Unless there is a specific legal requirement, it is not compulsory for a foreigner to conduct business through a Thai private limited company or other entity. The foreigner may engage in business, pursuant to an agreement with a Thai party. For example, it is permissible for a foreign company to enter into an agency or franchising or licensing or distribution agreement with a Thai company. In addition, a foreign company may simply sell its products to a Thai purchaser under a sale and purchase or import/export agreement.

    Joint Ventures

A joint venture can be formed by two or more parties working together on a specific project or on a long-term basis. A joint venture agreement need not be registered as it is considered to be a private contract. Each party must separately obtain licenses that may be required to conduct the business of the venture. The Revenue Department however, considers such an unincorporated joint venture as a single tax entity. Carefully structured agreements can avoid such tax treatment.

    Business Organizations

A foreigner may decide to do business through one of the forms of business organizations recognized by Thai law. The most popular vehicle among foreigners is the private limited company.

    Foreign Business Restrictions

The Foreign Business Act 1999 ("FBA") is currently the principal Act that deals with the rights of foreigners to own or operate businesses in Thailand. The FBA places restrictions on foreign ownership or participation in 43 specified business activities divided into three Schedules. In general, if there are no restrictions on foreign ownership of a particular business activity under the FBA or under any other law, then majority foreign ownership of such a business is permissible.

The FBA defines a company as foreign if 50% or more of its shares are held by foreigners.

The FBA contains provisions prohibiting the use of nominees to circumvent the foreign business restrictions under the FBA. It is common knowledge that the said provisions are not actively / strictly enforced by the authorities.

So a majority Thai owned company (where the Thai shareholders are not adjudged nominees) is considered Thai and not a foreigner, and therefore it is not subject to the foreign business restrictions under the FBA. As such foreigners may participate up to 49% in a Thai company engaged in a business otherwise restricted by the FBA.

The FBA does not prohibit foreign control of a Thai majority owned company so foreign minority shareholders may protect their interests through the issuance and holding of shares with weighted voting rights giving them majority voting rights thereby enabling them to control shareholders' meetings. There are no general requirements regarding nationality of directors.

In 2007, in what many believe to be an ill-conceived reaction to Kularb Kaew being used as the holding company in the takeover of telecom giant Shin Corp., there were attempts to get a draft bill(s) passed to amend the FBA to significantly expand the definition of foreign companies. Towards the end of 2007, it was reported that it was unlikely that the proposed changes to the FBA would be approved / moved forward.

Thailand's Asian competitors are lowering barriers to foreign investment and thus attracting greater interest from potential investors. In March 2009, the Thai government announced that it will review and consider liberalizing the foreign ownership rules for certain businesses that are currently regulated under the FBA.

Schedule 1 businesses: there are 9 businesses listed under Schedule 1 including agriculture, the media and trading in land. Schedule 1 businesses are prohibited to foreigners, except on a minority basis. There is no mechanism to apply for majority foreign ownership.

Schedule 2 businesses: there are 13 businesses listed under Schedule 2 including domestic transport, mining, and certain other primary activities. Minority foreign ownership of a Schedule 2 business is possible without permission. Majority foreign ownership is permissible with the permission of the Minister of Commerce with the approval of the Cabinet. At least 40% of the directors must be Thai nationals and other conditions can also be imposed in the event that a permit is granted.

Schedule 3 businesses: there are 21 businesses listed under Schedule 3 including rice farming, fisheries, forestry, most professions, construction, brokerage, auctioneering, wholesaling, retailing, advertising, selling food and drink, and all services except those exempted under regulations. Minority foreign ownership of a Schedule 3 business is permitted without a license. Majority foreign ownership is permissible with the permission of the Director-General of the Department of Business Development with the approval of the Foreign Business Committee (this is the regulatory authority set up under the FBA). Conditions can be imposed in the event that a permit is granted.

The FBA sets out the criteria for approval of majority foreign ownership of a Schedule 2 or 3 business and the conditions that can be imposed in the event that a permit is granted.

The FBA, when compared with the old Alien Business Law of 1972 that it replaced, shows that there are many important manufacturing activities that are now de-restricted. These include the manufacture of alcoholic and non-alcoholic beverages, clothing, textiles, footwear, pharmaceuticals, glassware, cement and stationery.

The FBA has also partially de-restricted certain service businesses including construction, retailing, wholesaling and trading and distribution. In some of these cases, certain minimum investment requirements must be observed. However, most service businesses are still included under Schedule 3 of the FBA, and therefore it is necessary to apply for permission for majority foreign ownership of such a business (see above).

Foreign investors should also investigate the possibility of obtaining majority foreign ownership by forming a company under the provisions of the US-Thailand Treaty of Amity, or by an application to the Board of Investment for promotional privileges (see below).

    USA - Thailand Treaty of Amity and Economic Relations

Citizens and corporations of the United States of America havei preferential rights with regard to the ownership of Thai companies, under this special treaty signed between Thailand and the USA in 1968. Such rights are on the basis of reciprocity. Since the USA permits Thais to have majority ownership of US corporations, Thailand, in general, permits citizens and corporations of the USA to have majority ownership of a Thai company. There are exceptions to this general rule. In the areas of communications, transport, fiduciary functions, banking involving depositary functions, the exploitation of land or natural resources, domestic trade in indigenous agricultural products and the practice of a profession, each country may still apply restrictions. The Treaty does not confer any preferential rights with regard to land ownership. It is to be noted firstly, that these preferential rights do not apply to the nationals of any other country. Secondly, the granting of such preferential rights to the citizens of one country places Thailand in breach of its obligations as a signatory to the World Trade Agreement. In the long term, it may be that such preferential rights will have to be extended to the nationals of all other countries, or abolished.

    Special Restrictions

Special restrictions apply to the percentage of foreign ownership permitted in particular businesses. These include banking, finance companies, securities companies, insurance companies and international airline and shipping lines

    Investment Promotion

The Board of Investment ("BOI") was established in 1960. Its current powers are set out under the Investment Promotion Act 1978. The BOI has power, exercised on a case by case basis, to grant fiscal and other promotional incentives to Thai registered companies. The incentives granted can include the following rights: majority foreign ownership; ownership of land and buildings; exemption from import duty on imported raw materials and machinery used in the promoted business; and exemption from corporate income tax for up to eight years. The rights can be granted subject to conditions, for example, that the company must have minimum paid up capital of a specified amount, or that Thais must continue to have a specified minimum shareholding in the company.

The Industrial Estates Authority of Thailand ("IEAT") was set up in 1972. It owns or manages purpose built industrial estates in Thailand. It has powers to grant promotional privileges which are similar to the privileges which can granted by the BOI (see above), except that it does not have power to grant a right of majority foreign ownership of a company.

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