, under the Armament, Ammunition, Explosives, Fireworks, and Imitation Firearms Act BE 2490 (1947), the importer of military hardware, ammunition or explosive devices requires an import licence from the Ministry of Defence.

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 pursuant to the Customs Act BE 2560 (2017). A BOI-promoted project company shall be entitled to the exemption or reduction of customs duty with respect to the importation of machinery.

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 and Acquisition of Immovable Property Act BE 2562 (2019) 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 the domestic laws mentioned earlier, Thailand is also a party to a number of trade or investment agreements, such as the Thailand–Australia Free Trade Agreement, which has provisions with respect to nationalisation or expropriation of the investment made by an Australian national. 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).

Law stated date

Give the date on which the information above is accurate.

23 June 2022