Foreign Business Act

The Foreign Business Act B.E. 2542 (1999) is the primary statute regulating foreign ownership and control of businesses in Thailand. It identifies economic sectors in which foreign participation is either restricted, prohibited, or conditionally permitted, and it establishes a licensing regime for foreigners seeking to operate in such sectors.

The FBA is not a general commercial law—it operates as a foreign ownership control instrument and interacts with company law, land law, and investment promotion frameworks such as the BOI (Board of Investment) and Treaty exemptions (e.g., US-Thailand Treaty of Amity).

II. Legal Definitions and Scope

A. Definition of “Foreign” Under the FBA

Section 4 of the FBA defines a foreigner as:

1. A natural person who is not a Thai national

2. A juristic person not registered in Thailand

3. A juristic person registered in Thailand with foreign shareholding of 50% or more, or where foreigners control a majority of voting rights or board representation

This control test includes both direct and indirect ownership or control (i.e., through nominees or layered structures).

III. Restricted Business Activities

The FBA categorizes restricted activities into three annexes (Lists 1–3), each carrying different levels of restriction:

Examples:

• List 1: Land trading, farming, religious work

• List 2: Weapons manufacturing, media, mining

• List 3: Wholesale/retail, construction, services (general), hotels (excluding management)

IV. Licensing and Exemptions

A. Foreign Business License (FBL)

Foreigners wishing to operate in a List 3 activity must apply for an FBL from the Department of Business Development (DBD). Requirements include:

• Capitalization of at least THB 3 million per activity

• Business justification showing non-competition with local SMEs

• Presentation of benefits to Thailand, including technology transfer, employment, or environmental protection

The FBL process is discretionary and can take several months. It is not automatically granted even if legal requirements are met.

B. Exemptions to the FBA

1. BOI Promotion

• Activities promoted under the Investment Promotion Act B.E. 2520 are exempt from FBA licensing

• The BOI may allow 100% foreign ownership even in restricted sectors

• BOI certificates must be obtained before applying for business registration

2. Treaty Exemptions

• US Treaty of Amity: Allows American citizens and companies to operate most businesses in Thailand with majority ownership, excluding national security and natural resource sectors

• ASEAN Framework: Gradual liberalization under AEC (ASEAN Economic Community) applies selectively

3. Industrial Estates and IEAT

• The Industrial Estate Authority of Thailand (IEAT) allows foreign companies in designated zones to operate with relaxed foreign ownership restrictions, subject to zone-specific regulations

V. Capital and Compliance Requirements

Capital must be fully paid up within prescribed time limits (often 3 years) and may not be artificial or round-tripped from Thai sources.

VI. Enforcement and Nominee Structures

A. Nominee Prohibitions

Section 36 of the FBA prohibits the use of Thai nationals or entities as nominees to hold shares on behalf of foreigners. Violations include:

• Using Thai shareholders who do not fund their own share capital

• Creating agreements to transfer beneficial ownership without registration

• Utilizing layered corporate structures to hide foreign control

Violations may result in:

• Revocation of license or company registration

• Criminal penalties: up to 3 years’ imprisonment and/or fines up to THB 1 million

• Asset seizure and deportation orders

The Ministry of Commerce has enforcement powers and collaborates with the Department of Special Investigation (DSI) in nominee cases.

VII. FBA in Mergers and Acquisitions

Foreign investors must analyze FBA implications during equity acquisitions, especially if the target:

• Operates in a restricted sector

• Has a Thai nominee structure or unlicensed foreign shareholder

• Holds BOI or IEAT privileges that do not transfer automatically upon acquisition

Due diligence must include:

• Review of Articles of Association

• Shareholder registers and funding records

• Verification of director control and voting rights

If control shifts to foreign hands post-acquisition, an FBL or exemption must be sought proactively, or the company risks falling into non-compliance.

VIII. Recent Developments and Policy Trends

• The Thai government has periodically proposed amendments to liberalize List 3 (e.g., services, consulting), but no major structural changes have been passed since 1999.

• In 2023–2024, scrutiny of digital platforms and foreign online services has increased, with DBD clarifying that certain e-commerce platforms may require FBLs if foreign-owned.

• Foreign land ownership for investment remains restricted despite proposals, and is not governed under the FBA but under the Land Code B.E. 2497.

IX. Conclusion

The Foreign Business Act remains a cornerstone of Thailand’s economic sovereignty policy, protecting certain industries from foreign control while permitting limited access through licensing and promotion regimes. Foreign investors must:

• Understand the classification of their proposed activity

• Determine whether an FBL, BOI promotion, or treaty exemption applies

• Avoid nominee structures and undisclosed control arrangements

• Ensure ongoing corporate and capital compliance

Failure to adhere to the FBA can result in criminal liability, reputational damage, and revocation of business rights.