How the Foreign Business Act Thailand Enforces Restricts Ownership
The Foreign Business Act Thailand enacted in 1999 restricts foreign ownership through three “negative lists” — and imposes real criminal penalties on Thai nominee shareholders who help foreigners evade it.In 1999, Thailand enacted the Foreign Business Act (“FBA”), which regulates business activities conducted by foreigners in Thailand. (Note that certain activities — such as banking, insurance, and telecommunications — are regulated separately, and generally more stringently, by legislation specific to those industries.) Three “negative lists” annexed to the FBA group together the business activities restricted to foreigners:
Annex One lists businesses not permitted to be operated by aliens for special reasons. Foreigners are strictly prohibited from majority ownership of businesses engaging in these activities.
Annex Two lists business activities relating to national safety or security, or affecting arts, culture, tradition, local handicrafts, natural resources, or the environment. These may be majority-owned by a foreigner, but only with the approval of the Prime Minister’s Cabinet. As far as we are aware, no such approval has ever been granted.
Annex Three lists businesses in which Thai nationals are “not yet ready to compete with aliens.” Foreigners may own and operate these businesses if they obtain a license or certification from the Ministry of Commerce. Foreigners may own and operate these businesses if they obtain a license or certification from the Ministry of Commerce. Annex Three is extensive and includes most common business activities.
In sum, very few business activities fall outside the scope of the FBA — manufacturing and exporting being two of the rare notable exceptions.
The FBA defines a “non-Thai” as:
- A foreign natural person;
- A juristic person not registered in Thailand;
- A juristic person registered in Thailand where: (a) at least half its share capital is held, or at least half its total capital is invested, by persons under (1) or (2); or (b) it is a limited partnership or registered ordinary partnership whose managing partner or manager is a person under (1); or
- A juristic person registered in Thailand at least half of whose share capital is held, or at least half of whose total capital is invested, by persons under (1), (2), or (3).
For purposes of this definition, shares of a private limited company issued as bearer certificates are treated as shares held by aliens, unless otherwise provided by ministerial regulation.
It is also critically important to note that it is illegal under the FBA — for both the Thai national involved and the foreigner who benefits — for a Thai to act as a “nominee” shareholder (that is, a shareholder in name only, without genuine ownership). Section 36 of the FBA imposes criminal penalties — imprisonment of up to three years, a fine of THB 100,000 to 1,000,000, or both — on a Thai national or non-alien juristic person who assists, supports, or jointly engages in a restricted business on behalf of an alien, or who holds shares on an alien’s behalf in order to help that alien evade the Act’s provisions. The same penalties apply to an alien who permits such arrangements. In addition to the criminal penalty, the court will order termination of the nominee arrangement, joint business operation, or shareholding, as applicable; continued violation of such a court order carries a further daily fine of THB 10,000 to 50,000.
There are, however, several exceptions to this stringent rule. Certain countries — including the United States, Australia, and Japan — benefit from specific exceptions to the FBA under treaties with Thailand. Additional exceptions to the foreign ownership restrictions, available to investors of any nationality, also exist under Thailand’s investment promotion legislation.
Additional exceptions to the foreign ownership restrictions, available to investors of any nationality, also exist under Thailand’s investment promotion legislation.
Understanding how the Foreign Business Act Thailand applies to a specific business activity — and whether any treaty-based or investment-promotion exception is available — is an essential first step for any foreign investor before committing capital or structuring a Thai entity.