Setting Up a Company in Thailand
If you are looking to start your first business in Thailand, it is crucial to understand the legal implications and processes you will need to go through. The task could be challenging and time-consuming, but with proper preparation and trusted advice from qualified experts, you will be able to get a company up and running in no time.
The Thai economy is recognized as one of the fastest-growing in the region with many investors flocking to the country in search of new market openings. The country is equipped with favorable infrastructure, skilled workers, high market demand for consumer goods, and the government’s support for foreign investment. Consequently, registering a company in Thailand will provide you with many incentives and infinite opportunities.
To help you kick start an entrepreneurship journey in the Kingdom of Thailand, here are some of the essential information you need to be aware of.
1. Understand Foreign Business Law and Thai Company
The Foreign Business Act (A.D.1999) governs foreign business activities in Thailand. As a foreigner, there are restrictions to the types of business you can legally conduct.
Foreign Business License:
The Foreign Business Act contains a range of activities reserved only for Thai nationals, such as businesses related to natural resources, national security, and certain types of business in the service industry. The Foreign Business License allows foreigners to operate some categories of business that are generally restricted. With the license obtained, foreigners can also register a company where they can possess 100% or over 49% of the shares. However, the process is quite lengthy with numerous requirements.
Board of Investment Promotions
Another solution for those who wish to gain special benefits from the government is to apply for the Thailand Board of Investment (BOI)’s promotion. If the foreign company falls under the criteria provided by BOI, it will be eligible to apply for the incentives. These consist of 100% foreign ownership of the company, several tax incentives, work permit, visa support, etcetera. Yet, the selection guideline is rather strict, and the process could take a long time. In addition, the company is required to submit a business status report to BOI periodically to maintain its status as a company under the BOI’s promotion.
Then, What Does It Mean to Operate a Business as a Thai Company?
Since obtaining the Foreign Business License or the BOI Promotion Certificate is so complex, one solution that most foreigners turn to is to register their business as a Thai company. The most common form of incorporation is a private limited company. Although operating under a Thai company means that the majority of the shareholders (at least 51%) must be Thais, there are still many advantages, and the procedure is much simpler.
Being considered a Thai entity, there is no restriction to the type of business you can run even if the company is partly owned by foreigners as it is not controlled by the Foreign Business Act.
Thai Nominee Shareholders and the Restrictions
Foreigners who have been staying in Thailand for a while may be familiar with the term Thai nominee shareholders, but for the newcomers, it would be beneficial for you to understand the meaning and how it is perceived from the legal perspective.
For a nominee shareholder, the shares are only held ‘in the name’, meaning such shareholder has no interest or significant relevance to the company or its business. According to the Foreign Business Act, a Thai nominee is a Thai person whose name is registered as a shareholder of the company but merely holds the shares on behalf of the foreign business owner. By using the Thai nominees, foreigners have been able to own and conduct business with the majority of control over the Thai private limited company. It is important to note that this act is considered illegal by Thai law with severe punishment imposed.
2. Select the Type of Incorporation That Suits Your Needs
There are various types of incorporation in Thailand and before you begin the registration process, you must select the type of business you would want to establish. Each type of business entity is explained below.
There are two types of limited companies: private limited companies and public companies. As mentioned, the private limited company is the most popular amongst international investors.
For a private limited company, there must be at least 3 shareholders and promoters in which the shareholders’ liabilities are limited to the amount of the unpaid shares registered. With this type of company, the law permits foreigners to hold a maximum of 49% of the shares with the remaining shares held by Thais. Each shareholder must hold at least one share with equal par value, and 25% of the subscribed shares must be paid up.
The difference between a private limited company and a public one is that a public company can have its shares listed on the Stock Exchange of Thailand (SET) where the company’s shares can be traded to the public. Nonetheless, it is very complicated to form a public company and the regulation is very stringent.
As the name implies, this type of entity is owned and operated by a single individual. Though the requirements to operate this type of business may be fewer, the liability is unlimited. Once the business scales, it will be difficult to maintain a sole owner and assume all the liabilities. In addition, not all nationalities are qualified to register as a sole proprietorship and some restrictions are applied to certain types of business.
There are three types of partnership that are commonly formed under Thai law. These are unregistered ordinary partnerships, registered ordinary partnerships, and limited partnerships. The major difference between each one is the extent to which the liabilities are imposed on the partners.
