Comprehensive Guide to Setting Up A Company in Thailand
Many people that travel to Thailand fall in love with the culture, people, and landscape. It is commonplace to want to settle down here and start a business. Fortunately, the kingdom has a thriving economy that makes it the second largest in Southeast Asia and a legal system that provides foreigners with several ways through which they can set up businesses locally.
Why Choose to Invest in Thailand
There are several reasons to consider starting a business in Thailand including:
- Business registration
Thailand is well recognised for its ease of doing business. There are several ways in which both locals and foreigners can go about setting up businesses and ample government support in offering clear guidance on what procedures to follow.
- Thriving economy and supportive governance
Thailand has a society and infrastructure that support entrepreneurship. Many foreign companies have been welcomed and successfully established their operations here. From the educated workforce to public and private sector support systems for investors, it has become increasingly easy for newcomers to quickly adapt and launch their business ideas. The government has also made great efforts to provide a conducive business environment for investors.
- Strategic location
Thailand is well situated between China and India, which are two of the largest industrial Asian nations. Thanks to its coastline, it lies along the path of many major trade routes and is a member of ASEAN and AFTA. This allows Thailand to be well connected to the region’s major economies that help to boost its own market. Being at the heart of the ASEAN market helps grant Thai businesses a competitive edge should they want access to the larger regional economy.
- Workforce and customer base
Thailand has a population of over 69 million people. It has a high literacy rate and many well-educated and skilled people that make for a rich workforce to choose from at a salary rate that is much lower than what you would need to pay in the West. This large population also means that as long as you have done the research, your business should not lack customers.
Besides being ideally located at the heart of the ASEAN community, Thailand also offers an adaptable and educated workforce whose pay rate is highly competitive. This means businesses have more money left over to reinvest or compensate investors. Certain operations, such as regional head offices that are set up here also get to enjoy financial incentives like no corporation tax on dividends received from international business.
The Thai Foreign Business Act
While there are many business opportunities for foreigners to take advantage of in Thailand, there are some restrictions. Some of the most important are outlined by the Thai Foreign Business Act that was instituted in 1999. This law states what business activities foreign companies are not allowed to engage in as.
So, for any foreign investors looking to set up shop here, it is necessary to look into this list of businesses. Some businesses are completely off limits to foreigners, while others may be engaged in, but require obtaining special permission or an exemption from relevant government agencies.
This law is important as contravening it could result in hefty fines of up to 1,000,000 Baht or even a three-year prison sentence. Some industries that are prohibited include forestry, fishery, animal husbandry, extraction of Thai herbs, trading in land, and newspaper business.
Types of Business Incorporation
As said, there are several ways in which you can establish a business in Thailand. Here we will look at the permissible options for foreign investors and some of their requirements for company registration.
There are two options under this category that fall under the Thai Civil and Commercial Code. You can choose between setting up a private or public company. Such companies are required to register the Memorandum of Association and Articles of Association.
They are also required to have at least three shareholders, each of whom is limited in liability to the unpaid amount of the shares’ face value they hold. There must be a director, an auditor and a registrar. Each promoter must own at least one share. All shares are required to be subscribed at the time the company is being incorporated, with just 25% of the shares being paid up. Every share should have at least one vote, though some shares may possess preferential voting power.
Depending on the size of the company, there may be a requirement to meet certain financial standards including preparing audited yearly financial statements that must be approved by shareholders before being submitted to the Commercial Registration and Revenue departments.
Note that foreign investors wanting to set up a limited company will be limited to no more than 49% ownership. The remaining 51% ownership must be in the hands of Thai nationals. This kind of business may apply for work permits for foreign employees. Even with these restrictions, this is the most popular option that foreign investors opt for when looking to start a business in Thailand.
Foreign nationals are typically prohibited from setting up sole proprietorship businesses in Thailand, with one exception. Under the US-Thailand Amity Treaty, US citizens can set up sole proprietor businesses in many industries. They are required to register with the Thai Department of Business Development for this.
Two main types of partnerships can be registered under the Commercial Registration Office.
- Ordinary Partnership
This partnership arrangement requires at least two partners. It is possible to remain unregistered under such a partnership deal, however, many such businesses opt to register so they can be taxed as juristic persons. This way the partnership has its own legal status, legal rights, responsibilities, and liabilities independent of the partners. It is required to generate yearly financial statements and pay corporate income taxes. If unregistered, the income will need to be reported on each partner’s individual tax returns.
- Limited Liability Partnership
Limited liability partnerships (LLP) are also registered at the Commercial Registration Office and involve two types of partners. These are the general partners and limited partners. The general partners manage the business and are fully liable for the business’s financial obligations. The limited partners are not involved in managing the business but their liability is limited to the amount of capital they invested in the LLP. When registered, the business is recognised as a corporate entity and is taxed as such. It is also required to prepare yearly financial statements.
