Q & A, foreign business and company
Learning: setting up a business in Thailand
Under the 'Alien Business Act B.E. 2542 (A.D.1999)' of Thailand foreigners are prohibited from engaging in most business categories in Thailand unless an alien business operation permit is obtained from the Director-General of the Department of Commercial Registration with the approval of the Alien Business Committee. A 'Foreign Business License' can in principle only be granted for business categories listed in list 3 of the Alien Business Act .
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Can a foreign company do business in Thailand? +
When a foreign company wants to operate a business as a foreign entity in Thailand the approval requirement under the Foreign Business Act B.E. 2542 must be complied with. Foreign companies may be granted a foreign business license for certain business categories or may be granted an exemption based on a treaty or specific act (e.g. investment promotion). Read more on the website of the Department of Business Development or Board of Investment (BOI).
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How many shareholders a limited company requires? +
A limited company in Thailand must have a minimum of 3 shareholder at all times. Shareholders can be foreigners and Thai nationals however for a Thai company to be considered foreign or Thai different foreigner definitions exist under Thai laws limiting foreign participation (e.g. foreigner definition under the Land Code Act, Vessel Act, Foreign Business Act, Tourism Business and Guide Act, each having different foreigner definitions or limiting foreign shareholdings and/or foreign control in managing the Thai company).
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Can a Thai company issue different classes of shares to its shareholders? +
It is under Thai law not necessary that equal rights and privileges should be attached to all shares, some may for example have privileges in the matter of voting. A minority (foreign) shareholder can control a Thai limited company. Voting rights and management of a Thai company is in the current Foreign Business Act not used as a criterion in defining a company foreign or Thai. However, there have been serious plans in the Thai government to include foreign control as a criterion in defining a Thai company foreign or Thai. This would mean that a majority Thai owned but foreign controlled Thai company would be deemed foreign and therefore must have a foreign business license or would need to restructure and limit foreign control. This subject is related to the nominee shareholder issue.
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Some foreigners chose to circumvent foreign business and land ownership restriction through Thai limited companies with nominee shareholders. The use of nominee shareholders by foreigners is illegal, when a nominee is used the actual owner of the shares is considered the foreigner, therefore the foreigner (by this Thai limited company) does break foreign business and real property ownership restrictions and is liable for fines and imprisonment, read more....
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When is a Thai company deemed foreign? +
Under the present foreign business act a partnership or company limited incorporated under Thai law is deemed Thai when the majority of the shares are held by Thai nationals. Foreigners may not use Thai 'nominee' shareholders to create a majority Thai owned company to circumvent foreign ownership or business restrictions. In this case the foreigner will be deemed the actual owner of the shares and therefore, despite the majority shareholding on paper, the company foreign. It should be noted that different foreigner restrictions exist for specific businesses. under some specific laws foreigners may not own more than 39% of the shares in the Thai company and/ or the company is required to have a Thai national as the managing director.
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When must proof of shareholders investment be submitted? +
In July 2006 the Department of Business Development issued new rules and regulation for the business registration office regarding the misuse by foreigners of Thai nominee shareholders in limited companies/ partnerships. Since the rules have become stricter. Currently, when an application for company registration with any foreign participation (as shareholder or director authorized to sign on behalf of the company) is submitted then the Thai shareholders are required and submit proof to the Department of Business registration that they actually will and can invest their capital shares in the company. This to assure that the Thai shareholders are not nominees acting on behalf of the foreigner.
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What are the shareholders and directors rights and responsibilities in a limited company? +
Basically rights, obligations and responsibilities of the company members (shareholders/ directors) can be found in the internal regulations (by-laws) of the company. External this is primarily governed by the civil and commercial code sections 1117 - 1207 (shares and shareholders) and sections 1144 - 1207 (management). Persons who merely hold shares or titles in the company may only have rights based on the agreement with the actual owner or principal.
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What is the Value Added Tax rate in Thailand? +
The general Value Added Tax ('sale tax') rate in Thailand is 10% but currently reduced to 7% on the price of a product or service subject to 'VAT'. Not all companies in Thailand have to charge Value Added Tax over their services or products, read more on the Thailand Revenue Department's website 'Value Added Tax.
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Does a business need to charge value added tax? +
Certain business activities are exempt, e.g. small businesses, but if it is expected that its gross income will exceed 1.8 million baht per annum also small businesses must register for Value Added Tax within 30 days of the date they reach 1.8 million baht in sales. More information can be found on the website of the Thailand revenue department.
