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May 30, 2019

Thailand to Relax Foreign Business Restrictions on Services Provided to Affiliates

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On May 14, 2019, Thailand’s Cabinet approved the exemption of three categories of service business from Foreign Business License (FBL) requirements. The exemptions, which are expected to be enacted soon by Ministry of Commerce regulations, will permit foreigners to freely engage in the previously restricted activities. 

The categories of service business to be exempted are:

  • provision of loans to affiliates and subsidiary companies;
  • lease of office space to affiliates and subsidiary companies, including public utilities; and
  • provision of consultation services relating to management, marketing, human resources, and information technology to affiliates and subsidiary companies.

The new ministerial regulations are also expected to include definitions for “affiliate” and “subsidiary company”.

Direct foreign investment in Thailand is primarily regulated by the Foreign Business Act B.E. 2542 (1999) (FBA), which defines a foreigner as: (i) a person who is not a Thai national; (ii) a juristic person registered under foreign laws; or (iii) a juristic person registered under Thai law with more than 50 percent or more of its shares held by foreign parties (who can be either natural or juristic persons). Foreigners conducting business in Thailand must comply with FBA requirements, and other applicable local laws. The FBA details businesses that are reserved for Thai nationals into the following three lists: 

List One
Business activities which are prohibited to foreigners by special reasons (e.g., press, radio, broadcasting, farming, forestry, land trading, etc.);

List Two
Business activities related to national safety, security, or which have an impact on arts, culture, traditions, customs, folklore handicrafts, natural resources and the Environment (e.g., production and trading of firearms, antiques, mining, etc.); and

List Three
Business activities in which Thai nationals are not yet ready to compete with foreigners (e.g., provision of accounting services, legal services, architecture and engineering services, advertising business, trading activities, and other kinds of services).

Business activities under List One of the FBA are strictly prohibited to foreigners. However, foreigners may engage in business activities under Lists Two and Three of the FBA if they obtain approval and applicable licenses from the competent authorities. Foreigners will not be allowed 100% ownership if they wish to engage in business activities under List Two of the FBA—in that case Thai nationals must hold at least the minimum shares prescribed by the FBA.

Generally, service businesses not specifically listed above would be regarded as “other service businesses” under List III of the Act, which would require approval from the Ministry of Commerce.

This relaxation of the regulations results from the Cabinet’s decision that these service business activities, when provided solely to affiliates and subsidiary companies, have little impact on Thai businesses and their ability to compete with foreigners. The move is also intended to enhance efficiency and service standards by reducing operation costs and facilitate inter-company services among group companies.

For more information on these developments, or on any aspect of doing business in Thailand, please contact Supasit Saypan on [email protected] or +66 2056 5994.

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