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Starting a business in Thailand
21/11/2022
Thailand is one of the most popular countries in Asia to start a business, but it can be confusing for foreigners. There are certain complications and restrictions that can be placed on foreign-owned businesses in Thailand.
In this article, we will explore some of the most common challenges facing entrepreneurs when starting a business in Thailand as a foreigner.
Key points
- While certain activities are reserved for Thai nationals under the FBA, it is possible for foreign entities to legally undertake these activities by obtaining a Foreign Business License (“FBL”) from the Department of Business Development.
- A BOI promotion removes many of the barriers to doing business in Thailand, such as the restrictions of the Foreign Business Act.
- Foreigners who come to Thailand in order to work or run a business must apply for and obtain a valid work permit before doing business activities.
- In order for foreign shareholders to maintain control of the company, owning preference shares is a viable solution.
Ownership restrictions
While Thailand actively looks to attract foreign businesses, there are certain business activities that are set aside for Thai nationals only. The Foreign Business Act (FBA) was introduced as a way to govern business activities involving foreign nationals and entities.
While certain activities are reserved for Thai nationals under the FBA, it is possible for foreign entities to legally undertake these activities by obtaining a Foreign Business License (“FBL”) from the Department of Business Development.
Should a company wish to undertake a restricted activity without a Foreign Business Licence, a Thai limited company with a maximum of 49% foreign ownership will be required. The remaining 51% of the shares must be owned by Thai nationals.
Non-Thai nationals may choose to incorporate Thai companies because they provide benefits that foreign-owned companies do not give, such as no business type restrictions, the ability to buy and own land, and low setup costs.
However, there are three ways foreign entrepreneurs can obtain 100% ownership of a company.
Obtaining a foreign business licence
If a foreign entity wishes to engage in any of the activities listed in List 2 or List 3 of the Foreign Business Act in Thailand, they will need to obtain a “Foreign Business License”.
In order to apply for a Foreign Business Licence, an application must be filed with the Business Department, and reviewed by the Cabinet or Foreign Business Committee.
When considering applications, various criteria will be considered. Examples include:
- the advantages and disadvantages to the nation’s safety and security,
- economic and social development,
- size of the enterprise and
- local employment opportunities, etc.
Approval of a business license application is more likely when the authorities view the business as:
- providing significantly more benefits,
- protecting and promoting Thai interests and
- not being in direct competition with Thai-owned businesses
More information on the Foreign Business Act can be found here.
BOI promotions
When considering opening a business in Thailand, entrepreneurs should always consider applying for a Board Of Investment (BOI) promotion. Thailand’s BOI is a special government agency that focuses on promoting foreign investment within Thailand.
A BOI promotion removes many of the barriers to doing business in Thailand, such as the restrictions of the Foreign Business Act. While BOI companies are eligible for a variety of different incentives, 100% foreign ownership of the business and reduced requirements for hiring foreign staff are significant bonuses for companies.
These incentives could be very beneficial for foreign companies looking to establish a presence in Thailand.
More information relating to BOI company formation can be found here.
US Treaty of Amity
The Treaty of Amity (the Treaty of Amity and Economic Relations between the Kingdom of Thailand and the United States of America), is a bilateral agreement between Thailand and the US.
The treaty was signed on May 29, 1966, and affords special rights and benefits to American citizens who are looking to establish their businesses in Thailand.
The Treaty of Amity aims to provide significant advantages for US investors and companies to enter the Thai market. The US Treaty of Amity allows American companies to obtain 100% ownership of a company, branch office, or representative office in Thailand.
Even though the Amity Treaty provides foreign entrepreneurs with 100% ownership, there are still some business restrictions. Amity Treaty companies cannot own land, natural resources exploiting, domestic trade in agricultural products, transportation, and communication industry and engage in fiduciary functions.
More information about the Treaty of Amity can be found here.
