Lack of regulatory control allowing foreign franchises to prosper
Thai businesses struggle to compete with cheaper food and beverage options from Chinese franchise brands
Chinese capital is increasingly making inroads to the Thai food and beverage market through foreign-owned restaurants and franchises. Businesses like ice cream shops, grilled chicken sellers, and beverage vendors are prime examples and their affordability is making them popular with Thai consumers.
Recent checks revealed that brands popular among teenagers include MIXUE, which sells ice cream and bubble tea, and WeDrink, which offers tea and ice cream. But can these foreign franchises legally operate in Thailand?
According to the Department of Business Development, MIXUE (Thailand) Co., Ltd. (registered on 9|9|2022) has foreign status (100% foreign-owned) and is permitted to operate businesses in two areas: 1. Franchise sublicensing for food and beverage sales under the MIXUE trademark, and 2. Consulting, advising, and training in franchise management.
These activities are classified as service businesses under list three of the Foreign Business Act, requiring authorisation from the department’s director-general with the approval of the Foreign Business Committee. The company has obtained sublicensing rights from an affiliated company, the rights holder.
WeDrink Enterprises Management (registered on 19|12|2023), meanwhile, is also 100% foreign-owned, and aims to provide management consulting services. It’s classified as a service business under list three and can operate under the same provisos as MIXUE. However, checks reveal no record of the company receiving such authorisation and the 2023 financial statement does not show any service income.
If WeDrink wishes to operate, it must seek business operation authorisation from the Business Development department. Failure to comply may result in legal penalties under Section 37, which include imprisonment of up to three years, fines ranging from 100,000 to one million baht, or both. The court may also order the cessation of business operations and/or the termination of shareholder or partner status as applicable.
Foreign business operations in Thailand must comply with the Foreign Business Act 1999, which prohibits foreigners from engaging in certain businesses and requires licenses or certifications for others. But while foreign businesses seeking to operate in Thailand must obtain the necessary permits, there are no specific legal conditions or criteria for foreign entities registered as legal persons operating franchises. One important consideration is whether the company has sublicensing rights from the rights owner.
Oramon Sapthaweetham, the department’s director-general, stated that the department is scrutinising nominee businesses where Thai nationals hold shares on behalf of foreigners to bypass the 1999 Act In 2024, the department aims to inspect approximately 26,019 legal entities, primarily in tourism, real estate, hotels, and resorts across Chiang Mai, Chiang Rai, Phuket, Surat Thani, Chonburi, Rayong, Prachuap Khiri Khan, Phetchaburi, and Bangkok.
Of these, 495 businesses have been identified for further investigation of financial documents, and 221 have undergone in-depth examination.
The inspections focus on businesses where foreigners have significant control, including voting rights, dividend entitlements, and capital return rights upon dissolution. The source of funds used in the business, such as unusual loans to foreigners, is also considered. Nominee arrangements violating the Act and are punishable by up to three years in prison, fines, and daily penalties of 10,000 to 50,000 baht until compliance is achieved. Company directors are also liable.
Oramon stated that the department is collaborating with the Department of Tourism, the Office of the Permanent Secretary for Tourism and Sports, the Department of Special Investigation, the Tourist Police Bureau, and the Immigration Bureau and had signed a Memorandum of Understanding (MOU) on December 13, 2023, to enhance coordination, information exchange, oversight, promotion of tourism businesses and the establishment of a joint operations centre. A collaborative action plan is under discussion.
