Thailand’s Draft Financial Hub Act: Key Provisions and Market Impact

Note: This article has been updated following the Cabinet’s final approval of the draft on July 15, 2025.

Introduction

On July 15, 2025, Thailand’s Cabinet granted final approval to the Draft Financial Hub Act (“the Draft Act”), following its earlier in-principle endorsement on February 4. This legislative initiative aims to position Thailand as a regional financial center by introducing a new licensing regime, regulatory exemptions, and limited incentives for firms serving non-resident clients.

The Draft Act will now proceed to the House of Representatives.

Scope and Objectives

The Draft Act is designed to:

• Attract foreign investment by facilitating the entry and operations of international financial institutions in Thailand

• Expand financial sector activities to enhance Thailand’s regional and global competitiveness

• Reduce entry barriers through targeted regulatory exemptions

The framework adopts an “out-out” model, meaning that capital is raised and invested outside of Thailand, and services are directed to non-residents. A future “out-in” phase may be introduced, subject to further regulatory development.

Targeted Financial Businesses

The law applies to operators in key sectors, including:

• Commercial banking

• Payment services

• Securities and derivatives

• Digital assets

• Insurance and reinsurance brokerage

• Other financial or supporting businesses as designated by the Committee and approved by the Cabinet

Licensed businesses must primarily serve non-resident clients. Limited exceptions exist for transactions with regulated Thai financial institutions, such as securities companies or digital asset service providers.

Regulatory Framework and Licensing

A Committee for the Regulation and Promotion of the Financial Business Hub, operating under the Ministry of Finance, will oversee licensing, define financial center zones, and coordinate with existing regulators, including the Bank of Thailand (BOT), the Securities and Exchange Commission (SEC), and the Office of Insurance Commission (OIC).

Key requirements include:

• Establishment through a Thai-incorporated entity or a registered branch of a foreign company

• Screening of directors, executives, and major shareholders after licensing

• Minimum employment of Thai nationals as determined by the Committee

• Use of the name “Special Financial Entity (Thailand)” as part of the licensed company’s name

Regulatory Exemptions

Licensed operators will benefit from exemptions from:

• The Foreign Business Act (FBA), allowing full foreign ownership

• Seven major financial laws, including the Financial Institutions Business Act and the Securities and Exchange Act, except for provisions related to group supervision and penalties

• The Condominium Act’s foreign ownership cap, where units are used for business operations or residential purposes

These exemptions apply only to licensed operators within designated financial zones and do not extend to businesses serving the domestic market.

Incentives for Licensed Operators

The law provides the following incentives:

• Eligibility to own condominium units beyond the foreign ownership cap for business or residence

• Eligibility to bring in foreign professionals, including in normally restricted professions

• Simplified immigration procedures for foreign staff

• Eligibility for tax benefits under the Revenue Code (specific measures to be clarified through subordinate legislation)

Importantly, broad tax holidays or tax exemptions beyond the existing legal framework are not currently part of the regime.

Compliance and Oversight

All licensed businesses must comply with:

• Anti-Money Laundering (AML) laws and transaction reporting obligations

• Know-Your-Customer (KYC) and due diligence requirements

• Capital adequacy, governance, and risk management rules, in coordination with Thailand’s financial regulators

• Regulatory reporting and cooperation with the Bank of Thailand, SEC, and OIC as required

The law emphasizes that services must not be offered to Thai residents, except as narrowly permitted by regulation.

Challenges and Market Impact

Despite the law’s potential, several risks and constraints remain:

1. Regulatory overlap: Coordination among the Ministry of Finance, BOT, SEC, and other regulators will be crucial to avoid conflicts
2. Limited scope of incentives: The absence of comprehensive tax holidays may reduce Thailand’s competitiveness compared to Singapore or Hong Kong
3. Implementation risks: Many operational aspects—including licensing procedures, tax rules, and permitted activities—will be defined through subordinate legislation yet to be issued
4. Domestic impact: Preferential treatment for foreign businesses may generate concern among local financial institutions

Conclusion and Next Steps

The Draft Financial Hub Act marks a strategic shift in Thailand’s economic policy. Its objective is to diversify the Thai economy and attract capital and expertise by offering a regulatory framework for internationally focused financial services.

However, successful implementation will depend on the readiness of the new regulatory body, the issuance of clear subordinate legislation, and sustained inter-agency coordination. Investors and financial institutions should watch for these developments in the coming months.

What Should Businesses Do Now?

• Monitor announcements on subordinate regulations and licensing criteria

• Evaluate whether the Thailand financial hub model aligns with their offshore service strategy

• Seek legal and regulatory advice to assess potential eligibility and compliance obligations

For legal insights on the Draft Financial Hub Act and its potential impact on your business, contact us.