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Franchise Business in Thailand
30/09/2022
Franchise Business in Thailand in Thailand are a popular form of business, with it being estimated that there are over 400 franchises and over 12,000 franchisees within the country.
When a franchise is opened, the franchisee is given the right to use the intellectual property rights of an existing firm, company or corporation.
Franchise Business in Thailand the Key points
- Depending on the franchise’s business activity, foreigners may not be able to 100% own a franchise in Thailand
- A Thai company which has at least one Thai national shareholder (who owns > 50% of the shares) may be used.
- Thailand has no direct law relating to how a franchise should be governed, but the rights of both parties are protected by existing Thai laws.
What is a franchise?
A franchise is a form of business structure that involves an established business entity (the franchisor) licensing to a third party (the franchisee) the right to operate a business, use the Intellectual Property rights or distribute goods and/or services using the franchisor’s businesses brand name and systems for an agreed period of time. Typically franchisees receive these benefits in return for a fee.
What are the benefits of opening a franchise?
Franchises are a well established choice of business structure which offers a variety of advantages for both parties. For example:
- The franchisee is able to use an established brand and take advantage of their IP, branding and existing systems and tools.
- The franchisor provides ongoing support, training, access to their IP rights and knowledge.
- A franchise comes with access to market-tested products and services, and in many cases established brand recognition.
Are franchises possible in Thailand?
Franchises are a highly popular form of business model in Thailand. However, there are no specific laws that govern the franchise transactions of business owners.
While there are no direct laws relating to franchises, it is important to note that the rights and obligations of parties are protected by the following existing laws in Thailand.
The Thai Civil and Commercial Code governs the obligations of the parties involved as well as providing a definition of what must be included in the contract.
The Trademark Act which protects the franchisor against any improper use of its trademark.
The Copyright Act which protects the franchisor from infringement of its copyright.
The Trade Secret Act can be relied upon to protect any essential trade secrets of a company.
The Unfair Contract Term Act prohibits some terms in the franchise agreements. For example, it is prohibited to exempt or give restriction for liability of a party that arose from a breach of contract. It is also invalid to allow a party to delay the fulfilment of his obligations under the agreement unless there is a reasonable ground to justify or excuse his non-compliance. It is also illegal for the parties to include in the terms of the agreement a provision that allows any party to end the term of the contract without justifiable or reasonable grounds.
A future legal framework for franchises?
Thailand has been considering the legal position of franchises and has drafted the following acts: the Retail and Wholesale Act and the Franchise Act.
According to these draft pieces of legislation, the Central Commission on Retail and Wholesale Trade (Retail and Wholesale Commission) and the Central Commission on Franchise Business (Franchise Commission) would be created.
The Franchise Commission would be responsible for directly controlling the operation of franchise businesses and will regulate the relevant details to be included in a franchise agreement.
The Retail and Wholesale Commission will be responsible for controlling the retailers or wholesalers operating in the marketplace including the expansion of stores.
While these pieces of legislation haven’t been legally enacted yet, it is likely that the current draft Retail and Wholesale Act and the draft Franchise Act may be further amended before being enacted. These drafts still have some relevance as they can be used as guidelines for the preparation and running of a franchise in Thailand.
What taxes are franchises subject to?
Much like any other business, franchises in Thailand are subject to the payment of taxes.
When the franchisor is a non-resident of Thailand e.g. an international company without a registered entity in the country, the franchisee is liable to pay a Withholding Tax of 15% on the royalties paid to the franchisor. The Withholding Tax is only deducted from the money which is to be remitted internationally to the franchisor.
The Thai franchisee is also further subject to a corporate income tax of 20% on its corporate net income. The CIT rate may be lowered if the company is considered to be a small- or medium-sized enterprise (SME).
The franchisor is also subject to local value added tax (VAT) at the rate of 7% for any income derived from sales or services (if the company is registered for VAT).
Can foreigners open a franchise in Thailand?
Under the Foreign Business Act (FBA), if a company is fully owned or majority-owned by foreigners, most franchise activities are restricted and the company cannot engage in them without obtaining a Foreign Business Licence.
On a case per case basis, some franchisees may be able to obtain a Foreign Business Licence, but in most cases (including restaurants), a majority Thai partner would be necessary.
Can Treaty of Amity companies open a franchise in Thailand?
The Treaty of Amity aims to provide significant advantages for US investors and companies to enter the Thai market for both corporations and individuals. The Thailand Treaty of Amity grants entities from the US the following major advantages:
- The Treaty of Amity allows American companies to hold the majority of the shares in a whole company, branch office or representative office established in Thailand.
- American companies may also operate a business on the same foundations as Thai companies (including the removal of the restrictions established by FBA).
- American companies will also be exempt from most of the restrictions relating to foreign investment set out by the Alien Business Law of 1972.
Therefore, a Treaty of Amity company would be able to operate a franchise as a 100% foreign owned entity. However, a foreign business certificate is still required for a US-owned company prior to conducting business (including franchising) in Thailand.
What due diligence should be undertaken before starting a franchise?
The most important examples of due diligence for opening a franchise in Thailand includes:
(i) ensuring that the potential franchisee has a good standing (free from any litigation or potential litigation disputes and financial stability);
(ii) analysing the the potential market to establish whether the products or services would be in demand or not;
(iii) if the franchisee is to open a physical outlet, it is important to identify a good location; and
(iv) identifying whether the potential franchisee has the capability to maintain the quality the franchisor is looking for e.g. their support system for franchisees, supply chains etc.
How can Belaws help?
For more information about how our experts can help you open a franchise in Thailand, why not talk to one of our experts 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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