Establishing a Business in Thailand
Foreign Ownership Restrictions
Company Structure
Establishing a Limited Company in Thailand
Tax Registration
Thai Ongoing Accounting and Taxation Requirements
Thailand Trademark Registration
Additional Company Structures in Thailand
Thailand Board of Investment (BOI) Applications
To start a business in Thailand, you will need to answer many questions before, during and after the application process.
Foreign Ownership Restrictions
The first step is to determine whether The Foreign Business Act 1999 (FBA) will allow you to start the type of business you want.
The Ministry of Commerce recently submitted a draft bill to amend the FBA, which will come into effect after being approved by the National Legislative Assembly and published in the Royal Gazette.
The FBA restricts foreign ownership or participation in 43 business areas that are listed in three (3) schedules. These restrictions apply only to companies engaged in businesses reserved for Thais under the Act and other local laws.
Restricted Businesses
Schedule 1: includes business areas, due to specific reasons, foreigners are not permitted to hold majority ownership.
Schedule 2: includes business areas related to national safety, security, culture, natural resources, and environment, and in which foreigners can hold majority ownership (up to a maximum 75 per cent) if granted permission from the Ministry of Commerce and the approval of cabinet.
Schedule 3: includes business areas where foreigners may hold 100 per cent ownership of businesses in which Thais are not competitive, and if licensed by the Department of Business Development.
Company Structure
The second step is to decide whether to open a private or a public limited company.
Thai Private Limited Company
A private limited company in Thailand has powers similar to those in other countries, being able to own assets, borrow money and take legal action.
A few of the many regulations governing a private limited company are:
•shareholders in a private company have limited liability.
•directors in the company may also have limited liability if this is included in the company's Memorandum of Association
•all shares in the company must have a minimum value of THB 5 baht and must have a buyer who has agreed to purchase them.
•all shares must be subscribed or allotted before registration of the company
•the first payment for shares must not be less than 25 per cent of their nominal amount
•a minimum of (2) shareholders is required at all times
•there must be a Board of Directors with at least one (1) director
•although no set minimum paid-up capital amount is specified, funds raised must be sufficient for normal business operations
Thai Public Limited Company
A public limited company registered in Thailand can sell shares and other financial products to the public and may apply to be listed on capital markets such as The Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI).
A few of the many regulations concerning a public limited company include:
•15 or more promoters are needed to form and register a public limited company's Memorandum of Association
•the Board of Directors must have a minimum of five (5) members with at least half of them being Thai nationals
•all shares must have been purchased
•shares in the company can be sold except where the sale might hurt the company or raise foreign ownership to more than 50 per cent
Establishing a Limited Company in Thailand
The following steps need to be taken when setting up a limited company in Thailand. It normally takes about seven (7) working days to complete registration, although this will vary depending on the type of business and on how quickly investors can process the necessary documents. The capital of the registered company must be a minimum of THB 2 million per foreign worker/manager.
1.Corporate Name Reservation
The name of a new company cannot be the same or similar to any other company and must follow the rules of the Commercial Registration Department, Ministry of Commerce concerning names. The approved corporate name is good for 30 days with extension available.
2.Filing a Memorandum of Association
A Memorandum of Association, which includes the company name, business objectives, planned registered capital, company address and the names and signatures of the two (2) promoters must be filed with the Commercial Registration Department.
H. Toosi’s advice concerning selecting a company address in Thailand:
Before renting an office, make certain that the owner will provide the documents needed to complete VAT registration.
It must also specify the number of shares and their value, which should be enough for the business to operate successfully.
3.Statutory Meeting
After the share structure is completed, a meeting must be held to approve the bylaws and articles of incorporation, nominate a Board of Directors, and select an auditor.
4.Registration
Within three (3) months after the statutory meeting, company directors must apply to establish the company.
H. Toosi’s advice concerning registration fees:
Before deciding on the amount of registered capital, calculate the cost of the various fees. In addition, before selecting a firm to help with the registration process, learn what services will be included in their charges.
Thai Ongoing Accounting and Taxation Requirements
Once a company begins operating, it is very important to have an accounting system that conforms to all Thai tax and financial laws and regulations.
Monthly Personal Income Tax
Personal income tax must be taken from the salary or wage of each employee. The rates will depend on the wage or salary and the tax status of the employee. The amount withheld must be sent to the Revenue Department by the 7th day of the following month.
Withholding Tax on Payment to Other Companies
All payments to other companies must be accompanied by a percentage of the total amount to be withheld and sent to the Revenue Department. It must be sent by the 7th day of the month following the payment. The rate varies depending on the type of income and if payment is made in Thailand or overseas. Typical withholding rates for payments made in Thailand include service payments (3%), rent or lease of property (5%) and advertising fees (2%).
Special rules apply to withholding tax on interest, dividends, and other types of income. The amount of withholding tax paid on money sent out of Thailand varies according to the type of expenditure and the destination country.
VAT Compliance
VAT rules require that a company collect VAT, issue VAT tax invoices, and keep tax journals. VAT forms must be filed with the Revenue Department by the 15th day of the following month. This is required even in months when there has not been any business activity.
