Starting a Business in Thailand
How to setup a business in Thailand is a common question which most of the travelers ask who have been captivated by the lifestyle which they have experienced in Thailand. By this they believe they could stay in this paradise for longer while still making a proper living in the country
The whatsoever business you decide to start, be it a seaside resort in Phuket, a bar business in Pattaya, or even a coffee bar in Bangkok you need to thoroughly understand your due course of action and most importantly a proper exit plan in case of any catastrophe.
Many companies fail in their attempt to start a company in Thailand because of their lack of clear market entry plan and also local experience. The secret of success in Thailand lies in building long-term and trustworthy relationships with customers/vendors and the support from a competent local adviser/partner.
- 1 Foreign Business Law in Thailand
- 2 Division of Business into Three Categories under the Foreign Business Act:
- 3 Thailand Board of Investment:
- 4 Ways to start a Business in Thailand
- 5 Types of Business Structures operating in Thailand:
- 6 How to form a Thai Company
- 7 Thai company Ownership Issue
- 8 Source of Capital
- 9 Issues regarding the set up of a business in Thailand
- 10 Advantages of doing business in Thailand
Foreign Business Law in Thailand
Thailand does not allow the buying and selling of economic areas and business categories for foreigners primarily under the Foreign Business Act(1999). Under this act(FBA) foreigners are not allowed from engaging in most business sections unless an external business operation work permit has been gained from the Director General of the Department of Commercial Registration after gaining the approval of the Foreign Business Committee of Thailand. Distinct laws control and monitor foreign ownership of land as well as other such activities such as banking, insurance, finance and shipping in Thailand.
Thus a foreigner must comply with this act stated above in order to get a license to start a business in the Land of Smiles.
Division of Business into Three Categories under the Foreign Business Act:
|List 1||List 2||List 3|
|Businesses are absolutely prohibited from ownership to foreigners unless there is an exemption contained in a special law or treaty||Businesses owned by foreigners prior to the Foreign Business law. Businesses who work under this category need special permission from a Minister with the approval of a Cabinet to start a new firm. The Board of Investment may grant an exception as well.||Businesses which work under this category will need very special permission from the Director General and the committee. Exceptions are under the Treaty of Amity and the Economics Relations between the Kingdom of Thailand and the United States of America.
Board of Investment may grant an exception as well.
The Board of investment is a Government agency of Thailand. Its primary purpose is to offer information about various investment opportunities in Thailand. Foreign experts and skilled workers have to adhere to the Investment Promotion Act 1977. Section 24 allows permission for non-native nationals to avail investment opportunities in Thailand. They can reside in Thailand for a period of 4 to 8 months for as long as the companies they want to set up have yet to receive the Investment Promotion Certificate. Section 25 gives foreign nationals the permission to stay in Thailand for a duration of 1 to 2 years if the companies have received the Investment Promotion certificate.
There are a lot of incentives offered by BOI. Some of them are listed below:
- Exemption or lowering of import duties on raw machinery (Section 28/29)
- lowering of import fees for raw or essential materials (Section 30)
- Lowering of corporate income tax and juristic person income tax (Section 31/34)
- 50% lowering of corporate income tax (Section 35(1))
- Double lowering the costs of electricity, water supply and transportation (Section 35(2))
- Additional 25 per cent deduction of the cost of installation or construction of facilities ( Section 35(3))
- Permit to own Land (Section 27)
- Permit to take out or remit money abroad (Section 37)
- Permit to enter the Kingdom for studying investment opportunities (Section 24)
Ways to start a Business in Thailand
|The process is faster as compared to other businesses. Infrastructures for start-ups is available in bulk in Thailand. Furniture and office equipment can be easily bought. Lot of excellent designers can help you create an office of your choice
|Franchise opportunities are ample. For instance, Subway is all around in Bangkok.
