knowledge and practical thai legal information

Business by non-Thai nationals

Foreigners operating a company business in Thailand

Thailand restricts and prohibits economical areas and business categories for foreigners primarily in the Foreign Business Act (A.D.1999). Under the Foreign Business Act (FBA) foreigners are prohibited from engaging in most business categories in Thailand, unless an alien business operation permit has been obtained from the Director-General of the Department of Commercial Registration with the approval of the Foreign Business Committee. Separate laws control foreign ownership of land as well as such activities as banking, insurance, finance and shipping.

  • Foreigners operating a business in Thailand
  • Thai companies and the Foreign Business Act

When it comes to the intent to operate a business as a foreigner in Thailand the approval requirement under the Foreign Business Act B.E. 2542 must be complied with. Foreigners can be granted a foreign business license for certain business categories (or may be granted an exemption based on a treaty or specific act (investment promotion)).

More information (external):

The Foreign Business Act in Thailand divides businesses into three categories:

List 1: Generally those businesses listed in list 1 are absolutely prohibited to foreigners unless there is an exemption contained in a special law or treaty.
List 2: Refers to businesses owned by foreigners that were in existence and actually operating prior to the enactment of the Foreign Business law. These businesses were permitted to apply for a special Alien Business license and to continue operating. Foreigners, however, are not permitted to start new businesses listed in this category unless they obtain special permission from the Minister with the approval of the Cabinet.
List 3: These businesses are treated in a manner similar to those in list 2 except that the power to grant an Alien Business License to foreigners who wish to start a new business is vested with the Director General and a committee. Exemptions are possible under the Treaty of Amity and Economic Relations between the Kingdom of Thailand and the United States of America. Also, the Board of Investment may grant exceptions for businesses covered by Lists 2 and 3.

Operating a business under a Thai company

As it is very complicated and often impossible to obtain a foreign business license most foreigners operate a business without a foreign business license or exemption even though these business categories are restricted or prohibited for foreigners. These foreigners have a work permit issued under a Thai company and operate their business through a Thai limited company. Thai company means under the current Foreign Business Act that half or more of the juristic person's shares are held by Thais. Foreigners are under the current FBA allowed to have majority voting rights and control in a Thai limited company through preference shares and weighted voting rights. The most popular form of business entity among foreign investors is therefore the private limited company.

A Thai company is not subject to the Alien Business Act and when a partly foreign owned Thai company is structured as majority Thai owned it is deemed that the business is operated by a Thai entity (not foreign/alien) and the company will in principle be regarded as a Thai company and therefore, as a Thai juristic person, the company will not be restricted by the Foreign Business Act.

Some foreigners invest in a Thai business or operate a Thai company with a Thai or foreign partner in the company, in such structures it is recomeded to specify in the articles of assocation (the user's manual of the company) the procedures, duties and authority of directors, such as procedures for the making of decisions and (limited) individual authority to manage and sign on behalf of the company.

Restrictions on the use of Thai nominee shareholders

By using Thai nominee shareholders and preference share structures foreigners have been able to circumvent foreign ownership and business restrictions through Thai limited companies. The use of preference shares issued to foreigners is allowed under the current Foreign Business Act, however the use of nominees by foreigners is and always has been illegal (sections 36 & 37 FBA).

A nominee under the foreign business act is a Thai person or Thai company registered as shareholder in the company but who holds the shares on behalf of the foreigner.

The (previous) government announced plans to close this loophole by amending the Foreign Business Act. The amendments would mean that Thai companies (i.e. majority Thai owned) controlled by foreigners would be deemed foreign companies and would require a foreign business license or would need to restructure and limit foreign control in the Thai company. The new law would not work retrospective but would affect existing companies as under the Civil and Commercial Code company directors must rotate yearly and must be re-elected. Under the new law (if these plans would become law) the company would make itself foreign by re-electing a foreigner as managing director.

Main proposed amendments to the Foreigner Business Act definition under section 4 (foreigner definition):

  • including foreign voting rights and control as a criterion in defining a company foreign (not passed)
  • issue a clearer definition of what constitutes a nominee (not issued)

Current regulations restricting the use of nominees

The bar on the use of Thai nominee shareholder lies in the foreigner definition in section 4 of the Foreign Business Act, foreigner means:

  • a juristic person registered in Thailand having half or more of its capital shares held by the person under (1), (2) or (3), or
  • a juristic person having the persons under (1), (2) or (3) investing with the value of half or more of its total capital.

Source of the capital

New regulations, the land office guidelines and business registration rules, continue on this principle and require in certain situations from the Thai shareholders in a partly foreign owned company evidence which shows the source of their funding. According to new rules the Thai shareholders in a company with foreign participation (company promoters) will be requested to submit evidence of financing used to hold shares, including bank statements and other documents.

The business registration rules do not determine the status of the Thai shareholders (nominee or not) and there is no guarantee that the Thai company would be immune from investigation at a later date, it must prevent the use of Thai nationals as nominees. If Thai nominee shareholders are used (section 36 and 37 Foreign Business Act) will be determined by a criminal investigation, declarations of the suspects involved, evidence submitted and finally by judgment of a court.

Most of the accounting and law offices in the tourist areas like Samui, Pattaya and Phuket aiming their services at foreigners circumvent the new regulations and are now setting up companies as 100% Thai owned or without foreign management and transfer the shares and company control to the foreigner after the formation and registration of the company. In practice this prevents only a first investigation when forming the company (anti-nominee regulations are circumvented). It does not protect the foreigner from any future checks and investigations, and if there is a breach with the Foreign Business Act or the company is set up as a real estate holding company the foreigner could be liable for severe penalties, criminal prosecution and removal of the company from the Registrar of Companies.

Land ownership

The Foreign Business Act (Minisrty of Commerce) absolutely prohibits foreigners from engaging in businesses concerning land and land development. Separate regulations applied by the Land Department control registration of land (real estate) on the name of a partly foreign owned Thai company

search thaicontracts