Starting a business in any country can be a frightening prospect, but when you are considering starting one in a new country, it can be even more daunting. Here in Thailand there are plenty of opportunities to create a lucrative business in the industrial or service sectors – you just need to make to make sure that you get off to the best possible start and do things correctly.
An obvious starting point would be to ensure that you know at least the basics of Thai business law. The problem is, much of the information available on the internet is incorrect and there are always plenty of expats who have lived here ‘years’ who will be more than willing to offer their input.
To try and guide you in the right direction we thought that we would put together a few hints and tips that would get you moving in the right direction.
The Foreign Business Act of 1999
This is the act that governs any business setup in Thailand and it is hugely important that you understand the law, the restrictions and the potential penalties that could be imposed. If we first start with the penalties it may help you to understand just how important the Act is. Firstly, any non-compliance with any aspect of the Act could result in a fine of between THB100,000 and THB1 million and/or a three-year prison sentence.
There are several business activities that cannot be carried out by a ‘foreigner’ as this would provide unfair competition to ‘locals’. However, in some instances licences can be obtained and special exemptions granted. All restricted practices are prescribed in the Foreign Business Act. The restrictions also apply to Thai companies where more than half of the capital is owned by non-Thais.
The restricted business activities are listed as follows:
- Newspaper business, radio-broadcasting station or radio/television business
- Farming, cultivation or horticulture
- Animal husbandry
- Forestry and timber conversion from natural forests
- Fisheries, especially fishing in Thai territorial waters and in specific economic areas of Thailand
- Extracting Thai herbs
- Trade and auction sale of Thai antiques or objects of historical value
- Making or casting Buddha images and alms bowls
- Trading in land
*Source: Thailand Board of Investment (BOI)
The different types of company
There are three types of company that foreigners can own here in Thailand. These are:
- A Registered Ordinary or Limited Partnership
- A Representative Office
- A Limited Company
Ordinary (Thai) Partnership
With an ordinary partnership, all partners carry equal liability. The partnership does not need to be registered and is straightforward, on paper at least, to establish.
All Limited Partnerships need to be legally registered in Thailand. With a Limited Partnership, one or more of the partners may have limited liability meaning that at least one partner has unlimited liability.
A Representative Office can be either a Regional Office or a Branch Office but has certain restrictions and requirements as outlined below:
- Reporting on business movement in Thailand.
- Providing advice related to products that are being sold to distributors or customers
- Sourcing goods and services in Thailand
- Inspecting and controlling the quality and quantity of goods purchased or ordered to be manufactured in Thailand
- Introducing information regarding new products or services
A Regional Office conducts business in Thailand and is in effect controlled by a Head Office which must be based outside of the Kingdom. The Regional Office is only permitted to conduct 7 business activities, these are:
- Communicating, coordinating and directing, on behalf of the head office, the operation of branches and affiliates which are located in the region
- Providing services in consulting and management
- Training and personnel development
- Financial management
- Marketing control and sales promotion planning
- Product development
- Services in research and development
In addition to this, a Regional Office must have the following 5 general characteristics:
- Must already have at least one established branched office or affiliate in the Asia Region
- Non-revenue generating activities
- No authority to accept purchasing order or to make offer for selling or to negotiate for carrying out business with person or juristic person in the country which it is established
- All expenditure incurred by the Regional Office must borne by the Head Office
- It is not subject to corporate income tax, in accordance with revenue code except deposit interest of remitted funds from the Head Office has to pay tax
The clear distinction between a Regional Office and a Branch Office is that a Branch Office can generate income and is not restricted to “non-trading” activities. In addition, the Branch Office’s liabilities will arise from business conducted in Thailand but may also extend to activities that are conduct by the Head Office. Certain activities may also require a Foreign Business License (FBL) in order for these activities to be legally conducted in Thailand.
As with most countries around the globe, Limited companies fall into two categories – Private Limited Company (Ltd) or Public Limited Company (Plc).
A Private Limited Company requires the registration of the Memorandum of Association (Articles of Incorporation) and Articles of Association (By-laws).
The restrictions placed upon a Public Limited Company are far greater. In order for the Memorandum of Association of a Public Limited Company to be registered, the company must have a minimum of 15 promoters and these promoters must have held shares in the company for a minimum of two years prior to them being transferred.
A Public Limited Companies require a Board of Directors which must consist of a minimum of five elected members, 51% or more must be Thai nationals. The registration fee for Public Limited Companies is approximately THB2,000 per one million baht of capital.
