Procedure

Jurisdictional thresholds

What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

The main factors that subject an entity to the foreign investment restriction are its foreign shareholding and the type of business activities in which it is to be engaged. In terms of the FBA, if foreigners hold at least 50 per cent of the total shares in the company which is to engage in the FBA-restricted business activity, such company would be required to obtain the foreign business licence or foreign business certificate (see question 9) before commencing the FBA-restricted business activity in Thailand.

National interest clearance

What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

In the case where a foreigner under the FBA wishes to engage in the business activities listed in List Two of the FBA, it would be required to obtain a prior permission of the Minister of Commerce, with the approval of the Cabinet. On the other hand, in the case where a foreigner under the FBA wishes to engage in the business activities listed in List Three of the FBA, it would be required to obtain prior permission from the Director-General of the Department of Business Development, at the Ministry of Commerce (DBD), with the approval of the Foreign Business Committee. These permissions and approvals are generally referred to as the ‘foreign business licence’.

If a foreigner is granted, among others, an investment promotion from the BOI or a permit to operate its business in the industrial estate regulated by the IEAT (see question 11), it would be eligible to obtain the foreign business certificate for the operation of the FBA-restricted business instead of the foreign business licence. In general, obtaining the foreign business certificate would be simpler and often faster than the foreign business licence. In the case of the foreign business certificate, the authority is bound to issue the certificate if the applicant satisfies the qualification requirement. On the other hand, in the case of the foreign business licence, the authority is empowered to exercise its discretion whether to grant the licence or not.

To apply for the foreign business licence or foreign business certificate, the applicant needs to submit the application, together with supporting documents such as the applicant’s company affidavit and identification document of the applicant’s representative in Thailand, to the DBD. The fee for the application is generally 2,000 baht while the fee for the licence generally ranges from 40,000 baht to 500,000 baht, depending on the type of applicant, (ie, natural or juristic person), type of the licence and registered capital of the applicant (if applicable).

Which party is responsible for securing approval?

The foreign target company wishing to engage in the FBA-restricted business activities in Thailand would be responsible for securing the foreign business licence or foreign business certificate, as the case may be.

Review process

How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

The timelines for obtaining the foreign business licence and foreign business certificate depend largely on the completion of the required documents and workload of the responsible officials. The entire process for applying for the foreign business licence may take between three months and one year while it may take from two to six months in the case of obtaining the foreign business certificate. In either case, the ‘fast-track’ option is not available to the applicants.

Exemptions from the requirement for the foreign business licence are available for the business operators who, among others, obtain an investment promotion from the BOI or permission to operate their businesses in the industrial park from the IEAT. In addition, investors from a country having entered into a treaty with Thailand, such as the Treaty of Amity and Economic Relations between Thailand and the United States, may be eligible for the exemption if they satisfy the qualification requirement (eg, the majority shareholders are US citizens) and do not operate the Treaty-restricted businesses (eg, inland transportation and banking involving depository functions). The applicants who fall within any of the exemptions from the foreign business licence may simply apply for the foreign business certificate, the issuance of which does not involve the exercise of discretion by the officials.

Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

The unique point of the foreign business licence and foreign business certificate is that they are obtainable only by a foreigner under the FBA. Therefore, there will always be a time gap from the company incorporation or share acquisition which renders the target company being deemed as a ‘foreigner’ under the FBA until the receipt of the foreign business licence or foreign business certificate, during which the company will be barred by the FBA from engaging in the FBA-restricted business activities. In Thai market practice, in order to mitigate the risk of FBA violation, the parties may set forth a condition precedent in the joint venture or share purchase agreement that the approval in principle (ie, provisional approval) be obtained from the DBD prior to the closing of the underlying transaction.

In the case of the FIBA, if a foreigner wishes to hold more than 25 per cent but not more than 49 per cent of the total number of issued shares with voting rights of a financial institution, such foreigner would need to obtain a prior permission from the Bank of Thailand. If it wishes to hold more than 49 per cent shares, it would need to obtain a prior permission from the Minister of Finance with the advice from the Bank of Thailand. Unlike the foreign business certificate and foreign business licence, these permissions under the FIBA can be obtained by the prospective foreign shareholder before its acquisition of shares in the financial institution that reaches the foreign restriction threshold mentioned above.

Involvement of authorities

Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

In Thai market practice, the investors may seek prior consultation with the authority or submit a request for a ruling of the DBD prior to engaging in questionable business activities in Thailand. The request for a ruling should elaborate the shareholding structure of the operating company as well as all activities to be engaged in by the operating company. The request may be submitted under the operating company’s name or under the name of other relevant person, such as the operating company’s representative or legal adviser. The rulings are generally issued within one to two months from submission, depending mainly on the workload of the officials.

When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

There is no such lawful informal procedures to facilitate or expedite the process to obtain the foreign business licence and foreign business certificate. The timelines for obtaining the foreign business licence and foreign business certificate depend largely on the completion of the required documents submitted to the authority and workload of the responsible officials.

What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

The FBA does not empower the Ministry of Commerce to challenge the legality of the foreign business licence or foreign business certificate that has already been issued to the business operator. However, in the case where the business operator violates certain provisions of the FBA (eg, engaging in the FBA-restricted business with another foreigner who does not have the requisite permit under the FBA so as to allow such foreigner to circumvent the FBA restriction), the Director-General of the DBD would be entitled to revoke the foreign business licence or foreign business certificate of such business operator.

In this regard, the holders of the foreign business licence or foreign business certificate should be mindful that, after receiving the respective licence or certificate, they would be subject to the following post-closing obligations:

  • display the foreign business licence or foreign business certificate at the place of business operation;
  • bring in the minimum capital investment to Thailand within the specified time frame (eg, if the holders are to operate the FBA-restricted for three years or more, 100 per cent of the minimum capital shall be brought into Thailand within three years);
  • maintain the loan-to-capital ratio of 7:1 at minimum;
  • report any business discontinuance, office relocation, change in local representative, change in the holders’ name and new branch to the Ministry of Commerce;
  • submit the report on business operation result and technology or know-how transfer to the Ministry of Commerce;
  • have at least one representative reside in Thailand; and
  • submit the financial statements within five months from the end of each financial year.

Failure to comply with the post-closing obligations may result in punishment under the FBA, and thereby revocation of the foreign business licence or foreign business certificate, at the discretion of the director-general of the DBD or the Minister of Commerce, as the case may be.