Outside looking in: A rundown of the regulations concerning foreign investment

Of the business bases in the ASEAN region, Thailand is well placed to attract substantial foreign direct investment. The Foreign Business Act of 1999 (FBA) directly governs foreign investment in the country. Under the FBA, foreign businesses are separated into two categories: legal entities not registered in Thailand and legal entities registered in Thailand that have the following characteristics.

  • Limited company or public limited company with 50% or more of its capital shares held by foreigners;
  • Registered ordinary partnership or limited partnership with 50% or more of its capital shares held by foreigners; and
  • Registered ordinary partnership or limited partnership having a foreigner as its managing partner or manager. The FBA reserves certain businesses for Thais only, with foreigners restricted from some activities. Three lists of business activities are specified in the act. List 1: Businesses not allowed to foreigners. Business activities falling under List 1 are strictly barred to foreigners. These activities include farming, forestry, antiques trading and broadcasting. List 2: Businesses allowed to foreigners under conditions. Foreigners can conduct the activities in List 2 when permission is granted by the minister of commerce and authorised by the Cabinet. Businesses in this list are related to national safety or security, arts and culture, traditional and folk handicrafts, national resources and the environment. However, foreigners cannot own 100% of the corporate capital shares, as the minimum Thai shareholder ratio required by the act applies. List 3: Businesses not yet allowed to foreigners. Foreign businesses covered by List 3 are prohibited unless permission is granted by the director-general of the Department of Business Development and approved by the Foreign Business Committee, in which cases the company can be 100% foreign-owned. Legal entities with a foreign characteristic must apply for a foreign business licence (FBL).

There are some exceptions to the requirement to apply for an FBL. The first is in the case of treaties between Thailand and other countries that grant citizens of these countries the right to set up a business. The second is the policies of the Thailand Board of Investment (BOI), and the third is the policies of the Industrial Estates Authority of Thailand (IEAT).

Applying for the FBL is a time-consuming and unpredictable process. Consequently, most foreigners decide to go for the investment promotion and privileges from the BOI or the IEAT instead.

The government established the BOI to attract more business enterprises by providing investment incentives for both foreign and local entrepreneurs to promoted categories of business.

Incentives

Different investment incentives and privileges shall apply to different operators, depending on the location of the business activity. The same business in different locations may be entitled to different promotions.

The most important privileges offered by the BOI for promoted business are tax privileges – such as corporate income tax exemptions, tariff exemptions or reductions on particular imported goods – and non-tax privileges, such as permission to own land, permission to bring foreign experts to work on the promoted business and so on.

Business incentives and privileges can be also granted by the IEAT. Factories located in industrial estates receive tax or non-tax privileges. A foreign entity that locates its factory outside the industrial estate waives the right to own land, unless it is a BOI-promoted company. According to the FBA, where the foreign business that is promoted under the investment promotion of the BOI or the IEAT is classified in List 2 or List 3, the foreign entity can only obtain a certificate by notifying the director-general of the Department of Business Development.

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The Report: Thailand 2014

Legal Framework chapter from The Report: Thailand 2014

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