Thailand represents an attractive market for foreign investors who want to set up their enterprises. Thai law restricts access to certain businesses, however, it should be noted that barriers are being lowered and restrictions reduced as the government is intent of attracting foreign investment.
Thai law recognizes five main types of business organization: ordinary partnership, ordinary registered partnership, limited partnership, limited company and public limited company. The first four types of entity are governed by the Civil and Commercial Code, and the last type by the Public Limited Companies Act of 1992. Moreover, the branch office, representative office and regional office are recognized under the Foreign Business Act BE 2542 (FBA).
The nature of the intended business operations will be an important factor in selecting the appropriate form of business organization. For a private or public limited company, if 50% or more of the company’s shares are owned by a foreigner, as defined in the FBA, the company will be considered a foreign company, and subject to the act, which prohibits the creation of certain business activities unless approval is obtained from the Ministry of Commerce. Foreign investors usually carry on business through a limited company, branch or representative office.
A branch office and its head office are treated as the same legal entity under Thai law. The branch office will be considered a permanent establishment of the foreign corporation in Thailand. The head office will be liable for tax on direct transactions in Thailand, even where the branch is not involved.
Generally, companies have the following options for business formation:
Sole Proprietorship
The sole proprietorship is a registered business owned by one person, who is also the operator of the business. Even though a foreigner can do business as a Sole Proprietorship, it may be hard to incorporate if the business does not meet the requirements.
Partnership
Even though registering partnerships is easier than registering other business structures, the partnerships cannot give work permits to foreigners. They also cannot open corporate bank accounts under the company’s name. Thailand provides for three general types for partnerships: unregistered ordinary partnerships, registered ordinary partnerships and limited partnerships.
- Unregistered ordinary partnership: Within this partnership, all partners will be jointly liable for all obligations of the partnership. Also, the unregistered ordinary partnership is not considered a legal entity. The partners are still held accountable for any mishaps.
- Registered ordinary partnership: This type of partnership requires registration with the authorities. With registered ordinary partnerships, the business has legal rights, duties, and liabilities separate from all partners.
- Limited partnership: This type of partnership has two types of partners: unlimited liability partners and limited liability partners. The limited liability partners will be liable only to the amount of capital that the said partners contributed to the partnership. The unlimited liability partners will be liable no matter how much capital the partners contributed to the partnership.
Limited Company
There are two types of limited companies in Thailand: private and public. The first is governed by the Civil and Commercial Code, and the second by the Public Company Act. The Limited company is the most popular registration method for foreigners who wish to do business in Thailand. With this business structure, the company’s shareholders will be limited to the amount, if any, of unpaid shares respectively held by them. Also, the directors of the company can apply for work permits.
- Private Limited Companies in Thailand have basic characteristics similar to those of Western corporations. A private limited company is formed through a process which leads to the registration of a Memorandum of Association (Articles of Incorporation) and Articles of Association (By-laws), as its constitutive documents. A minimum of seven shareholders is required at all times. A private limited company may be wholly owned by foreigners. However, in those activities reserved for Thai nationals, foreigners’ participation is generally allowed up to a maximum of 49%. The registration fee for a private limited company is THB 5,500 per million THB of capital.
- Public Limited companies registered in Thailand may, subject to compliance with the prospectus, approval, and other requirements, offer shares, debentures and warrants to the public and may apply to have their securities listed on the Stock Exchange of Thailand. A minimum of 15 shareholders is required for the formation and registration of the memorandum of association of a public limited company, and the shareholders must hold their shares for a minimum of two years before they can be transferred. The Board of Directors of a public limited company must have a minimum of five members, at least half of them must be Thai nationals. The registration fee is THB 2,000 per million THB of capital.
Joint Venture
A joint venture may be described in accordance with general practice as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together. It has not yet been recognised as a legal entity under the Civil and Commercial Code. However, income from the joint venture is subject to corporate taxation under the Revenue Code, which classifies it as a single entity.
Representative Office
A representative office is limited in engaging in non-profit activities. In order to form a representative office, at least one of the following purposes would need to be sought for the purposes of limited “non-trading” activities: the business is to search for the source of goods or services in Thailand for the headquarters overseas; to check the quality and quantity of the product ordered by the headquarters overseas; to give advice to the headquarters about the goods to order; to supply the information of the headquarters’ products to the customers in Thailand; to report the economic movement in Thailand to the headquarters.
Registration Process
Once the type of business formation has been decided, the business needs to proceed with the registration process via Trade Register, hosted by the Department of Business Development under the Ministry of Commerce in Thailand.
Several steps must be completed in order to begin the registration procedure, such as: drafting the company’s articles of association, naming directors and a company’s secretary. Also, the company must register with the local authorities for Value Added Tax and at the social contributions. Registering a company in Thailand can take some time (around 7 days for a private company and up to 30 days for a public company). The first step is to select and reserve a company name, which is then valid for 30 days.
Additionally, the following documents need to be prepared and submitted before the company can be registered:
- Articles of Association.
- Memorandum of Association.
- Application form and list of shareholders.
- New director form signed by each director.
- Declaration of Business operation form.
- Company name reservation.
- Details of the offices and branches of one’s business.
Before a business can be registered, at least 25% of the initial investment capital must be also paid into a corporate bank account. The business owner also needs a company stamp, which acts as the signature to certify company documents. These are produced by specialist chop makers, and cost between THB 400-800, depending on exact chop specifications.
The Thai Board of Investment offers useful guidelines in English to navigate the company registration process (www.boi.go.th/newboi/en/index). In general, the procedure for business registration is as follows:
- Apply for permission to use a company name.
- Deposit paid-in capital in a bank.
- Obtain a corporate seal.
- Get approval for memorandum of association and apply to register the company as a legal entity (final registration) at the Private Limited Companies Registrar.
- Register with the Revenue Department for Tax.
- Register for social security and Workmen’s Compensation Fund at the Social Security Office, Ministry of Labor.
- Submit company work regulations to the Office of Labor Protection and Welfare of the Ministry of Labor at the district where the head office of the company is located.
Once the business is registered, the business owner has to notify the tax authorities of the company. The business owner has up to 60 days to notify the revenue department and get a tax ID card for the business. If the revenue turnover is high, registration for VAT is required. The website of the Board of Investment describes the accounting and financial reporting responsibilities of business owners.
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