Applying for a Foreign Business License (FBL) under Thailand’s Foreign Business Act B.E. 2542 (1999) (FBA) is one option for foreigner’s to be able to have majority ownership of a company limited which is involved in business activities listed in List 3 of the FBA. Before applying for a FBL there are a number of important details which foreign investors should be aware of so that they can avoid problems and delays and be better prepared for the process. This article shall provide a brief overview of several key issues which foreign investors should be aware of before they apply for a FBL.
Permitted Business Activities under List 3 of the FBA
One of the most important things which should be considered at the beginning is whether the applying company will be able to apply for a FBL. In order to apply, the company must ensure that its applied for activities are contained in List 3 of the FBA. It should be stressed that activities specified in List 1 are not permitted to be undertaken by foreigners12 and the activities detailed in List 2 have a different and more stringent approval process which requires the permission from the Minister of Commerce3 together with the approval of the Council of Ministers4.
Qualifications on ‘foreigners5’ who wish to apply for an FBL
Section 16 of the FBA sets out several qualifications for foreigners who intend to apply for a FBL, this section provides that they must have the following qualifications and must not be under the prohibitions as follows:
(1) They must be at least twenty (20) years of age;
(2) They must have a residence in Thailand or be permitted to enter Thailand temporarily under the law on immigration;
(3) They must not being an incompetent or a quasi‐incompetent person;
(4) They must not being a bankrupt;
(5) They must not have been punished by a court judgment or ordered to pay a fine in settlement of any offence under the FBA or under the Notification of the National Executive Council No. 281, dated 24th November B.E. 2515 (1972), unless having been discharged for period of not less than five years prior to the date of the application for the FBL;
(6) They must not have been imprisoned by a court judgment for offences of cheating, cheating creditors, misappropriation or offences related to trade under the Penal Code or the offences related to loans fraudulent to the public or the offences under the law on immigration, unless having been discharged for a period of not less than five years prior to the date of the application for the FBL;
(7) They must not have had a FBL issued under this Act or under the Notification of the National Executive Council No. 281, dated 24th November B.E. 2515 (1972) revoked within the period of five years prior to the date of the application for the license.
Importantly, where a juristic person is the applicant for the FBL (such as a company), then the directors, managers or persons responsible for the operation of such juristic person must also have the qualifications and must not be of any prohibition specified above in (1)-(7).
Applying for a FBL
An FBL application is made up of several sections, including the following:
1. Detail of business & products.
2. Capital structure & overall products in Thailand.
3. A three (3) year Income and Expenses Plan for each Business Activity (under List 3 of the FBA) to be applied for under the FBL application. This plan will be used to determine the minimum amount of fully paid up registered capital which the applying company will need to have should the FBL be granted. Each approved activity requires a minimum of 3 million THB (calculated according to 25% of the average of the estimated three years of income & expenses plan) in fully paid-up capital but it can be more based on the information provided in the income and expenses plan.
4. Technology Transfer Plan which details how the applicant will transfer technology to Thailand. This can be achieved in several ways such as conducting training seminars/workshops inside or outside Thailand on your Company’s foreign technology for your Company’s Thai staff. Generally speaking, to be granted an FBL, the applicant company must have high-technology goods or services under the applied for Activity.
5. An Employment Plan detailing the Thai and foreign staff to be employed by the applying company (under the applied for Business Activity).
6. In case the applicant is a company which is already existing in Thailand and has another business, then the latest three years of financial statements must also be submitted to the MOC, it will review the audited financial statement and will recheck them with the estimated three years Income and Expenses Plan of the new business.
Criteria for considering an FBL application
Section 5 of the FBA sets out the key criteria used in deciding whether to grant an FBL to an applicant. This section provides that “In granting permission to foreigners for the operation of businesses under this Act, regard shall be had to advantageous and disadvantageous effects on national safety and security, economic and social development of the country, public order or good morals, national values in arts, culture, traditions and customs, natural resources conservation, energy, environmental preservation, consumer protection, sizes of undertakings, employment, technology transfer and research and development.”
FBL Application Consideration Period
Section 17 of the FBA sets out the key process and timeframes for the consideration of an FBL application by providing that in applying for permission for the operation of a business (FBL), the foreigner must file their application to the Director‐General of the DBD. Thereafter, the Government (Director General of the DBD & the Foreign Business Committee) shall complete their consideration as to whether to grant permission within the period of sixty (60) days as from the date of the filing of the FBL application (and paying the application fee). If the Director‐General of the DBD grants permission then they shall issue the FBL within fifteen (15) days as from the date of the approval being given.
Validity Period of a FBL
Once a FBL is granted then ordinarily it remains valid until cessation by the FBL license grantee of the permitted business under List 3 of the FBA, unless it is suspended or revoked in accordance with Section 19 of the FBA.
