Foreign business structures in Thailand.
Foreigners can incorporate a Thai company, whatever the legal form of the company is, as long as they do not violate the conditions of the Foreign Business Act. The legal form of the company can be a sole proprietorship, an ordinary partnership (registered or not), a limited partnership, a representative office, a regional office, a branch office, a joint venture, or a limited company.
Under this legal form, a single physical person owns a ‘company’. As a consequence, the physical person has unlimited liability. In principle everyone can register a sole proprietorship, but it has to be said that in practice it is very time-consuming and difficult for foreigners (except for US citizens), if not impossible. The sole proprietorship can engage in any business that is not prohibited by law, except for banking and finance (which can only be undertaken by a Thai limited company). The main advantage is that the owner can choose to be taxed as a physical person or not.
A partnership is a very simple legal form: two or more people and/or legal entities agree to each make a contribution – labor, cash other assets – and to join forces with the goal of dividing the profits. Depending on who is investing, the partnership may be Thai (in case there are two Thai people and/or legal entities for each foreigner or foreign legal entity) or foreign. Foreign partnerships are those partnerships where the managing partner or manager is a foreigner or in which the foreign investment amounts to more than half of the total capital.
The liability incurred by each partner may differ:
- Unregistered ordinary partnership: if the partnership is not registered with the Ministry of Commerce (and is thus not considered as a juristic person), all partners are jointly liable of all obligations and debts of the partnership
- Registered ordinary partnership: if one registers the partnership at the Registration Office of the district in which the principal place of business of the partnership is located (or at the Office of Business Registration Services in Bangkok), the partnership will have a separate and distinct personality from each of the partners. Do note that all the partners remain jointly and unlimitedly liable for all the obligations of the partnership.
- Limited partnership: while registering the partnership at the Registration Office of the district in which the principal place of business of the partnership is located (or at the Office of Business Registration Services in Bangkok), one can limit the individual liabilities of one or more partners to their contributions
Unlike Thai partnerships, foreign partnerships can only do business within the limits of the Foreign Business Act. The Board of Investment does not tend to promote foreign partnerships as their activities often conflict with the Foreign Business Act so foreigners only work with partnerships very rarely.
A representative office operates a non-trading service business in Thailand for its head office, an affiliated company or a group company in another country. In principle these services are rendered without any remuneration and – a representative office not having a legal form – it cannot receive any purchase order, cannot sign sale and purchase agreements nor negotiate business (not on its own account nor on behalf of the parent company).
A representative office renders non-revenue-raising services to a foreign-domiciled head office through engaging in a limited range of activities such as:
- Sourcing of local goods or services in Thailand
- Inspecting and controlling quality of goods which the head office purchases in Thailand
- Disseminating information about new products and services of the head office
- Reporting to the head office on local business development and activities, and/or
- Providing advice in various fields relating to goods distributed by the head office to the distributors or consumers
The application fee (not refundable) is 2,000 THB, and the government fee amounts to 5 THB for every 1,000 THB, with a minimum of 20,000 THB and a maximum of 250,000 THB. For more information on the Representative Office, please see our blog on the subject in specific.
A Thai regional office is a non-juristic person established by a foreign head office. A regional office cannot make purchase orders or sales offers, nor negotiate or enter into business arrangements in Thailand. A regional office is not registered and does not have to draft financial statements, and up to five foreigners may apply for a work permit.
It is in a sense the same structure as a representative office, but it can only engage in different non-remunerated activities:
- Contact, coordinate, and supervise the activities of branches and/or subsidiary companies located in Thailand on behalf of the foreign head office
- Provide advisory services, management services, training and personnel development services, financial management services, marketing control and sales promotion planning, product development, or research and development services to the other head office’s branches or subsidiary companies
These activities being mentioned in the 3rd list of the Foreign Business Act (controlled activities), a foreign business license from the Director-General of the Department of Business Development is required.
A branch office is commonly used by foreigners who want to have a physical presence in Thailand. A branch office can engage in all activities, but will have to apply for the foreign business license in case the intended activity falls under the scope of the Foreign Business Act. There are no other special registration requirements for the establishment of branches of foreign companies.
For foreigners who plan to do business in Thailand for an indefinite time, a private limited company can be advised. The Civil and Commercial Code requires a minimum of three shareholders at the incorporation of such limited company.
The procedure to be followed is the following (see the article on this subject in specific for a more elaborate overview):
- Reserve the name of the company with the Department of Business Development
- File and register the Memorandum of Association
- The shareholders will convene a statutory meeting formally incorporating the company
- Handover of the business to the director(s)
The liability of each shareholder is limited to the amount of capital that he has not yet paid up. As a consequence, it can be said that a shareholder who has paid up 100% of his shares has no further responsibility for any debt of the limited company. The private limited company does not have to be incorporated in front of the notary. In case all necessary documents and signatures are present, this Thai company can be incorporated relatively fast (for more information on how a private limited company is incorporated, please see the article on the subject itself). The government fee for the registration of the company amounts to 5,000 THB per 1M THB of the registered capital (minimum 5,000 THB and maximum 250,000 THB).
If a limited company is established for the purpose of offering the sale of shares to the public, it will be considered as a public limited company. In that case Limited Public Company Act B.E. 2535 (A.D.1992) will be applicable. The procedure for the incorporation (incl. the registration requirements) and the liability of the shareholders are similar to the private limited company.
The main differences between both forms is that in a private limited company:
- The director’s liability is more extended
- There should be at least 15 physical persons as promoters
- There should be five directors of whom maximum one half can reside outside of Thailand
A joint venture is a limited company which is owned by two of more companies who join forces. From a Thai legal point of view, a joint venture is not a juristic person (except for tax purposes; a taxpayer identification card and VAT registration number are thus required). A joint venture is in fact an agreement between the shareholding companies and is concluded so that they can engage in a particular project (joint investment). The joint partners share all profit or loss under the Joint Venture Agreement and they have joint liability to third parties.
It should be mentioned however that if the joint venture is considered foreign (more than 50% of the shares are held by a foreign company), the foreign shareholding company will have to apply for a foreign business license and create a branch office in Thailand. Since engaging in a joint venture is not considered ‘doing business’, the foreign shareholder does not need his own taxpayer ID-card.
In order to receive both the foreign business license and the taxpayer identification card, one should count about eight weeks. The government fee, collected upon issuance of the business permit to the foreign partner, amounts to 5 THB for every 1,000 THB.