Getting a work permit in Thailand
Foreigners who come to Thailand in order to work or run a business must apply for and obtain a valid work permit before doing business activities. Failure to obtain a valid work permit is illegal.
Once the work permit is issued, the foreigner must only work at the company and location specified in the permit. Should the employee obtain a second job or move to a new company, a new work permit must be obtained.
If you cancel your work permit, you will need to return it to the Labour Department within 10 days. Once you cancel your work permit, your visa will also be cancelled (if a Non-Immigrant B).
Luckily Thailand offers several options for obtaining a Work Permit as a foreign worker. Examples include a PEO Service, the LTR visa, and the SMART visa. For a more detailed explanation of some of these options, please click here.
Company with Thai partners
Currently, a company in Thailand is required to have at least three shareholders. However, should the recent amendments to the Civil and Commercial Code be approved, this requirement will be changed and only 2 shareholders will be required.
However, as mentioned above, some business activities require Thai shareholders. This could be probelmatic as foreign investors may not have access to any Thai business partners that they know or trust. Therefore, it is important to identify the right local partners to support the development of your business in Thailand.
It is important to note that, the use of Thai nominee shareholders is illegal. In order for foreign shareholders to maintain control of the company, issuing preference shares with additional voting and dividend rights is a common solution.
Preference shares give its holder the right to attend any annual general meeting and have the same, less or more voting rights as an ordinary shareholder. Preference shareholders are also entitled to receive dividends before ordinary shareholders when the company gains profit.
How can Belaws help?
If you need more information about opening a business in Thailand, why not talk with one of our experts right now?
Please note that this article is for information purposes only and does not constitute legal advice.
Our consultations last for a period of up to 1 hour and are conducted by expert Lawyers who are fluent in English, French and Thai.
Consultations can be hosted via WhatsApp or Video Conferencing software for your convenience. A consultation with one of our legal experts is undoubtedly the best way to get all the information you need and answer any questions you may have about your new business or project.
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Frequently asked questions
Can a foreigner open a company in Thailand?
Yes it is possible for a foreigner to open a company in Thailand. There are also options available which allow 100% foreign owned companies as well.
How much does it cost to set up a company in Thailand?
The official fees for registering a company in Thailand are THB 7,500.
How do I start a limited company in Thailand?
- Step 1: Choose and register a company name.
- Step 2: Draft and file the Memorandum of Association.
- Step 3: Call and hold a Statutory Meeting of the shareholders
- Step 4: Register the Company with the Ministry of Commerce.
- Step 5: Register the company for Value-Added Tax (VAT) and Income Tax
Is it good to start a business in Thailand?
Thailand is an attractive option for those wishing to start a business. Thailand has a great infrastructure in place and scheme such as the BOI provide great incentives for companies to take advantage of.
How much money do you need to start a business in Thailand?
Typically, it costs between THB 40,000 to THB 60,000 (excluding VAT and Government fees) to start a business in Thailand.The official fees for registering a company in Thailand are THB 7,500.
How can a foreigner start a small business in Thailand?
Yes, foreigners can start a business in Thailand. However, certain business activities are restricted by the Foreign Business Act and in order for businesses to undertake them they must obtain a Foreign Business Licence/Certificate which can be time consuming and complicated.
What is the biggest problem in Thailand?
The biggest problem facing foreign owned companies is being able to undertake their desired business activity as a 100% foreign owned company. Many business activities are protected by the Foreign Business Act and in order for a company to operate in these protected industries, they will be required to be majority owned by Thai Shareholders (unless a BOI promotion has been obtained).
Why is it hard to do business in Thailand?
The Foreign Business Act limits to the business activities a 100% foreign owned company can undertake. This means Thai Shareholders will need to be sought or a BOI promotion obtained in order for a company to legally operate.
Can I own a company in Thailand?
Yes, foreigners can start a business in Thailand. However, certain business activities are restricted by the Foreign Business Act and in order for businesses to undertake them they must obtain a Foreign Business Licence/Certificate which can be time consuming and complicated.
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