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Top 5 best business structures for foreign entrepreneurs in Thailand
20/02/2023
Known worldwide as a prime tourist destination, with its beautiful beaches and scenery, great food, and welcoming culture, Thailand is also fast rising on the list of the best business hubs to relocate to or start a company.
Thailand has been working hard to create a sustainable infrastructure that supports and develops a resilient and innovative economy. As a result of these efforts, Thailand has positioned itself as an attractive destination for entrepreneurs and companies looking to tap into the Asian Market.
Here is a list of the top 5 business structures for foreign entrepreneurs considering entering the Thai market.
Key points
- The Treaty of Amity allows American companies to hold the majority of the shares in a company and also operate a business on the same foundations as Thai companies.
- Companies that receive a BOI promotion are eligible for various incentives, including 100% foreign ownership and tax incentives.
- Thai limited companies are allowed to be 100% foreign owned; however, certain activities are restricted for such companies.
Thailand limited company
A Limited Company is Thailand’s most popular form of business structure. This is due to the flexibility offered to business owners.
Thai Limited Companies are the Thai equivalent of a Limited Liability Company (LLC). Limited Companies are made up of both directors and shareholders. Limited Liability means that the shareholder in a Thai Limited Company can only ever be liable for the capital they invested only.
Requirements to register a limited company in Thailand
- A minimum of two shareholders is required.
- The liability of each shareholder is limited to the value of their shares.
- The directors are responsible for managing all company affairs.
- A ratio of 4 Thai employees per foreign employee hired is required to support a Work Permit.
- A minimum Capital Requirement of 2 million Baht per foreign employee is required.
- If the company is more than 50% foreign-owned, the company can only engage in unrestricted business activities under the Foreign Business Act or other regulations. Foreign Business licenses or Thai partners will be required to undertake restricted activities.
While Thailand actively looks to attract foreign businesses, certain business activities are set aside for Thai nationals only. The Foreign Business Act (FBA) governs 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.
About the 50 restricted business activities established under the FBA, foreign ownership of a limited company is capped at a maximum of 49.99% (unless an FBL or a BOI promotion has been obtained). If a foreigner owns 50% or more of the shares of a company, it is considered a foreign company.
BOI Companies
When considering opening a company 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 barriers to doing business in Thailand, such as the restrictions of the Foreign Business Act. More information on the Foreign Business Act can be found here.
Companies approved for a BOI promotion are eligible for special incentives.
While BOI companies are eligible for various incentives, 100% foreign ownership of the business and reduced requirements for hiring foreign staff is a significant bonus for companies. These incentives could benefit foreign companies looking to establish a presence in Thailand.
100% foreign ownership
Depending on the business’s activities, foreign ownership of a regular Thai Limited company would be limited to 49.99%. This limitation is due to the Foreign Business Act and its restrictions on foreign-owned companies from undertaking certain business activities. For more information about this, please take a look at this article.
BOI promoted companies are not subject to these restrictions and generally can be 100% foreign owned (subject to certain exceptions).
The reduced quota for hiring foreign employees
Unlike other company structures, BOI promoted companies are not subject to quotas when hiring foreign employees. For example, Thai Limited Companies cannot hire a foreign employee unless the following quotas are satisfied:
- A ratio of 4:1 Thai to foreign employees. Essentially, there must be 4 Thai employees employed by the company per 1 foreign employee.
The removal of this quota removes a massive barrier to employing foreign staff and is a huge advantage to a BOI promotion.
Other non-tax incentives:
- Permit to own land
- Permit to remit money abroad in a foreign currency
- Protection against nationalization of the business
- The BOI will also announce a wide range of additional and often time-sensitive incentives for companies already operating under a BOI license.
Tax Incentives:
- Exemption or reduction of import duties
- Exemption of a juristic person’s income tax and dividends
- Double deductions from the costs of transportation, electricity, and water supply
- Eight-year corporate income tax exemption for:
- Knowledge-based activities focussing on R&D and design to enhance Thailand’s competitiveness, or
- Activities in infrastructure for Thailand’s development, or
- Activities using advanced technology to create value-added
- Five-year corporate income tax exemption for high-technology activities is important to Thailand’s development, with few investments already existing here.
- Three-year corporate income tax exemption for activities with lower technology than above adds value to domestic resources and supply-chain.
Please click here for more information about registering a BOI company.
Representative Office
A Representative Office would be an ideal choice for any international company that wishes to have a presence in Thailand without applying for a Foreign Business License. Furthermore, in relation to the hiring of Foreign employees, Representative Offices can take advantage of a reduced ratio of 1 Thai employee per foreign employee to support a Work Permit. This is a significant advantage as other business structures need to satisfy a ratio of 4 Thai employees per foreign employee to support a Work Permit.