How can a FBL be suspended or revoked?
Section 19 of the FBA provides that if a FBL license grantee:
(1) Violates any conditions prescribed by the Minister of Commerce under section 7 paragraph one of the FBA;
(2) Fails to comply with any conditions prescribed under section 11 paragraph two or section 17 paragraph three; or
(3) Violates section 15 of the FBA
then, the Director‐General of the DBD shall serve on the license grantee a written notification instructing such person to comply with the relevant conditions within such time as the Director‐General deems appropriate. Thereafter, if they fail to take action as instructed by the Director‐General in the written notification without any reasonable cause, then the Director‐General has the power to give an order suspending the FBL temporarily or compelling temporary cessation of the business for a period of time as the Director‐General deems appropriate which must not be in excess of sixty (60) days as from the date of the order. If, upon the lapse of such suspension period, the foreigner still has not accomplished the action as instructed, the Director‐General shall consider giving an order revoking the license or making a recommendation to the Minister for considering giving an order revoking the license, as the case may be.
Section 19 also provides that if the FBL license holder:
(4) Becomes disqualified or is under any prohibitions under section 16 of the FBA (see above); or
(5) Commits the offence under section 35,6
Then the Director‐General of the DBD shall consider giving an order revoking the FBL or making a recommendation to the Minister for considering giving an order revoking the FBL (as the case may be).
Appealing a suspension or revocation order
Section 20 of the FBA provides that if the Director General of the DBD issues an order suspending or revoking a FBL then the license holder can appeal such decision by submitting an appeal to the Minister of Commerce within thirty (30) days as from the date of receipt of the notification of the order. It should be noted that the appeal does not stay the execution of the order given by the Director‐General, unless such stay is granted by the Minister with the recommendation of the Foreign Business Committee. The Minister of Commerce must decide on the appeal within thirty (30) days as from the date of the filing of the appeal and the Minister’s decision shall be final.
Penalties if Foreigner continues to run a business with a suspended or revoked FBL
Section 34 of the FBA provides that any foreigner, to whom a FBL has been granted, who continues to operate their business after its FBL has been suspended or revoked shall be liable to imprisonment for a term not exceeding three (3) years or to a fine of one hundred thousand baht to one million baht or to both and to an additional fine at the daily rate of ten thousand Baht throughout the period of the violation.
Penalties for nominee Thai shareholders
If a Thai citizen or a juristic person, not being a foreigner as defined under the FBA (i.e. Thai majority owned company), assists in or aids and abets or participates in the operation of a foreigner’s business as specified in Lists 1, 2 or 3 of the FBA where such foreigner is not permitted to operate that business or who operates the business jointly with a foreigner in the manner holding it out as the former’s sole business or who acts as a foreigner’s nominee in holding shares in a partnership or a limited company or any juristic person with a view to enabling the foreigner to operate the business in circumvention or violation of the provisions of the FBA, or a foreigner who allows such act to be committed by a Thai national or a juristic person that is not a foreigner under this Act, shall be liable to imprisonment for a term not exceeding three (3) years or to a fine of one hundred thousand baht to one million baht or to both. Moreover, the Court shall order the cessation of the assistance or the aiding and abetting or order the cessation of the joint operation of the business or order the cessation of shareholding or partnership, as the case may be. In the case of violation of the order of the Court, the violator shall be liable to a fine at the daily rate of ten thousand baht to fifty thousand baht throughout the period of the violation.
Penalties for Foreigners operating a business under List 3 without a FBL
If a foreigner (as defined under the FBA) fails to obtain approval from the Director General of the DBD & the Foreign Business Committee for the business activity it operates in Thailand which is detailed under List 3 of the FBL as required by section 8 of the FBL then (unless they have a Foreign Business Certificate – for example if they have obtained BOI promotion) then they shall be subject to Section 37 of the FBA which provides that “any foreigner who operates a business in violation of section 8 shall be liable to imprisonment for a term not exceeding three (3) years or to a fine of one hundred thousand Baht to one million Baht or to both, and the Court shall order the cessation of the business operation or the cessation of the undertaking or order the cessation of shareholding or partnership, as the case may be. In the case of violation of the order of the Court, the violator shall be liable to a fine at the daily rate of ten thousand Baht to fifty thousand Baht throughout the period of the violation.”
Penalties under Sections 34, 35, 36 or 37 of the FBA and Juristic Persons
Section 41 of the FBA is of vital importance to juristic persons (such as companies) that breach Sections 34, 35, 36 or 37 of the FBA given that it provides that in such case the directors, partners or persons with the authority to represent the juristic person, who connive at the commission of such offences or who fail to take reasonable action in preventing such offences shall be liable to imprisonment for a term not exceeding three (3) years or to a fine of one hundred thousand baht to one million baht or to both.