Many US franchises are much more popular in Bangkok than in the US itself.
|Buying is not the best way to operate a business in a foreign land. It is costly. It requires a lot of paperwork and is time-consuming. However, it gives you a ready to go business. You just need to grow the business. On the other hand, there was a reason to sell the business by the seller which might not be in your favor.|
Types of Business Structures operating in Thailand:
- Partnership: Unregistered ordinary partnership, Registered ordinary partnership and Limited Partnership. Read More
- Limited Companies:
- Private Limited Companies are governed and maintained by the Civil and Commercial Code:Through a process which leads to the registration of a Memorandum of Association and Articles of Association, as its fundamental documents. A minimum of seven shareholders is required. It could be entirely owned by aliens but under those activities which are reserved for the Thais, a maximum of 49 percent of ownership is allowed to the foreigners. The registration fee is 5500 baht per million baht of capital.
- Public Limited Companies are governed and maintained by the Public Company Act:: Subject to adherence with approvals, bonds, debentures, offer shares and warrants to the public and may apply to have their securities listed on the Stock Exchange of Thailand (SET). A minimum of 15 promoters are required and they must hold their shares for a minimum of 2 years before they can be transferred. The Board of Directors must have a minimum of five members, at least half of them to be Thai nationals. The registration fee is 2000 baht per million baht of capital. Read More about registering a Thai Limited Company
- Joint Venture: It has not yet been recognized as a legal entity under the Civil and Commercial Code. However, its income is taxable under the Revenue Code, which makes it a single entity.
- Representative Office: It is restricted in engaging in non-profit activities. At least one or more of the following purposes must be required for the establishment of an office:
The business is to:
- Search for goods or services in Thailand for the headquarters overseas and look for the source
- Check the quality and quantity of product ordered in the headquarters overseas.
- Give advice to the headquarters about the goods to order
- Supply the information of the headquarters’ products to the customers in Thailand.
- Report the economic movement in Thailand to the headquarters.
Read more about Representative Office norms
How to form a Thai Company
|STEP 1||STEP 2||STEP 3||STEP 4||STEP 5|
|Corporate name reservation||Filing of Memorandum of Association||Convene a statutory meeting||Registration||Tax Registration|
|Name to be reserved must not be the same or close to any pre-registered companies’ in Thailand.||To be filed with the Business Development Office, with the reserved name of the company.||During this meeting, the articles of incorporation and bylaws are approved.||Within three months of the Statutory meeting, the Director submits the application to establish the company.||Within 60 days of incorporation or the start of operation, businesses must obtain a tax I.D. card and the number from the Revenue Department.|
|Name Reservation guidelines if the Business Development Office in the Ministry of Commerce should be observed.||The location of the company, its business objectives, the capital to be registered. And the names of the seven promoters to be filed.||The Board of Directors is elected and an auditor is appointed.||The registration fee is 500 baht per 100,000 baht of registered capital.||Business operators earning more than 600,000 baht per annum must register for VAT within 30 days of the date they reach 600,000 baht in sales.|
|The approved name is valid for 30 days. No extension is allowed.||The capital information must include the number of shares and the par value.||A minimum of 25 percent of the par value of each subscribed share must be paid.||The minimum fee is 5,000 baht, while the maximum being 250,000 baht.|
Work Visa is an important prerequisite that you need to start your company in Thailand. As a foreigner, you are not even allowed to act as a volunteer at a business you have funded without a work visa. That means if the company is under your name, you will still need a work visa. Monthly fees might cost up to 5000 baht. This is comparatively cheaper than most developed economies. You should have your Thai partner to deal with all the important paperwork. The paperwork in Thai is regarded to be of higher importance than the one in aforeign language. Besides, your partner knows the culture and the people there. Therefore in some way, it’s good to have a Thai partner, to bond with the local authorities and the target audience in Thailand. Thus you should absolutely understand your partner before you start a venture.
Thai company Ownership Issue
The laws in Thailand are pretty nationalistic. Your company needs to be owned by the majority of Thais in order to run, the maximum partnership being 49 percent by a foreigner. In some cases, 39 percent is an obligation.
