Policies Towards Foreign Direct Investment
Despite the May 2014 coup and continued rule by an interim military-led government, Thailand continues to maintain an open and market-oriented economy, encouraging FDI as a means of promoting economic development, employment, and technology transfer. In recent decades, Thailand has been a major destination for FDI, and hundreds of U.S. companies have successfully invested in the Thai economy. The country continues to welcome investment from all countries and seeks to avoid dependence on any one country as a source of investment. Economic growth, which slowed after the coup, has recovered to some extent in 2016-17, but structural factors in the economy remain a challenge to long-term growth. Many companies are also carefully considering market factors, including the country’s declining competitiveness relative to other countries in the region, when making future investment decisions.
In the wake of the 1997-98 Asian Financial Crisis, Thailand embarked on an International Monetary Fund (IMF)-sponsored economic reform program designed to foster a more competitive and transparent climate for foreign investors. Legislation in 1999 established a new bankruptcy court, reformed bankruptcy and foreclosure procedures, and allowed creditors to pursue payment from loan guarantors. Other 1999 reforms include amendments to the Land Code, Condominium Act, and the Property Leasing Act, all of which liberalized restrictions on property ownership by non-Thais, and passage of the Foreign Business Act (FBA).
Foreign companies are free to open and maintain bank accounts in foreign currency. However, Thailand retains, to some extent, investment control, as under certain circumstances, foreign investors that were previously granted national treatment are subject to some reservations, particularly in the service sector.
Limits on Foreign Control and Right to Private Ownership and Establishment
According to the Foreign Business Act 1999 (FBA), certain types of business activities are reserved for Thai nationals only. Foreign investment in those businesses must comprise less than 50 percent of share capital, unless specially permitted or otherwise exempt. While there have been some changes to List 3, there are no amendments to the FBA planned.
The following three lists, attached as annexes to the FBA, detail restricted businesses for foreigners:
List 1. This contains activities prohibited to non-nationals, including:
- Newspaper or radio broadcasting stations and radio and television station businesses
- Rice farming and growing plantations or crops
- Livestock farming
- Forestry and timber processing from a natural forest
- Fishery in Thai territorial waters and specific economic zones
- Extraction of Thai medicinal herbs
- Trading and auctioning of antique objects or objects of historical value from Thailand
- Making or casting of Buddha images and monk alms bowls
- Land trading
List 2. This contains activities related to national safety or security, or those which affect arts and culture, tradition, folk handicrafts, or natural resources and the environment. Among other things, they include:
- The production, sale and maintenance of firearms and armaments.
- Domestic transportation by land, water, and air.
- Trading of Thai antiques or art objects.
- Mining, including rock blasting and rock crushing.
- Timber processing for production of furniture and utensils.
Note: A foreign majority-owned company can engage in List 2 activities if Thai nationals or legal persons hold not less than 40 percent of the total shares and the number of Thai directors is not less than two-fifths of the total number of directors.
Exceptions are those which receive:
- Permission from the Minister of Commerce with approval by the Cabinet (if there is a reasonable cause, the Minister, with the approval of the Cabinet, may reduce the Thai shareholding requirement, which cannot be less than 25 percent of the total shares)
- Investment promotion from the Board of Investment
- Authorization by the Industrial Estate Authority of Thailand
- Permission under a treaty to which Thailand is bound
List 3. This contains activities in which there are economic protections for Thai nationals. Among other things, they include:
- Accounting, legal, architectural, or engineering services
- Retail and wholesale
- Advertising businesses
- Guided touring
- Selling food or beverages
- Any kind of service business
There are exceptions to List 3 for those which receive the following:
Permission from the Director-General of the Department of Business Development at the Ministry of Commerce, with approval by the Foreign Business Committee, on obtaining a Foreign Business License.
Investment promotion from the Board of Investment or from the Industrial Estate Authority of Thailand, on obtaining a Foreign Business Certificate from the Director-General of the Department of Business Development at the Ministry of Commerce.
Protection under a treaty or obligation to which Thailand is bound, including: US Treaty of Amity and Economic Relations; Thai-Australia Free Trade Agreement (TAFTA); Japan-Thailand Economic Partnership Agreement (JTEPA); and ASEAN Framework Agreement on Services (AFAS), on obtaining a Foreign Business Certificate from the Director-General of the Department of Business Development at the Ministry of Commerce.
Further restrictions on foreign ownership in specific sectors, such as telecommunications, banking, or insurance, are regulated in specific laws pertaining to these sectors, such as the Telecommunications Business Act (2006), the Financial Institution Business Act (2008), the Life Insurance Act (1992), and the Non-Life Insurance Act (1992).
The U.S.-Thai Treaty of Amity and Economic Relations of 1833, commonly referred to as the Treaty of Amity, is a special economic relationship between the U.S. and the Thailand that gives special rights and benefits to U.S. citizens who wish to establish their businesses in Thailand. The Treaty of Amity was amended in 1966 and provides two major benefits:
American companies are permitted to maintain a majority shareholding or to wholly own its company, branch office, or representative office located in Thailand.
