The Thai Civil and Commercial Code does not make any distinction between Thai and foreign shareholders. As a result, foreigners can freely register a company in Thailand without any Thai partner. However, there are some restrictions on the business activities that can be carried out in Thailand by foreigners under the Foreign Business Act B.E. 2542 (1999) (FBA). This is notably the case for most services activities that are restricted under the list 3 of the FBA. On the other hand, the Board of Investment allows up to 100% foreign ownership in companies investing in business activities that are deemed important for the development of Thailand.
You can reach out to us to know more about full foreign ownership of your company in Thailand.
Restriction under the Foreign Business Act
The FBA contains 3 lists of business activities that are prohibited (list 1) or restricted to foreign owned companies (list 2 and 3). Business activities in the list 2 or 3 require the foreign-owned company to obtain a Foreign Business License. The difficulty and associated costs with the obtaining of a Foreign Business License have been pushing foreigners to enter into a Joint Venture with a local partner.
Obtaining a Foreign Business License (FBL)
When applying for a FBL, the foreign company must be able to demonstrate that it will bring know-how and train local employees to develop new skills. The process takes around 6 months with numerous back-and-forth questions from the authorities. The approval is made on a discretionary basis.
Setting-up a Joint Venture with a Thai partner
A foreigner is defined under the FBA as a company where half or more of the share capital is held by foreign shareholders (see below). As a consequence, a company where Thai shareholders hold 50% or more of the shares is deemed a Thai company and is not subject to the restrictions of the FBA (Thai company). It should be noted that the definition of a foreign company takes into account the ownership of the capital and not the control of the company (see below).
100% foreign ownership for companies promoted by the Board of Investment
A number of business activities that are deemed important for the development of Thailand such as factories, electronics, pharmaceuticals, regional financial centres and more recently digital are promoted by the BOI. The full list of activities eligible for a BOI promotion can be found here. The foreign ownership is one of the benefits granted by the BOI along with relaxed rules for hiring foreign skilled employees and tax exemptions. The process to apply for a BOI promotion usually takes from 3 to 6 months.
Key takeaway: Checking the eligibility for a BOI should always be the first reflex of a foreign investor as most business activities are restricted under the FBA. If the business activity is not eligible under the BOI, a Foreign Business License may be an alternative if the activity is innovative enough. But the most common investment vehicle for foreigners remains a company with a local partner.
About foreign shareholders
Section 4 of the FBA defines a foreigner:
- A natural person who is not of Thai nationality;
- A juristic person not registered in Thailand;
- A juristic person registered in Thailand, being of the following descriptions:
- Being a juristic person at least one-half of capital shares of which are held by persons under (1) and (2) or a juristic person in which investment has been placed by the persons under (1) or (2) in the amount at least equivalent to one half of the total capital thereof; and
- Being a limited partnership or a registered ordinary partnership, the managing partner or the manager, of which is the person under (1).
- A juristic person registered in Thailand at least one-half of the capital shares of which are held by persons under (1), (2) or (3) or a juristic person in which investment has been placed by the persons under (1), (2) or (3) in the amount at least equivalent to one half of the total capital thereof.
About the control of the company
The use of Thai nominee shareholders to circumvent the FBA is illegal and could lead to criminal charges (sections 36 and 37 FBA). There is no specific definition of what constitutes a Nominee due to the lack of enforcement of this law. But, in practice, a nominee is defined as a natural or juristic person holding shares in a partly foreign owned company without actually investing in the company, nor having the financial means to do so, nor has a beneficial interest in the company nor has any form of control in the company.