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Foreign Business Act of 1999 (part 2) - Scope of the FBA

Courtesy of eThailand.com

Following is a summary of the provisions of the Foreign Business Act of 1999 (FBA), which will hopefully be useful in providing foreigners with a general understanding of how the law works. As with any legal summary, however, it cannot replace a detailed analysis of the law and how it might affect a foreigner’s specific business activities.

A: Foreigners subject to the FBA

Under the FBA, the threshold question for determining whether or not an individual or entity is subject to the law’s provisions is “what is a foreigner?” The FBA defines the following persons and entities as “foreigners”:

1. An individual who is not a Thai citizen

2. company or partnership not registered in Thailand

3. A company or partnership registered in Thailand and:

a. Having half or more of its capital held by a foreigner(s) under (1) or (2) above; or,

b. Having an individual under (1) above serve as managing partner or manager (for limited or registered ordinary partnerships only)

4. A company or partnership registered in Thailand having half or more of its capital held by foreigners under (1), (2) and (3)(a)

In simple terms, “foreigners” under the FBA include foreign individuals, foreign-registered companies, companies registered in Thailand but majority owned by foreigners and partnerships managed by foreigners.

The definition of “foreigner” is quite similar to that of an “Alien” under the old Alien Business Law. One notable difference is that the number of foreigners who hold shares is irrelevant under the FBA. Six of seven shareholders-the minimum number under Thai law-of a Thai-registered company can be foreign and the company would still not be considered a “Foreigner” so long as one Thai holds more than half of the capital of the company.

Under the previous law, if half or more of the shareholders were “Aliens”, so too was the Thai-registered company, even if a Thai held a majority of the capital.

B. Foreigners “excepted” from the FBA’s provisions

Not quite all foreigners are subject to the FBA. The FBA “excepts” certain foreigners.

We place “excepts” in quotes because at least some of the “excepted” companies are subject to certain FBA provisions, especially so under draft regulations currently under consideration by the Thai government.

Excepted businesses include:

i. Foreigners operating under special treaties to which Thailand is a party. This is a reference to American individuals and companies operating under the Thai-U.S. Treaty for Amity and Economic Cooperation. Under the draft regulations, such companies would be subject to minimum capital requirements (see IV (A) below). Subjecting the so-called “treaty companies” to the minimum capital requirement appears a clear violation of the terms of the treaty. Moreover, as we read the law, subjecting treaty companies to any capital requirement beyond a minimum of 2 million baht violates the terms of the FBA itself. The fate of the proposed regulation remains to be seen.

ii. Foreigners operating under privileges granted by the Board of Investment of the Industrial Estate Authority of Thailand.

iii. Foreigners operating a business under temporary permission of the Thai government.

iv. Foreigners operating a business under permission or rights granted under N.E.C Announcement No. 281 before March 3, 2000 (the FBA’s effective date).

Next week: Listed Activities

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