American companies receive national treatment, meaning U.S. firms may engage in business on the same basis as Thai companies, and are exempt from most of the restrictions on foreign investment imposed by the Alien Business Law of 1972.
Despite the Treaty of Amity, there are still certain restrictions on U.S. investment as follows:
- Land ownership
- Engaging in inland transportation and communication industries
- Engaging in fiduciary functions
- Engaging in banking involving depository functions
- Engaging in domestic trade in indigenous agricultural products
- Exploiting land or other natural resources
The U.S. Commercial Service, which operates from the U.S. Embassy Bangkok, is responsible for issuing a certification letter to confirm that the U.S. business applicant is qualified to apply for protection under the Treaty of Amity. The applicant must first obtain documents verifying that the company has been registered in compliance with Thai Law. Upon receipt of the required documents, the U.S. Commercial Service office will then certify to the Foreign Administration Division, Department of Business Development, Ministry of Commerce that the applicant is seeking to register an American-owned and managed company or that the applicant is an American citizen and is therefore entitled to national treatment under the provisions of the Treaty. For more information on how to apply for protection under the Treaty of Amity, please e-mail: firstname.lastname@example.org.
Other Investment Policy Reviews
The World Trade Organization (WTO) conducted a Trade Policy Review of Thailand in November 2015. Information is available on the WTO website .
Any entity wishing to do business in Thailand must register with the Department of Business Development at the Ministry of Commerce, which generally takes three to six months to complete. Online business registration is only minimally functional and the forms are in Thai; therefore, foreigners typically hire a local law firm or consulting firm to handle their applications. Firms engaging in production activities need to register with the Ministries of Industry and Labor and Social Welfare. The majority of the manufacturing activities do not restrict foreign ownership. The World Bank’s 2016 Ease of Doing Business Report ranks Thailand 18 of 190 countries globally for the ease of Registering a Business. The process takes at least 25 days and includes five separate procedures.
If the entity non-Thai national and wishes to operate restricted businesses as defined by the Foreign Business Act, it must obtain a foreign business license, which must be approved by the Council of Ministers (Cabinet) or Director-General of Department of Business Development at the Ministry of Commerce, depending on the applicable category of restricted business.
Effective February 11, 2016, the Department Business Development (DBD) of the Ministry of Commerce removed four categories from the List 3 of the Foreign Business Act: commercial banking, bank representative offices, life insurance, and property and casualty insurance. Businesses in these sectors will no longer have to seek operating licenses from the DBD, as they are subject to specific banking laws and regulations of the Bank of Thailand and the Office of Insurance Commission, respectively. The aim is to reduce the number of redundant laws and regulations and to promote foreign businesses in Thailand.
American investors who wish to take majority shares or wholly own businesses under the Annex 3 list of the Foreign Business Act, may apply for protection under the U.S.-Thai Treaty of Amity. For more information, visit the U.S. Commercial Service’s website .
Prospective U.S. investors are advised to obtain qualified legal advice. Such advice is particularly important given that Thai business regulations are governed predominantly by criminal, not civil, law. While foreigners are rarely jailed for improper business activities, violation of Thai business regulations can carry heavy criminal penalties. Thailand has an independent judiciary and government authorities are generally not permitted to interfere in the court system once a case is in process.
Below are the main types of business structures that are set up by U.S. companies in Thailand:
- Partnership: Thai and Western concepts of partnership are broadly similar. Thailand provides for three general types of partnerships: unregistered ordinary partnerships, registered ordinary partnerships and limited partnerships.
- Limited companies: There are two types of limited companies; private companies, which are governed by the Civil and Commercial Code, and public companies, which are governed by the Public Company Act.
- Private Limited Companies: A private limited company is formed through a process which leads to the registration of a Memorandum of Association (Articles of Incorporation) and Articles of Association (By-laws), as its constitutive documents – a process similar to that of Western corporations. A minimum of seven shareholders is required at all times. A private limited company may be wholly owned by aliens; however, in those activities reserved for Thai nationals, foreign participation is generally allowed up to a maximum of 49 percent. The registration fee for a private limited company is 5,500 baht per million baht of capital, or approximately $157 per $28,571 of capital.
- Public Limited Companies: These companies, subject to compliance with the prospectus, approval, and other requirements, may offer shares, debentures and warrants to the public, and may apply to have their securities listed on the Stock Exchange of Thailand (SET). A minimum of 15 promoters is required for the formation and registration of the memorandum of association of a public limited company, and the promoters must hold their shares for a minimum of two years before they can be transferred. The Board of Directors of a public limited company must have a minimum of five members, at least half of whom are Thai nationals. The registration fee is 2,000 baht per million baht of capital (approximately $35 per $28,571 of capital) for a public limited company.