Exceptions to this clause are:
- The ownership of an Alien Business License from the Ministry of Commerce, under the Board of Investment. Usually, very large capital or very large number of Thais employed at the company, or technological transfer as in the field of energy fields are required to get this Foreign Business License.
- American Treaty of Foreign Companies: Any foreigner who wants to setup a company in Thailand cannot own a company solely by himself; except for US citizens, under the treaty of Amity. This treaty was signed on May 29th, 1968. The history of this Treaty hail from the colonial times when Thailand was the only non-colony in the region and the US was an ally, and it further went on to Vietnam War years, when America was a major investor in Thailand.
However, an American Treaty Company is more complicated than a regular company. It costs double compared to any other Thai corporation, but the same scrutiny and governmental regulations as a Thai corporation. Contact us for f
But why are US citizens treated specially? Maybe major US Corporations were not too comfortable to share the control of their corporations with the Thais. For example, Coca-Cola or US car makers did not want any unwanted shareholders.
Talks have been held to abolish this Treaty since it expired in 2004, and revise the laws and regulations in regards to the foreign businesses. However, there has been much less progress than required.
However, control of a company is not necessarily lost by not having “majority ownership”. There are some measures where a foreigner can completely control the company. Let’s say that you own 39 percent whereas the Thais own 61 percent, you being the sole Managing Director who is the sole signatory authority. A Thai nominee under the FBA is a Thai person or Thai company registered as a shareholder in the company but who holds the shares on behalf of the foreigner. The actual owner of the shares is the foreigner, however, on paper, the Thai shareholder is registered as the owner. In this case, you can set a scrum of shareholders at 65 percent. Thus even if you don’t attend, there is no scrum, so the bylaws cannot be changed nor can the Managing Director’s sole authority and powers be questioned.
The previous government wanted to amend this loophole in the Foreign Business Act. Thus under the amendment, the company will need to get Foreign License or would need to restructure and limit foreign control in the company. Under the new rule, under Section 36 and 37 of FBA, criminal investigation and evidence submitted to the court will find if Thai nominee shareholders are used.
Another questionable tactic is to hire a law firm which provides youstakeholders/promoters, who neither meets you nor they know you. But it might be illegal as well. Besides, if your company gets rich or acquires property and then you have an unfortunate accident, the Thais will get all the wealth and property. Thus it’s NOT a safe method to acquire full control over the company. You might want to know the stakeholders to run a safer business. It’s best to assign these shares to a diversity of Thais who you think you can trust.
Thirdly, most of the accounting firms and law offices in Samui, Pattaya and Phuket set up a 100 percent Thai owned company that transfers the shares and company control to the foreigner after the formation and registration of the company. This prevents the investigation at the time of registration. But it doesn’t protect the Foreigner owning the company if a breach with the Foreign Business Act is found. It might lead to several penalties like prosecution and removal of the company from the Registrar of Companies. Read More about US Amity Treaty and registering company under that.
Source of Capital
The Thai shareholders in a company partly or fully owned by the Thais, need to submit evidence of finance used to hold shares, including bank statements and other documents.
Issues regarding the set up of a business in Thailand
Thailand is ranked 49th on the list of ease of doing business countries all around the globe. That is, it is among the top 50 national economies to collaborate with.
Most of the serious problems are not the legal ones. They are usually the business associates in Thailand that you work with. Most Thai partners could be inexperienced, and not trustworthy who have less of prior research. They join hands with a foreign partner merely to get in the shares and the profit even if they don’t have a business agenda.
Foreigners who have done their best in Thailand because they had true intentions, were determined, committed and had a willingness to learn.
However, there are a lot of hurdles to set up a business in almost every foreign land.
- To start a business, you need to navigate through four procedures (as already stated above). It takes on an average a time period of 1 to 3 months to complete the whole process in Thailand if you have all the documents.
