In this guide, we have listed five common challenges when starting a business in Thailand.
Thailand is one of the popular countries in Asia to open a business; however, starting a company in Thailand as a foreigner may result in certain complications or restrictions. This guide lists the challenges and how to overcome them.
Let’s start.
Challenge 1: Ownership restrictions
Foreign investors opening a Thai limited company are limited to a maximum of 49% ownership, while Thai nationals own the remaining 51% of the company’s shares.
Non-Thai nationals may choose to incorporate Thai companies because they provide benefits that foreign-owned companies do not give, such as no business type restrictions, the ability to buy and own land and low setup costs.
Foreign investors should note that they are prohibited under the Foreign Business Act (FBA) from using Thai nominee shareholders to hold the majority of the Thai limited company’s shares. If a Thai national act as a nominee shareholder, they will be liable to a fine of THB 100,000 to THB 1 million.
However, there are three ways foreign entrepreneurs can obtain 100% ownership of a company.
Obtaining a foreign business license
The Foreign Business License (FBL) is a type of license given to foreign-majority owned companies or foreign investors who wish to conduct restricted business activities.
Under the FBA, there are three lists of business activities which are:
- List 1 – Businesses not permitted to foreigners, such as:
- Radio broadcasting stations or television station business
- Rice farming
- Livestock farming
- Land trading
- Making or casting Buddha images and monk alms-bowls
- List 2 – Businesses not permitted to foreigners unless upon receiving approval from the Council of Ministers, such as:
- Production, distribution and maintenance of firearms, ammunition, gun powders and explosives, armaments, ships or vehicles for military use
- Domestic transportation by land, water or air
- Thai musical instrument production
- Salt farming
- Mining
- List 3 – Businesses not permitted to foreigners unless permission from the Director-General is obtained, such as:
- Accounting services
- Legal services
- Architectural services
- Engineering services
- Advertising businesses
- Cultivation of plant varieties
Find out more about obtaining an FBL here.
BOI company promotion
The second way of obtaining 100% foreign ownership is by applying for promotion by the Board of Investment (BOI).
Activities that are eligible for BOI promotion are:
- Agriculture and agricultural products
- Chemicals, paper and plastics
- Electronics and electrical appliances industry
- Light industry
- Metal products, machinery and transport equipment
- Mineral, ceramics and basic metals
- Services and public utilities
The BOI provides the following benefits to a promoted company:
- Reduced corporate income tax rate from 20% to 0%
- 100% foreign ownership
- No tax on the import of machinery
US Treaty of Amity
The US Treaty of Amity is a special agreement between the United States of America and Thailand that allows American companies to obtain 100% ownership of a company, branch office or representative office in Thailand.
Even though the Amity Treaty provides foreign entrepreneurs with 100% ownership, there are still some business restrictions. Amity Treaty companies cannot own land, natural resources exploiting, domestic trade in agricultural products, transportation and communication industry and engaging in fiduciary functions.
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- Understand all compliance requirements
Challenge 2: BOI application
When you apply for BOI promotion, you must ensure that you correctly follow the requirements and prepare all the required documents; otherwise, your application may be rejected.
Investors can apply for BOI promotion both before and after their company is registered, however, it is recommended to apply for BOI promotion after you have registered the company.
Applying for the promotion takes some time; therefore, you will have time to obtain any necessary licenses or machinery by incorporating the company first.
For the BOI promotion to be approved, there are certain criteria that must be fulfilled, which are:
- To develop completeness in the agricultural, industrial and service sectors, projects submitted for BOI promotion must have the following qualifications:
- The value-added of the project must not be less than 20% of the revenue, except for projects in agriculture and agricultural products, electronic products and parts and coil centres, which must have a value-added of at least 10% of revenues.
- Modern production processes must be used.
- New machinery must be used.
- Projects that have investment capital of THB 10 million or more must obtain ISO 9000 or ISO 14000 certification of a similar international standard certification within two years.
- Environmental protection
- Minimum capital investment of THB 1 million for each project
- Projects with an investment of over THB 750 million must submit the project’s feasibility study.
Challenge 3: Work permits in Thailand
Foreigners entering Thailand to work or run a business must secure a valid work permit before doing business activities. Working in Thailand without a work permit is illegal, and a foreigner arrested for working without a work permit may be fined or imprisoned.
Once the work permit is issued, the foreigner must only work at the company and location specified in the permit. A new work permit must be obtained if the location of the company has been changed.
If you cancel your work permit, you will need to return it to the Labour Department within 10 days. Once you cancel your work permit, your visa is also cancelled. Therefore, it is necessary to apply for an extension of stay right after cancelling the work permit and visa.
Challenge 4: Appointing shareholders
A company in Thailand is required to have at least three shareholders, and since foreign investors cannot fully own the company, two Thai shareholders are needed.
However, foreign investors may not have any Thai business partners, and it may be difficult and risky to find local investors to appoint as shareholders for your company. Thai shareholders will own the majority of the company’s shares, so you must appoint a shareholder who can be trusted.
Foreign shareholders can have control of the company with minority shares by owning preference shares.
Preference shares give its holder the right to attend any annual general meeting and have the same, less or more voting rights as an ordinary shareholder. Preference shareholders are also entitled to receive dividends before ordinary shareholders when the company gains profit.
Challenge 5: Language barrier
Thailand uses Thai as its official language, and the business language is Thai, however, English is also widely spoken in Thailand.
Most of the government authorities and legal documents use the Thai language, so it is recommended to have a professional translator to help you prepare, translate and examine the documents.
Conclusion
Thailand continues to attract foreign investment every year and provides a variety of tax and non-tax incentives to investors. Even though there may be possible challenges, there are many benefits why you should consider opening a company in Thailand (insert link to reasons for setting up a company in Thailand. If you are interested, feel free to contact Acclime.
