Reform of the Thai Foreign Investment Law
A few weeks ago, the Thai Cabinet, aiming to further open the current regulatory framework to foreign investment, approved a series of measures leading to the reform of the existing Foreign Business Act (“Foreign Business Act” -FBA- B.E. 2542 (1999)), which now has to be developed by the Ministry of Commerce as a preliminary step before public consultation and subsequent parliamentary adoption, likely during 2025. The current law, inspired by an earlier one from 1970, designed to protect local companies from foreign competition, not only fails to help achieve the goals of a high value-added, transparent, and innovation-friendly economy, but also does not align with the policies established by the 2018-2037 National Strategy and its various initiatives, such as Thailand 4.0, the Master Foreign Affairs Plan, or the National Security Strategy, among others.
Given the frequent challenges foreign investors face when doing business in Thailand, a reform like the proposed one is both necessary and urgent, so it is initially welcome. However, before passing a final judgment on it, it is necessary to know its scope and content in detail, particularly regarding key issues such as foreign capital participation, the purchase or creation of assets or capital in certain sectors, and the processing of business or commercial licenses. Nevertheless, recent statements by government spokesperson Karom Polpornklang about the basic lines of the future reform allow us to provisionally analyze these aspects, albeit with the caution required until we can access its final version.
Foreign Capital Participation in Thai Companies
The project, adopted by the Council of State based on a proposal from the Legislative Development Commission, specifically addresses foreign capital participation in Thai companies, which until now has been limited to 49%, with the remaining 51% required to be held by Thais. This forced the use of certain financial engineering methods to bypass this restriction, such as issuing preferred shares, applying weighted voting rights, or even choosing nominee shareholders representing the real owners—methods not without risks given existing legal controls. Although this restriction could also be circumvented by obtaining a foreign business or commercial license or a business certificate from the Thai Board of Investment (BOI), it nonetheless remained a significant obstacle that discouraged foreign investment.
Therefore, what is now sought is to solve this problem by allowing foreign investors to hold the majority in Thai companies, specifically in non-strategic sectors or those aligned with national economic objectives. Thus, the guiding principle of the 1999 FBA—to protect local entrepreneurs’ interests—will be replaced by encouraging competitiveness potential, essential for achieving a more open economy, increasing GDP, promoting employment, and ultimately attracting a higher proportion of foreign capital. This replacement may also be linked to Thailand’s desire to join the Organisation for Economic Co-operation and Development (OECD), which requires compliance with the Foreign Direct Investment Restrictiveness Index (FDI) criteria that measure restrictions in twenty-two sectors, including foreign capital.
Simplification of Administrative Procedures and Removal of Bureaucratic Obstacles
Another important element of Thailand’s opening to foreign investment, besides the above-mentioned foreign capital participation, is the need to simplify administrative procedures and eliminate bureaucratic obstacles, as these constitute a significant headache for foreign investors, along with other issues such as worker hiring—which I will not address now. The current system, consisting of an extensive and complex network of rules, practices, and customs, imposes a commitment to reduce bureaucracy (“cutting red tape”), as has been repeatedly highlighted on various occasions, one being the OECD’s 2020 report “Thailand Regulatory Management and Oversight Reforms: A Diagnostic Scan”. The proposed reform seems now intent on pushing this reduction forward to achieve a more efficient, effective, and transparent system. Hopefully it will be so.
Antonio Viñal
Lawyer
Avco Legal (with offices in Kuala Lumpur and Manila)
madrid@avco.legal
