July 18 2011
Foreign companies that send their staff to work in Thailand, open a representative office or branch or establish a subsidiary to operate some categories of business in Thailand may need to obtain a foreign business licence under the Foreign Business Act (BE 2542). Otherwise, the company can be subject to criminal liability. The act allows foreigners to operate such prohibited businesses only if a licence has been obtained.
The act defines a 'foreigner' as:
Therefore, if a foreign person owns a half or more of the shares in a company or a partnership registered in Thailand, such Thai company or partnership is defined as a 'foreigner' under the act. As a foreigner, it cannot operate a restricted business in Thailand without obtaining a licence.
The act classifies restricted business activities into three categories as follows:
A licence for a restricted business under the conditions of List Two or List Three will be granted if the requirements under the act and the accompanying regulations are met. Business activities not listed above are open to foreigners, except for those restricted under other laws.
A foreign company may operate a restricted business in Thailand without obtaining a licence if it:
Under the act, a foreign company can obtain a licence for operating a restricted business in Thailand from the Department of Business Development of the Ministry of Commerce following:
An application, with supporting documents, must be filed with the Department of Business Development detailing, among other things:
For a business categorised under List Three, the department may order the applicant to amend the application and its supporting documents several times until they meet the requirements as a complete application, and then submit the matter to the committee for approval. It will take between 60 and 120 days from the date on which a complete application is filed for the department to approve or reject such application.
Under the act, it is possible to obtain a licence for the business categories listed under List Two and List Three. However, in practice, the Foreign Business Committee has discretion to refuse an application for a licence for a number of reasons. Additionally, some foreign companies do not want to enter into a joint venture with Thai partners for a number of reasons. As a result, foreigners often use Thai nominee shareholders to hold shares for them in their Thai companies.
The Department of Business Development (and the Ministry of Commerce in general) does not often investigate and prosecute offenders of the act, mainly due to a lack of personnel. It carries out investigations and enforcement once in a while, usually where a nominee shareholding structure is alleged by or against major politicians or major businessmen. A nominee shareholding structure is illegal and, if prosecuted in court, both the Thai nominees and the foreigner can be subject to a fine or imprisonment under the act.
For further information on this topic please contact Kowit Somwaiya or Naddaporn Suwanvajukkasikij at LawPlus Ltd by telephone (+66 2 636 0662), fax (+66 2 636 0663) or email (firstname.lastname@example.org or email@example.com).
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