SSouth Korea was the largest foreign investor in Thailand in the first quarter of 2021, accounting for more than 10 billion THB ($ 314 million) or 17% of total foreign investment in the country, according to data from the Thai government. While this ranking may turn out to be temporary, it illustrates that South Korean companies see Thailand as an attractive destination for starting a business.
Additionally, Thailand’s increasingly tech-savvy population could see the country emerging as a major market for South Korean companies in e-commerce, games, software and other digital industries.
For its part, the Thai government has played an important role in welcoming foreign investment by initiating reforms aimed at making the country an easier place to do business. Thailand now ranks 21st on the World Bank’s Global Ease of Doing Business Index.
This article provides an overview of the laws and regulations to help foreign investors make an initial plan for doing business in Thailand.
There are two types of Thai limited liability companies: a limited liability company and a limited liability company. A public limited company is not commonly used by a foreign investor unless there is a goal of listing Thai stocks or offering bonds on a public stock exchange. Thai law requires the use of a limited company for certain industries, for example banking and insurance. The requirements for forming and maintaining a limited company are generally more onerous compared to a limited liability company.
In general, there is no capital required to establish a Thai public limited company. The shareholders of a Thai limited liability company will register the capital of the entity, but only a minimum of 25% of the registered capital must be paid to the entity.
If, however, an incentive is sought from Thai government authorities, such as the Board of Investment, the board may impose a minimum capital requirement, such as THB 1 million for a service business with related parties. Or, it will require the minimum capital to be reasonable and acceptable for the business to cover its capital cost, including the cost of construction, machinery, installation, property, and working capital.
The Foreign Enterprise Law provides that a foreign company applying for a foreign business license must meet the minimum capital requirements that are set out in regulations issued by the Business Development Department of the Ministry of Commerce.
Foreign Affairs Law
The law is the cornerstone of regulation when foreign investors consider entering the Thai market, as it places limits on the types of businesses that a foreign person can operate in the country. The law also identifies the limit of foreign ownership in a business in Thailand. Business activities that fall under list 1, 2 or 3 of the law are subject to the limitations imposed by law. Companies must obtain a foreign business license before carrying out any business activity stipulated in the law.
Business activities that fall under List 1 are strictly prohibited for foreigners. Business activities covered by List 2 require the approval of the Thai cabinet. List 3 business activities, including “catch-all service activities”, are prohibited to foreigners unless authorized by the director general of the Department of Enterprise Development.
In short, the law defines a foreign company as a Thai public limited company of which at least 50% of the registered capital is owned by non-Thai nationals or non-Thai companies. Conversely, a Thai company is a limited liability company incorporated under the laws of Thailand with more than 50% of the company capital owned by Thai nationals or companies.
A foreign company is not allowed to engage in wholesale or retail business, unless a minimum of THB 100 million is paid into the capital of the foreign company or the Thai branch of an entity foreign for each type of business activity. Otherwise, the foreign company will have to obtain a license.
The council is the government authority that was established to oversee investments in Thailand under the Investment Promotion Act and periodically issue new policies to promote investment in business activities that would benefit the Thai economy. . It is also responsible for providing Thai and foreign investors with tax and non-tax incentives for investment.
Tax incentives normally provided by the council include exemption from import duties and corporate tax exemptions and / or reductions. Non-tax incentives include relaxed rules for obtaining a work permit and visa for skilled foreign workers, the privilege of a foreign investor to own 100% of a Thai public limited company and for the Thai branch of a foreign investor. to own land, which is generally limited to Thais only.
Manufacturing activities promoted by the board include, but are not limited to, agricultural products, metal products, machinery and transportation equipment, medical devices, cars or electric vehicles, and automotive products, as well as chemicals and plastics. The service activities promoted by the council include utilities, logistics service centers, science and technology parks, software development and digital services, innovation incubation centers, cloud services, promotion of tourism, clinical research, international business centers and electric vehicle charging stations.
The main criteria that the foreign investor must meet are:
. The minimum investment must be at least THB 1 million, except for certain business activities as specified in the guidelines of the board of directors;
. The project must have a modern production process;
. Only new machines can be used unless the board approves the use of the old machine;
. The debt ratio should not exceed 3: 1;
. The project must have an added value of at least 20% of the income, with the exception of projects in the fields of agriculture and agricultural products, electronic products and parts and coil centers, which must have a value added at least 10% of income; and
. For some business activities, environmental protection must be in place.
JV as an alternative
If a foreign investor cannot obtain a foreign business license, or the promotion license from the Board of Investment, the investor can establish a joint venture in which the Thai joint partners own more than 50% of the registered capital, so that the company will be considered a Thai company. A Thai company is able to engage in any kind of legally permitted business without restriction and is permitted to operate without a foreign business license.
Particular attention should be paid to the control issues that may arise in such an arrangement, given that Thai shareholders would have a controlling stake in the capital of the entity. Therefore, the foreign investor must ensure that he has a say in the operation and management of the business.
Foreign investors may also have access to other incentives offered by the Thai government, such as the incentives offered under the Thai Industrial Estates Authority Act or the Petroleum Act. The Thai tax code also offers tax incentives for specific companies or periods.
Under the Foreigners’ Employment Act, only a foreigner with a work permit issued by the Department of Labor is allowed to work in Thailand. A foreigner working without a work permit is liable to imprisonment and / or a fine.
Before entering the country to work or hold a position, the foreigner must obtain a nonimmigrant B visa from a Thai embassy or consulate. This visa is normally granted for an initial stay of 90 days, but it can be extended for up to one year and is renewable annually. This visa allows its holder to apply for a work permit after arriving in Thailand.
The two main conditions that a company must meet in order to apply for a work permit and visa for a foreign worker are that it must have a paid-up capital of THB 2 million and that it must have four Thai employees on the list of pays for each foreign worker. However, these general rules will be relaxed if the foreign company obtains incentives from the board of directors and / or other government authorities.
Please note that all companies registered in Thailand must comply with other laws and regulations, for example, Civil and Commercial Code, tax laws and employment laws.
Warot Wanakankowit is a partner at Warot Consulting Services. You can contact him at +66 81 802 5698 and [email protected]
Warot Advisory Services
1055/655 State Tower 31 / F, Silom Road
Silom, Bangrak, Bangkok, 10500 Thailand
Phone. : +66 2424 0369
Email: [email protected]