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What rate is Corporation Tax in Thailand? +
The general rate is 30% but specific reduction may apply. The tax rate for small companies, with a paid up share capital not more than 5 million baht, shall be taxed at rate of 15% over the first one million baht profit, then 25% over the profit between one million and three million and 30% for profits over three million baht. More information on corporation income tax can be found on the website of the Thai Revenue Department, and laws concerning corporate income tax can be found primarily in the Revenue Code, chapter Corporate Income Tax. This last link also contains laws on other tax subjects, like Value Added Tax (VAT) and Business Tax.
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What are the Personal Income tax rates in Thailand? +
Personal income tax is imposed at a progressive rate ranging from 5 percent to 35 percent (source) . Every person, resident or non-resident, who derives assessable income from employment or business in Thailand, or has assets located in Thailand, is subject to personal income tax, whether such income is paid in or outside of Thailand.
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Do I have to do accounting when a company is inactive? +
When a company is inactive or temporarily ceases its business it still has to submit the financial statements as stipulated by the law every year. The company must presents the income, accounting and balance sheet reports at the general meeting of shareholders for approval within 4 months from the date the accounting/ books are closed. This is the legal responsibility of the managing director who is also personal liable (by law) when these financial statements and documents (including the minutes of meeting of the general shareholders meeting) are not prepared and lodged.
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What are the accounting principles for a company in Thailand? +
In general, the basic accounting principles practiced in Europe and the United States are accepted in Thailand. A newly established company in Thailand is liable for income tax and must obtain a tax I.D. card and number for the company from the Thailand Revenue Department within 60 days of incorporation or the start of operations. A newly established company in Thailand must hire a certified accountant. Companies must keep books and follow accounting procedures specified in the Civil and Commercial Code, the Revenue Code and the Accounts Act. Documents may be prepared in any language, provided that a Thai translation is attached. A newly-established company or partnership should close accounts within 12 months from the date of its registration. The director is responsible for the regular keeping of books and documents in accordance with the law and must file balance sheets and audited accounts every year with the Revenue Department and Ministry of Commerce.
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What is the minimum share capital of a limited company? +
1 million baht, or adequate capital for the intended business operation. When a foreigner requires a work permit the company concerned must have a registered capital of not less than 2 million baht (fully paid-up) and 4 million baht for 2 work permits and 6 million for 3 work permits.
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What are the laws governing foreign business in Thailand? +
Thailand restricts and prohibits economical areas and various business categories primarily in the Foreign Business Act. For specific types of businesses additional laws with additional foreigner participation restrictions may exist.
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What is the difference between a private and public limited company in Thailand? +
A public Limited company has to comply with the Public Company Limited Act B.E.2535, whereas private limited companies have to follow the Civil and Commercial Code.
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Where to find the laws governing partnerships and limited companies? +
The laws governing partnership and limited companies is primarily codified in the Civil and Commercial Code . You can find a translation of the relevant section here....
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Who is authorized to sign on behalf of the company? +
This would be the managing director or in case of more than one director, the person having the company stamp and who is authorized according to the company's regulations (articles-of-association). Under these rules the signing power to for example withdraw money from a company's bank account, or in general decide about company matters, lies with each director or could according to the company regulations require joint signatures.
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Can I control a majority Thai company? +
Foreigners can be a managing director of a majority Thai owned company, unless specific restrictions for specific businesses under separate laws exist. Control and voting rights are under present foreign business laws not used as a criterion in defining a company foreign or Thai, but absolute foreign control, unbalanced voting rights and dividends paid by the company could be indicators of the illegal use of Thai nominee shareholders.
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Can I own real estate on the name of a Thai company? +
A majority Thai owned company can own real estate (land), however the regulations allowing a Thai company with foreign participation to register ownership are restrictive and aimed at preventing foreigners from forming Thai companies for this purposes. A company cannot be formed merely as a front for foreign real estate ownership in Thailand, read more....
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Can I form a special purpose company (SPE) for real estate ownership in Thailand? +
A company cannot be incorporated as a (dormant) special purpose company, i.e. to circumvent foreign land ownership restrictions. The company must have a business purpose which are stated in the company objectives and start operating a business within a reasonable period of time from formation, money should pass through the company books, yearly shareholder meetings must be held, minutes of meeting prepared, and yearly accounting must be filed or the director could be liable for fines and even removal from the register of companies
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When I form a company can I use it to work in Thailand? +
You cannot perform any work or service in Thailand for that company unless a work permit has been issued by the Alien Employment Division of the Labour Department and Social Welfare Ministry, read more....
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How to form a Thai company in Thailand? +
Submit a company name for approval, follow the steps/ procedure of private limited company formation, complete all company documents of incorporation and submit these with the department of business registration. A Thai company requires a majority Thai shareholders and foreign /Thai shareholding that is accepted by the business registration department and complies with business registration rules for the registration of a Thai company with foreign participation (foreigners may not use Thai nominee shareholders).