While setting up a partnership does offer several advantages. These businesses are not allowed to apply for work permits and the company name cannot be used to open bank accounts.
Board of Investment (BOI) Promotions
The Thailand Board of Investment (BOI) is a section of the government that focuses on promoting investment into areas of the economy that have been deemed promising to the economic outlook of the kingdom.
If your intended business fits their criteria, you can apply the BOI. If approved, you can take advantage of many benefits that could include tax incentives, import duty exemptions, assistance in securing work permits and visas for skilled foreign workers, and even permission to own land.
Keep in mind that there are strict criteria used in choosing which foreign companies qualify under these schemes and that it can take up to two months for BOI company registration to be completed. Thereafter, the company is required to prepare and submit regular status reports to the Board to retain its status.
Tips for When Registering Your Business
Know the types of businesses you can register
The first thing to do when looking to set up a Thai business is to first establish what is permitted to you. In as much as the government supports foreign investment, they still want to preserve some aspects of the economy for their people. Ensure that your proposed business is not prohibited or that you are in a position to gain permission. Certain sectors may still be open to you, such as if you are an American investor and the business falls under the US-Thailand Amity Treaty.
Also, delve into what is required for registration and ongoing recognition of the type of business you want to set up. Like with BOI registered businesses, there are many monetary and non-monetary benefits, but also a strict criterion you need to meet to be approved and maintain that status.
Prepare the requirements
With the different types of businesses that can be set up by foreigners, certain requirements need to be met. This can range from choosing a business name that no other company has registered, to preparing the Memorandum and Articles of Association. You may also need to secure certain licenses and apply for VAT.
You need to find out what relevant government department or division governs the type of business you want to set up and enquire as to what paperwork needs to be filed and within what timeline. This is where engaging a corporate lawyer or accountant can help ensure you operate within the confines of the law.
Besides special exemptions like securing a Foreign Business License, BOI, and the US-Thailand Amity Treaty, it is not possible for a business to be wholly or majority owned by a foreigner. The standard is typically no more than 49% foreign ownership is allowed. This means that most foreign investors have to look for and partner with a Thai national.
Ideally, this should be someone from the industry you are looking to invest in who can ably manage the business and engage with local authorities on your behalf. It is beneficial to have a partner that understands the local language and business culture so they can ensure that your business is always on the right footing. Avoid partnering with fake or paper partners that are listed just to meet legal requirements. Having them own 51% of the company may lead to future problems you may not be able to afford.
Choosing a niche
Research is vital in determining what kind of success you will have with the type of business you intend to set up. Beyond registration and ownership issues, you need to understand the local market, or whatever other market in which you intend to sell your product or service. There needs to be demand for what you offer. Having a good understanding of the local Thai language will help you here as you engage with other investors, partners, employees, potential customers, and other industry professionals. Try to collect as much information as you can to determine what level of investment you need, employee composition, your target market, established competition, where to base your operations, and so on.
Visas and work permits
For individuals that want to enter Thailand to set up a business, it is necessary to acquire a non-immigrant B or business visa. This visa will allow you to legally engage in business activities, while others will not. It can be applied for from your home country or while already in Thailand. You have the option of a single-entry visa with three months validity or a multiple entry visa with one-year validity.
There is also the SMART visa program, which is a special visa program under the BOI scheme that is targeted at investors, skilled workers and start-up entrepreneurs looking to work or invest in specific industries. These visas are valid for up to four years and come with several benefits, including work permit exemptions.
If you have just obtained a non-immigrant B visa, then you will also need a work permit to legally work in Thailand. This applies if you are an investor that will also work at the business and for any foreign national employees you are bringing in. Such companies are entitled to hire one foreign national for every two million Baht invested as paid-up capital. Companies may also hire one foreign national for every five million Baht paid in tax. Note that for every work permit granted, you need to also have four Thai workers in the company.
You can open a bank account for your company after it is registered. Smaller businesses are typically only able to open a savings account and operate it on a cash basis and transfers. It can take a long while to qualify for ATM or credit card facilities. Loan facilities to foreign companies are also quite rare, so if you need funding, you may need to apply to an overseas bank. Online banking is, however, generally available so you can more easily track and monitor your transactions.
Whatever type of business you are considering setting up in Thailand, it is advisable to engage a corporate lawyer or accounting firm who can advise you on your best options and in assembling all the required documents to register it. Remember that there can be serious penalties for making mistakes. With this helpful guide, you can gain some insight into your options and some of the steps you may need to take to successfully start up your business.