Requirements if FBL Granted
If the FBL is granted then there are several ongoing compliance requirements, including:
1. If a FBL is granted then the license document must be displayed at an overt location at its place of business. If this requirement is not complied with then the license grantee shall be subject to a fine of 5000 baht pursuant to Section 39 of the FBA.
2. If the FBL document is damaged or lost, then the grantee must submit an application for a substitute which must be submitted to the Registrar within fifteen days as from the date of the knowledge of the damage or loss. If this requirement is not complied with then the license grantee shall be subject to a fine of 5000 baht pursuant to Section 39 of the FBA. If such document is lost then the grantee will also need to submit a police report detailing its loss. Section 21 of the FBA provides that the substitute FBL license document shall be issued within thirty (30) days from the date of receipt of the application to obtain the substitute.
3. Section 22 of the FBA requires that if the FBL grantee should relocate its registered office or place of business or cease to operate its business then it must also notify the DBD accordingly within fifteen (15) days from the date of such cessation or relocation. If this requirement is not complied with then the license grantee shall be subject to a fine of 5000 baht pursuant to Section 39 of the FBA.
4. The FBL grantee will need to submit a technology transfer report to the DBD for the first 3 years after the FBL is granted which evidences its implementation of the technology transfer plan.
Practical Example on how to do business in Thailand for foreign businesses
Sample scenario: Company A is a foreign juristic person that is registered in Japan. Company A’s products are sold to Company B, which is a Thai juristic person with a majority of foreign shareholders. Company B is a buyer in Thailand where Company A has deposited the products in the warehouse of Company B, which is located in the Free Zone in Thailand. However, the said product remain the property of Company A, and when Company B has picked up the goods from the warehouse and paid Company A for the goods, it causes the ownership of the goods to be transferred from Company A to Company B, this transaction is regarded as selling the goods to a buyer in Thailand.
From the above facts, it can be considered that both Company A and Company B have businesses that require permission under the Foreign Business Act B.E. 2542 as follows:
List Three item (14) Retail and item (15) Wholesale.
Foreigners can operate such business in accordance with the FBA provided that they obtain permission from the Director-General of the Department of Business Development with the approval of the Foreign Business Operations Committee.
The business activity of ‘Retailing’ under the FBA means selling to customers for their own direct consumption. This does not include sales to manufacturers to use as raw materials for the production of other products and wholesale trade including selling products to buyers who sell or continue to provide services to customers or that used as raw materials for producing other products.
However, if Company A and Company B wish to do a retail or wholesale business in Thailand without the need to obtain a FBL then this would be possible provided that they bring or remit minimum capital in foreign currency used to start doing each such business activity into Thailand, of not less than 100 million baht, excluding their registered capital (for each activity – retail/ wholesale). Moreover, if an applicant wishes to bypass the need to obtain a FBL for the wholesale activity by remitting in 100 million baht then they are only permitted to have 1 wholesale store in Thailand.
1See section 8(1) of the FBA.
2For definition of ‘foreigner’ see section 4 of the FBA.
3Pursuant to section 46 of the FBA the Minister of Commerce shall have charge and control of the execution of the FBA.
4See section 8(2) of the FBA.
5‘Foreigner’ is defined in section 4 of the FBA as follows:
(1) A natural person who is not of Thai nationality;
(2) A juristic person (such as a company limited) not registered in Thailand;
(3) A juristic person registered in Thailand, being of the following descriptions:
(a) being a juristic person with at least one half of its capital shares held by persons under (1) or (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;
(b) being a limited partnership or a registered ordinary partnership the managing partner or the manager of which is the person under (1);
(4) a juristic person registered in Thailand 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;
For the purpose of this definition, shares of a limited company represented by share certificates issued to bearers (i.e. bearer shares) are deemed as shares held by foreigners, unless otherwise provided by the FBA’s Ministerial Regulations.
6Section 35 – Any foreigner, to whom a FBL has been granted for the operation of any business under the FBA, who participates in the operation of the business of another foreigner not permitted to operate the business under the FBA or operates the business of which such other foreigner is a co‐owner in the manner holding it out as the former’s sole business with a view to enabling such other foreigner to circumvent or violate provisions of the FBA shall be liable to imprisonment for a term not exceeding three years or to a fine of one hundred thousand Baht to one million Baht or to both, and the Court shall order the cessation of such business participation or operation. In the case of violation of the order of the Court, the violator shall be liable to a fine at the daily rate of ten thousand Baht to fifty thousand Baht throughout the period of the violation.
Writer : Ryan Crowley – Foreign Services Manager
Dharmniti Law Office Co., Ltd.
2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330
Tel: (66) 2680 9777
Fax: (66) 2680 9711
Email: ryan@dlo.co.th or chalapunj@dlo.co.th