The primary restriction on foreign ownership of businesses in Thailand is set out in the Foreign Business Act (“FBA”). To legally engage in activities restricted under the FBA, an alien company must obtain a Foreign Business License (“FBL”) or a Foreign Business Certificate (“FBC”) from the Department of Business Development of the Thai Ministry Commerce (“DBD”). This is often easier said than done. And there are many other Thai laws containing restrictions on alien companies. But the FBA receives the most attention.
The FBA was enacted in 1999 and is largely based on a decree issued by a military government in 1972 called the Revolutionary Party’s Announcement of National Executive Council No. 281 (“NEC 281”). NEC 281 was issued by the then military government on 24 November 1972. NEC 281 is like the FBA. The FBA, like NEC 281, narrowly defines “foreigners” subject to their restrictions. NEC 281, like the FBA, divides restricted businesses into three schedules or annexes.
Since NEC 281 was issued nearly 50 years ago, the foreign business community has pressed for relaxation of Thai laws restricting foreign ownership of businesses in Thailand, particularly those set out contained in schedule 3, part 21 (“service businesses, except as exempted by ministerial regulation”). The stated rationale for restricting foreign ownership of businesses in schedule 3 is that “Thais are not yet ready to compete with foreigners.” FBA, Section 8 (3). Those business activities do not concern national security, Thai traditional culture or natural resources, where some restrictions on foreigners might be expected. Further, because the restrictions set out in schedule 3 have been in place for almost 50 years, the foreign business community argues that there has been than enough time for Thai businesses to prepare for competition and that keeping these restrictions calls the legitimacy of this stated rationale into question.
FBA Section 9 provides that a Foreign Business Committee will review the list of restricted business “at least once a year from enactment of the FBA” and submit its opinion to the Thai cabinet (presumably on lifting additional business from the list restricted businesses). In practice, this now seems to be happening to a limited extent.
The FBA, for example, prohibits foreign ownership of a “service business” unless ministerial regulations provide otherwise. Because this term potentially applies to a broad range of businesses and the DBD interprets this term to apply to a broad range of business activities, this is one of the more controversial provisions of FBA. It applies to business activities that would generally not be considered to be part of a “service business”. For example, OEM manufacturing is also considered to be a service business. Because the term “service business” is interpreted in this broad manner, many businesses that do not consider themselves to be service providers fall within the within the ambit of service business under the FBA.
When a business activity is exempted (an “Exempted Business ”) from the restrictions of the FBA, the FBA’s restrictions not longer apply to that business activity. But a foreigner may still need to comply with other specific rules or regulations applicable to that Exempted Business. These other rules and regulations may also contain prohibitions on foreigners controlling or owning a company that engages in Exempted Business activities. In other words, even when a foreigner acquires a company conducting an Exempted Business, it still needs to determine if that Exempted Business is subject to other rules and regulations that restrict or prohibit foreign control of ownership of a company engaged in that business activity.
Recently, the MOC has finalized the draft ministerial regulation that will classify each of the following businesses as an Exempted Business (the “Draft Regulation”):
- Telecommunications Business– This applies to a telecommunications operator who operates the telecommunications without having its own telecommunications network. Examples of type 1 businesses involve audiotext, resale of public switched telecommunication services, and international calling card services.
- Treasury Center – for the operation of activities relating to the management or exchange of foreign currencies for affiliated companies under the Exchange Control Act B.E. 2485 (1942); and
- Software Development Business– the operator must be a Thai-registered entity and develop the software for: (i) data management or data analytics (including predictive analytics); (ii) information security and cybersecurity; (iii) controlling or connecting the operation of advanced technological equipment; or (iv) supporting industrial manufacturing activities.
The government’s representative says the removal that removing these three Exempted Businesses will reduce redundancy (in restrictions on foreigners) and support the creation of an investment-friendly environment. Once the Draft Regulation is issued by the Cabinet, a foreigner who wants to operate an Exempted Business can apply for permission directly from the relevant supervisory body without a foreign business license or certificate. But approval may still be needed by another authority, and Foreign companies need to check to see if such approval is needed even though the relevant business activity is longer subject to the restrictions of the FBA.
The Thai Ministry of Commerce is preparing to submit the Draft Regulation for the Cabinet’s approval. That draft subject to review by the Council of State, an advisory body on legal (rather than policy) matters. Assuming it is approved and there is no unusual delay, our best guess is that it take approximately two months or so for the Draft Regulation to take effect.