Understanding the Foreign Business Restrictions
In Thailand, the Foreign Business Act (FBA) establishes significant restrictions for foreign businesses. This includes defining ‘foreigners’ as both foreign individuals and legal entities, as well as entities in Thailand where foreigners own the majority of the capital.
Rules for Trading (Retail and Wholesale)
The retail and wholesale sectors in Thailand are recognized as industries where Thai nationals are not yet fully competitive with foreign entities, as outlined by the FBA. To operate in these sectors, a foreign-majority company must first obtain a Foreign Business License (FBL).
Concerning trading, the FBA specifies certain activities that are prohibited for foreigners:
- Internal trade connected with indigenous agricultural produce or products not prohibited by any present law.
- Retailing all categories of goods with a total minimum capital less than 100 million Baht or with the minimum capital of each shop less than 20 million Baht.
- Wholesaling all categories of goods with a minimum capital of each shop less than 100 million Baht.
- Selling food or beverages.
To be authorized to engage in these activities, approval from the Director-General of the Department of Business Development of the Ministry of Commerce (DBD) and from the Foreign Business Board is required.
Non-Food Retail: Exemptions for High Investment
Foreign investors can circumvent the need for an FBL in both the non-food retail and wholesale sectors by meeting certain capital investment thresholds:
- Retail Sales: An FBL is required if the total capital is less than 100 million baht, or if the capital for each individual store is below 20 million baht.
- Wholesale Trade: An FBL is necessary if the capital for each store is less than 100 million baht.
Therefore, foreign investors are exempt from requiring an FBL and can own 100% of a non-food retail or wholesale business if the minimum capital invested is at least 100 million baht per business entity. For retail businesses, this level of investment allows for the operation of up to five stores. In contrast, for a wholesale business, a minimum capital investment of 100 million baht permits the operation of just one store.
US-Thai Treaty of Amity Company
A key exception to Thailand’s foreign business regulations is the 1966 Treaty of Amity and Economic Relations between Thailand and the United States (Amity Treaty). Under this treaty, U.S. citizens and companies are permitted to establish non-food retail businesses in Thailand without needing an FBL. This provision significantly facilitates the entry and operation of U.S. businesses in Thailand’s non-food retail sectors.
However, the US-Thai Treaty of Amity excludes domestic trade in indigenous agricultural products from national treatment.
Japanese investors
Japanese investors can rely on the Japan-Thailand Economic Partnership Agreement (JTEPA), which permits increased participation in certain retail and wholesale sectors. However, it’s important to note that these exceptions are more limited than those provided by the Amity Treaty.
Under JTEPA, Japanese ownership in Thai retail and wholesale sectors (excluding distilled alcohol) can be up to 75%, subject to specific conditions:
Wholesale Trade Services: Japanese enterprises established in Thailand are allowed to engage in wholesale trade services. This includes the distribution and installation of:
- Products manufactured in Thailand by the Japanese enterprise or its group companies under the same brand.
- Automobiles manufactured in Japan by its group companies under the same brand.
Retailing Services: Similar provisions apply to Japanese retailing services in Thailand, where they can handle the distribution and installation of:
- Products made in Thailand by the Japanese enterprise or its group companies under the same brand.
- Automobiles produced in Japan by its group companies under the same brand.
Food Retail in Thailand
When it comes to the food retail sector, the investment landscape is distinctly different. Unlike other sectors, there are no exemptions for high investments in food retail. This means that regardless of the investment size, the standard rules of the FBA apply uniformly. Additionally, the US-Thai Treaty of Amity specifically excludes the possibility for US-Thai Treaty of Amity companies to engage in the domestic trade of indigenous agricultural products. Therefore, foreign investors, including those from the US, must adhere to the general regulations governing the food retail sector without any special concessions.
Thai Majority Company as an Alternative
For foreign investors unable or unwilling to meet the capital requirements for an FBL, forming or participating in a Thai-majority company is a viable alternative. In such companies, with at least 51% Thai ownership, foreign investment is exempt from the FBA’s restrictions. This approach facilitates entry into Thailand’s retail sector for foreign investors.
Strategies for Entering the Thai Retail Market
Non-Food Retail Sector
Food Retail Sector
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