European Accountants Co., Ltd. Bangkok: Forms of doing Business in Thailand

FORMS OF DOING BUSINESS IN THAILAND

Under Thai Law majority share ownership by foreigners in a Thai company, although not forbidden, is severely restricted . As a result most non-Thais will opt for a majority Thai shareholding (51%) in their company. Exceptions are made for American Nationals (under the Thai American Treaty of Amity) or businesses with BOI (Board of Investment) privileges (mostly manufacturing plants) in which case 100% foreign ownership is allowed subject to certain conditions. The Thai majority shareholder(s) does, however, not necessarily have to be a director or have any signatory rights for that matter. A non-Thai may in theory engage in business in the form of a single proprietorship, limited company, limited partnership, a joint venture, a branch of a foreign corporation, a representative office or a regional office. Practically speaking however, as explained in the following paragraphs, only the last five options are worth considering.

PARTNERSHIP

The three types of partnership in Thailand differ principally in the liability attached to each.

An unregistered ordinary partnership has partners who are jointly liable, without any limitation on the partnership's total obligations. A new partner becomes liable for all obligations incurred by the partnership before or after his association with the partnership. This type of partnership is not a legal entity and is subject to taxation as if it were an individual.

A registered ordinary partnership is a juridical entity having a separate and distinct personality from each of the partners by virtue of its registration with the Commercial Registrar. A registered ordinary partnership is treated as a corporate entity for tax purposes.

A limited partnership is one in which there are one or more partners whose individual liabilities are limited to their respective contributions and one or more partners jointly liable without any limitation on all the obligations of the partnership. A limited partnership is taxed as a corporate entity.

PRIVATE LIMITED COMPANY

The Thai private limited company is basically similar to what is commonly referred to as a corporation. In Thailand a corporation must have at least seven shareholders. In theory the company may be wholly owned by aliens (as Thai law calls all foreigners). However, in those business activities reserved for Thais nationals (the other 99.99%), an alien’s participation is generally limited to 49%. However, this obstacle is routinely circumvented by the use of Thai nominees who sign blank share transfer certificates at the start-up of the company (usually for a small fee).

The liability of shareholders is limited to the amount of their contribution to the capital. The liability of the directors, however, can be unlimited if so stipulated in the articles of incorporation.

Although there is no required minimum level of capitalization, the private limited company’s capital must be sufficient to accomplish its objectives. All of the shares must be subscribed to and at least 25% of the subscribed shares (authorized capital) must be paid up. Shares must have a minimum value of 5 Baht, there must be a minimum of seven shareholders and the issuance of non-voting stock, common or preferred, is not allowed.

A public limited company with an authorized capital of 2 billion Baht may, after five years, be turned into a public limited company by offering shares to the public.

JOINT VENTURE

A joint venture may be described in accordance with general practice as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together. It has not yet been recognized as a legal entity under the Civil and Commercial Code but is nevertheless taxable as a corporation under the Revenue Code.

BRANCH OF A FOREIGN CORPORATION

A company incorporated under foreign laws may establish a branch office to do business in Thailand. It is important, however, to clarify beforehand what constitutes income subject to Thai tax as the Revenue Department may consider revenues directly earned by the foreign head office from sources within Thailand as subject to Thai tax. Working capital must be 5 million Baht and brought into the country. The branch is permitted to operate as such for a period of five years.

REPRESENTATIVE or REGIONAL OFFICE OF A FOREIGN CORPORATION

A foreign entity may establish a representative office in Thailand to engage in limited non-revenue-earning activities such as research, marketing etc. Working capital must be 5 million Baht and brought into the country. The representative office is permitted to operate as such for a period of five years.

CORPORATE REGISTRATION PROCEDURES

Limited company:

Before registering a limited company, the chosen corporate name must first be registered and approved by the Commercial Registrar. A memorandum of Association is then filed which contains: the approved name of the company, its business address, its objectives, personal details about the promoters, capital and the shares subscribed by each.

The next step is to hold a statutory meeting of shareholders during which the Articles of Incorporation are approved, the board of directors is elected and the auditor appointed. The director(s) may then register the company with the Commercial Registrar. Note that the a director does not necessarily have to be a shareholder.

Documents required: (signed) copies of passports of shareholders and director(s). For juristic entities a copy of the commercial registration certificate or its local equivalent.

Branch, Representative of Regional Office:

Foreign corporations wishing to do business in Thailand through a branch or representative office must submit the following documents, which should be notarized and certified by the local Thai consulate or embassy. These documents must not be more than six months old at the time of submission to the Commercial Registrar. These documents are:

• Articles of Incorporation or Memorandum of Association.

• By - laws or Articles of Association.

• An affidavit of the manager or corporate officer, stating the following:

  • Name of the corporation, registration number, and date of registration;

  • Address of the registered office;
    

  • Jurisdiction under which the corporation is registered;
    

  • Name, address, nationality, age and race of each director; number of shares held by each; and identification of the director(s) with the power to bind the corporation;

  • authorized capital stock of the corporation, number of shares and par value of each, and amount of paid-up capital stock; and
  • total number of shareholders, their nationalities, and number of shares owned or held by each national group.
• A power of attorney for the manager in Thailand, giving him, in addition to the normal powers, the power to register the branch or representative office with the pertinent Thai Government authorities and to act as the manager thereof.

The above documents must be submitted to the authorities who, sometimes, may require additional documents, depending on the particular case.

TAX REGISTRATION

All persons about to start a business must register with the Revenue Department. In addition, if annual turnover exceeds 1.2 million Baht registration for Value Added Tax is also required. Withholding Tax on salaries and services as well as VAT filings must be submitted and settled to the Revenue Department on a monthly basis.

TAX RATE

Currently corporate tax is at a flat rate of 30% of net profits, tax on dividends is 10% and VAT is at 7%. Personal income tax varies according to income, marital and parental status with a maximum of 37% for annual income exceeding 4 million Baht (US$ 100,000) after deductions and allowances.

ACCOUNTING AND FINANCIAL REPORTING

Generally, the basic accounting principles practiced in the U.S. are recognized and accepted in Thailand. The Institute of Certified Accountants of Thailand is the authoritative group promoting the application of generally accepted accounting principles (GAAP). In addition, however, the basic financial statements (balance sheet and income statement) must be audited by a Thai CPA annually.

FEES

European Accountants’ fees depend on the type of service required and are preferably negotiated as a package. Other fiscal or financial services on a consultancy basis are typically charged as follows:

• Senior Partner: Euro 125/hr

• Senior Accountant: Euro 100/hr

• Staff Accountant:Euro 75/hr