Can Foreigners Start Business in Thailand without Thai Shareholder?
The Thai Civil and Commercial Code treats Thai and Foreign Shareholders equally when it comes to start a business in Thailand. Due to this, foreigners are free to start their own business in Thailand without a Thai partner. Foreign Business Act B.E. 2542 (1999) (FBA) imposes some limitations on the types of business activities that foreign nationals may conduct in Thailand. Moreover, List 3 of FBA prohibits a majority of of service activities for foreigners to start a business for. On the other hand, the Board of Investment permits up to 100% foreign ownership in businesses that engage in commercial endeavors that are crucial to Thailand’s development.
𝐑𝐞𝐬𝐭𝐫𝐢𝐜𝐭𝐢𝐨𝐧 𝐮𝐧𝐝𝐞𝐫 𝐭𝐡𝐞 𝐅𝐨𝐫𝐞𝐢𝐠𝐧 𝐁𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐀𝐜𝐭:
List 1 of the FBA prohibits certain business activities, while Lists 2 and 3 restrict them to foreign-owned businesses. The foreign company must obtain a Foreign Business License before engaging in any of the List 2 or 3 business activities. Foreigners are increasingly choosing to form joint ventures with local partners due to the prevalent challenges and costs in obtaining a foreign business license.
𝐅𝐨𝐫𝐞𝐢𝐠𝐧 𝐁𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐋𝐢𝐜𝐞𝐧𝐬𝐞 (𝐅𝐁𝐋):
The foreign company must be able to prove that it will bring expertise and teach local staff new skills. This is one of the most important factors to apply for and obtain a FBL. The procedure, which involves numerous questions from the authorities, lasts for about six months. A discretionary decision precedes the approval.
𝐒𝐞𝐭-𝐮𝐩 𝐚 𝐉𝐨𝐢𝐧𝐭 𝐕𝐞𝐧𝐭𝐮𝐫𝐞:
A company where foreign shareholders hold 50% or more of the share capital is a foreign company under the FBA. Therefore, a company can be a Thai company and is exempt from the FBA’s restrictions. It is possible only if Thai shareholders own 50% or more of the company’s shares. Note that, ownership of the capital is major parameter to decide whether a company is foreign. Furthermore, control of the business is never the deciding factor for the same.
𝟏𝟎𝟎% 𝐅𝐨𝐫𝐞𝐢𝐠𝐧 𝐎𝐰𝐧𝐞𝐫𝐬𝐡𝐢𝐩 𝐛𝐲 𝐭𝐡𝐞 𝐁𝐨𝐚𝐫𝐝 𝐨𝐟 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐏𝐫𝐨𝐦𝐨𝐭𝐢𝐨𝐧:
The Board of Investment of Thailand promotes a variety of commercial activities that are crucial for the development of Thailand. This includes factories, electronics, pharmaceuticals, regional financial centers, and more recently, digital. The full list of activities eligible for a BOI promotion can be found here. One of the advantages of the BOI promotion is foreign ownership. Additionally, it grants with tax regulations for hiring foreign workers with special skills and tax exemptions. It typically takes 3 to 6 months to apply for a BOI promotion.
The majority of business activities are restricted under the FBA. Therefore, a foreign investor should always confirm their eligibility for a BOI before proceeding. A business activity may not be sufficiently innovative and hence, cannot qualify under the BOI. In this case, a foreign business license is an alternative. Nevertheless, a company with a local partner continues to be the most popular investment vehicle for foreigners.
𝐖𝐡𝐨 𝐚𝐫𝐞 𝐅𝐨𝐫𝐞𝐢𝐠𝐧 𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫𝐬 𝐢𝐧 𝐓𝐡𝐚𝐢𝐥𝐚𝐧𝐝?
Section 4 of the FBA defines a foreigner:
1. A natural person who is not of Thai nationality;
2. A juristic person not registered in Thailand;
3. A juristic person registered in Thailand, being of the following descriptions:
a. 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
b. Being a limited partnership or a registered ordinary partnership, the managing partner or the manager, of which is the person under (1).
c. A juristic person in Thailand with 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.
𝐂𝐨𝐧𝐭𝐫𝐨𝐥 𝐨𝐟 𝐭𝐡𝐞 𝐂𝐨𝐦𝐩𝐚𝐧𝐲 𝐢𝐧 𝐏𝐚𝐫𝐭𝐧𝐞𝐫𝐬𝐡𝐢𝐩 𝐰𝐢𝐭𝐡 𝐚 𝐓𝐡𝐚𝐢:
Sections 36 and 37 of the FBA state that it is against the law to use Thai nominee shareholders. Due to the non-application of this law, there is no precise definition of what a nominee is. In reality, however, a nominee is a natural person or legal entity that holds stock in a company. The company can be partially owned by a foreign nation but does not make any direct investments in it. A Nominee cannot have the financial resources to do so nor can have a beneficial ownership interest in it. Furthermore, the nominee cannot exercise any form of control over it.
However, there are other methods like setting up a Branch Office or Representative Office in Thailand. A foreigner can set up these types of organizations to represent their existing businesses in any part of the world.
But to accomplish the feat, you will need a reliable Thai law firm for your guidance and assistance.