Designed to protect Thai businesses from foreign competition, the infamous Foreign Business Act of 1999 can be a stumbling block for offshore investors doing business in Thailand.
Expats hoping to buy land for their businesses – and residences – are doubly disappointed that the Land Code of 1954 stops them from doing so, this time in the name of national security.
But the story doesn’t end there, as these two legal barriers to foreign entry can effectively be swept aside by two other pieces of legislation: the Investment Promotion Act of 1977 and the Industrial Estate of Thailand Act of 1979.
The idea is a controlled direct investment in the service sector through the Foreign Business Act, or FBA, and Land Code and a completely free ride and full liberty in the manufacturing and high-technology sectors, facilitated by the BOI Act and the IEAT Act, that Thai policy makers reckon will substantially benefit the local economy and people.
For example, if your business is a legal service or accounting, the officials figure the country does not need you as much as it needs your compatriots setting up a factory in the Eastern Economic Corridor to manufacture sophisticated engineering machinery, medical equipment and parts. They half-heartedly allow the former but promote the latter with all their might. The BOI website offers a clear idea of the preferred business activities.
The Restricted ‘List Three’
Service businesses under List Three of the FBA cannot be operated by foreigners or foreign companies, defined to include companies incorporated in Thailand, in which foreigners hold 50 percent shares or more, unless a foreign business license has been obtained from the Department of Business Development, or DBD. And when you apply, there is a great degree of uncertainty whether a license will be granted at all. In this scenario, if the company you own, 50 percent to 100 percent, fails to get the foreign business license, you cannot engage in the desired business and cannot use it to own land.
To avoid the blockade under the foreign business law, you sacrifice your freedom and control of your destiny by agreeing to hold 49% shares, and invite your Thai partners to acquire the 51% majority and in so doing turn the company into a local company, entitled to do the restricted business without having to seek the license. The majority Thai-owned company can now own land as it is considered a Thai company. But what’s the use? You own less than half of the company and your local colleagues have taken over the direction of the company as the majority shareholders.
The restricted service businesses listed in List Three of the FBA include retail, with an investment of less than 20 million baht per store, wholesale with an investment less than 100 million baht per store, and of course, contract manufacturing – where others hire you to manufacture goods for them bearing their brands.
Manufacturing Liberated by BOI and IEAT
If you manufacture your own goods and then sell them, your business activity will be classified as “manufacturing,” which falls outside the scope of and is not restricted by the FBA. In a case such as this, you won’t be deemed to carry on the restricted retail or wholesale or contract manufacturing. You can own 100 percent of your manufacturing business and take full control as a foreign company, without a need to obtain a foreign business license.
In the event that you also wish to have extra privilege in being able to own the land on which your factory is located to enjoy equal rights with local companies, you can do so after you get promoted by the BOI, or your factory and the land is located in an industrial estate under the protection of the IEAT Act.
All you have to do is to notify the DBD and produce the BOI or IEAT papers to them and the DBD will issue you a certificate exempting you from the iron fist of the FBA.
1 Rai of Land For Foreign Ownership
When people can own land for their business, they also have a strong desire to own land for their home.
As you do the right type of business that greatly benefits the country’s economy and society – a BOI-promoted business no doubt meets this test fair and square – the foreign-investor friendly Thai law generously rewards you even further. Who says foreigners cannot own land? Didn’t this article cite “national security” at the beginning as the rationale for denying foreigners land ownership?
Never mind those hard-line mindsets.
It was unfathomable that the old-fashioned Land Code was amended in 1999, two years after the Tom Yum Goong Crisis, to shore up the Thai real estate market. Still in effect, it grants land ownership – with permission of the Interior Ministry – to 1 rai (1,600sqm) of land for a residential purpose to foreigners who invest at least 40 million baht (USD$1.2 million) in a business that “benefits the economy and society.”
That coincides with the business activities eligible for promotion that the BOI has painstakingly screened, announced into law and duly posted to its website. It applies not only to manufacturing but also businesses such as technology and innovation development, software, cloud services, research and development, scientific laboratories, electronic design and vocational training centers. You can simply say that any such eligible business activity “benefits the economy and society.”
Celebrating this extra residential land right, you, as the foreign investor, must keep the investment in Thailand for at least three years, a natural period for a BOI-promoted project, and your homestead must be in Bangkok, Pattaya or other provincial municipalities – no problem as expats typically live in urban centers.
Wirot Poonsuwan is a practicing attorney and can be reached at [email protected].