However, a Representative Office can only perform “non-income related activities” as permissible by laws. Therefore, the Representative Office is not allowed to earn income in Thailand. The permitted activities for a Registered Office are as follows:
- Training and development;
- Technical assistance;
- Financial management;
- Control of marketing and sales promotion planning;
- Product development; and
- Research and development.
To establish a Representative office, a minimum capital amount of 2 million Baht is required, per the FBA.
Payment for the capital can be made as either a lump sum or by paying in installments as follows:
- 25% within the first three months of registration;
- 25% within the first year;
- 25% within the second year; and
- 25% within the third year.
Click here to learn more about registering a Representative Office in Thailand.
Branch Office
Under Thai law, a Branch Office is a foreign company that registers its presence in Thailand as a branch.
The Branch Office is not considered a separate entity from the foreign company, therefore, is treated as the same entity as its parent. The head office is liable for any actions taken by the Branch Office in Thailand.
Contrary to the Representative Office, a Branch Office can perform any “income-related activity” in Thailand on behalf of its head office.
Suppose the business is considered a ‘restricted business’ under the FBA, which in most cases it will be, a Foreign Business License must be obtained from the Ministry of Commerce. If the business is not considered a restricted business, a Foreign Business Licence is not required, but a Commercial Registration Certificate from the Ministry of Commerce would be needed.
The required minimum capital amount for a Branch Office is 3 million Thai Baht for restricted businesses and 2 million Thai Baht for non-restricted businesses.
It is also important to note that the rules governing the activities of a Branch Office are the same as the rules governing the activities of a foreign-held limited company.
The registration process of the Branch Office could also be significantly longer than that of a Representative Office. Please click here to learn more about registering a Branch Office in Thailand.
The Treaty of Amity in Thailand
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 of Amity aims to provide significant advantages for US investors and companies to enter the Thai market.
Generally speaking, a foreign-owned company cannot operate in Thailand unless:
- a Foreign Business License (FBL) has been granted by the Ministry of Commerce or;
- an investment promotion from the BOI and a Foreign Business Certificate from the Ministry of Commerce has been obtained.
However, suppose one of the shareholders in the company is a US citizen, and this shareholder will hold the majority of the shares. In that case, this company will be considered a US-majority-owned company. US-majority-owned companies are eligible to apply for protection under the Treaty of Amity. A Treaty of Amity company can operate in Thailand without applying for an FBL or a BOI promotion.
Please check out our post here for more information about the Treaty of Amity in Thailand.
How can Belaws help?
You can talk directly to one of our experts for more information about how our experts can help you start a business in Thailand.
This article is for information purposes only and does not constitute legal advice.
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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 foreigners own 100% of a business in Thailand?
It depends on the type of business. Foreigners can own 100% of some types of businesses, but there are restrictions on others. For example, a Thai Limited Company can be 100% foreign-owned, but certain activities may be restricted for such companies.
Does Thailand allow foreign ownership?
Yes, Thailand allows foreign ownership, but there are restrictions on certain types of businesses. The Foreign Business Act (FBA) governs business activities involving foreign nationals and entities, and it lists the types of businesses that are restricted for foreign ownership.
Can a foreigner be a sole proprietor in Thailand?
No, a foreigner cannot be a sole proprietor in Thailand. Sole proprietorship is a business structure reserved for Thai nationals only.
Can an American own a business in Thailand?
Yes, an American can own a business in Thailand. However, the foreigner must meet the eligibility criteria for foreign ownership of the business, and they must comply with all relevant laws and regulations.
Do foreigners pay tax in Thailand?
Yes, foreigners who work or own a business in Thailand are subject to taxes. The tax rates and requirements depend on various factors, such as the type of work, the length of stay in Thailand, and the amount of income earned.
What business can a foreigner do in Thailand?
Foreigners can do a variety of businesses in Thailand, but the type of business allowed depends on the nature of the business and the relevant regulations. Some examples of businesses that foreigners can do in Thailand include exporting, tourism, and manufacturing.
What are the most profitable businesses in Thailand?
Some of the most profitable businesses in Thailand include real estate, tourism, hospitality, and food and beverage. However, the profitability of a business depends on various factors, such as the location, the competition, and the management.
How many foreigners can legally work in a company in Thailand?
The number of foreigners who can legally work in a company in Thailand depends on the type of company and the type of work. Generally, there is a quota system for foreign workers, and the company must employ a certain number of Thai nationals for every foreign worker hired. However, there are exceptions and variations depending on the industry and the regulations.
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