The laws relating private limited company or closely held company and other business law in Thailand is covered under the "Thai Civil and Commercial Code". However a separate Act called "The Alien Business Act", has been enacted by the Govt. which covers the most important law governing majority alien-owned businesses in Thailand. And the Public Company Act governs the laws for Public Company. The aforesaid statutes and the Revenue Code and the Accounts Act cover issues like the procedures to set up a business concern, Investment, taxation on business concern etc.
The following three types of business Organizations are recognized in Thailand:
- A Limited Company (Private and Public)
- The Sole Proprietorship
- A Partnership
- A Joint Venture
Branches of Foreign Companies
INCORPORATION OF A PRIVATE LIMITED COMPANY
In order to set up a Private limited company in Thailand, the following procedures may be followed:
- Application for reservation of name: The process of incorporating a company starts with the reservation of name for the business concern at the Business Development Office in the Ministry of commerce following the guidelines of the Office.
- Memorandum of Association: A Memorandum of Association to be filed with the Business Development Office must containing
- the name of the company that has been successfully reserved,
- Its business objectives,
- The province where the company will be located,
- The capital to be registered,
The names of the Seven promoters. (15 promoters incase of a Public Limited Company)
The capital information must include the number of shares and the par value.
Although there are no minimum capital requirements, the amount of the capital should be respectable enough and adequate as per the object of the Company.
In the case of a Public Limited Company, the promoters must hold their shares for a minimum of two years before they can be transferred.
- Fee for registering memorandum of association: The Memorandum registration fee is 50 baht per 100,000 baht of registered capital.
- Statutory Meeting: Once the share structure has been defined, a statutory meeting is called in which the articles of incorporation and by laws are approved, the Board of Directors is elected and an auditor appointed. At this stage a minimum of 25 percent of the par value of each subscribed share must be paid. The Board of Directors of a Public Limited Company must have a minimum of five members, at least half of whom are Thai nationals. Shares must have a face value of at least five baht each and be fully paid up.
- Registration: Within Three Months of the date of the Statutory Meeting, the directors must submit the application to establish the company.
- Fee for registration of company: Company registration fees for private limited company is 500 baht per 100,000 baht of registered capital. The registration fee is 2,000 baht per million baht of capital for a public limited company.
Tax Registration: The company so registered must obtain a tax I.D. card and number for the company from the Revenue Department within 60 days of incorporation or the start of operations. Companies earning more than 600,000 baht per annum must register for VAT within 30 days of the date they reach 600,000 baht in sales.
- The Company must maintain books and follow accounting procedures specified in the Civil and Commercial Code, the Revenue Code and the Accounts Act. Documents may be prepared in any language, provided that a Thai translation is attached. All accounting entries should be written in ink, typewritten, or printed.
- The corporate income tax on net profits and is due twice each fiscal year. A mid-year profit forecast entails advance payment of corporate taxes.
- A newly-established company should close accounts within 12 months from the date of its registration. Thereafter, the accounts should be closed every 12 months. The performance record is to be certified by the company auditor, approved by shareholders, and filed with the Business Development Office, Ministry of Commerce, within five months of the end of the fiscal year, and with the Revenue Department, Ministry of Finance, within 150 days of the end of the fiscal year. If a company wishes to change its accounting period, it must obtain written approval from the Director General of the Revenue Department.
The basic accounting principles practiced in the United States are accepted in Thailand, as are accounting methods and conventions as sanctioned by law. The Institute of Certified Accountants and Auditors of Thailand is the authoritative group promoting the application of generally accepted accounting principles.
Audited financial statements of juristic entities (that is, a limited company, a registered partnership, a branch, or representative office, or a regional office of a foreign corporation, or a joint venture) must be certified by an authorized auditor and submitted to the Revenue Department and (except for joint ventures) to the Commercial Registrar for each accounting year.
Auditing standards conforming to international auditing standards are, to the greater extent, recognized and practiced by authorized auditors in Thailand.
Public Limited Companies registered in Thailand may, subject to compliance with the prospectus, approval, and other requirements, offer shares, debentures and warrants to the public and may apply to have their securities listed on the Stock Exchange of Thailand (SET).
The simplest form for establishing and operating a business is the sole proprietorship. Sole proprietorships are unincorporated businesses established by one person, the owner, doing business on his own account. The owner is personally entitled to all profits and responsible for all losses arising from the business.
