Key Legal Requirements for Foreign Investors in Thailand: A Guide

Business Law in Thailand – Establishing a business in a foreign country is easier said than done. Worst case? You get taken to court. Although Thailand offers significant opportunities for foreign investors, it also comes with a complex legal landscape. To ensure a smooth market entry and avoid regulatory pitfalls, international businesses must understand the legal intricacies of company establishment.

Below is a comprehensive guide to the key legal considerations when investing or setting up a company in Thailand.

1. Understanding the Foreign Business Act (FBA)

The Foreign Business Act (FBA) is one of the most important regulations affecting foreign-owned companies in Thailand. It restricts foreign participation in certain business sectors unless a Foreign Business License (FBL) is obtained. Here are a couple of things to note about the restrictions:

  • Companies with 50% or more non-Thai ownership are considered “foreign” under the FBA.
  • Restricted activities include electricity trading and providing transmission line services.
  • Operating without an FBL can lead to penalties up to 3 years in prison and fines up to THB 1 million (USD 30,110).
  • The FBL application process can take 1 to 6 months or longer, depending on the business activity and regulatory approval.

2. Land and Property Ownership Restrictions

Foreign ownership of land in Thailand is very strict. Non-Thai individuals generally cannot own land directly, unless they invest at least THB 40 million in Thai bonds or assets, allowing ownership of up to 1 rai (1,600 square meters) of land, subject to approval by the Minister of Interior. However, there are alternative legal pathways and exceptions for property acquisition:

Leasehold Agreements

  • The most straightforward and popular option for foreigners is to lease land for long-term use. It’s legally secure and has lasting security.
  • Arrangements are typically structured as 30-year leases, renewable twice for a total of up to 90 years.
  • Renewal is not always guaranteed unless formally agreed upon.

Condominium Ownership

  • Foreigners may own up to 49% of the total floor space in a condominium project, as permitted under the Condominium Act.

Thai Limited Company

  • Foreign investors are allowed to purchase land through a company where Thai nationals hold at least 51% ownership.
  • Bear in mind that using nominee shareholders (Thai investors holding shares on behalf of foreigners) is illegal and can result in criminal penalties.

Usufruct and Superficies Rights

  • Foreigners may use land to build structures and offices without owning it directly. This is called Usufruct rights, and it is legally protected.

3. Conditions for Exemption and Incentives for Foreign Investors

Foreign investors may qualify for exemptions and privileges under certain frameworks:

US-Thailand Treaty of Amity

  • Allows US entities and individuals to fully or majority-own businesses in Thailand without an FBL, except for certain restricted sectors such as land trading and communications.

Thailand Board of Investment (BOI) Promotions

BOI-promoted projects benefit from a range of incentives:

  • Up to 100% foreign ownership
  • Exemption from the FBL for restricted businesses
  • Tax and non-tax benefits like import duty exemptions and corporate income tax holidays

To qualify, the investment must align with national development goals and demonstrate technology transfer, local job creation, or regional economic benefits.

Industrial Estate Authority of Thailand (IEAT)

Businesses located in IEAT zones may receive additional benefits, including:

  • Land ownership rights for foreign companies
  • Simplified regulatory processes and infrastructure support

4. Other Key Compliance Areas

When setting up and operating a business in Thailand, foreign investors must also comply with various laws and standards:

  • Labor Regulations: Must adhere to minimum wage, national standard working hours, and social security contributions.
  • Environmental Standards: Compliance is mandatory, especially for manufacturing or industrial projects.
  • Anti-Corruption Laws: Strict adherence to local and international anti-bribery standards is essential.

·         Trade Competition Act: Deals that reduce market competition require post-transaction notification, while mergers and acquisitions that may create a monopoly require pre-approval.

  • Capital Remittance: Proper documentation of foreign capital inflows is necessary for legal and tax compliance.

5. Local Legal Support

Given the intricate legal framework, working with an experienced Thai corporate lawyer is critical for foreign businesses. Legal experts provide essential guidance and help navigate local laws efficiently. Here are the ways a corporate lawyer can assist you during the business setup stage:

  • Reviewing your business model and ensuring legal compliance
  • Drafting and filing high-priority documents like the Memorandum of Association
  • Registering the business with the relevant Thai authorities
  • Facilitating corporate bank account setup
  • Advising on regulatory obligations and minimizing legal risks with the government

Work with Double M’s Qualified Legal Services

Without question, Thailand is a promising destination for investment, offering many incentives for foreigners. But to get there requires thorough legal planning and strategic structuring to ensure compliance. By understanding the regulatory environment and working with a trusted legal counsel, foreign businesses can successfully establish operations without worrying about red tape.

If you’re planning to expand into Thailand, consider engaging a specialized legal team early in the process. That way, you can enjoy a streamlined company formation and guarantee investment security.

At Double M, our experienced corporate lawyers will make sure your company avoids legal ramifications and that your company registration process goes as smoothly as possible.