Foreign Business Act
The Foreign Business Act (FBA) B.E. 2542 (1999) is the primary law governing foreign investment in Thailand. It defines which business activities are restricted or regulated for foreign entities and establishes the process for obtaining the necessary approvals to conduct business. The FBA aims to protect local industries while promoting foreign investment in key sectors under specific conditions.
1. Definition of a Foreign Business
Under the FBA, a foreign company is defined as:
- A company registered outside Thailand.
- A Thai-registered company in which foreigners hold 50% or more of shares.
Foreign businesses must comply with FBA regulations unless they qualify for exemptions through Board of Investment (BOI) promotion, the Treaty of Amity (for U.S. investors), or other international agreements.
2. Restricted Business Activities
The FBA categorizes restricted activities into three lists, with different levels of foreign ownership restrictions.
2.1 List 1: Completely Prohibited to Foreigners
Foreign businesses cannot engage in these activities due to national security, cultural preservation, or strategic importance. Examples include:
- Media and newspaper publishing.
- Rice farming, livestock, and fishing.
- Land trading (except BOI-approved projects).
2.2 List 2: Restricted for National Interests
Foreign ownership is allowed only with Cabinet approval and requires at least 40% Thai shareholding. This includes:
- Industries affecting national security (e.g., aviation, telecommunications).
- Mining and large-scale infrastructure projects.
2.3 List 3: Restricted Unless a Foreign Business License (FBL) is Obtained
Foreigners can engage in these activities if they secure an FBL from the Ministry of Commerce. Examples include:
- Retail and wholesale trade.
- Construction services.
- Advertising and legal services.
3. Foreign Business License (FBL) Process
To operate a restricted business under List 3, foreign companies must apply for an FBL from the Department of Business Development (DBD).
3.1 Key Requirements for FBL Approval:
- Demonstrating economic benefits to Thailand.
- Providing technology transfer or expertise to Thai employees.
- Investing in infrastructure and contributing to national development.
Approval can take 3–6 months, and rejection is possible if local competition is significantly affected.
4. Exemptions from the Foreign Business Act
Certain foreign businesses are exempt from FBA restrictions under special agreements:
4.1 Board of Investment (BOI) Promotion
The BOI grants foreign companies exemptions from the FBA if they operate in targeted industries, such as:
- Advanced manufacturing.
- Technology and digital innovation.
- Green energy projects.
4.2 Treaty of Amity (For U.S. Businesses)
Under the U.S.-Thailand Treaty of Amity (1966), American companies can own 100% of businesses in most sectors, except for land ownership and restricted industries.
4.3 ASEAN Agreements
Under ASEAN frameworks, certain businesses from ASEAN member states enjoy relaxed ownership restrictions compared to non-ASEAN investors.
5. Penalties for Non-Compliance
Operating a restricted business without a proper license can result in:
- Fines of up to 1 million THB.
- Forced business closure.
- Deportation for foreign business owners violating the law.
6. Future Developments and Investment Trends
The Thai government periodically revises the FBA to attract investment while protecting local businesses. Recent trends include:
- Potential relaxation of foreign ownership rules in the retail sector.
- Easing restrictions in digital and technology-driven businesses.
- Encouraging foreign investment through tax incentives and BOI reforms.
Conclusion
The Foreign Business Act (FBA) plays a crucial role in regulating foreign investment in Thailand. While it restricts ownership in certain industries, foreign businesses can operate freely through BOI promotions, FBL applications, and treaty exemptions. Companies looking to establish operations in Thailand must carefully evaluate the legal framework and compliance requirements to ensure smooth business operations.