Treatment of Unrestricted Activities under the Foreign Business Act

Foreign investors in Thailand normally become familiar with the restrictions imposed by the three annexes under Thailand's Foreign Business Act B.E. 2542 (FBA) early in their planning process. The annexes list approximately 50 types of businesses (or "restricted activities") where foreign ownership is restricted absent certain exceptions. As for those fortunate investors whose proposed businesses are not considered "restricted activities", it is tempting to assume that the FBA will allow them to conduct their business as they please. This is a critical oversight, however, as the FBA still applies to "unrestricted activities" conducted by foreigners by imposing a minimum paid-up capitalization requirement of THB 2 million for each such unrestricted activity. To determine the appropriate level of capitalization required by the FBA, the foreign investor will therefore need to determine (i) how many "unrestricted activities" will be conducted and (ii) whether there are any exceptions available to the capitalization requirements for a particular unrestricted activity.

Each investor's circumstances are unique, and a careful analysis of each proposed "unrestricted activity" is essential to determine the appropriate level of capitalization required by the FBA. A brief analysis of manufacturing provides a good example of the analysis involved in making the capitalization determination. Manufacturing is perhaps the most common example of an "unrestricted activity" not covered under any of the FBA's three annexes and may therefore be conducted by foreigners without having to obtain an alien business license (although other government approvals may still be required that apply to all manufacturing businesses regardless of ownership, such as a factory license). However, it is unlikely that a manufacturer will simply limit its activity to the manufacturing of goods, but will also likely export such goods or sell them locally. The manufacturer may therefore conclude that he will be engaging in at least three separate activities and will need to determine whether or not such activities would constitute "restricted activities" or "unrestricted activities". According to Thailand's Department of Business Development (DBD), which is responsible for registering Thai limited companies and confirming their compliance with the FBA and other laws, exporting, wholesaling and retailing manufactured goods are fortunately not considered as separate "unrestricted activities" that are subject to the THB 2 million capitalization requirement. In other words, a manufacturer that is also engaged in exporting, wholesaling and retailing of the manufactured products would only be required to have a total of THB 2 million paid up capitalization under the FBA

A foreign investor's capitalization concerns do not stop with the FBA, however. In particular, an investor who receives Board of Investment promotion for their business may be subject to additional capitalization requirements under Thai law, as the DBD has taken the position that a business may not apply any of its capitalization issued for BOI purposes towards the capitalization requirements under the FBA.  Furthermore, an investor which seeks to employ foreign staff may be subject to additional capitalization requirements for purposes of obtaining work permits and long term visas.

last updated on 27 March 2013