Foreign owned businesses in Thailand are restricted from engaging in various business activities by Thailand’s Foreign Business Act (“FBA”). This restriction applies to about 50 types of businesses, including “service businesses”. The term “service businesses” is interpreted broadly to include business activities that are arguably not “services” per se. For example, the mere acting of renting property (not ancillary services relating to a rental, but the mere rental of property itself) or the act of lending money is considered a “service”. This is often a trap for unwary.
Businesses that are not subject to the FBA’s restrictions on ownership or are exempt from the FBA will sometimes have excess property they want to rent or may be asked by their parent company to lend money to an affiliate. Or they may be asked to provide services to an affiliated company in Thailand as an overall move to streamline operations worldwide. Without fully understanding the broad and counterintuitive scope of the term “services” in the FBA, foreign businesses will often inadvertently violate the FBA, a law that carries severe criminal penalties, including imprisonment.
The 24 September edition of the Bangkok Post contains an article stating that the government is considering removing three “service activities” from the list of restricted activities. The Bangkok Post article describes the business activities that may be removed from the annex 3 of the FBA as follows:
The three are lending services to affiliated domestic firms, office building rental services to local affiliate firms, and consulting services to affiliate firms for four activities: management, marketing, human resources and technological consulting.
Annex 3 of the FBA restricts foreign ownership of businesses in these areas because “Thais are not yet ready to compete with foreigners” in these areas. Since this liberalization will apply to “affiliate” firms, it’s hard to see how this would undermine competing Thai businesses.
According to the Bangkok Post, if this change is adopted, it will take effect next year. Watch this space for updates.