Doing Business in Thailand

Establishing an entity

There are 4 legal structures available for foreign investors to conduct business in Thailand: (a) a limited company; (b) a branch office; (c) a representative office; and (d) a regional office.

Due to the limited liability offered, the most commonly used structure for investors looking to earn income is a limited company. A representative office is not permitted to earn income, and is therefore only considered when the purpose of the entity is to provide services to an overseas head office, subsidiaries, and affiliates such as collecting data, sourcing goods, checking quality, and providing clients with after-sales support. A regional office provides management or technical services to associated companies or branches in Asia.

The registration process for a limited company requires at least 3 individual promoters. Each promoter should be available during the application process, and will be required (at least in the short term) to hold a minimum of 1 company share. Upon registration of the company, the shareholders must pay a minimum of 25% of the registered capital into the company.

Foreign business restrictions

A foreign business is any business where 50% or more of shares capital is from foreign shareholding. Foreign businesses are regulated by the Foreign Business Act, which categorizes restricted business activities into 3 groups: List 1; List 2; and List 3.

Foreign businesses are not permitted to engage in List 1 activities, such as rice farming. Foreign businesses engaging in List 2 activities require Cabinet approval, and foreign businesses engaging in List 3 activities require the permission of the Director-General of the Department of Business Development and the supervision of the Committee of Foreign Business Affairs. Foreign businesses wishing to engage in List 2 or List 3 activities need to obtain a foreign business licence or a foreign business certificate before commencing operations.

There are two alternatives to obtaining a foreign business certificate. The first is available to certain nationalities, such as Americans, regardless of whether or not the entity is a corporation or an individual, through the Thai-US Treaty of Amity. The treaty is hugely beneficial to US companies, offering virtually the same business rights as those enjoyed by a local company, except for certain businesses, such as banking and telecommunications. Other nationalities which are treated favourably are Australians, Japanese, and those from ASEAN countries through specific agreements, such as TAFTA, JTEPA, AFAS, and ACIA.

The second alternative is applying through the Board of Investment (BOI) or the Export Processing Zone under the Industrial Estate Authority of Thailand (IEAT).

Manufacturing businesses and export businesses are not restricted. Therefore, 100% foreign ownership is permitted.

Historically, a common technique that foreign companies used to enjoy the benefits associated with being classified as a local company was to make an agreement with 1 or more Thai nationals to hold shares in name only. However, such nominee shareholdings are illegal, and serious penalties apply to such

Investment incentives

For investors looking to engage in specific types of projects, there are a number of tax and non-tax incentives that may be offered by the BOI. These include 100% foreign ownership, reductions of and/or exemptions from customs duties and corporate taxes, relaxation of the rules relating to visas and work permits, and the ability to own land.

The IEAT is able to offer similar non-tax incentives for those who choose to operate businesses on an industrial estate.

Work permits and visas

Foreigners applying to work in Thailand require a valid work permit and non-immigrant business visa.

For those businesses (in the form of a limited company) not receiving BOI incentives, each work permit requires THB 2 million of paid-up capital. An applicant must earn a minimum amount of income as prescribed by law, which varies by nationality. In order to renew the expatriate’s visa in Thailand, the employer must typically maintain an employment ratio of at least 4 permanent Thai staff members to 1 expatriate.

Typically, a maximum of 10 expatriate work permits are allowed per company. However, this limitation can be relaxed in certain situations, such as where the employer has paid income tax of at least THB 3 million in the previous year, or where the employer employs no less than 100 Thais.

Taxation

The main business taxes in Thailand are value-added tax (VAT), withholding tax, and corporate income tax.

In general, all businesses for which the volume of sales exceeds THB 1.8 million a year must register for VAT. The nominal VAT rate is 10%, but has been temporarily reduced to 7%. VAT returns and related payments must be filed by the 15th of the month following that in which the tax invoice was issued.

Withholding tax is a deduction made on certain types of payments,such as rental, advertising, royalties, dividends, and interest. The amount of tax withheld depends on the category of the service provided and the tax status of the recipient. Rates range from 1% on interest paid to domestic companies to 15% on royalties paid to foreign corporations. Tax withheld must be submitted by the 7th of the month following that in which payment was made. The tax withheld can be offset against the final corporation tax liability. The standard corporate tax rate is 20%, while the rate for SMEs (small and medium-sized companies whose paid-up capital at the end of any accounting period does not exceed THB 5 million and whose revenue from the sale of goods or the provision of services in any accounting period does not exceed THB 30 million) is nil on the first THB 300,000, with the balance being taxed at 10% effective from FY 2015 to FY 2016. From FY 2017 onwards, SMEs will be subject to corporate tax at progressive rates ranging from 0% to 20%. Two corporation tax returns are required, an annual return and a half-year return. The half-year return represents a prepayment calculated from the tax payable on the forecasted net profits for the year.

It is worth noting that whilst operating losses may be carried forward for up to 5 years, there is no provision for the carry-back of losses or for group relief in the event of consolidated losses of affiliates.

Audit and accounting

All legal entities, regardless of size, must have their accounts prepared by a registered Thai accountant, and audited by a registered Thai auditor. In 2011, the Thai Financial Reporting Standards for Non-Publicly Accountable Entities (TFRS for NPAEs) were introduced. The TFRS for NPAEs are similar in concept to the International Financial Reporting Standards (IFRS) for SMEs published in 2009.

For publicly accountable entities (effectively, listed companies), the reporting framework is broadly aligned to IFRS, although some of the more complex standards, such as IAS39, Financial Instruments, have yet to be adopted.

The Federation of Accounting Professions is in the process of translating and publishing new accounting standards for small and medium-sized entities (TFRS for SMEs), which are based on the IFRS for SMEs, as amended in 2015. This new set of accounting standards has been effective from 1 January 2017.

In November 2016, the Federation of Accounting Professions (FAP) announced that the effective date for applying the TFRS for SMEs has been postponed from 1 January 2017 to 1 January 2018, as FAP is in the process of translating and revising the TFRS for SMEs to comply with the IFRS for SMEs incorporates 2015 amendment. This new set of accounting standards will become effective on 1 January 2018.

After the TFRS for SMEs are introduced, all non-publicly accountable entities must adopt and apply the TFRS for SMEs, and the TFRS for NPAEs will be cancelled.

Country quirks

• Nominee shareholdings are not allowed.
• Accounts must be prepared by a Thai accountant and audited by a Thai auditor.
• The registered office address must be the actual office address. P.O. boxes and lawyers’ addresses are not permitted.
• Board meetings require physical attendance. However, meetings held using electronic devices are currently acceptable, provided that they meet the criteria set out in the Thai government’s regulations.
• Proxy and circulated resolutions of board meetings are not permitted.

Visit Mazars Thailand for more information on the services available to help you set up your business.