- Joint Venture: A joint venture may be described in accordance with general practice as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together. It has not yet been recognized as a legal entity under the Civil and Commercial Code. However, income from a joint venture is subject to corporate taxation under the Revenue Code, which classifies it as a single entity.
Representative Office: A representative office is limited to engaging in non-profit activities. In order to form a representative office, at least one of the following purposes would need to be sought for the purposes of limited “non-trading” activities:
- To search for a source of goods or services in Thailand for the headquarters overseas
- To check the quality and quantity of a product ordered by the headquarters overseas
- To give advice to headquarters about goods to order
- To supply information about headquarters’ products to customers in Thailand
- To report economic movement in Thailand to headquarters
Steps to Establishing a Company
- Step 1: Corporate Name Reservation
The name must be reserved, and must not be the same as or similar to that of other companies. Certain names are not allowed, as detailed in the name reservation guidelines issued by the Business Development Office of the Ministry of Commerce. The approved corporate name is valid for 30 days. No extension is allowed.
- Step 2: Filing of Memorandum of Association
A Memorandum of Association to be filed with the Business Development Office must include the name of the company that has been successfully reserved, the province where the company will be located, its business objectives, the capital to be registered, and the names of the seven promoters. The capital information must include the number of shares and the par value. Although there are no minimum capital requirements, the amount of capital should be respectable and adequate for the intended business operation.
- Step 3: Convene a Statutory Meeting
Once the share structure has been defined, a statutory meeting is called, during which the articles of incorporation and bylaws are approved, the Board of Directors is elected, and an auditor appointed. A minimum of 25 percent of the par value of each subscribed share must be paid.
Within three months of the date of the Statutory Meeting, the directors must submit an application to establish the company. Company registration fees are 500 baht per 100,000 baht of registered capital. The minimum fee is 5,000 baht; the maximum is 250,000 baht.
Businesses liable for income tax must obtain a tax I.D. card and number for the company from the Revenue Department within 60 days of incorporation or the start of operations. Business operators earning more than 600,000 baht per annum must register for VAT within 30 days of the date they reach 600,000 baht in sales.
For a private or public limited company, if 50 percent or more of the company’s shares are owned by a foreigner, the company will be considered foreign and subject to the Foreign Business Act, which prohibits the operation of certain business activities unless approvals are obtained from the Ministry of Commerce (MOC). Foreign investors usually carry on business through a limited company, branch or representative office.
The most frequently utilized type of legal entity in Thailand is the limited-company, which is similar in structure to the Limited Liability Company (LLC) in the United States. A limited-company is owned by a minimum of three shareholders and managed by at least one director. It has the advantage of being a stand-alone company under Thai law.
As for company registration in Thailand, it is important to be aware that at least 51 percent of a company’s shares must be held by Thai citizens, except as allowed by the aforementioned Treaty of Amity. The remaining shares may be held by foreigners. In spite of this, it is still possible for a foreigner to maintain controlling interest in a company by issuing two separate classes of shares: ordinary and preferred. Shareholders with ordinary shares have more voting rights in the company. At least one director is chosen by the shareholders. Only the director(s) is authorized to sign anything on behalf of the company, and individual shareholders are only liable for their percentage of shares.
A company is required to have registered capital of two million Thai baht per foreign employee in order to obtain work permits. For example, a company with two non-Thai employees is required to have a registered capital of at least four million Thai baht (approximately USD $116,600). Foreign employees must enter on a non-immigrant visa and then submit work permit applications directly to the Department of Labor. Application processing takes approximately one week.
For more information on Thailand visas, please refer to the website of Ministry of Foreign Affairs.
According to the Institute for Small and Medium Enterprises Development of the Ministry of Industry, small and medium enterprises are defined as follows:
Production and Service Sectors:
Medium: fixed assets not over 200 million Thai Baht (approximately USD $5.8 million); fewer than 200 employees
Small: fixed assets not over 50 million Thai Baht (approximately USD $1.45 million); fewer than 200 employees
Wholesale: fixed assets not over 100 million Thai Baht (approximately USD $2.91 million); fewer than 50 employees
Retail: value of fixed assets not over 60 million Thai Baht (approximately USD $1.74 million); fewer than 50 employees
Wholesale: fixed assets not over 50 million Thai Baht (approximately USD $1.45 million); fewer than 25 employees
Retail: fixed assets not over 30 million Thai Baht (approximately USD $875,000); fewer than 15 employees
In an effort to narrow the gap between SMEs and large corporations, Thai government agencies give certain incentives, such as tax breaks, to SMEs with Thai majority shareholding and large corporations that assist them with services such as loans or accounting advice.
Thai companies have been successfully expanding and investing overseas, including in the U.S., but especially in neighboring countries such as Laos. The responsibility for promoting outward investment within the Thai government is currently split between the Board of Investment and the Ministry of Commerce’s Department of International Trade Promotion (DITP), with the BOI focusing on outward investment in major countries, and the DITP covering the rest. There is discussion of possibly dividing responsibilities along manufacturing and non-manufacturing lines in the future.