Understanding Foreign Business Law: Your Essential Guide to Success
Setting up a business in Thailand offers incredible opportunities, but understanding the legal landscape can be challenging for foreigners. This blog post aims to provide a comprehensive guide for those considering establishing a business in the Land of Smiles, ensuring you are well-informed about the Foreign Business Act (FBA) and other relevant regulations.
With Closer Law’s extensive experience and multilingual expertise, we provide detailed guidance tailored to the unique needs of startups and multinational companies alike.
And our team, fluent in 9 languages, combines legal excellence with a keen commercial awareness, ensuring you feel understood and supported in your native language throughout every phase of your business journey.
Understanding the Foreign Business Act
The Foreign Business Act of 1999 (FBA) is the cornerstone of Thailand’s approach to foreign business operations. It categorizes businesses into three lists, each with varying degrees of restriction for foreign participation:
List 1: Completely prohibited to foreigners unless exemptions are granted by specific laws or treaties. This list includes businesses that are considered critical to national security, culture, and natural resources.
List 2: Businesses that existed before the FBA and can operate with a special Alien Business License. New ventures in this category require special permission from the Minister with Cabinet approval. Examples include businesses related to national safety, agriculture, and the environment.
List 3: Similar to List 2, but permits are granted by the Director-General and a committee. Exemptions can be obtained under the Treaty of Amity and Economic Relations between Thailand and the USA or through the Board of Investment (BOI). This list includes industries where Thai nationals are deemed capable of competing, such as advertising, hotel operations, and certain service sectors.
Hereunder you’ll find a link to an overview and lists of the prohibited and restricted categories of businesses and trades under the Foreign Business Act:
Operating Through a Thai Company
Given the complexities and restrictions of obtaining a foreign business license, many foreigners opt to operate through a Thai limited company. This involves:
Thai Ownership: A Thai company must be majority-owned by Thai nationals (at least 51% of shares). This ensures the business is classified as a Thai entity and can operate without the limitations imposed by the FBA.
Control Structures: Foreigners can hold majority voting rights and control through preference shares and weighted voting rights. This allows foreign investors to effectively manage the company while complying with ownership regulations.
This structure allows the company to be recognized as Thai, bypassing the FBA restrictions and facilitating smoother business operations.
Legal Considerations
Foreigners must be cautious about using Thai nominee shareholders. A nominee shareholder is a Thai individual or company holding shares on behalf of a foreigner.
While this practice is illegal under sections 36 and 37 of the FBA, it has been used to circumvent ownership restrictions. However, the Thai government has been tightening regulations to prevent such practices.
The government requires evidence of funding from Thai shareholders in partly foreign-owned companies. This means bank statements and other financial documents must prove that Thai shareholders are not merely nominees but actual investors with legitimate capital.
Working with CloserCSS Law
Navigating the complexities of establishing and running a business in Thailand requires more than just legal knowledge; it requires a partner who understands the nuances of Thai law and its application to international business.
Closer Law stands ready to provide this expertise, ensuring your venture’s success from inception to expansion and beyond.
Next Steps
For entrepreneurs looking to explore business opportunities in Thailand, it is imperative to consult with legal experts who specialize in Thai business law.
Closer Law Co., Ltd. offers a comprehensive range of services to assist foreign investors and entrepreneurs in navigating the Thai business landscape successfully. Contact us to learn more about how we can help you establish and grow your business in Thailand.
