Legal Matters: Establishing a Business in Thailand
Limcharoen Hughes & Glanville
Establishing a Business in Thailand
The legal implications and requirements for a foreigner establishing and running a business in Thailand, need to be understood before embarking on a business project. We set out a brief guide and overview on establishing a business in Thailand, and some of the rules and regulations that would apply, whether the business is to be run in conjunction with a Thai investor or without (ie under Board of Investment (BOI) rules).
Running a Business without a Thai Investor
Business activity in Thailand is governed by the Foreign Business Act 1999, which restricts business activity by foreigners and divides business activities into three categories. The Act places restrictions of varying degrees of severity on foreign ownership according to the category.
Depending on the business activity, it may be possible to have a majority foreign owned company, by applying to the authorities for a Foreign Business Licence (which may be granted with restrictions imposed on the business, such as stipulating a minimum number of Thai directors, or other restrictions relating to capital).
Another alternative is to apply for BOI Status under the BOI Promotion Scheme. This is a governmental scheme granting incentives to foreign companies carrying out certain business activities in Thailand to attract inward investment into Thailand in areas that it considers advantageous to the economic development and well-being of Thailand. The incentives that are available include assistance with work visas and permits.
Running a Business with a Thai Investor
If you’ve identified Thai investors then establishing a majority owned Thai company may be your preferred option to operate the business if proper agreements are put in place.
Under Thai law a limited company requires a minimum of three shareholders, the majority of whom must be Thai and at least 51% of the shares in the company must be owned by Thai nationals. It’s important that all shareholders have a genuine interest in the Company, and are not considered to be “nominee” shareholders by the Thai authorities.
In many cases the foreign investor may provide the majority of the investment even though they can own only up to 49% of the shares (although under Thai law the minimum registered share capital must be fully paid up). In such case special Articles of Association can be adopted and a shareholders’ agreement entered into to regulate relations between shareholders and to implement the arrangements agreed between the foreign and Thai investors. These might include the foreigner being permitted to appoint the majority of directors, having priority to a dividend, or being given the right of first refusal if the Thai investor wishes to sell his shares.
A government fee is payable for company formation together with a certification fee and stamp duty. Once all documents are finalised the registration process should take about three to four weeks to complete.
Visas/Work Permit Establishing a Business in Thailand
A company can obtain the relevant visa and work permit for its foreign director or foreign employee, provided it has been duly set-up and, for each foreigner employed, it employs four Thai nationals. A foreign director, even if not receiving reimbursement, requires a Non-Immigrant B visa (which should be applied for outside Thailand) and then a work permit (applied for in Thailand in the city or municipality where the business is located).
The work permit will relate to one particular job, and is strictly for that job for a certain period of time, after which the permit must be extended or renewed. If your job changes or you take on an additional post, a new application will need to be made for the appropriate work permit.
Visas and work permits don’t have an automatic renewal, and an annual re-application must be made. You must ensure that you obtain a non-immigrant B visa prior to arriving at an airport in Thailand as immigration at the airports has recently announced discontinuance of this service.
A minimum number of Thai employees (with proper ID Cards and house papers) must be employed for every foreigner employed.
Minimum wages must also be paid to Thai staff, which are set by the government, and vary from area to area within Thailand. Maximum hours of work per day are prescribed as well as the amount of holidays.
Taxes & Accounting
Once the company is established there are additional on-going tax and accounting requirements.
Taxes will be payable on personal income and company profits and withholding taxes on employees’ salaries and wages must be paid. VAT may also be payable depending on the type of business and level of income.
Accounts must be submitted in Thai, and in the correct format, and an annual independent audit carried out.
This article sets out only in brief outline the matters to consider when establishing a business in Thailand. The particular requirements will vary from business to business and additional requirements imposed on certain business activities. Before investing in Thailand it’s important to take full advice so that you’re fully aware of all the implications.
Limcharoen Hughes & Glanville
Limcharoen Hughes & Glanville (Phuket)
T: +66 7634 2882-4 F: +66 7634 2885
Limcharoen Hughes & Glanville (Bangkok)
T: +66 2635 5071-3 F: +66 2635 5074
Limcharoen Hughes & Glanville (Samui)
T: +66 7724 6185-7 F: +66 7724 6188
Limcharoen Hughes & Glanville (Ho Chi Minh City)
T: +84 862 917 000 F: +84 862 916 999
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