Half-yearly Corporate Income Tax Return
A corporate income tax form must be filed within two (2) months of the close of the first six (6) months of the company's fiscal year and must be accompanied by a payment of the estimated tax.
End of Year Audit and Annual Corporate Income Tax Return
A Thai Certified Public Accountant must prepare an annual balance sheet and a profit and loss statement for the company. The company's annual corporate income tax return and tax payment (if any) must be sent within 150 days of the end of the company's fiscal year.
Workers Compensation and Social Security Registrations
Any company having one(1) or more employees must register and comply with Workers Compensation and the Thai Social Security Act provisions. Each month, a portion of all employees' salaries - 5 per cent from the employee and 5 per cent from the employer - must be sent to the Social Security Office.
Tax Registration
Value Added Tax (VAT) Registration
A company does not need to register for VAT until annual revenues reach THB 1.8 million. In most cases, VAT registration is completed when a company is established. Companies with foreign employees must register for VAT.
A company with VAT registration can receive a tax credit for all VAT paid when purchasing goods or services, which can be used to reduce the total VAT payable to the Revenue Department. A company that does not have VAT registration will not receive this credit.
Bank Accounts
After registration, most companies open a corporate bank account. The documentation needed varies from bank to bank, VAT certificate and other relevant documents. If the company has a foreigner who signs checks, many banks will require that this person have a valid work permit.
Organizational Changes
Various government offices must be informed when a company undertakes a change in its organization. For instance, if a company changes its head office address, the Commercial Registrar's Office, the Revenue Department, the Social Security Administration (if registered) and the Labor Department (if a work permit has been issued) must be informed.
Thailand Trademark Registration
If a company has or plans to have a trademark, this should be registered and protected in Thailand.
A trademark must be distinctive and cannot be the same or similar to one already registered.
H. Toosi’s advice concerning trademarks in Thailand:
If you have a trademark, register it with Thailand’s Department of Intellectual Property. This will make certain that no one can use or copy it or produce one that is similar.
A trademark or slogan differentiates a product by using a distinctive combination of colors, letters, numbers or words.
A registered trademark must be renewed every ten (10) years and costs THB 2,000 for each item protected.
H. Toosi’s advice concerning trademark registration in Thailand:
As the rules concerning what is an acceptable trademark are quite complicated and not always clear, ensure your trademark can be registered before applying for protection, by seeking expert advice.
Additional Company Structures in Thailand
Thailand-based Regional Office
A foreign company may set up a branch or regional office in Thailand, which is restricted to non-trading activities and cannot produce revenue.
A regional office may look after branch and affiliate operations in the region and may provide services including consulting, financial management, training and personnel development, marketing control, sales promotion, product development and research and development.
H. Toosi’s advice concerning Thai tax obligations:
Before opening a regional office, ascertain what income will be taxed in Thailand, as the Thai Revenue Department may decide to tax all revenue earned by your foreign head office as well as the portion earned in Thailand.
An application to open a regional office requires that a minimum of THB 5 million be transferred to Thailand - THB 2 million in the first year, followed by THB 1 million in annual instalments. Permission to operate a regional office can cover five (5) years with extensions possible if the company continues to meet working capital requirements.
Thailand-based Representative Office
A foreign company may open a representative office in Thailand, which is restricted to non-trading activities and cannot be produce revenue.
A representative office may inspect and control the quality of head office purchases in Thailand, gather marketing and other information, report on local business development and activities, and distribute information about new products and services.
An application to open a regional office requires that a minimum of THB 2 million be transferred to Thailand.
H. Toosi’s advice concerning Thai regional and representative office applications:
As the Department of Commercial Registration may add requirements to your application, be sure that this type of office is appropriate to your needs and budget before applying.
Thailand Board of Investment (BOI) Applications
The Board of Investment (BOI) has the authority to grant promotional privileges to foreign businesses to attract investment and offer tax and non-tax benefits to investors involved with certain types of projects.
The most common BOI incentives include corporate income tax and custom duty exemptions, permission for a foreigner to incorporate and register a company with majority foreign share ownership, and special rights regarding work permits and visas.
For a project to qualify for BOI benefits, it must be related to what the Board is currently promoting. Incentives offered vary greatly depending on a company’s planned location of operations.
BOI has clear guidelines to evaluate projects based on how they benefit Thailand. These include planned activities, investment level, office or factory location, technology, knowledge transfers and the expected number of Thai employees.
Usually, the process involves a BOI project officer completing an evaluation, preparing a recommendation, and submitting the project for consideration. It normally takes about three (3) months to receive BOI approval.
Industrial Estates in Thailand
The Industrial Estate Authority of Thailand (IEAT) operates 67 industrial estates nationwide, equipped with the facilities and infrastructure needed to operate a factory. IEAT can authorise a company to own land, set up offices and residences and grant special rights regarding work permits and visas.
Export Processing Zones in Thailand
Twelve (12) of the 67 industrial estates in Thailand also operate as special zones where goods from overseas can enter the country for processing without being liable for customs duty or VAT.
H. Toosi’s advice concerning BOI incentives:
As there are many BOI benefits possible depending on the type and level of investment, learn about what might be available before applying to BOI.