There are certain restrictions in place for foreigners who wish to run a business in Thailand according to the FBA B.E. 2542 (1999). As per the different types of business, they are either barred from operating it or required to get a license or a certificate before they can start their business. The various business types are defined under three lists annexed to the FBA. As per the FBA, a “Foreigner” can be any natural person who does not possess the nationality of Thailand; or any juristic person who is not registered in the country; or any juristic person who is registered in Thailand and has half or more than that of its capital shared by one of the above-mentioned persons.
The Business Lists under the Foreign Business Act are as follows:
Business List 1: This includes the list of businesses that cannot be operated by foreigners for special reasons.
Business List 2: This list includes businesses that are reserved for Thai nationals because of national safety, security, culture, and environment. The highest percentage of shares that can be owned by foreigners is limited to 60%, or it can be 75% only if the project is approved by the Cabinet.
Business List 3: This list comprises of the businesses in which the Thai nationals have not yet stepped in or are not yet prepared to compete with foreigners. Such businesses can be run by foreigners without any limitations on the number of shares that can be held by them. However, it is necessary for the business operator to obtain FBL before starting a business in Thailand. This must be applied for at the Thai Department of Business Development and also obligates its approval by the Foreign Business Committee.
The Branch Office of a foreign organization is also a “foreigner” under the FBA which is considered as a juristic person who is not registered in Thailand. Therefore, it needs to have an FBL before setting up a business in Thailand for activities under List 2 and 3. To get an FBL, the minimum working capital (in foreign currency) i.e. 25% of the average expenditures of three years should be brought into the country. And, it is mandatory that the minimum working capital must be equal to or more than THB 3 million.
In addition, the capital shall be paid as per the following timeline:
- At least 25% of the minimum capital should either be brought in or paid during the first three months of starting the business
- The next 25% of the necessary capital should be brought in or paid in the first year
- The next 25% of the necessary capital should be brought in or paid by the end of the second year
- The remaining 25% of the necessary capital should be brought in or paid by the end of the third year.
A Branch Office can continue to operate for an indefinite duration until its dissolution date unless a shorter period is specified in the application as per any contract for a particular project in Thailand. Usually, international contractors who do not aspire to do business in Thailand on a permanent basis set up Branch Offices for specific projects.
Characteristics of Branches in Thailand
The working of the Branch offices in Thailand is similar to limited companies. It does not have any shareholders or directors because it is not a registered company. Rather, it is just a local branch of a foreign company. This kind of business has its own advantages such as There is not any special requirement for foreign companies who want to register a branch office There is no need to bring in a local shareholder. Though foreign companies usually prefer to open a branch office that is effective and less expensive, it is still necessary to follow the requirements imposed by the FBA as per the laws of Thailand before opening a company in the country.