Even with various hindrances to economic growth such as political instability and natural calamities, Thailand remains to have strong economic outlook according to the Organization for Economic Cooperation and Development, a leading economic monitoring agency.
The Kingdom is listed to have a score of 64.1 in 2013 economic freedom index and is exhibiting a robust 10th place in Asia-Pacific region from a list of 41 countries. 1 Moreover, South East Asia is the rising star of the global market, led by its five fastest growing markets and among these markets is Thailand. 2
But, like all other countries, Thailand has certain laws that govern foreign investments in the country and the primary law that oversees such is the Foreign Business Act of 1999, enacted while the country was still recovering from the 1997 Asian economic crisis.
The Foreign Business Act provided three (3) lists of businesses:
- List 1 – types of businesses not permitted to foreigners.
- List 2 – types of businesses that foreigners are allowed to participate in.
- List 3 – types of businesses that Thai nationals cannot compete with foreigners yet.
If a foreign business entity plans to enter and do business in Thailand, it must first satisfy and abide by the stringent requirements stipulated by law. It also depends on which list the type of business belongs to. If the foreign firm intends to do business with a Thai partner, the company does not need to obtain a foreign business license if the local partner holds the majority of the firm unless the Cabinet expands the limit and the planned business belongs to List 2. But if the foreign business entity plans to establish a wholly or majority foreign owned branch in Thailand, it must obtain a foreign business license first before it can operate.
Obtaining a foreign business license is easy, well, at least on paper. On one look, it may be as easy as complying and submitting the requirements but in reality, it is not the case.
The foreign firm must sharply define areas like projected revenue, expenditures, and technology transfer so that the foreign business committee (FBC) will be satisfied and the firm will be granted license. Presentation of such should be “air tight”, that is, the firm should meticulously describe how it will be able to transfer the knowledge, skills and technology to its employees, workers hired by its partner or client, and universities.
It is like explaining in detail how the firm can and will transmit its technical expertise to Thailand once it starts operating. Simply put, a firm cannot satisfy the foreign business committee with how much projected revenue it can give to the national coffers alone. There must be a clear and effective plan on how the company’s expertise will be passed on to the Thai nationals.
However, there are exceptions in the required foreign business license for firms which are majority foreign owned. Among these are the Thailand Treaty of Amity and Bilateral Trade Treaties with other countries.
- U.S. – Thailand Treaty of Amity – under the treaty, a foreign company can set up business in Thailand if and when majority of its owners are citizens of the United States.
- Bilateral Trade Treaties – Thailand has entered to trade treaties with other countries that give foreign ownership.
From one point of view, these restrictions seem to point to Thailand as an excessively concerned to its own but having a glance on the 1997 economic crisis, it is clear that the country is simply making the necessary steps in order to avoid the same economic turmoil it suffered if ever it will happen again. The country is aspiring for economic stability and security while not relying too much from foreign investments.
1 Heritage.org 2013 Economic Freedom Index
2 PwC Marketmap 2012