Will the Foreign Business Act in Thailand get amended?
In recent weeks there have been several articles in Bangkok’s English language press on the possibility of an amendment to the Foreign Business Act Thailand. The foreign business and investor community in Thailand is concerned that any such amendment will further restrict foreign business activity in Thailand while the Thai government is under pressure, in a far from booming economy and with the AEC just around the corner, to protect Thai businesses and is at pains to point out that any changes in the law will be carried out with the purpose of transparency and greater efficiency.
On balance the reporting would suggest that some changes to the Act will be made and that these changes are likely to take effect early next year. The new government will have a difficult path to tread between protecting Thai interests and encouraging greater foreign investment, with Thailand slowly recovering from several years of political instability and the world coming to terms with the country’s new military government.
What exactly is the Foreign Business Act?
Well it was a law passed in 1999 by the then government led by Chuan Leekpai to regulate the business activity of foreign nationals and business entities in Thailand, restricting their ownership (with limited exceptions) of companies operating in certain Thai industries. Foreign business entities being defined as jurisitc person in which more than half the shares are held by foreign nationals. The Foreign Buisness Act 1999 supplanted the Alien Business Act 1972.
The names of the restricted industries is contained in three lists. The list of industries is quite broad, especially list 3, which also states that foreigners who provide a service that is not listed must still obtain a foreign business licence prior to commencing operations
For a list of restricted industries reserved for Thai persons and juristic persons please see the end of this article.
The Act makes it illegal for any Thai to act as a nominee and hold shares on behalf of a foreigner thus enabling the foreigner to conduct business in a restricted industry. However, the law also provides a loophole which permits foreign controlled businesses to operate in the country by allowing the issuance of classes of shares with differing voting rights and/or allowing foreigners to make up a majority on the board of directors . Such structures have until now been accepted by the Ministry of Commerce and can result in instances where a company may appear ‘local’ even though non locals control it.
This would not be the first time that a Thai government has sought to amend the legislation. In 2006/2007 a proposal to amend the Foreign Business Act was accepted by the then cabinet but as it was not approved by The Council of State it did not become law. The proposal sought to extend the definition of a foreign company to include any company where Thais did not hold a majority of the voting rights, This would have had the affect of closing the loophole used by many foreigners to effectively control a Thai company.
The current discussion in the press has raised the same concerns amongst the foreign business and investment community as in 2006/7 though the Commerce ministry has attempted to assure them that any revision to the Act would not make it any more difficult for them to operate in Thailand. It has been reported that if the Commerce ministry were to proceed with an amendment of the Act, which is expected, it would do so not in a way that would hinder foreign investment, but with a view to facilitate further foreign investment through investment promotion and the simplification of procedures – a reduction of ‘red tape’.
With the ASEAN Economic Community due to be introduced in 2015, the consensus appears to be that there is going to be more competition in the region with greater economic liberalization of member countries. It is understood that ASEAN companies will be permitted to own up to 70% of another ASEAN company. It is hard to equate that with a possible tightening of the regulations within the Foreign Business Act in Thailand.
In any event it will be interesting to observe what transpires over the coming months.
Do you have a business in Thailand or are you contemplating starting one? Contact the Sutlet Group now to see how your business is or might be impacted.
Restricted Business Activities under the Foreign Business Act of 1999
Source BOI, Thailand
List 1 – Businesses that foreigners are not permitted to engage in for special reasons:
- Newspaper business, radio-broadcasting station or radio/television business.
- Farming, cultivation or horticulture.
- Animal husbandry.
- Forestry and timber conversion from natural forests.
- Fisheries, especially fishing in Thai territorial waters and in specific economic areas of Thailand.
- Extracting Thai herbs.
- Trade and auction sale of Thai antiques or objects of historical value.
- Making or casting Buddha images and alms bowls.
- Trading in land.
List 2 – Businesses concerning national security or safety that could have an adverse effect on art and culture, customs, or native manufacture/handicrafts, or with an impact on natural resources and the environment:
Group 1 – Businesses concerning national security or safety
- Manufacturing, distribution, repair or maintenance of:
- Firearms, ammunition, gunpowder, and explosive materials.
- Components of firearms, ammunition, and explosive materials.
- Armaments, ships, aircraft, or military vehicles.
- Equipment, or parts of any type of war equipment.
- Domestic land, water, or air transportation, including domestic aviation.
Group 2 – Businesses that could have an adverse effect on arts and culture, customs, and native manufacturing/handicrafts
- Trading of antiques or artefacts that are Thai works of art or Thai handicrafts.
- Wood carving.
- Silkworm rearing, manufacture of Thai silk, Thai silk weaving, or Thai silk printing.
- Manufacturing of Thai musical instruments.
- Manufacturing of gold-ware, silverware, nielloware, bronzeware, or lacquerware.
- Making bowls or earthenware which are of Thai art and culture.
Group 3 – Businesses that could have an adverse effect on natural resources or the environment
- Manufacturing of sugar from cane.
- Salt farming, including rock salt farming.
- Mining of rock salt.
- Mining, including stone quarrying or crushing.
- Timber processing for making furniture and utilities.
List 3 – Businesses in which Thais are not ready to compete in undertakings with foreigners:
- Rice milling and flour production from rice and plants.
- Fisheries, specifically breeding of aquatic creatures.
- Forestry from re-planting.
- Production of plywood, veneer, chipboard or hardboard.
- Production of lime.
- Legal services.
- Construction, except:
- Construction of infrastructure in public utilities or communications requiring tools, technology or expertise in such construction, except where the minimum foreign capital is 500 million baht or more.
- Other construction, as prescribed in regulations.
- Agency or brokerage, except:
- Brokerage or agency of securities or service related to future agricultural commodities futures or financial instruments or securities.
- Brokerage or agency for the purchase/sale or procurement of goods or services necessary to production or providing services to affiliated enterprises.
- Brokerage or agency for the purchase or sale, distribution or procurement of markets, both domestic and overseas for the distribution of products made in Thailand, or imported from overseas in the category of international business, with minimum foreign capital of not less than 100 million baht or more.
- Other brokerage or agency activities, as stipulated in ministerial regulations.
- Auctioneering, except:
- Auctioneering in the manner of international bidding, not being auctions of antiques, ancient objects or artifacts that are Thai works of art, Thai handicrafts or antique objects, or with Thai historical value.
- Other types of auctioneering, as stipulated in ministerial regulations.
- Domestic trade in local agricultural products not prohibited by law.
- Retailing all categories of goods having of less than 100 million baht capital in total or having the minimum capital of each shop of less than 20 million baht.
- Wholesaling, all categories of goods having minimum capital of each shop less than 100 million baht.
- Hotel operation, excluding hotel management.
- Sale of food and beverages.
- Planting and culture of plants.
- Other services, except those prescribed in the ministerial regulations.