Thai law contains numerous regulations governing foreign investment and company formation in the Kingdom. The general rule is that foreign investors cannot own more than 49% of a corporate entity formed in Thailand. Moreover, such an entity must have more Thai shareholders than foreign shareholders. Where a Thai company owns land it is recommended that any foreign shareholding be reduced from the maximum allowable of 49% to 39%. However, if an investment project falls within the right set of criteria, it is possible for foreign investors to obtain special exemptions to these restrictions.

Under Thailand’s amended Investment Promotion Act (B.E. 2532) and related regulations, foreign investors may apply to the Ministry of Industry’s Board of Investment (“BOI”) to obtain special permission to establish a foreign-controlled company in Thailand. In addition to majority foreign ownership, BOI-approved entities are eligible for special tax incentives, and may even own land. However, the use of the land owned by the BOI company must be related to the BOI approved business activity of the company. The BOI approved company should not be viewed as a shell for usurping the restriction on foreign ownership of land laws in Thailand. This article will provide an overview of the BOI, including eligible investment activities, BOI investment policies, and general criteria for project approval.

Eligible Investment Activities
Only investment projects that fall under a specific set of activities are eligible for approval by the BOI. The activities are:

• Agriculture and Agricultural Products;


• Mining, ceramics and base metals;


• Light Industry;


• Metal Products, Machinery and Transport Equipment;


• Electronics Industry and Electric Appliances;


• Chemicals, Paper and Plastics; and


• Services and Public Utilities.

Each of the eligible investment activities listed above is subject to its own set of specific conditions necessary for approval. Moreover, it is important to note that conditions vary greatly depending on the investment project’s specific activity. For example, certain steps involved in the manufacture of textile products, which falls under the “light industry” category, must take place in specific industrial estates. As such, the investor should be well aware of the conditions attached to their specific investment activity.

Policies for Investment Promotion
The BOI evaluates a proposed investment project using a set of broad policy guidelines that are deemed beneficial for Thailand as a whole. As such, a proposed investment project must establish that it will benefit the Thai economy. A project that will hire and train a large number of Thai workers, for example, will increase its approval chances, but it should be noted that even a competent plan to hire and train Thai workers may not ensure approval with the BOI. Additionally, priority may be given by the BOI to investment projects that are located in developing regions with inadequate investment facilities, and to small -and medium-sized industries. The BOI has noted in the past that priority may also given to: agricultural activities and products, technological products; human resources development; utilities; infrastructure and provision of basic services; and environmental protections and conservation.

Criteria for Approval
In addition to examining the proposed investment project under the broad policies described above, the BOI applies specific criteria to evaluate a project. These criteria generally include (subject to announced Ministerial regulations issued from time to time):

• the project’s value-added is not less than 20% of sales revenue (except products that manufacture elewctronics, agricultural activities and products, and products granted special approval by the BOI);


• a newly-established project’s debt-to-equity ratio should not exceed three-to-one (established projects are evaluated on a case-by-case basis);


• modern production facilities and new machinery are used, or the efficiency of old machinery is certified by reliable institutions and granted special approval by the BOI;


• adequate environmental protections are used;


• for projects with investment capital exceeding 80 million baht (excluding the cost of land and working capital), a feasibility study must be submitted.

Separate criteria apply to concession projects or projects that involve the privatization of a state enterprise.

Conclusion
While equity and land ownership restrictions generally apply to most foreign-invested projects in Thailand, BOI-approval provides investors with a special alternative. Moreover, BOI-approved projects usually are also granted various tax incentives. As such, investors should carefully consider whether their investment project is eligible for BOI approval.

The author of the article is Senior Associate John Frangos from Limcharoen Hughes & Glanville’s Phuket Office. For more information see www.limcharoen.com.