How Much of a Thai Company Can a Foreigner Own? The Definition of "Foreigner", the Annexed Lists, Minimum Capital, and Nominees

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Who is a "foreigner" under Thai law?

There are four categories of foreigner under this Act: natural persons who are not of Thai nationality; juristic persons not registered in Thailand; juristic persons registered in Thailand in which foreigners hold shares or have invested at least one half of the capital; and Thai juristic persons at least one half of whose shares are held by a juristic person in one of the preceding categories, one tier further up (Section 4).

Section 4 of the Foreign Business Act B.E. 2542 (1999) provides that "foreigner" means^[1]

"(1) a natural person who is not of Thai nationality; (2) a juristic person not registered in Thailand; (3) a juristic person registered in Thailand, being of the following descriptions: (a) being a juristic person at least one half of capital shares of which are held by persons under (1) or (2), or a juristic person in which investment has been placed by the persons under (1) or (2) in the amount at least equivalent to one half of the total capital thereof; (b) being a limited partnership or a registered ordinary partnership the managing partner or the manager of which is the person under (1); (4) a juristic person registered in Thailand at least one half of the capital shares of which are held by persons under (1), (2) or (3) or a juristic person in which investment has been placed by the persons under (1), (2) or (3) in the amount at least equivalent to one half of the total capital thereof. For the purpose of this definition, shares of a limited company represented by share certificates issued to bearers are deemed as shares held by foreigners, unless otherwise provided by the Ministerial Regulation."
— Foreign Business Act B.E. 2542 (1999), Section 4 (English translation as published by the Thailand Board of Investment)

The significance of this definition is that a company registered in Thailand can itself count as a "foreigner" if foreigners together hold half (50%) or more of its shares — whether directly or through a Thai juristic person that is itself a foreigner under item (4) — and so can a partnership whose managing partner or manager is a foreigner under item (3)(b). This is where the shareholding structure matters greatly in planning an investment.

How much of a Thai company can a foreigner own? The one-half-of-capital threshold, indirect shareholding, and the money actually invested

The dividing line the law uses is "at least one half" of the capital. If foreigners hold 49 percent, the company is not yet a foreigner; at exactly 50 percent it is already a foreigner. The count includes shares held directly, shares held through another Thai juristic person that is itself a foreigner, and the value of the money actually invested (Section 4 (3) (a) and (4)).

The words "at least one half" include an amount exactly equal to one half. A company in which Thai and foreign shareholders each hold 50 percent is therefore a foreigner under Section 4 (3) (a), even though the foreign side does not hold a majority. The 49 percent figure found in many joint-venture structures comes directly from this provision; it is not a cap the law sets as such. The question of how much a foreigner may own can therefore be answered in four scenarios.

• Foreigners together hold less than one half of the capital, and the Thai side genuinely invests its own money The company is not a foreigner, is not subject to the prohibitions in Section 8, and does not need the minimum capital under Section 14. Specific laws must still be checked, such as land law, which has its own criteria.
• Foreigners hold from one half up to 100 percent, and the business is not on any list The company is a foreigner but may operate that business without a license. The main condition under this Act is minimum capital of not less than two million baht under Section 14, paragraph one.
• Foreigners hold at least one half, and the business is in List Two or List Three A license under Section 8 (2) or (3), or a certificate under Section 11 or Section 12, must be obtained before the business starts. Minimum capital is not less than three million baht under Section 14, paragraph two, and for List Two, Section 15 requires Thai nationals or juristic persons that are not foreigners to hold at least 40 percent of the shares, which may be relaxed but not below 25 percent.^[3]
• The business is in List One There is no licensing route; only the exceptions in Section 10 remain. A company that wishes to operate these businesses must therefore not be a foreigner from the outset, with the Thai side holding the majority of shares with its own money.

Section 4 (4) extends the count to the second tier. Thai Company B, in which Thai Company A holds at least one half of the shares, is a foreigner if Company A is already a foreigner under (3). For example, if Company A has foreign shareholders holding 60 percent and Company A then holds 51 percent of Company B, Company B is a foreigner, even though its shareholder register lists only Thai juristic persons. A multi-tier structure must therefore be calculated at every tier, not only at the tier where the operating business is registered.

The definitions in Section 4 also fix the basis of the calculation. "Capital" means the registered capital of a limited company, the paid-up capital of a public limited company, or money invested in a partnership or juristic person by partners or members, and the last paragraph of the definition of "foreigner" deems shares represented by share certificates issued to bearers to be shares held by foreigners. The proportion in a limited company is therefore calculated from registered capital, not from voting rights at shareholders' meetings. This differs from the law of some countries that count only voting shares, as explained in the comparative law section.

