Company formation in brief
Thailand has some restrictions on foreign investments regulated by the Alien Business Law. Pursuant to this law, all foreigners’ business activities in this country are divided into four categories. The first two categories are prohibited for foreigners, the third one requires obtaining a prior approval by the Thai authorities, and the last one includes all types of activities not included in the first three categories, and, accordingly, approved for foreign investors.
The first category includes such activities as rice and salt plantations development, sale of agricultural products and real estate items, livestock farming, construction, architecture, advertising, accounting, brokerage, auctioning, hairdressing and beauty salons.
The second category includes orchids and silkworm cocoons cultivation, woodworking, fishing, manufacturing of flour, sugar, drinks, ice cream, medicines, jewellery, varnishes, matches, cement, shoes, printed products, silk products, sale of antiques and modern art, tour operator services, hotel services (except for hotel management), photographers’ services, laundry services and tailoring.
The third category includes exports from Thailand of all items excluded from the first and second categories, and also well drilling, marketing in any area that promotes tourism to Thailand, manufacturing of animal feeds, vegetable oil, glass, textiles, utensils and stationery.
All potential foreign investors are recommended to clarify in advance what category includes the proposed area of their activities in Thailand. It should be noted that any foreigners’ activity in Thailand that contributes to the market monopolization is considered illegal in Thailand under the Trade Competition Act 1999.
Typically, any business which foreigners may be engaged in, requires a license which is issued, as a rule, for 5 years and extended subsequently according to the established procedure.
The Thai law provides for registration of entities of various organizational and legal forms, including those which may be attractive for a potential foreign investor, such as:
• Private company limited by shares
• Public company limited by shares
• Foreign Company branch
• Foreign Company representative office
• Private entrepreneur
Minimum capital for a foreigner to enter into a partnership is THB 2’000’000 (approximately US$50’000), and approximately US$75’000 - for some licensed activities.
If a partnership intends to be engaged in Thailand in a business activity permitted for foreigners, the majority of the partners needs to be residents of Thailand.
Any partnership may be established both with partners having unlimited liability (general partnership) and with partners having limited liability for the partnerships’ debts and obligations. A general partnership, in its turn, may be either formally registered in the commercial register of Thailand and considered in this country a legal entity and a tax entity, or established as unincorporated and, accordingly, unregistered entity where its partners only are subject to taxation.
A partner’s unlimited liability and respective obligations of a partnership registered in Thailand continue only for two years from the date the membership is terminated. For comparison, unregistered partnership partners’ obligations are not limited in time.
A limited partnership must be registered in Thailand. General partners manage the partnership and bear unlimited liability for its debts and obligations. Other partners have limited liability within their share in the partnership. The partnership is a legal entity and is subject to taxation in Thailand.
Foreigners may own 100% of shares of private and public companies limited by shares. The only exception is companies planning activities related to the third category where foreigners may hold no more than 49% of shares pursuant to the Thai law.
Private company limited by shares is established in Thailand by at least seven shareholders - physical and legal persons. Although the Thai law does not specify a minimum capital for the establishing of companies, the capital is deemed to be sufficient for a proposed activity. Therefore, in practice, the minimum capital for a foreign shareholder to participate in the company is up to US$75’000. At least 25% of the capital are paid at the time of registration in Thailand. Private company’s shares may be offered to the public.
Private company may be managed by one director but most of directors should be residents of Thailand.
Public company limited by shares is established in Thailand by at least 15 shareholders - physical and legal persons, and has the same features as a private company. The exception is that a public company’s shares may be offered to the public subject to provisions of the Thai Securities Exchange Commission which regulates and supervises stock exchange transactions.
Foreign Company Branch in Thailand has to strictly separate its own activities (which must be licensed) in Thailand from its parent company’s activities. Each branch may obtain a license provided that its parent company invests in Thailand for its needs at least US$150’000 during four years (US$75’000 - in the first year and US$25’000 - each subsequent year). Parent company is liable for all branch’s obligations. Branch may be managed by a foreign citizen.
Foreign Company Representative Office is established in Thailand for non-commercial activities exclusively, with the purpose of helping its parent company in developing the Thai market. Parent company is liable for all representative office’s obligations. Representative office may be headed by foreign citizen.
A foreign citizen may register in Thailand as a private entrepreneur who bears unlimited liability for his debts and obligations. A private entrepreneur is required to obtain a license, a work permit and a personal taxpayer number in Thailand. In order to obtain a work permit, a foreigner has to show a deposit of at least US$50’000 on his bank account in Thailand.
Obtaining all kinds of permits and licenses in Thailand is quite a slow process which may take up to several months.
All businesses in Thailand are required to be registered for social security purposes and to pay insurance tax at a rate of 6% (3% insurance + 3% state duty) on each employee’s salary.
All legal entities in Thailand pay income tax at flat rate.
Unregistered partnerships’ partners and private entrepreneurs pay progressive income tax rate in Thailand.
Thailand is not a tax heaven or offshore jurisdiction, and a concept of Thailand tax exempt company (and/or Thailand international business company (IBC), offshore company, trust, foundation etc. registration) does not exist in Thailand as such. A company formation in Thailand could be arranged with a professional registered agent providing incorporation, virtual office and other corporate services in Thailand. To set up a company in Thailand is possible by correspondence, but to open a bank account in Thailand will, most probably, require a personal visit.
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