As discussed recently, it is possible to establish a majority foreign-owned business in Thailand. There are different business structures to choose from, and, depending on which structure, there may be a need for a foreign business license.
While in another article, we described Lists 1, 2, and 3 under the Foreign Business Act (FBA), which detail the various sectors restricted or prohibited to foreigners, in this article we will discuss the process of getting the necessary permission from the Department of Business Development (DBD), under the Ministry of Commerce.
Foreign business license under “List 1”
Generally, the FBA prohibits foreign companies from operating businesses falling under the categories in List 1. These include certain mass media and agricultural sectors. However, a foreign company can qualify through foreign trade agreements (e.g. US-Thai Amity Treaty, Thai-Australia Trade Agreement, Japan–Thailand Economic Partnership Agreement) or through specific investment conditions.
The foreign company will be limited to not more than 49% local share capital and must be capitalized for not less than 25% of its total estimated expenditures for three years, or at least 3 million baht. If the company is not registered in Thailand, 25 million baht may have to be remitted into Thailand.
If qualified, the foreign company still must apply for a foreign business certificate from the DBD. The DBD should issue the license within 30 days from the application date but it is likely to take longer. There are government fees for both application and issuance of the certificate.
Foreign business license under “List 2”
List 2 covers sectors that the Thai government considers sensitive and that need restriction to protect national security, Thai culture and heritage, and natural resources. Nevertheless, foreign companies can apply for a foreign business license to operate under one of these categories by fulfilling the following criteria:
- Minimum capital of 3 million baht or at least 25% of its estimated expenditures for three years, whichever is higher;
- At least one authorised director or member of upper management must reside in Thailand;
- A minimum 40% Thai shareholding. In exceptional cases, the Minister of Commerce may obtain a Cabinet resolution to reduce the requirement, but to no less than 25%; and
- At least 2/5 of the company’s directors are Thai.
With these requirements met, the foreign company can apply for an FBL through the DBD. Once they review the application and supporting documents, the DBD will propose that the Minister of Commerce endorse the application with the Cabinet. After Cabinet approval, the DBD should issue the license within 15 days; however, the entire process may take up to 120 days from the application date. There are government fees for the application and issuance of the certificate.
If the foreign company has already received approval to operate under List 2 from the Board of Investment or qualifies under a foreign trade agreement, then it need only apply for a foreign business certificate from the DBD, as described under the section covering List 1.
Foreign business license under “List 3”
The FBA categorized business sectors in List 3 to protect Thai companies, allow them to develop, and become as competitive as their foreign counterparts. These include most professional services, construction and building, food services, and certain types of wholesaling and retailing. Foreign companies wishing to operate a List 3 business must apply for a foreign business license, including:
- Minimum capital of 3 million baht or at least 25% of its estimated expenditures for three years, whichever is higher; and
- At least one authorised director or member of upper management must reside in Thailand.
The foreign company can then apply with the necessary documents to the DBD’s Director-General. Since the application does not need additional approvals, the approval process should take no more than 60 days, with the license issued within 15 days after approval.
As with List 2, a foreign company approved to operate under List 3 by the Board of Investment or under a foreign trade agreement need only apply for a foreign business certificate from the DBD.
Business operations and appeals
Where permission is not granted, rejected applicants can file an appeal to the Ministry of Commerce within 30 days of the rejection notice. The appeal process takes about 30 days from the appeal date. The Minister’s decision is considered final.
Please note that foreign companies must have a foreign business license or certificate before commencing operations in a restricted sector, so we advise including a reasonable period for applications and possible appeals in any business plan.
Also, the company must comply with certain capitalization requirements while in operation under the license or certificate.
GPS Legal can help you get the proper licenses
As evidenced by recent news, the rules and requirements for foreign business in Thailand are in flux, so it is likely that some of these procedures and even some restricted sectors will change over time, some sooner than others. It is our responsibility at GPS Legal to keep abreast of any developments so that we can assist our clients as seamlessly as possible.
If you are interested in establishing a business in Thailand as a foreign entity and would like to know if you need a foreign business license or certificate, please contact us today.