Is your Business Trading Legally?
- brian ramsden
- May 5
- 3 min read
Updated: May 7
The Foreign Business Act B.E. 2542 (1999) (FBA) was put in place nearly 20 years ago.
As you should be now familiar with this is a hot topic today some 20 years on.
Authorities are now beginning to crack down on businesses with Foreigner shareholders and directors, that use Thai nationals to hold shares in violation of foreign ownership restrictions under the FBA.
The FBA was established to limit foreign parties (which includes a number of scenarios including: foreign individuals, offshore legal entities, and foreign majority-owned companies in Thailand) ability to conduct certain businesses in Thailand without an (FBL) Foreign Business License.
Many businesses are using nominees to operate their businesses.
This is an illegal practice and the authorities are determined to rid Thailand of this circumnavigation of the law.
Similar to many other countries, nominee arrangements are illegal in Thailand. The FBA expressly prohibits foreigners from using Thai nationals to hold shares on their behalf in a way that enables them to own and operate reserved businesses under the law. Engaging in such arrangements (including conducting a business without the necessary license under the FBA) can result in severe penalties, including imprisonment, fines, and the forced dissolution of the business. The authorities, particularly the Ministry of Commerce and the Department of Special Investigation, continue to actively pursue cases involving suspected nominees.
The FBA categorizes businesses into three lists, each outlining different levels of restrictions on foreign ownership and participation:
List 1: Foreign business operators are strictly prohibited from engaging in any of the business activities on list 1, such as media outlets (newspapers, radio, and television), rice farming, forestry, extraction of Thai medicinal herbs, and land trading.
List 2: Foreign business operators must obtain a foreign business license (FBL) from the Department of Business Development (DBD) and secure approval from the Thai cabinet to engage in a business activity on list 2. In addition, the company must be at least 40% Thai-owned (this may be reduced to 25% with special approval from the Minister of Commerce and the Cabinet), and at least two-fifths of the board of directors must be Thai nationals. This list covers business activities related to national security, such as arms trading and domestic aviation; businesses impacting arts, culture, traditions, and handicrafts; and businesses affecting natural resources or the environment.
List 3: Foreign business operators wishing to engage in business activities on list 3 must obtain an FBL (albeit with lower approval requirements than for businesses under list 2) from the DBD, with approval from the interagency Foreign Business Committee. List 3 covers business activities in which Thai nationals are deemed not yet ready to compete with foreign businesses. The list also includes “other service businesses”—effectively a catch-all provision that extends the scope of restricted activities and captures a wide range of service operations.
An FBL is not the only lawful and sustainable option for foreign businesses to pursue business operations in Thailand. The available options also include obtaining protection under specific treaties, such as the Treaty of Amity and Economic Relations between the United States and Thailand, or permission under the Investment Promotion Act, the Industrial Estate Authority of Thailand Act, or other laws. While these routes may seem complex at first, they offer a secure option that can underpin long-term growth in business operations.
To be categorized as a Thai company there must be 51 percent Thai shareholding and investment and the company must be controlled by a Thai and the 51 percent Thai shareholder/s must receive 51 percent of the company profits too.
It is not just showing 51 percent Thai shareholding there is much more to setting up and running a business in Thailand legally and safely.
Is your company following the law or acting outside of the FBA?
Given the recent increased focus on nominee arrangements, it is important for foreigners in business in Thailand to carefully review the business structures and ensure proper licensing and compliance with foreign ownership restrictions carried out.
Comply with the law, be safe be legal be smart and be successful.
For further information regarding setting up a business legally and safely or reviewing your current business contact us at www.lawyersforexpatsthailand.com or call +66956583038
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