Top Legal Issues Foreign Businesses Face in Thailand

Many common legal issues that foreign companies experience in Thailand can make registering a business more challenging. Unlike local Thai business owners, foreigners are subject to certain restrictions and conditions that they must abide by to ensure the survival of their businesses. Recognizing these issues before the company is formed helps establish a business that complies with Thai law and avoids legal problems.

This page will cover the major restrictions foreign business owners may face in Thailand and ways to overcome them. 

Foreign Ownership Restrictions

One of the biggest legal issues is foreign ownership restrictions on certain businesses in Thailand. These are established by the Thailand Foreign Business Act (FBA), and failure to obey the rules can result in severe consequences, including the dissolution of the company and legal action against the owners. To comply, foreigners will have to fulfill the following conditions:

• Foreign nationals cannot own land under their name.
• In General, foreign ownership of a company is limited to no more than 49%. Thai nationals must hold the remaining 51% of the company shares (the percentage varies by industry). 
• Using a Thai nominee shareholder to bypass restrictions is prohibited.

While foreign ownership of a company is limited in many sectors, gaining full ownership rights is made possible through the following methods: 

• Acquiring a Foreign Business License (FBL)
• Applying for promotion with the Board of Investment (BOI)
• Registering the business through a foreign business certificate such as the Treaty of Amity (only applicable to US citizens)

Licensing and Compliance for Foreign Entities

Foreign-owned companies must follow various guidelines to operate legally in Thailand. This includes the following requirements: 

• Foreign-owned businesses must have a minimum registered capital of at least 2 million baht for each foreign employee.
• The company must have a valid Thai work permit if it has a foreign director. 
• All limited companies need at least two shareholders throughout the operational period. 

Additionally, the FBA restricts foreign-owned businesses from partaking in a total of 50 activities, with three categories of varying restrictions:

1. Category 1: Foreign businesses cannot operate in these industries, regardless of the circumstances. This includes media, farming, forestry, fishery, land trading, and auctioning of religious and historical artifacts.
2. Category 2: Business operations in this sector are prohibited unless Thai nationals hold 50% or more of the company shares. This includes national safety, arts, culture, and natural resources. 
3. Category 3: Foreign businesses are permitted on a limited basis because Thai business owners are not ready to compete with their foreign counterparts. This includes a long list of activities, including resource production, legal services, retail, tour guides, and more. 

Foreigners setting up a business in the second category must obtain approval from the Cabinet or a government entity beforehand and an FBL. However, they only need to obtain an FBL to participate in activities in the third category. 

Obtaining the Right Business License

Depending on their business industry, foreign business owners may need to secure additional licenses. This is an extra requirement that they will need to meet beyond the FBL and can be difficult to obtain. Some examples of business activities that require further licensure include: 

• E-Commerce license: to partake in online businesses
• Restaurant license: to perform business activities in restaurants 
• Import/Export license: to set up a business revolving around the export and import of goods and services 
• Tourism license: required for any tourism-related business, such as a travel agency 
• Education license: required if the company is an educational institution (such as a school) 
• Financial services license: to operate a business in the financial sector, such as a bank 

Foreigners must secure a foreign business license to operate businesses in certain fields restricted to foreigners. This can be a long and complex process, and the approval of the Foreign Business Committee is discretionary. 

Foreigners can obtain a Foreign Business License by following these steps:

1. The business owner must apply for a Foreign Business License from the Department of Business Development, Ministry of Commerce (MoC). 
2. An official from the MoC reviews the application and required documentation to ensure everything is in order. 
3. The MoC forwards the application to the Foreign Business Committee for a final review. 
4. The officer responsible for the application at the Foreign Business Committee will decide on whether to grant the license or request any additional documentation as they see fit. 

The chances of approval are significantly higher if the committee believes the company benefits the nation, protects and promotes Thai interests, and does not disadvantage local businesses. 

Labor Law Challenges

Following the Foreign Working Act of 2008, workers must first secure the right to legal employment in Thailand by applying for and receiving a work permit. Employers must sponsor the employee for a valid working visa (such as a non-immigrant B visa) and a Thai work permit before the worker can legally begin work. 

Foreign employment is also limited in Thailand, which ensures that citizens have fair access to the job market. Every foreign employee with a work permit at a company must have at least 4 Thai citizen employees. This is known as “Thailand’s 4:1 employment ratio rule.” However, there are ways to bypass this rule, such as the benefits of the Thai Long-Term Resident Visa.

For Thai employees to count toward the 4:1 ratio, they must be enrolled in Thailand’s social security system to access baseline health benefits, maternity leave, insurance, and other privileges. As such, the business must be registered as an employer with the Social Security Office in Thailand. 

Importance of Legal Counsel for Foreign Business

With so many rules in place, owning a business as a foreigner in Thailand can be complex and fraught with risk. That’s why seeking guidance from a qualified Thai corporate lawyer is vital. An experienced corporate lawyer can help you meet all the legal considerations of opening a business in Thailand to avoid costly mistakes and delays. 

To help foreign business owners navigate the intricacies of Thai labor law and ownership limitations, corporate lawyers provide a wide range of services, including but not limited to the following: 

• Evaluating the proposed business plan and addressing ways to improve it.
• Handling the company’s registration process on the business owner’s behalf with the appropriate government entity.
• Reviewing company documentation to ensure it meets the requirements outlined by the FBA.
• Helping foreign business owners gather the required documents and apply for a foreign business license. 
• Assisting in applying for BOI promotion or the US-Thailand Treaty of Amity privileges (if applicable). 
• Handle all negotiations with the relevant authorities to avoid language barrier issues. 

Contact Siam Legal for Professional Legal Assistance

To avoid encountering legal problems when establishing your business in Thailand, partner with Siam Legal’s corporate lawyers for professional guidance. We are a full-service law firm with over 20 years of experience helping foreigners get their businesses up and running swiftly with minimal complications. 

Our qualified corporate lawyers will review your business plans and ensure you can implement them without issues. We’ll also handle the document collection and application submission to the right authorities on your behalf. Siam Legal will handle the administrative burdens and get your company set up quickly and smoothly so you can put your full focus on getting to market and achieving business success. 

Contact Siam Legal today for a successful start to your business, free from legal issues and delays.

Category: Business in Thailand, Company Law