Should You Start A Company in Thailand?
Businesses great and small are encouraged by governments as they contribute to the economic health of a nation, employ its citizens, and of course pay taxes. For these reasons, registering your business as a legal company can have many incentives and benefits. However, as a foreigner in Thailand you’re restricted in what you can so with your company. It’s important to know that your company will have to be a partnership between you and one or more Thai shareholders. They must own more of the company than you, but there are still ways to keep control over the company for yourself as a foreigner.
Before you set up a company you should know what you can and can’t do, then make best choice for your own situation. Here we’ll talk about what’s required to start a company, the pros and cons of doing so, and the process to follow to set one up.
Are you able to put into place all the things you need to officially start your company in Thailand? Here’s a list of what’s required, as well as some rules which limit foreign interests in Thai-based companies. To start a limited liability company (LLC), you need:
1. A Name, In Thai
By law, your company name has to be written in Thai, though you can certainly use the English or other-language equivalent for day to day business. Your name written in Thai letters can still spell out a word in another language, but be warned that the transliteration may sound a bit different from what you want. Try to get the name written in Thai first then ask people to read it and see if the pronunciation is close to what you want. Your company name must not be the same as any other company in Thailand.
For example, the name of Isaan Lawyers is spelled out Isaan loi-yers , rather than translating the name to Thai which would read Tanai Kwam Isaan.
2. At Least 3 Shareholders (we called them PROMOTERS when they are the ones registrating the company)
Whether designed to share the wealth or to keep the company working for a greater good than just lining one owner’s pocket, the rule is that a company must have at least 3 shareholders in order to register in Thailand. This is a recent change. Up to mid-2008, 7 shareholders were required. It’s also very important to note that shares must be no more than 49% foreign-owned according to the Foreign Business Act so this means that you will obviously need at least 1 Thai partner as a shareholder who will control 51% or more of the company. In practice, any company with foreign ownership over 39% will be investigated to ensure that Thai people are controlling shareholders, so many choose to limit foreign shares to just 39%.
If your company is more than 49% foreign-owned, it is considered a foreign company and must apply for licences and permits under the Foreign Business Act. This applies to companies which are incorporated in other countries and which want to set up branches in Thailand to do business.
Promoters in Thailand, the ones that will register the company, must be at least 12 years-old. But after that, there are no rule about the age of a shareholder.
3. One or More Directors
You’re able to set up your own executive and choose how many positions you’ll have to direct the company, but you need at least 1 person to be a director. That person, as director, is the face of the company and his or her signature is needed for most official actions done by the company. The director is the most important person in the company. It’s wise to put a Thai person to setup the company to avoid too much inspection into your application which can take up precious time. After set-up, an executive vote can easily change the directorship over to you.
Signing authority over accounts, etc. may be granted to other board members or employees as the company sees fit. Even though you will not hold majority ownership of the company, you can still be named Managing Director and therefore essentially stay in control of the company. The powers of the company’s director can be limited, so it’s best to plan this before setting up the company.
4. An Address
You need to have your company registered at a physical address in Thailand. If this location is rented, you will need permission from the property owner to allow you to register your company at that location. If you want to move the company later, you’ll need to inform the Ministry of Commerce that you have moved. The address is important as it establishes your company in the jurisdiction of several government offices with which you must interact. Depending on the nature of your company, a commercial address may be required.
5. An Official Stamp
You need to have a stamp designed for your company that will bear the company’s name and logo. These can be produced quickly and cheaply at printing shops in Thailand. Your stamp and the director’s signature must be used as an official seal on all registration and other legal documents, bank transactions, accounting papers, etc. It’s a good idea to get 2 matching stamps, one for the director and one for the accountant, if your company will be involved in a lot of transactions.
6. Company Objectives
In essence, you need to define what your will do and what it will be for. Most companies will start with rather general objectives that most companies will have, like “To produce and export products.” and then add anything specific to your own business. Most law firms use a standard list of 22 to 25 general objectives for any company registration that they process. If you have specific objectives that aren’t included in the standard list, ask to include them from the start. This will help you to save time and money by avoiding changes in the future.
In order to set your objectives, you should have a good idea of what the company will do, if not a detailed business plan.
7. Accounting and Auditing Procedures
Your company must follow the rules laid out in the Thai CCC (Civil and Commercial Code), the Accounts Act, the Revenue Code and other Laws. This includes paying taxes, submitting an annual balance sheet to the Department of Revenue and commercial Registration, keeping clear accounts, undergoing annual audits, contributing to social security for employees, paying VAT, and withholding income tax from employees’ salaries.
The Pros and Cons Of Setting Up a Company in Thailand
There are certain advantages and disadvantages to setting up a company in Thailand, and it’s important to know what they are and whether the pros outweigh the cons for your situation.