The Supreme Court does not stop at the figures in the list of shareholders. In Supreme Court Judgment No. 2252/2560, the plaintiff was a juristic person registered in the British Virgin Islands that held less than one half of the shares in Company P. according to the shareholder list, but the real capital in Company P. belonged to the plaintiff and exceeded one half of the investment. The court held that the plaintiff was a foreigner under Section 4 and treated Company P. and the plaintiff as operating a land trading business, which is a List One business. As a result, the plaintiff was not an injured person in law in its case against directors on charges under the Act Prescribing Offences Relating to Registered Partnerships, Limited Partnerships, Limited Companies, Associations and Foundations B.E. 2499 (1956) and Section 353 of the Criminal Code, because those charges arose from the plaintiff's own prohibited business. The principle from this case is that the words "investment … in the amount at least equivalent to one half of the total capital" in Section 4 (3) (a) allow the court to look at the money actually invested. Arranging the figures in the register does not take a company out of foreigner status, and a foreign investor that sets up such a structure may also lose the right to sue the managers who caused it loss.

The 3 lists: businesses foreigners may not operate, must obtain a license for, or may operate only with restrictions

Section 8 divides controlled businesses into three lists. List One has no licensing route; List Two requires a license from the Minister with the approval of the Cabinet; and List Three requires a license from the Director-General of the Department of Business Development with the approval of the Foreign Business Commission. A business not on any list may be operated by a foreigner without a license.^[2]

The Act divides businesses into 3 lists annexed to it, each with a different level of restriction.

Minimum capital for foreigners

Foreigners must use start-up capital of not less than two million baht for businesses that do not require a license, and not less than three million baht for businesses in the annexed lists that require a license (Section 14). The Ministerial Regulation B.E. 2562 (2019) sets out the details and the period for bringing the money into Thailand.

Section 14 of the Foreign Business Act and the Ministerial Regulation Prescribing the Minimum Capital and the Period for Bringing or Remitting the Minimum Capital into Thailand B.E. 2562 (2019) (which repealed the B.E. 2545 (2002) regulation) set the minimum capital for foreigners as follows:

Routes that let a foreigner do business without applying for an FBA license

A foreigner that has been granted investment promotion, has been granted permission under the law on the Industrial Estate Authority of Thailand, or holds rights under a treaty may apply to the Director-General for a certificate instead of a license, and the Director-General must issue it within thirty days (Sections 10, 11, and 12).

Besides applying for a license under the FBA, there are other routes that foreign investors commonly use:

1. Investment promotion (BOI) — A company granted investment promotion by the Office of the Board of Investment (BOI): if the promoted business falls under List Two or List Three, the company notifies the Director-General of the Department of Business Development to obtain a certificate under Section 12 of the Foreign Business Act and may then operate that business for as long as the promotion lasts (this does not apply to List One businesses), together with the tax and non-tax incentives under the Investment Promotion Act.

2. A certificate under a treaty — The United States and Thailand are parties to the Treaty of Amity and Economic Relations (the Treaty of Amity), Article IV of which gives American companies national treatment in doing business, while its second paragraph reserves each party's rights in communications, transport, fiduciary functions, banking involving depository functions, the exploitation of land or other natural resources, and domestic trade in indigenous agricultural products. A person entitled under the treaty notifies the Director-General of the Department of Business Development to obtain a certificate under Section 10, paragraph two, and Section 11, which the Director-General must issue within thirty days.

3. Permission under the law on the Industrial Estate Authority of Thailand (IEAT) — A foreigner granted written permission to operate an industry or to trade for export under the law on the Industrial Estate Authority of Thailand may notify the Director-General to obtain a certificate under Section 12, in the same way as in the BOI case.

BOI incentives: why foreign investors favor this route

Benefits under the Investment Promotion Act B.E. 2520 (1977) are divided into tax incentives, such as a corporate income tax exemption of up to eight years, and non-tax incentives, such as land ownership and bringing in foreign experts to work. The right to hold a majority of shares in a List Two or List Three business comes from the certificate under Section 12.

The Office of the Board of Investment (BOI) grants promoted companies incentives in two main groups:

Tax incentives include a corporate income tax exemption of generally up to eight years (Section 31), and up to thirteen years for activities using advanced technology and innovation or research and development (Section 31/1); an exemption from import duty on machinery (Section 28); and an exemption from import duty on raw materials for production for export (Section 36 (1)).

