By Voralak Suwanvanichkij
As a foreigner, doing business in Thailand can be fraught with hurdles and pitfalls. Armed with the necessary information, however, it is possible to achieve success in one’s venture. Here is what one should know before jumping into the Thai business arena.
As in most countries, there are three major forms of business organization in Thailand: sole proprietorships, partnerships, and limited companies. According to the Kingdom’s Board of Investment (BOI), the most popular form of business organization among foreign investors is the private limited company. To start, this requires a minimum of three promoters or initial shareholders.
“Overall, is isn’t that difficult for foreigners to do business in Thailand,” says Alessandro Tosato, a Foreign Business Advisor at Sunbelt Asia Co., Ltd., a comprehensive commercial and legal advisory practice in Bangkok. “There are not many restrictions on the types of businesses foreigners may do, and there are many firms that can help navigate the system.”
In most cases, “the company must be majority owned, at least 51%, by Thais in terms of its shareholders, including companies or physical persons. This means that the company can be no more that 49% foreign owned. This is one of the more serious issues for the largest number of foreigners; it is where many disputes later arise when relationships with the Thai party sour, leading to the sale or demise of the business,” Alessandro explains.
Also, “a minimum of two million baht capital requirement applies in this case,” he says, adding that there are exceptions to the rule of majority foreign ownership. The latter requires an Alien Business License from the Ministry of Commerce that is usually granted with the blessings of the BOI on the basis of significant investment, employment of a large number of Thais, and/or transfer of highly desired technology.
The first step in the registration process is the application for permission to use a unique company name, followed by the filing of a Memorandum of Association (requiring the company name, location, capital registered, business objectives, and promoters); and convening of a statutory meeting, where division and type of shares (preferred/common) are specified, any contracts are ratified, directors are officially appointed, at least 25% of the total shares are paid by the shareholders, and Articles of Association are announced.
The company is then registered as a legal entity (juristic person) within 90 days of the statutory meeting, and a company income tax identity card is issued. During the registration process, the promoters will be required to supply the name, license number, and remuneration of the auditor (who must be a Certified Public Accountant) the company is planning to hire. The company is also required to pay the registration fee of 500 baht per 100,000 baht of registered capital.
If the necessary documents are complete and duly signed by all involved parties, registration can be completed in a single day. Keep in mind, however, that rules, instructions, and forms are all in Thai.
Basic Rules and Regulations
The Thai legal system in regards to companies and their tax liabilities is similar to some systems seen in the West. A balance sheet must be prepared and filed annually with the Department of Revenue and Commercial Registration. Accounting procedures must conform to the rules specified in the Civil and Commercial Code, the Revenue Code, and the Accounts Act.
Accounting and auditing within the company can be performed in English. However, the standard forms submitted to the Thai government are in Thai, and other reports must be translated into Thai. The company is also required to withhold income tax from the salary of all regular employees.
In terms of fulltime employment, the company must typically maintain a 4:1 ratio of Thai to foreign staff. “You cannot bring in all your foreign employees after starting a company. The number of foreign work permits granted depends on a number of factors: how many Thai staff you employ, the registered capital [2 million baht of registered capital per work permit], and the strength or influence of your business in other ways,” says Alessandro.
“Another law to be aware of whenever foreigners are attempting to do business in Thailand is the Foreign Business Act B.E. 2542 ,” says Alessandro. This law sets the basic guidelines as to the industries that foreigners can work and/or invest in, and “there are exceptions in certain cases and it is worth reading before engaging in business in Thailand.”
Depending on the business, there are also specific acts governing operations and providing for certain safeguards. For example, the Ministry of Industry administers the Factory Act, which covers factory construction, operation, and licensing, as well as safety and pollution-control requirements. Other examples are the Copyright Act, Patent Act, and Trademark Act that afford protections on all types of intellectual property. “There are other acts that apply to foreigners such as those requiring a specific type of visa or work permit,” adds Alessandro.
“There are risks involved for every kind of business. Most of the serious problems are from those inexperienced in doing business, or those who don’t have trustworthy business partners,” cautions Alessandro. “It all comes down to the basic principals of business – your successes or headaches will largely depend on the market for your product of services, your research and information, the licenses required, your partners and staff, and your ability to get around unexpected problems.”
What are some of the biggest challenges for foreigners? “Well, there are quite a few concerns about official harassment, extortion, and other issues that are under the surface of the system, where the word of law may or may not mean anything. But as in any other country, you have to plan for this. It’s a normal part of doing business,” he explains.
As for a good place to start for those interested in (and not deterred by) going into business in Thailand, “Sunbelt has a comprehensive listing of businesses for sale on our website. We also offer advice, legal assistance, and brokerage services for people anywhere in the country. Talk to us, talk to others, meet people – you never know where it will lead, and that part of the fun of doing business.”