The Foreign Business Act B.E. 2542 (A.D.1999) (“FBA”) was enacted to define, prohibit and control the business activities of foreigners in Thailand. It also defines what the “foreigner” is in this context.

The “foreigner” under the FBA means:

(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 whereby at least one half of capital shares of which are 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 of 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 whereby 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 of 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 are deemed as shares held by foreigners, unless otherwise provided by the Ministerial Regulation.

The FBA lists

As abovementioned, the FBA can both prohibit and control the activities of foreigners. The activities are included in three lists of activities that are either completely prohibited or controlled. These lists are included in List 1 (prohibited activities), List 2 and List 3 (controlled activities). It is possible to operate other activities, that are not mentioned in these FBA lists.

The FBA requirements

The FBA requires foreigners who fall under the FBA to  follow the restrictions thereto by obtaining the approval of the Cabinet (in the case of activities under List 2) or the FBA Committee (in the case of activities under List 3) before starting the operations of their business (collectively called the foreign business license or the “FBL”).

Thai nominee issue

There are a number of entities avoiding the requirements of the FBA by using Thai investors or Thai shareholders as their nominees to conduct business.

The new DBD notification

For this reason, the Officer of the Central Company and Partnership Registration of the DBD (the “Office”),  issued the rule for the examination of the application for the registration of Thai partnerships or Thai companies, where the applications are suspected to have Thai nominees holding shares for foreigners as follows:

Notification

As there are some foreigners operating businesses without approval by registering a partnership and a limited company that have Thai investors or Thai shareholders holding shares for such foreigners, the Officer issued the Order Number 205/2555 requiring the applicant of such a partnership or limited company to provide bank evidence certifying to disclose the financial status of the Thai partners of such a partnership or Thai shareholders of such a limited company for its registration. The bank evidence shall ensure that there is a sufficient amount of money for the investment in such an entity for each of the partners or shareholders as the case may be based on the following circumstances;

  1. In the event that a partnership or a limited company has foreign partner(s) or shareholder(s) who invested or hold shares in such a company of not exceeding 50 % of the total investment or capital. 
  2. In the event there is no foreigner as a shareholder but the director who is authorized to sign solely or jointly for binding the company is a foreigner.

Effective on 2 January 2013 (B.E. 2556).

Conclusion

If you are a foreigner and wish to establish a new partnership or company in Thailand to carry on a restricted business under the FBA and if you plan to be a shareholder or director of such a partnership or company, please ensure that your Thai business partner will be able to provide sufficient financial records to be presented to the DBD.

RSM Thailand has several legal advisors with experience in reviewing and setting up various types of foreign entities with practical advice for both individuals and multinational clients. In the event that you require our assistance, please feel free to contact us.