This is a guide on the foreign business structures in Thailand.
Thailand is a gateway into Asia and is increasingly became a strategic for foreign investors to establish or expand a business. If you wish to enter the Thai market and achieve foreign ownership, you may consider the following structures.
Let’s see the types of business structures open to foreign investors.
Seven types of business structures in Thailand available to foreigners
The business structures in Thailand that allow foreign ownership are:
- Sole proprietorship
- Partnership
- Representative office
- Regional office
- Branch office
- Limited company
- Joint venture
#1: Sole proprietorship
A sole proprietorship is a business structure owned by one person with unlimited liability.
The sole proprietorship can engage in any business as permitted by the law. However, service-related businesses are not allowed. The owner of a sole proprietorship can choose to be taxed as a natural person or not.
Foreigners are not allowed to operate this type of entity unless they are under the U.S. – Thai Treaty of Amity. Foreigners married to a Thai national may register the sole proprietorship under their Thai spouse’s name.
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#2: Limited partnership
A limited partnership is that kind of partnership in which there are:
- One or more partners whose liability is limited to such amount as they may respectively undertake to contribute to the partnership.
- One or more partners who are jointly and unlimitedly liable for all the obligations of the partnership.
The limited partnership provides two types of partners, one partner whose liability is limited and the other partner whose liability is unlimited. Limited partnerships must be registered, and until registration, the limited partnership is considered an ordinary partnership. Contributions of the partners with limited liability must be in money or other properties.
Only the unlimited partner is able to act as the managing partner. If a foreigner is a managing partner, the foreigner must obtain a valid non-immigrant business visa and a work permit. Limited partnerships allow up to 49% foreign ownership. However, a Foreign Business License is required if the foreign partner makes more than 49% of the investment.
#3: Representative office
A representative office is a non-trading entity, meaning that it cannot generate any income and allows up to 100% foreign ownership. It is a type of non-profit organisation that is financially supported by the head office in another country.
It operates a service business in Thailand for its head office, an affiliated company or a group company in another country.
A representative office renders non-revenue-raising services to a foreign head office through engaging in a limited range of activities, such as:
- Sourcing of local goods or services in Thailand
- Inspecting and controlling quality and volume 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
- Providing advice in various fields relating to goods distributed by the head office to the distributors or consumers
- Can only sign contracts that are essential for its operations, eg lease of the premises
- Exporting products which are ordered by its head office or its affiliated companies
#4: Regional office
A regional office is a non-juristic personal established by a foreign head office. Regional offices are not separate legal entities and conduct business in Thailand on behalf of the foreign head office.
Before operating in Thailand, the foreign company must have at least one active branch or affiliate in Asia. Regional offices cannot make purchase orders or sale offers, negotiate or enter into business arrangements in Thailand.
Foreign head offices that wish to set up a regional office in Thailand must apply for a Foreign Business License.
Regional offices can engage in seven specific activities which fall under List Three of the Foreign Business Act (FBA):
- Communicating, coordinating and directing, on behalf of the head office, the operation of branches and affiliates which are located in the region
- Financial management
- Marketing control and sales promotion planning
- Product development
- Providing services in consulting and management
- Services in research and development
- Training and personnel development
The minimum capital for setting up a regional office must be at least THB 3 million, as stipulated in the second paragraph of section 14 in the FBA.
#5: Branch office
A branch office is commonly used for foreigners who want to have a physical presence in Thailand and allows 100% foreign-ownership. The branch office can engage in business activities that generate income and is a trading entity.
The branch must apply for a Foreign Business License before operating. However, branches engaging in manufacturing or exporting products from Thailand do not need to obtain the Foreign Business License.
#6: Limited company
Private limited company
A private limited company is the most popular business structure in Thailand and is formed through a registration process which includes a Memorandum of Association (MOA) and Articles of Association (AOA). The shares of a private limited company cannot be offered to the public.
The private limited company requires a minimum of three shareholders, and the shareholders enjoy limited liability. All shares must be subscribed, and at least 25% of the subscribed shares must be paid up.
Foreign investors can own only 49% of the company, but if the foreigner wants to achieve 100% ownership, they must obtain the following:
- Foreign Business License
- Promotion from the Board of Investment (BOI)
- Register through the Treaty of Amity (for U.S. citizens only)
Public limited company
The public limited company can offer shares, debentures and warrants to the public and have their securities listed on the Stock Exchange of Thailand (SET). The rules and regulations concerning the procedure of offering shares to the public are governed by the Securities and Exchange Act B.E. 2535 (A.D. 1992).
A minimum of 15 promoters is required for the formation and registration of a public limited company. The board of directors must have a minimum of five members, and at least half must be Thai nationals.
#7: Joint venture
Joint venture is a setup commonly used by foreign investors engaging in business in Thailand. It is defined as a profit-seeking business carried on jointly by:
- A company and another company
- A company and a juristic partnership
- A juristic partnership and another juristic partnership
- A company and/or a juristic partnership with an individual, an ordinary partnership, a juristic person or a group of people
The Thai law treats joint ventures as a contract matter, and with the exception of filing for licenses and/or tax certificates, the parties in the joint venture remain separate legal entities.
If the joint venture has a majority of foreign shareholders, it must be registered under the Foreign Business Laws of Thailand and create a branch office in Thailand.
Conclusion
Foreign investors may opt for the foreign business structures in Thailand to obtain foreign ownership of the company. However, you must ensure that you do not violate the provisions of the Foreign Business Act. Contact Acclime to get your company set up fast and hassle-free.