- There are eight procedures to get the construction permit. It takes 157 days to complete the whole process on an average. This involves inspections, permits, and approval by the Metropolitan department. Also, the approval of the building controller is required by the concerned authority.
- Thailand is ranked 70th on the ease of getting credit list, according to the World Bank and International Finance Corporation.
- Corporate income taxflat 30 percent, and VAT take the most time to complete. Thus taxing might be another issue.
- Enforcing contracts can take up to 440 days can involve 36 procedures. While resolving insolvency can take up to 2.7 years.
- Due to a highly cultural society, Thailand has diversity. It might be difficult to understand every culture for a foreigner. This mix of cultures is complex to handle. Indirect and subtle communications are preferred on negotiations. This requires local Thai people much more than the foreign staff. Thus you need to build a strong relationship with the Thais to help you operate successfully. Most importantly, you need to have a trustworthy and reliable Thai business partner.
- Make sure that you have your target audience in mind before you start the business. Targeting only foreigners and leaving the large Thai base is not usually recommended. Similarly, one must have a huge base of funds and profit margin to strive in the Land of Smiles.
- The Thai language is another barrier. Thus all the documents to be translated should be done by professionals you know.
- Working hours are restricted to 8 hours a day or 48 hours a week. Thus overtime might cost you a little higher.
However, there is always a flip side of the coin. Doing business in any part of the world is not easy. Thailand attracts a great number of opportunities on the other hand.
Advantages of doing business in Thailand
Starting a business or company setup in Thailand is not that difficult as you may believe as the country holds high respect for foreign businesses.
- In comparison to other Asian economies like India, China, Vietnam, and Malaysia, it is easier to do business in Thailand in terms of duration and cost.
- Start-up barriers are also less and it gives ample opportunities to entrepreneurs.
- A ratio of cost of living to the cost of operating business in Thailand excellent as compared to other Asian economies.
- Low inflation, decreasing budget deficit, lesser external vulnerabilities, and increasing national savings are parameters to attract foreign investors.
- Growth prospects are also strong with 1.8 percent GDP growth.
- Bangkok being the central hub is cheaper in terms of land as compared to New Delhi, Shanghai, and Singapore.
- Corporate income taxes are also low in Thailand. Besides, the Thailand Board of Investment offers incentives that might reduce the tax liabilities.
- Cross-border trade is very cheap. Although it might be time-consuming and bureaucratic.
- Protecting its investors is another key point in Thailand’s business. It is used as a ‘test center’ for many products as well.
- Getting electricity is a fairly straightforward task. It just requires permission from the Metropolitan Electricity Authority (MEA).
- A skilled and cost-effective workforce is another cherry on the cake for doing business in Thailand.
- Thailand has a diverse manufacturing sector with a large array of goods ranging from toys, rubber, and furniture to jewelry.
Thailand is a well-established market economy unlike many emerging economies in Asia. It’s comparatively hard to start a business in Thailand for a foreigner. However, it attracts businesses since it is a good and flexible market to operate in. The legal part is fairly easy. What you need is the financial capital and the core business that you are setting up in a foreign land.
Therefore Thailand has a lot of prospects for a fruitful business:
- If you have a robust business idea and a feasible business plan
- Have ample supply of funds to start your business
- Willingness to understand Thai culture, mentality and be open minded with a huge dose of patience
Huge profits with increasing youth and middle-class willingness’ to spend money is a great factor to attract business in Thailand. Rewards are great if you have done the market research and have a Plan B if something doesn’t work out.
For doing business in Thailand, we, as startup specialists in Thailand can assist you in various business models to set up. We offer you options either one time, time bound service packages to setup your initial business so that you can run it yourself on your own or we provide single window business outsourcing packages which includes all factors of business and is provided in continuous basis with a flexible agreement for 3 years. If you are unsure about which way to go, please fill up our online consulting form and contact us for a FREE consultation.