- The types of shareholders
There are two main types of shareholder, a Nominee Shareholder and the Majority Shareholder and a clear understanding of their role and the legality of each is very important. Basically, a Nominee Shareholder is a shareholder in name only and has no financial interest in the company. This role of a Nominee Shareholder and indeed having one or more is ILLEGAL in Thailand, punishable by the penalties listed above.
Foreigners however can control a Limited Company as a minority shareholder so long as the Thai partner(s) have a minimum of a 51% stake in the company and the foreigner(s) own 49% of less of the company.
A majority shareholder owns, as the name suggests, the majority of the shares AND has a financial interested in the company.
- Why would you agree to owning less than 50% of the company?
The most obvious reason why you would agree to owning a smaller percentage of your own company is because it simply requires less paperwork both in terms of the initial setup and on an ongoing basis. An additional benefit is that a company that is majority owned by Thai nationals can purchase land. This is route that is often taken by those looking to purchase land to build a property in which to live and great care should be taken if this is an avenue that you are considering exploring.
Of course, Limited companies file annual balance sheets and a physical address must be maintained. The company must at the very least be generating revenue otherwise it faces the risk of being de-listed by the Thai authorities.
- Can a minority shareholder be overruled by the associates?
The answer to this is simply ‘yes’ but only if the company hasn’t been setup correctly in the first place. Most foreign companies have what would be referred to as “assigned” Thai majority shareholders, basically people who have no interest whatsoever in the business but care needs to be taken that these are not viewed as nominee shareholders.
Generally, with a limited company all income is disbursed via expenses and salaries so there would be no equity or capital to which the shareholders could lay claim to. This obviously removes most incentives for staging a coup therefore reducing the chances of its occurrence.
- Do I actually need to ‘have’ the capital to register a Thai company?
Once again, the official answer to this would be ‘yes’ but in practice it is rarely required. The minimum capital required for a Thai limited company is THB1 million although this wouldn’t be sufficient to apply for a work permit. If a work permit is required, the capital would need to be THB2 million. If a FBL is required, the minimum capital would be THB3 million for each business activity registered or requiring a FBL.
There are government fees in addition to these figures which would also be required.
- Is owning assets legal?
Prior to 1997, foreigners could not own property or assets in Thailand. The rules have now been relaxed but it is still important to understand that there are still restrictions. A popular method to get around this is via establishing a Thai company with a Thai national with the Thai national handing over full power to the foreigner via a Power of Attorney. 30-year leases on property are an alternative if you are reluctant to go down this route.
What are the instances whereby a foreigner can own 100% of a Thai company?
There are three instances where a foreigner, in theory at least, can own 100% of Thai company. However, they can be time-consuming and won’t necessarily work so a great deal of thought needs to be taken before you proceed. The three ways are:
- Obtain a Foreign Business License (FBL)
In its broadest sense, a FBL is a work permit for a company. It restricts what operations a company conduct and potentially places massive restrictions on the company. Having this license means that the authorities can closely monitor the activities of the business but at the same time granting certain privileges, one being the potential for the Thai company to be 100% foreign owned.
- Become BOI registered
The BOI promote businesses that are seen to be beneficial for the economic outlook of Thailand. Becoming BOI registered can be quite complicated but it can create many opportunities.
- The Treaty of Amity (US Nationals Only)
This is an agreement between the US and Thailand and encourages US entrepreneurs to setup businesses in Thailand and then maintain a majority shareholding.
- Do I need a special visa to conduct work in Thailand?
To work in Thailand, you will require a Non-Immigrant ‘B’ Visa. The first visa is usually obtained from the Thai Consulate or Embassy in your home country and will last for an initial period of three months. This will then be converted into a 12-month visa once you are in possession of your work permit.
- Can I employ other foreigners?
The number of work permits that your company can have is largely, but not wholly, determined by the capital of the business. THB2 million is required for each additional work permit, up to a maximum of 10. Another point to consider is that one foreign worker can be employed for every THB5 million paid in tax.
- Can I open a Thai bank account?
A company is required to have a Thai bank account. However, if your company is only small the bank may only allow you to have a savings rather than a current account. You will be allowed to withdraw cash and make payment online although you won’t be issued with a cheque book or an ATM card.
- What taxes do I need to pay?
As a business, you will be required to pay Corporate Income Tax (CIT). The general rules regarding CIT are:
- Tax will be withheld on interest paid to associations or foundations at the rate of 10%.
- Royalties paid to associations or foundations are subject to 10% withholding tax.
- Government agencies are required to withhold tax at the rate of 1% on all types of income paid to companies.
*Source: The Revenue Department
With regards to CIT it is worth reading the latest criteria that will be available via the link above.
Personal Income Tax will also need to be paid. A qualified accountant will be able to assist you further on these areas and the laws are subject to change.