The Difference Between a BOI Company & Thai Limited Company: What You Need to Know
In a bid to promote greater business investment, the Thai government set up the Office of the Board of Investment (BOI) in 1997. Thailand is perhaps most famous for its thriving tourism industry, but has long wanted to expand investment in other areas as a means of diversifying and growing its economy.
Hence the establishment of the BOI that would stir the interest and investment of both local and foreign entrepreneurs who would be drawn in by various incentives. Many of the benefits associated with setting up a BOI company, differs from going the traditional route of registering a Thai limited company. So, for any investor looking to join the Thai market, the decision then remains, should they seek to register as a BOI company or a Thai limited company? Let us look at the key differences between the two options that might help in arriving at the best option for your intended business.
Governing body
There are separate governing bodies associated with the registration of the respective types of companies. For a BOI company registration service, you will need to have your application submitted to and processed by the principal government agency designated by the government, which is the BOI. The process involves multiple steps and if correctly undertaken with minimal delays, could result in receiving your BOI certificate in about 4 to 6 months.
For a Thai Limited company registration service, your application will have to be submitted to and processed by the Department of Business Development under the Ministry of Commerce. The processing of a Thai limited company is faster and if all the requirements are met, can take just a week or two for completion.
Foreign ownership
When it comes to ownership, both BOI companies and Thai limited companies can be owned by locals or foreigners. However, there are some restrictions depending on the circumstance.
For a Thai limited company, majority ownership must registered in the name of a Thai national or company. It is required that a company should have at least 3 shareholders. If you have just one Thai shareholder, then he or she must own 51% of the shares in the company. The only way to circumvent this as a foreign investor would be to have a mix of ordinary and preferred shareholding that allows you to retain effective control over the business. If the business is to engage in business activities prohibited to foreigners, the company will need to obtain a Foreign Business License, which can take a long while to acquire whereby issuance of the said license would depend on several factors and would be at the discretion of the responsible authorities.
For BOI companies, the terms are more generous for foreign investors. They can entirely own the business with up to 100% of the shareholding, among several other attractive incentives offered by the Board. This option is appealing to many investors as it allows them to avoid having to include a Thai shareholder as part of their company. The company also becomes immediately eligible for a Foreign Business Certificate once they have successfully acquired a BOI certificate.
Thai employee representation
Besides the issue of shareholding, there is also the issue of employee representation to be concerned about. Thai limited companies may have foreign employees on their payroll. Directors are also counted in this. However, for each foreign employee or director, there must be at least a THB 2 million capital investment made to support their work permit.
There is also a limit on the number of foreign employees you can bring into the company. For every 4 Thai employees, you should not have more than one foreign employee. This limit and the capital requirements can be tough for businesses unable to find sufficient local expertise for the work they are doing. Processing of work permits for foreign employees of Thai limited companies can vary depending on location, taking anywhere between one week to two months.
BOI companies enjoy much greater flexibility. There is no restriction on having foreign investors. When it comes to employees, there are also no strict requirements, making it an issue that can be negotiated, especially if the company can prove that there is no sufficient local expertise to take up the positions.
So, there is definitely an advantage BOI companies have over Thai limited companies as there is less strain in bringing in the expertise they need and meeting the capital requirements. There is also a dedicated One-Stop Investment Centre where visas and work permits for foreign employees and directors can be quickly processed within a day.
Right to own land
One of the biggest hurdles foreign investors have when trying to join the Thai market is the restrictions related to land ownership. Foreigners can buy residential condos and lease property as long as they are within the 49% foreign quota, but not own landed property. Which, depending on the type of business, may be essential. Such as with a manufacturing business that requires setting up a factory. Thai law will allow a foreign investor to have ownership of the buildings they might build for this purpose, but not own the land it sits on. Thai limited companies can buy property but as the majority shareholding would be in the hands of the Thai shareholder, so too would the ownership of the land. Many Thai limited companies will opt to enter into long term leasehold arrangements instead to avoid this complication.
BOI companies are permitted to own land despite being 100% owned by foreigners. However, there are limitations associated with this land ownership. First, if the land is for setting up offices, it should not exceed 5 rai. If it is for setting up residences for the executives, it should not exceed 1 rai, and if for building residences for an employee, should not exceed 2 rai. So, the use of the land should relate to the business, and if the business or project does later shut down, the property should be disposed of within a year of this project closure.
Tax incentives
BOI companies offer their investors considerable tax incentives that can relate to several areas. Know that as a Thai limited company, you will have a tax obligation right from the moment the time you start operations and generate revenue..
For BOI companies, there are varying levels of tax incentives, both in terms of amounts and duration. There are corporate income tax exemptions that can last as much as 8 years. Depending on the industry, BOI companies can also enjoy exemptions or reductions on the import duties related to machinery, raw materials and essential materials. They can also enjoy deductions on costs related to transportation, utilities and installation of facilities. Investors may also be entitled to tax exemptions or reductions on the dividends payable to them as shareholders.
Capital requirement
You can start a Thai limited company with just about any amount of capital investment, however, if you have foreign directors or employees, you are required to inject at least THB 2 million of registered capital per work permit. With work permits being mandatory for any foreigner working in the kingdom. If the business has no foreign investor or employee, there are no restrictions on capital investment.
BOI companies are required to have a minimum paid-up capital investment of THB 1 million. However, the amount may vary depending on what kind of project is being undertaken. For the business to receive its BOI certificate, at least 25% of the minimum capital requirement should have been remitted. The balance of 75% should have been remitted within 36 months of having received the BOI certificate. Where there are foreign investors on board, there will need to be proof that the funds have come from abroad.