Restrictions and exceptions
Foreign Business Operations Act
Economic activity and market access by foreign companies in Thailand is regulated. The freedom to set up a company or office is not complete, and is restricted through a series of limitations on the establishment of foreign companies. The restrictions were codified for the first time in the Alien Business Law of 1972, which subsequently became known as the Foreign Business Operations Act of 1999. The act is applicable "to all natural persons not of Thai nationality, and all juristic persons whose company shareholding is at least 50% foreign."
It is important to note that the interim government that came into power in September 2006 is presently reviewing this Act with a view to making the rules more foreign investor-friendly. Please consult EUROPEAN LAW ASSOCIATES about these latest changes.
An exception to the rule requiring Thai majority shareholding applies to American companies, and domestic Thai corporations majority-owned by American citizens. This exception is the result of an agreement known as the Thai-U.S. Treaty of Amity (1966). American companies were thereby granted exemptions from some of the restrictions of the Foreign Business Operations Act. However, because of more recent World Trade Organization rules prohibiting the granting of such special national privileges, the Treaty has been formally abrogated, and many of the privileges are expected to appear in a new free-trade agreement (FTA) the Thai and US governments are presently discussing.
The special privileges granted to US citizens and companies are being extended by both governments on a quarterly basis, so please check with EUROPEAN LAW ASSOCIATES about the current status of these privileges and the related FTA negotiations.
The Foreign Business Operations Act lists types of business activity which are restricted in some way to non-Thais. These types of business are listed in three annexes of the legislation.
Annex One
contains a list of activities which are generally “for particular reasons” closed to foreign investors. Exceptions under this annex are not available under any circumstances. Annex one applies to companies engaged in operations in the following sectors:
- Operation of a newspaper;
- Television or radio broadcasting;
- Agriculture;
- Trading in Land
- Exploitation of natural resources with particular regard to forestry and fisheries;
- Trade, involving religious artifacts (e.g. Buddha images), Thai antiquities and objects of historical value.
Annex Two
defines activities which should be closed to foreign investment involving the following:
- National security;
- Cultural traditions of the Thai people;
- Preservation of Thailand's natural resources and environment;
- Weapons technology;
- Transport;
- Production of certain types of handicrafts and works of art;
- Exploitation of mineral and marine resources.
However, unlike Annex One, it is possible to apply for permission to engage in an activity listed in Annex Two. Application can be made to the Ministry of Commerce, and final approval must be granted by the Thai Cabinet for such commercial activities. Permission is more easily obtained for foreign companies granted investment privileges by Thailand's Board of Investment (BoI), and those set up under terms of the Thai-US Treaty of Amity. It is also possible for companies who are situated in approved Industrial Estates to apply for exemptions. In effect, Board of Investment status, or location on an Industrial Estate, lends strong support to applicants for exemption under this Act.
Annex Three
includes business sectors in which "Thais are still not ready for competition with foreigners". Essentially, Annex Three is concerned with:
- The construction industry (with the notable exception of large scale infrastructure projects);
- Most of the professional occupations, e.g., chartered accountancy, the practice of law, architecture, engineering, and brokerage services;
- Tourism; hotel-keeping;
- Wholesale trade (with a capitalization below THB 100 Million);
- Retail trade (capitalized below THB 10 Million).
Land use connected to forestry- or agriculture-related functions is also proscribed under Annex Three.
The third annex list is not exhaustive, and significantly includes a catch-all "other services" proscription. Effectively, all services not expressly stated remain subject to Annex Three restrictions. As is the case with Annex Two, exceptional permission can be granted by the Ministry of Commerce: its Foreign Business Board can grant permission to a foreign company to operate in Thailand in some instances.
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