Non-tax incentives include permission to own land for the promoted activity in the amount the Board considers appropriate, which must be disposed of within one year after the activity ceases or is transferred (Section 27), and permission to bring in foreign experts to work, with work permits (Sections 25 and 26). The ability of foreigners to hold a majority of the shares in a List Two or List Three business comes from the certificate under Section 12 of the Foreign Business Act, not directly from an incentive under the Investment Promotion Act.

Penalties for operating a business without a license

A foreigner that operates a business in the annexed lists without a license faces imprisonment of up to three years or a fine of 100,000 to 1,000,000 baht, and the court will order the business to cease, with a daily fine of 10,000 to 50,000 baht for non-compliance (Section 37).^[5]

Violating the Foreign Business Act carries severe penalties. Section 37 provides for imprisonment of up to 3 years or a fine of 100,000 baht to 1,000,000 baht, or both, and the court will order the cessation of the business, the closure of the enterprise, or the termination of the shareholding or partnership, as the case may be. Failure to comply with the court order is punishable by a fine of 10,000–50,000 baht per day for as long as the violation continues.

Nominees under Section 36: criminal liability and civil consequences of holding shares on behalf of a foreigner

A Thai shareholder who holds shares on behalf of a foreigner to enable the foreigner to operate a business in circumvention of this Act, and the foreigner who consents, face imprisonment of up to three years or a fine of 100,000 to 1,000,000 baht (Section 36). On the civil side, the Supreme Court has held that a contract made for this purpose is void and that money paid by the foreigner cannot be recovered (Supreme Court Judgment No. 5457/2560).

Section 36 provides:^[4]

"A Thai national or a juristic person, not being a foreigner under this Act, who assists in or aids and abets or participates in the operation of a foreigner's business specified in the Lists annexed hereto where such foreigner is not permitted to operate that business or who operates the business jointly with a foreigner in the manner holding it out as the former's sole business or who acts as a foreigner's nominee in holding shares in a partnership or a limited company or any juristic person with a view to enabling the foreigner to operate the business in circumvention or violation of the provisions of this Act, or a foreigner who allows such act to be committed by a Thai national or a juristic person that is not a foreigner under this Act, shall be liable to imprisonment for a term not exceeding three years or to a fine of one hundred thousand Baht to one million Baht or to both, and the Court shall order the cessation of the assistance or the aiding and abetting or order the cessation of the joint operation of the business or order the cessation of shareholding or partnership, as the case may be. In the case of violation of the order of the Court, the violator shall be liable to a fine at the daily rate of ten thousand Baht to fifty thousand Baht throughout the period of the violation."
— Foreign Business Act B.E. 2542 (1999), Section 36 (English translation as published by the Thailand Board of Investment; the Thai original is in the footnotes)

The provision covers two groups of conduct. The first is assisting, supporting, or participating in a business in the annexed lists that the foreigner is not licensed to operate. The second is holding the business out as one's sole business, or holding shares on behalf of a foreigner "with a view to enabling the foreigner to operate the business in circumvention or violation of" this Act. These latter words state a specific intent, so merely having a Thai name in the shareholder register is not yet an offense under Section 36. What must be proved is whether the Thai shareholder actually holds the shares on behalf of the foreigner, and whether this is done to enable the foreigner to circumvent the law. The facts that bear directly on this intent are the source of the share subscription money, the beneficiary of the dividends, and who actually makes decisions in the company, which is consistent with the Supreme Court's examination of the real capital in Supreme Court Judgment No. 2252/2560. In addition, where a juristic person commits an offense under Section 36 or Section 37, its directors, partners, or persons with authority to represent it who connive at the offense, or fail to take reasonable action to prevent it, are also liable under Section 41.^[6]

Supreme Court Judgment No. 3618/2566 shows that cases of this kind involve both the foreign side and the Thai side in the same case. The court of first instance found Defendants 1 to 4 guilty under Section 8 (3) and Section 37 and Defendants 5 and 6 guilty under Section 36, ordered the cessation of the business or the closure of the enterprise, and ordered the Thai nationals to cease holding shares or being partners in Defendant 1, but did not set a fine for non-compliance with the court order. The Supreme Court held that such a judgment was an "incomplete judgment" under Section 37. The Court of Appeal's imposition of a fine of 10,000 baht per day throughout the period of violation therefore merely completed the conditions for enforcing the penalty as the law requires. Defendants 1, 3, and 4 had to pay the fine from November 28, 2018 (B.E. 2561), the date the judgment of the court of first instance was read, until March 2, 2020 (B.E. 2563), the date Defendant 1 registered its dissolution. An order to cease a business therefore always carries a daily fine, and the actual burden depends on how long it takes to restructure or dissolve the company after judgment.

