Starting a Business in Thailand:
A 12-Step Beginner’s Guide to Law, Registration, Shareholders, Capital Requirements & Tax
Starting a business in Thailand can be a daunting prospect, but get it right and it can be a lucrative, enjoyable one. There’s an abundance of opportunity in the industrial and service sectors and in import and export in general.
Thailand is the second-largest economy in Southeast Asia after Indonesia, and recognized by the World Bank as “one of the great development success stories” in social and development indicators.
But before you even consider this journey, you need to arm yourself with the basics of Thai business law and regulation.
There’s a ton of incorrect information out there online, and indeed to be heard next to a mumbling expat at 2am on a barstool in a back alley of Bangkok.
So here it is. Everything you need to know in one handy post, broken down in to 12 helpfull sections.
Get a coffee; you’ll need it!
What law governs setting up a business in Thailand?
Foreign business in Thailand is governed by the The Foreign Business Act of 1999, set up by the recently deceased His Majesty King Ghumibol Adulyadej.
It is extremely important to know the penalties should you not adhere to the restrictions imposed. Non-compliance could result in a three year prison term and/or a fine of between 100,000b -1,000,000 Baht (£2.277 – £22.778) at today’s exchange rates.
The Foreign Business Act prescribes a range of business, commercial and industrial activities that may not be carried out by “foreigners” unless a relevant licence has been obtained or an exemption applies.
This includes Thai registered companies where half or more of the capital is held by non Thai individuals, foreign registered companies or Thai registered companies which are themselves majority foreign-owned.
There is no general prohibition against foreigners carrying out business in Thailand. However, foreigners cannot engage in the following:
- Newspaper publishing, radio or television broadcasting
- Rice farming, arable farming or orchard farming
- Rearing livestock
- Forestry and the processing of wood from forests (naturally grown)
- Fishery, only in relation to marine life in Thai waters and the specific economic zone
- Extraction of Thai medicinal herbs
- Trading and auctioning of Thai antiques or antiques which are of historical value to the country
- Manufacture or casting of Buddha images and alms bowls
- Trade in real property
What different types of company can I start in Thailand?
Foreigners can choose from the following types of company:
- Registered Ordinary OR Limited Partnership.
- Representative Office, Regional Office or a Branch Office.
- Limited Company.
Unlike a Thai partnership, in a limited partnership, one partner’s liability is limited while the other partner’s liability is unlimited.
Limited partnerships MUST be registered unlike a Thai partnership.
A Representative Office has limitations on activities, as outlined below:
- Reporting on business movement in Thailand.
- Providing advice related to products that are being sold to distributors or customers
- Sourcing goods and services in Thailand
- Inspecting and controlling the quality and quantity of goods purchased or ordered to be manufactured in Thailand
- Introducing information regarding new products or services
Structure is what separates regional offices and their branch counterparts. The regional office will conduct its business in Thailand on behalf of its head office based outside of the Thai kingdom.
A regional office is limited to performing seven specific activities, all of which fall under list three of the Foreign Business Act ‘FBA Act 1999’, the afore mentioned activities are listed below.
- Communicating, coordinating and directing, on behalf of the head office
- The operation of branches and affiliates which are located in the region
- Providing services in consulting and management
- Training and personnel development
- Financial management
- Marketing control and sales promotion planning
- Product development
- Services in research and development
Also worth noting, a foreign company must have at least one active branch office or affiliate in Asia. Regional offices are also restricted from earning income, purchasing, selling, and negotiating while based on Thai soil.
Unlike the Representative Office and Regional Office, Branch Offices under Thai law are not limited to the “non-trading” activities. They are allowed to earn income.
The Branch Office’s liabilities arising from the action of the business in Thailand will not be limited within Thailand but extends to the head office overseas.
Under Thai law, the branch office is also governed by the FBA Act. If one of the branch office’s activities falls under the FBA Act, it will require a Foreign Business License (FBL) to conduct activities in Thailand.
Here, two options are available depending on your circumstances:
- Private OR closely held (company that has only a limited number of shareholders)
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.
- Public Company
A minimum of 15 promoters is required for the formation and registration of the memorandum of association of a public limited company, and the promoters 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 Thai nationals. The registration fee for a public limited company.is roughly 2,000 Baht per million baht of capital.
What is a Nominee Shareholder & a Majority Shareholder?
When setting up a company in Thailand is discussed, the term “Nominee Shareholder” often comes into the conversation. In Thailand a nominee shareholder is a shareholder ‘in name only’, thus does not have any substantial financial stake or interest in the proposed company.
Under Thailand’s Foreign Business ACT 1999, and also Thailand’s Land Act, the practice of having a nominee shareholder is illegal, punished by way of substantial fines or imprisonment.
So, in short; avoid setting up a company in the name of your partner or someone you’ve only met a handful of times in a bid to quickly get started – this may come back to bite you.
However, foreigners are allowed to control the company as a minority shareholder and are allowed to be appointed as the managing director of the company
In this respect, a foreigner can choose to form a Thai majority company whereby the Thai partner(s) will have a 51% stake in the company, and the foreign associate 49%.
How would I benefit from having less of a stake than my Thai counterpart(s)?