Juristic Person. As your company will be Thai-owned by majority (at least 51%) it will command the same rights as a Thai person and can enter into contracts, own property and purchase land in Thailand (though. more Thai shareholders may be needed for this).
Protection of Liability. By keeping your personal funds separate from those of the company, and by dividing the company’s capital into shares, you can protect yourself from private liability and bankruptcy.
Visas and Work Permits. The company can sponsor visas (Non-Immigrant B) and work permits for foreigners, and with both you can stay and work legally in Thailand. In order to sponsor the work permit, however, there are some extra rules. The company must register 2,000,000THB of capital per foreigner (half if married to a Thai) and must employ 4 Thai staff per foreign employee. This is normally required by the Department of Labour , and may also have to be proven for visa extensions, depending on the type of extension the foreigner applies for.
Reduced Taxes. Private limited companies are able to claim tax deductions in many categories. If you move some of your personal expenses to company expenses, they may tax-deductible. For example: training, research and development, entertainment expenses, donations, wear and tear, etc. (see http://www.rd.go.th/publish/6044.0.html for more)
Trust. Doing business inside and outside of Thailand can be made easy by registering your company here, where associates can see your official status as a sign that your business deals are trustworthy and backed by company liability.
Costs. Paperwork, registration, accounting services – all of these costs must be taken into account when planning to start a company. Costs can be significant, so make sure it’s going to be worth it for you, i.e. the company will generate more than enough income to offset these costs.
A reasonable estimation of the cost of setting up a company with 2 million bath of registered capital and 1 foreigner working with a work permit could be about 100,000THB for the first year. This would include fees to set up the company, applying for the foreigner’s work permit, doing accounting for the year, and paying social security contributions for employees. This is simply an estimate, and companies set up in different ways and with more or fewer employees could be looking at somewhat lower or higher costs.
Control. A Thai company has to be majority Thai-owned according to the Foreign Business Act. If not, your company will be defined as a foreign company and foreign companies need permits and licenses, which can be expensive depending what you want to do.
Normally, Thai nationals own 51% or more of company shares and that means you need to work with people that you can trust. However, there are ways to keep control. You can create different types of shares, with your shares being deemed ‘preferred shares’ giving them more voting rights than normal shares (held by Thai partners). You can also institute a quorum, a minimum assembly of shareholders for any meeting or decision. If the quorum is over 51%, say 55% for example, and you own 49% of shares, the other shareholders cannot do anything official in your absence. You can also have them sign over power of attorney or create other contracts to ensure that you keep control.
Note that all of these rules must be initially established when setting up the company, so your Thai partners need to agree to them from the start.
If you’re thinking about a major investment, it may be useful to you to verify your intentions with the BOI (Board of Investment). They can grant many benefits to foreigners wanting to invest large sums in the Land of Smiles, including special permission to start a company that is majority-owned by you.
Time. It takes time to incorporate and then time to run and operate a company no matter where it is. It takes also time to get a work permit, sometimes up to a couple of months. If you don’t have the time and interest in running your business, it will likely fail so be sure you can make a substantial commitment to it or try a different idea. There are many rules to learn and it will take you time to adjust and adapt yourself to Thai business practices. If you make a mistake, it might cost you additional time or fees. For example, if you forgot to submit a yearly tax report, your company will be fined.
The Process of Setting Up a Company
If you have a great business idea, have found that the pros outweigh the cons, and have everything you require for setting up a company, then the next step is action. Here is the basic process you need to follow to set up a Private Limited Company in Thailand:
1. Reserve your Company Name with the Commercial Registration Department of the Ministry of Commerce. The name is reserved only for 30 days, so you must complete registration before this time or start again.
2. File a Memorandum of Association with the Commercial Registration Department including the company’s reserved name, objectives, capital, and location plus the names of all shareholders. Also share distribution and value must be described.
3.Convene a Statutory Meeting in which the company’s bylaws and articles of incorporation must be approved. At this time, the board of directors is selected as is an auditor. Capitalization also occurs, where shareholders must buy their shares by paying a minimum of 25% of the par value of their shares. Minutes from this meeting must be recorded and used for the registration application.
4. Register your Company. Directors are responsible for submitting paperwork and signing the application to register with the Commercial Registration department.
5. Register With the Revenue Department.This entails obtaining a tax number and corporate tax identity card.
There are other steps depending what you want to do with your company. For instance, you will need to register to pay Value Added Tax (VAT) if you want a foreigner to work for the company. However if you won’t have any foreigners working, you might NOT want to register for the VAT so you can avoid having to fill out monthly VAT forms from the start of your VAT registration.
As a final note, all official paperwork must be submitted in Thai, so this may be a change from how you would normally like to run things. If you can’t speak Thai, and because these matters can be complicated, make sure you have the help of bilingual lawyers, bilingual accountants or other translation services that have your fullest confidence.
Good luck with creating your company in Thailand!