30 May Thailand to Relax Foreign Business Restrictions on Services Provided to Affiliates
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:
1.) provision of loans to affiliates and subsidiary companies;
2.) lease of office space to affiliates and subsidiary companies, including public utilities; and
3.) provision of consultation services relating to management, marketing, human resources, and information technology to affiliates and subsidiary companies.
4.) 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 foreign party 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 49 percent of its shares held by foreign parties (who can be either natural or juristic persons). Foreign parties conducting business in Thailand must comply with FBA requirements, including strict restrictions on 43 types of restricted business activities, classified into the following three lists:
Business activities which are prohibited to foreigners by special reasons (e.g., press, radio, broadcasting, farming, forestry, land trading, etc.);
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., trading and production of firearms, antiques, mining, etc.); and
Business activities in which Thai nationals are not yet ready to compete with foreigners (e.g., provision of accounting services, legal services, trading activities, other kinds of services, etc.).
Business activities under List I of the FBA are strictly prohibited to foreigners. However, foreigners may engage in business activities under Lists II and III of the FBA if they obtain the correct licenses, such as an FBL or a Foreign Business Certificate, from the relevant government authorities.
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]lleke.com or +66 2056 5994.