- Unregistered ordinary partnerships meaning all of the entity’s debts and obligations are under the liabilities of all partners. Although this type of formation is not regarded by the law as a legal entity, hence no legal status, the partners are jointly and equally responsible for the arrears derived from the business.
- Registered ordinary partnership is considered a legal entity where the individuals must register the partnership with relevant authorities. With this type, the entity’s liabilities are separate from the individual partners forming such entity. The entity assumes rights and responsibilities as a legal establishment.
- Limited partnership is recognized as a juristic person and thus, requires registration with the authorities in charge. There are two kinds of partners in the limited partnership where each kind holds different liabilities.
- One or more partners whose liabilities are restricted only to the amount invested in the entity. This type of partner holds no right to intervene with the management of the partnership.
- One or more partners whose liabilities are unrestricted and are jointly responsible for all the debts and obligations of the partnership. These partners are the ones who manage the operation of the business.
Since the limited partnership is a legal entity, it is subject to corporate income tax as the limited company, but without the advantages of the limited company. Hence, this type of formation is not favored by many investors.
A representative office is a foreign entity established to render services to the headquarter or affiliate offices in other countries. As there are many restrictions to the kind of activities that a representative office can perform, it is not an entity many choose to establish. The main objective of a representative office is to provide local market intelligence to its parent company. A representative office is not permitted to conduct any commercial business activities.
A branch office is a direct extension of its parent company. Unlike a representative office, a branch office can undertake business operations including trading or providing services. This entails that the management and operation of the branch office are dependent upon the headquarter and its liabilities are also shared with the headquarter.
Nonetheless, it must be registered as a juristic person governed by foreign law. Therefore, if a branch office conducts business that is restricted by the Foreign Business Act (A.D.1999), the Foreign Business License must be acquired.
3. Incorporate Your Business
Once a decision is made on which type of incorporation best fits your interests, the next step is to register your business with the Department of Business Development (DBD). In cases of the sole proprietorship or the different types of partnerships, the preparation process is relatively straightforward compared to a limited company which may require professional assistance.
Here is the overview of the registration procedure for a limited company.
i) Reserve a name for the company
This can either be completed online through DBD’s website or submit the form in person at the DBD office located throughout Bangkok.
The applicant can reserve up to 3 names that are distinct from other companies, then the accountable officer will select the one name that complies with the regulations. This process can take 1-3 business days while the name is only valid for 30 days after the approval.
ii) Prepare required documents and arrange the subscription of shares
The documents may include:
- Memorandum of Association (MOA) with the following information:
- Reserved company name
- Office location
- Company’s objectives
- Capital to be registered, number of shares, and their par value
- Names, addresses, age, occupations, and number of shares of the 3 shareholders
- Names, addresses, and the age of 2 witnesses
- Articles of Association (company’s regulations)
- Application form signed by authorized Directors
- List of shareholders and share certificates issued
- Copy of the statutory meeting’s resolutions
- Map of the head office
- Copies of IDs of the Directors and promoters
Before the application submission, at least 25% of the capital must be paid up. It is also important to note that the company is required to have 2-million-baht capital at a minimum to apply for a single work permit for its foreign employee.
4. Register for tax and other licenses
Once you have a company incorporated, there is another step to consider before starting the operation. As a legally registered juristic person, the company is subject to corporate income tax. The company’s tax ID is the same as the juristic person registration number provided to you by the DBD officer. When it comes to VAT, the registration is only compulsory when the turnover rate of your company exceeds 1.8 million Baht.
In terms of other licenses, this depends on the type of business you are going to operate. For instance, if your business involves importing goods to sell in the Kingdom, then you will be required to obtain the import/export license from relevant authorities.
For foreign investors who are eyeing to start a business venture in Thailand, there are many details you need to be thoroughly informed with respect to culture, business landscape, and legal conditions. With the help of professionals equipped with extensive experience locally, things will be much less complicated for you. Reach out to us for more information.
About the Author (Author Profile)
Siam Legal is an international law firm with experienced lawyers, attorneys, and solicitors both in Thailand law and international law. This Thailand law firm offers comprehensive legal services in Thailand to both local and foreign clients for Litigation such as civil & criminal cases, labor disputes, commercial cases, divorce, adoption, extradition, fraud, and drug cases. Other legal expertise of the law firm varied in cases involving corporate law such as company registration & Thailand BOI, family law, property law, and private investigation.