The civil consequences are no less serious than the criminal penalties. In Supreme Court Judgment No. 5457/2560, a foreigner bought the entire business of Defendant 1 company and had Thai nationals named as shareholders in name only. The 19,500,000 baht paid was documented as a loan agreement guaranteed by a director. When the foreigner sued to recover the money under the loan agreement, the Supreme Court found that the loan agreement was a juristic act concealing a contract for the sale of the business, and that the sale contract, made with the object of circumventing the law controlling business operations by foreigners, was void under Section 150 of the Civil and Commercial Code. The money paid was a performance in violation of a legal prohibition and therefore could not be recovered under Section 411. A foreign investor that uses nominee shareholders thus risks both criminal penalties and the loss of its investment without any right to recover it through the courts.

The injured person in offenses under this Act is the State. Supreme Court Judgment No. 2300/2557 held that the Foreign Business Act B.E. 2542 (1999) aims to protect the public interest, and that "only the State can be the injured person in offenses under these provisions" within the meaning of Section 2 (4) of the Criminal Procedure Code. A private party alleging that a foreigner is operating a prohibited business therefore cannot bring a criminal prosecution itself. In a dispute between joint-venture partners, the party that knows the facts of the nominee shareholding can only report them to the authorities, and may itself be in the position of a co-offender under Section 36.

Comparative law: the Philippines, Indonesia, and Vietnam

Neighboring countries use three different tools. The Philippines limits the capital proportion in its Constitution, and its Supreme Court counts only shares entitled to vote in the election of directors. Indonesia declares nominee shareholding agreements void directly by statute. Vietnam uses a list of businesses subject to market access restrictions, issued by the government as secondary legislation.

The Philippines Article XII, Section 11 of the 1987 Constitution reserves franchises for the operation of public utilities to citizens or to corporations "at least sixty per centum of whose capital is owned by such citizens". The question is whether "capital" means all shares or only voting shares. In Gamboa v. Teves, G.R. No. 176579 (Supreme Court of the Philippines, en banc, June 28, 2011, 668 Phil. 1), which concerned the shareholding structure of the telecommunications company PLDT, the court held that "the term 'capital' in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors". The reasoning is that control of a corporation is exercised through voting rights, so non-voting preferred shares are not counted as the basis for this proportion.

Indonesia Law No. 25 of 2007 on Investment (Undang-Undang Nomor 25 Tahun 2007 tentang Penanaman Modal), Article 33(1), prohibits domestic and foreign investors investing in the form of a limited liability company from entering into an agreement or making a statement that the shares in that company are held "untuk dan atas nama orang lain" (for and on behalf of another person), and Article 33(2) provides that such an agreement or statement is "batal demi hukum" (null and void by operation of law). Indonesia thus sets out the civil consequences of nominee shareholding directly in statute, while Thailand reaches a similar result through Section 150 of the Civil and Commercial Code, as applied by the Supreme Court in Supreme Court Judgment No. 5457/2560.

Vietnam Law on Investment No. 61/2020/QH14, Article 9, provides that foreign investors are subject to the same market access conditions as domestic investors, except for businesses on the Negative List for Market Access, which the government issues under Article 9(2). The list is divided into prohibited and restricted businesses, and the conditions that may apply include the proportion of charter capital owned by foreign investors. This structure resembles Thailand's annexed lists, except that Vietnam has the government issue the list as secondary legislation, whereas Thailand sets out List One to List Three in the annex to the Act itself.

Comparing the three systems, Thai law has two distinctive features. First, Section 4 uses registered capital and the value of investment as its basis, not voting rights as in Gamboa. Issuing preferred shares that give the Thai side fewer votes than its share of capital therefore does not change the company's foreigner status under the text of the statute, but it does not avoid scrutiny of nominee shareholding under Section 36. Second, Thailand applies criminal penalties and civil voidness at the same time. A foreign investor considering a joint-venture structure in Thailand should therefore review the capital proportions, the source of the share subscription money, and the rights attached to each class of shares together.

Law and economics and cross-disciplinary perspectives: the cost of shareholding restrictions and the incentive to use nominees

The annexed lists reserve part of the market for Thai operators in exchange for foreign investment that may not come in. A 2019 OECD study estimates that easing restrictions by about 10 percent on the OECD index could increase bilateral foreign direct investment stocks by 2.1 percent on average.