Simply put, a Thai majority company, as opposed to a registered foreign company, requires less capital and paperwork to setup and maintain. Another benefit from having Thai partners is that a Thai majority company is able to purchase land, should the need arise.
Buying property while in a Thai partnership, as a foreign investor, is a fairly common practice in Thailand. Should you choose this route, maintaining regular compliance of the company would be paramount.
Thai law requires balance sheets to be filed yearly and a company address must be maintained. Also bear in mind that if a company is not earning an income, it faces being de-listed by the authorities.
Given the fact I would be a minority shareholder, would I face being overruled by my associate(s)?
Under certain circumstances, the use of preferential voting rights and the requirement of a super majority of shares to votes may alter voting rights in favour of minority shareholders.
However, it is common practice for lawyers to create companies for foreigners whereby the “assigned” Thai majority shareholders have no interest in the company.
Even so, since the income of a limited company is normally disbursed through expenses, such as salaries and rent, there is no equity for them to claim in the rare event that a coup was to take place.
Do I ‘have’ to have capital to register a Thai company?
As it currently stands, the minimum capital requirement for a Thai majority shareholder company (limited) is 2 million Baht, with a government set up fee of roughly 7,000 Baht.
If you have a Thai spouse, this requirement is reduced to 1 million Baht.
On the other hand, if the business is required to obtain a Foreign Business License under FBA, the minimum capital requirement must be THB 3 million for each business activity.
Can I own/buy assets as part of a company?
Prior to 1997, it was not possible for a foreign national to buy property or assets in Thailand. These laws have now thankfully been relaxed.
A popular method is to be in partnership with a Thai national, in a Thai majority limited company. An agreement would then be put in place that would result in the Thai entity handing over complete power of attorney to the foreign partner, which would then provide them with the power to purchase assets.
The owners of the joint venture would then be required to complete a tax return and pay administrative fees and tax each year. However, as mentioned earlier in this document, using nominee shareholders and creating joint ventures for the sole purpose of owning property is illegal and highly punishable under Thai law.
Acquiring a 30-year lease on a property (which is extendable to 60 years once obtained) is another route you can go down. You don’t need a business to do this though. For example, your partner could lease you land for 30 years to build a house on.
Is it possible to own 100% of a Thai company?
The long-standing rumour that a foreigner can’t own 100% of a Thai company still permeates the pavements of Thailand. But it is false; though some of the methods are time-consuming and the outcomes may be un-predictable.
There are three ways to achieve 100% ownership:
- Obtain a Foreign Business License
A Foreign Business License can be loosely understood as a Work Permit for companies. Just as foreigners in Thailand can only engage in certain occupations and are required to have a Work Permit to be able to work, foreign companies can also operate merely in the selected categories and need an FBL.
This way, the Thai government can control the influx of foreign businesses into the country and thus protect Thai nationals and their interests
- Board of Investment (BOI) Promotion
The Thailand Board of Investment (BOI) is a division of Thai government that promotes business start-ups and projects in areas that are deemed desirable for the economic outlook of Thailand.
One example of a success story set up under the BOI is the App Development & Marketing Company Appsynth. 100% foreign owned, the business went from 1-40 employees in 5 years, and has won multiple regional awards for its services.
- Registration through the Treaty of Amity (for US citizens only)
Thai-US Treaty of Amity and Economic Relations is a special agreement between the USA and the Thai Kingdom that allows American companies or entrepreneurs to maintain a majority of shareholding or full ownership of a company in Thailand.
It’s actually pretty cool, and darn unfair for the rest of us.
What visa would I require to start the process of starting a Thai company?
To enter Thailand with the purpose of doing business, you will require a non-immigrant ‘B’ (business visa). This makes you legally eligible to conduct business activities in Thailand, and that includes prospecting to set up a company.
Can I hire foreigners to work in my company?
Eligibility boils down to registered capital, as mentioned above. Two million Baht will enable you to employ a foreign national, and a further 2 million Baht per person is required up to a maximum of 10 people.
Also note that the company may hire 1 foreign worker for every 5 million Baht paid in tax.
Am I able to open a Thai bank account?
If your company is small, then the bank may not give you a checking account when you first open your company account. You may get only a savings account, whereby you can only withdraw cash. Note that you won’t get an ATM card with a company account.
You must go, or send someone, to the bank with a withdrawal slip, with the authorized signature (e.g., yours) and stamped with your company stamp. The bank will write up individual bank cheques upon request. You will pay your clients in cash, or else transfer/deposit funds into their account at the bank.
Bear in mind that loans from local banks are not easily obtained. Getting a loan from your bank overseas may be easier, even though you will be transferring the money to Thailand.
What about tax? What will I pay?
Corporate Income Tax
Corporate Income Tax (CIT) is a direct tax levied on a juristic company or partnership carrying on business in Thailand, or not carrying on business in Thailand but deriving certain types of income from Thailand.
- Tax will be withheld on interest paid to associations or foundations at the rate of 10%.
- Royalties paid to associations or foundations are subject to 10% withholding tax.
- Government agencies are required to withhold tax at the rate of 1% on all types of income paid to companies.