The Foreign Business Act of 1999 Makes Starting A Business In Thailand More Globalized
Thailand has always been a nation enriched with culture. Its tropical climate is very ideal for many crops, which is why food is readily available almost everywhere. This resulted in the development of the nation’s own cuisine and eventually, the rise of many culinary establishments. When you’re starting a business in Thailand, a restaurant will most likely be your one-way ticket to success.
However, opportunities don’t only stop there. The Foreign Business Act of 1999 gave way for offshore corporations and new entrants to experience profitability from Thailand’s deep heritage. Set up by His Majesty King Bhumibol Adulyadej, this law prescribes a range of business, commercial and industrial activities a foreign national may conduct within Thailand. Traditionally, the state used to be more conservative with their policies, but everything changed after this law’s enactment.
Of course, there will always be limitations to the statute. First, not all foreigners can freely commence business immediately. They have to obtain a relevant license first for their operations. Second, some businesses are totally off-limits to non-Thai nationals. These include:
- Newspaper publishing
- Radio or television broadcasting
- Rice farming, arable farming, or orchard farming
- Growing livestock
- Forestry and wood processing from forests
- Fishery businesses related to marine life in Thai waters and the state’s economic zone
- Extraction and manufacturing of Thailand’s medicinal herbs
- Trading and auctioning of antiques which are of historical value to Thailand or made by Thai nationals
- Manufacturing or molding of Buddha images and alms bowls
- Trade in real property
Non-compliance to these policies could lead to a penalty. You may receive a three-year prison term and/or a fine of between 100,000 – 1,000,000 Baht.
Company Types in Thailand
Before starting a business in Thailand, it’s vital to know the types of companies you can form. Here are the most common corporate structures:
According to the Foreign Business Act of 1999, a Thai regional office can only perform these operations:
- Collaborating, coordinating, and directing on behalf of the main office
- The operation of branches and associates in the region
- Offering consulting and management services
- Training and employee advancement
- Financial management
- Marketing, advertising, and sales promotion planning
- Product development
- Research and development services
Moreover, the law states that a foreign company must have at least one active branch office or affiliate in Asia.
Unlike the Regional Office, Branch Offices under Thai law have fewer boundaries. They are allowed to earn income from non-trading activities. However, any liability arising from business operations in Thailand will not be limited within the nation. Such obligation outspreads even to the head office overseas.
If one of the office’s activities fall under the FBA Act, you’ll need a Foreign Business License (FBL) to conduct such actions in Thailand.
Private Limited Company
Like other typical limited companies, a Thai private limited company undergoes an incorporation process. When starting a business in Thailand under this category, you must submit documents like Memorandum of Association and Articles of Association.
When you’re starting a business in Thailand for the public, you need a minimum of 15 shareholder members or promoters. These names shall be recorded into the memorandum of association. Furthermore, these promoters must keep their shares for at least two years before transferring to a third party.
A minimum of five members can form the Board of Directors of a public limited company. Take note that at least half of the board must be Thai citizens. The registration fee for this company type is approximately 2,000 Baht per one million baht of capital.
Prior to FBA’s legislation in 1997, a foreign business owner wasn’t able to purchase assets in Thailand. Now, however, you can freely buy certain properties in many ways.
Many foreigners utilize the method of partnering with a Thai majority limited company. Should you prefer this process, there are certain things you need to do. First, you need to draft an agreement stating that your Thai partner will hand over its power of attorney. This PoA serves as an authorization to purchase assets. Next, you and the Thai associate should complete a tax return. This step entails you paying for administrative fees and tax each year, as joint owners of the property.
Take note that using nominee shareholders and forming joint ventures just to own property is prohibited. Therefore, such offense is punishable under Thai law. To avoid this, you need to seek legal counsel for advice on how to get around the technicalities.
Alternatively, obtaining a lease of 30 years on a property is another direction you can proceed through. You can even extend this for up to 60 years once you have attained the lease. Similar to the first approach, you’ll be needing a Thai partner to help you out. He could then serve as a lessor for you.
Full Ownership of a Thai Company
Misconceptions indicating that foreigners can’t fully own a Thai company is pure nonsense. The law might be stringent about it, but it’s still possible. Although the procedures are parallel to crossing a tightrope, you can still get through the process if you’re determined in starting a business in Thailand.
There are three ways to accomplish such a feat:
Secure a Foreign Business License
A Foreign Business License works like a work permit for companies. Technically, it permits foreign business to operate certain activities listed by law. In this manner, the Thai government can regulate the entry of foreign businesses into the country. Essentially, it protects Thai nationals and their interests.
Promoting a Board of Investment (BOI)
The Thailand Board of Investment (BOI) is a department of the Thai government. It encourages business start-ups and projects in feasible areas and promotes the economic outlook of the state.
Registration through the Treaty of Amity
Thai-US Treaty of Amity and Economic Relations is a special arrangement between the USA and the Thai Kingdom. It consents American companies or entrepreneurs to uphold a majority of shareholding or full proprietorship of a company in Thailand. Naturally, only US citizens and businesses can apply this method.
When starting a business in Thailand, you will need a non-immigrant ‘B’ or a business visa. This document enables you to conduct business activities in Thailand, which includes setting up a company.
You can apply for this visa at the Royal Thai Embassy or a consulate in your home country. The fee is 2,000 Baht for a single entry with three months validation. If you’re staying longer, you have to pay 5,000 Baht for multiple entries with one year of validity.
Opening A Bank Account
It’s very likely that a Thai bank will not give you a checking account if your business is too small. When you open your company account for the first time, you’ll only a savings account to withdraw cash. Also, you won’t get an ATM card with your company account immediately.
To open an account, you must go to the bank with a withdrawal slip. This slip must include your signature and your company stamp. You may send a proxy provided that he is authorized to take your place.
The bank will then write up individual bank cheques upon request. Typically, you pay your clients in cash or deposit funds into their bank account. Remember that you cannot easily acquire loans from local banks. Getting a loan from your home country bank might be more practical, even if you’re transferring money to Thailand.
Corporate Income Tax
Virtually every country has its own corporate income tax, and Thailand is no exception. The Thai law defines this type of tax as a direct levy on a company or partnership carrying out business in Thailand. You are still accountable for taxes even if you’re not a full-fledged company, as long as you’re still earning income.
Here are other forms of corporate income tax when starting a business in Thailand:
- Interest paid to corporations are taxed at a rate of 10%.
- Royalties awarded to corporations are subject to a 10% withholding tax.
- Government agencies must withhold tax at 1% rate for all forms of company income.