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Thai Law Insights

Making Foreign Investment in Retail a Reality in Thailand

Nalanta Tonghorm

nalantat@csbc-law.com

Opening retail businesses in Thailand has become increasingly difficult for non-Thai nationals as the Alien Business Operations Committee (ABOC), comprised of representatives of various public and private sectors such as the Ministry of Commerce, the Ministry of Foreign Affairs, and the Board of Trade of Thailand, among others; has tightened the standards for granting Foreign Business Licenses. For more than a decade, the ABOC, looking to assist Thai companies competing with foreign companies, has strongly scrutinized potential foreign businesses.

The Foreign Business Act of 1999 (FBA), like the Alien Business Law before it, precluded a large number of foreign investors from opening businesses in the Kingdom, citing a need to “limit foreign participation in some business activities either because they were sensitive sectors for Thailand (on security, natural resources, culture, etc. ground) or because the Thai people were not competitive in those sectors.” The FBA was enacted for the purpose of fulfilling international obligations under the WTO agreement to open the market for foreign investors.

Retail business in Thailand is presumptively inaccessible to foreigners. List Three of the FBA, which consists of businesses which Thai nationals are not ready to compete with foreigners, includes retail stores. Foreign Business Licenses for List Three businesses are issued at the complete discretion of the Director-General of the Department of Business Development (DBD) under the Ministry of Commerce, with the approval of the ABOC. If permission is granted, these businesses may be 100% foreign owned.

A few exemptions are available to foreign investors. Foreign owned retailers are exempt from the restrictions of the FBA if they bring in a minimum total capital of THB 100 million into Thailand or a minimum capital of each shop of THB 20 million. The rationale behind this policy is to encourage the flow of foreign currency into Thailand.

Additionally, foreigners may be exempt from certain FBA requirements if they are operating a business under the protection of a treaty to which Thailand is a signatory, such as the 1966 Treaty of Amity and Economic Relations between Thailand the United States.

As Thailand resists the onslaught of foreign investors looking to break into its retail market, the ABOC is a roadblock to smaller retailers who cannot afford the FBA exemptions mentioned above. However, with the advice of competent legal professionals, obtaining the required licenses to operate a wholly foreign owned business in Thailand is very much within reach. With proper counsel, foreign investors can take the appropriate steps to establish their presence in the retail industry in Thailand.