Section 8 (3) states the rationale for List Three in the text itself: businesses "in respect of which Thai nationals are not yet ready to compete with foreigners", which corresponds to the concept of infant industry protection. At the same time, Supreme Court Judgment No. 2300/2557 reads the reason for enacting the Act as being to "promote competition in business both domestically and internationally". Read together, these two passages suggest that the law treats protection as a transitional measure, not a permanent state. In law and economics, protection of this kind is justified when domestic operators need time to accumulate capital and know-how, but if there is no review of which businesses are ready to compete, the cost falls on consumers and on other businesses that use those services as inputs.

The cost of restrictions can be measured from data. Mistura and Roulet (2019), in the OECD Working Papers on International Investment series, apply a gravity model to data from 60 countries over 1997 to 2016 against the OECD FDI Regulatory Restrictiveness Index. They estimate that reforms easing restrictions by about 10 percent on the index could increase bilateral FDI stocks by 2.1 percent on average, with larger effects in the services sector, and the study analyzes foreign equity restrictions and investment screening specifically. Services are an area that Thailand's List Three covers extensively, so this finding bears directly on the design of List Three.

When the law limits the capital proportion, the gap between what a foreign investor wants to hold and what the law allows it to hold is the incentive to use nominee shareholders. The design of enforcement therefore matters as much as the cap itself. Thai law uses three tiers of tools. The first is criminal penalties and daily fines under Sections 36 and 37. The second is counting the real value of investment under Section 4 (3) (a), which closes the gap of arranging figures in the register, as in Supreme Court Judgment No. 2252/2560. The third is voidness and the inability to recover money under Sections 150 and 411 of the Civil and Commercial Code, as in Supreme Court Judgment No. 5457/2560.

The third tier carries particular weight because Supreme Court Judgment No. 2300/2557 confirms that only the State is the injured person in criminal terms. The chance that nominee shareholding will be detected therefore depends on state enforcement, whereas the civil consequences take effect as soon as a dispute arises between the contracting parties, and the foreign side, as the party that put in the money, bears the risk of losing the entire amount. The expected cost of using a nominee therefore comes not only from criminal penalties but also from the fact that the contract serving as the investor's security is unenforceable. This design uses private incentives to help enforce the law, without the State having to detect every case.

From an accounting and audit perspective, the evidence of who the real investor is lies in the share payment documents: evidence of fund transfers into the company's account, the list of shareholders, and evidence of receipt of dividends. Where these documents are inconsistent with the register, the court may follow the money actually invested, as in Supreme Court Judgment No. 2252/2560. A structure in which the Thai side holds shares with its own money and has complete evidence therefore both complies with the law and reduces civil risk.

Sources: Mistura, F. and C. Roulet (2019), "The determinants of Foreign Direct Investment: Do statutory restrictions matter?", OECD Working Papers on International Investment, No. 2019/01, DOI 10.1787/641507ce-en · OECD (2010), "OECD's FDI Restrictiveness Index: 2010 Update", OECD Working Papers on International Investment, 2010/03, DOI 10.1787/5km91p02zj7g-en · Gamboa v. Teves, from the E-Library of the Supreme Court of the Philippines (elibrary.judiciary.gov.ph)

Foreign shareholder structure: decisions to make before registration

The foreign shareholder structure should be decided before filing for registration, because adjusting the capital proportions later requires registering changes, transferring shares, or increasing capital, and if the original structure falls within Section 36, correcting it later does not erase liability that has already arisen.

Thailand's foreign investment law is highly complex: beyond the Act itself, there are annexed lists that are amended from time to time, ministerial regulations that can change, and Department of Business Development practice that takes experience to interpret.

Eksiam Chaisorn, a legal consultant whose practice covers the formation and structuring of partnerships and companies, business contracts, and foreign investment, advises on structuring investments in compliance with the law, from choosing the type of juristic person and planning the shareholding structure to applying for BOI promotion and applying for an FBA license. The scope and package prices for company formation are on our Company Registration page, and detailed work on applying for investment promotion is covered by the BOI Feasibility Assessment service of Eksiam Trade & Investment Law

Frequently asked questions on foreign shareholding in Thai companies

The answers below summarize Sections 4, 8, 14, 15, 36, and 41 of the Foreign Business Act B.E. 2542 (1999). The facts of each business may lead to a different result.