Thai and Western concepts of partnership are broadly similar. Thailand provides for three general types of partnerships:
- Unregistered ordinary partnerships, in which all partners are jointly and wholly liable for all obligations of the partnership
- Registered ordinary partnerships. If registered, the partnership becomes a legal entity, separate and distinct from the individual partners
Limited partnerships. Individual partner liability is restricted to the amount of capital contributed to the partnership. Limited partnerships must be registered.
A joint venture may be described in accordance with general practice as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together. It has not yet been recognized as a legal entity under the Civil and Commercial Code. However, income from the joint venture is subject to corporate taxation under the Revenue Code, which classifies it as a single entity.
BRANCHES OF FOREIGN COMPANIES
There is no special requirement for foreign companies to register their branches in order to do business in Thailand. However, those business activities fall within the scope of one or more laws or regulations which require special registration, either before or after the commencement of activities. Foreign business establishments must, therefore, follow generally accepted procedures..
As a condition for approval of an Alien Business License to a branch of a foreign corporation, working capital amounting to a total of five million baht in foreign exchange must be brought into Thailand within certain intervals over a four-year period.
The branch may be allowed to operate for a period of five years, unless a shorter period is indicated in the application as a result of a contract to be performed in Thailand. Extension of the original duration of the license to operate may be granted, provided the working capital required to be brought into Thailand is met.
A representative office of foreign corporations may also be established to engage in limited "non-trading" activities, such as sourcing of goods or services in Thailand for its head office or inspecting and controlling quality of goods which its head office purchases in Thailand. Other activities can cover disseminating information about new products and services of its head office, and reporting to its head office on local business development and activities.
BUSINESS BY AN ALIEN
The Alien Business Act describes an alien as a natural person or juristic entity without Thai nationality, including a company with half or more than half if its shares held by aliens, or company with half or more than half of its shareholders being aliens.
The Act classifies businesses into 3 categories, details of which may be summarized as follows:
Businesses under this category is strictly prohibited to foreign individuals or juristic entities for special reasons. Such restricted businesses include Newspaper publication, radio or television station business , Rice, filed crops or horticultural farming, Livestock farming etc.
Businesses under this category is also prohibited to foreigners, but may be permitted if the business entity concerned receives the approval of the Cabinet. Such businesses are as follows
- Businesses involving national safety or security.
- Businesses affecting arts, culture, traditional customs and folk handicrafts.
- Businesses affecting natural resources or the environment
- Category C
Businesses under this category are open to foreigners but are subject to receipt of approval from the Committee. Such businesses may include Rice farming and flour production, Fishery business matters, Accounting service business, Legal service business etc.
Other businesses not mentioned in these three categories are opened to aliens but must have a minimum capital of 2,000,000 Baht.
In the case of doing business carried on by an alien, a minimum capital is 3,000,000 Baht. In the case of businesses under Category B, at least 2/5 of the directors must be Thai nationals and a minimum of 40 percent of the shares must be held by Thai persons, which minimum may be reduced to 25 percent by Cabinet approval. Businesses under Categories B or C may be subject to conditions such as minimum debt/equity ratio, number of alien directors resident in Thailand, period of investment, technology and assets, etc.
TRADE AND INVESTMENT PROMOTION
The Board of Investment has announced the establishment of Trade And Investment Support Offices would become a new category of activities eligible for investment promotion and the projects in this category are eligible for BOI non-tax incentives, including permission to own land for an office, permission to bring in foreign nationals to undertake investment feasibility studies etc. and all types of consulting services, except those engaged in Buying and selling securities, Accounting, Advertising, Legal affairs etc.
If there are any other activities deemed appropriate for investment promotion under the Establishment of Trade and Investment Support Offices, the Office of the Board of Investment will consider them on a case-by-case basis.
Eligibility: Applicants for Regional Trade And Investment Support Offices must be either companies established under Thai law, or companies planning to establish under Thai law.
- Operating licenses must have been acquired from all relevant government agencies
- Operating expenses must amount to no less than 10 million baht per year, which shall consist of sales and administrative expenses, as set forth in the Revenue Code
- Operating plans must be approved by the Board of Investment
- Majority or total foreign ownership is allowed