Thailand restricts and prohibits economical areas and business categories for foreigners primarily in the Foreign Business Act (A.D.1999). Under the Foreign Business Act (FBA) foreigners are prohibited from engaging in most business categories in Thailand, unless an alien business operation permit has been obtained from the Director-General of the Department of Commercial Registration with the approval of the Foreign Business Committee. Separate laws control foreign ownership of land as well as such activities as banking, insurance, finance and shipping.
As it is very complicated and often impossible to obtain a foreign business license most foreigners operate a business without a foreign business license or exemption even though these business categories are restricted or prohibited for foreigners. These foreigners have a work permit issued under a Thai company and operate their business through a Thai limited company.
As in most countries, there are three major forms of business organization in Thailand: sole proprietorships, partnerships, and limited companies. Remember, foreigners are not allowed to own 100% shares of any business in Thailand, unless you are a US* citizen (See note at the end). According to the Kingdom’s Board of Investment (BOI), the most popular form of business organization among foreign investors is the private limited company. To start, this requires a minimum of three promoters or initial shareholders.
As the easiest route to setting up a business in Phuket, the following procedures apply in the registration of a limited company in Phuket:
Step 1: Reservation of Corporate Name
Business investors should submit a list of proposed corporate name to Business Development Office (BDO) in the Ministry of Commerce, which should have been checked against the name reservation guidelines of the BDO. Validity of approved corporate name is 30 days without extension.
Step 2. Filing of Memorandum of Association
This document should be filed with the BDO under the reserved company name, the province where the company will be located, the business objectives, business capitalization, and all the names of the seven shareholders or promoters. Information on the business capitalization must include the number of shares and the par value of each share. The authorized capital must be issued.
Step 3: Convene a Statutory Meeting
When the capitalization and share structure has been determined, a statutory meeting will be called to present and approve the Articles of Incorporation and Bylaws, to elect the Board of Directors and to appoint an auditor. 25 percent of the par value of the subscribed share must be paid.
Step 4: Registration
Three months from the Statutory Meeting date, the directors must submit the application to establish the company. At this stage, company registration fees are paid.
Step 5: Tax Registration
Taxable companies should obtain a tax ID card and number for the company from the Revenue Department within 60 days of incorporation. The same tax number will appear on the VAT certificate and on the taxpayer ID card, which are normally obtained on the same date when the application is filed. The VAT certificate, however, will be mailed separately to the company’s registered address.
Basic Rules and Regulations
The Thai legal system in regards to companies and their tax liabilities is similar to some systems seen in the West. A balance sheet must be prepared and filed annually with the Department of Revenue and Commercial Registration. Accounting procedures must conform to the rules specified in the Civil and Commercial Code, the Revenue Code, and the Accounts Act.
Accounting and auditing within the company can be performed in English. However, the standard forms submitted to the Thai government are in Thai, and other reports must be translated into Thai. The company is also required to withhold income tax from the salary of all regular employees.
In terms of fulltime employment, the company must typically maintain a 4:1 ratio of Thai to foreign staff. The number of foreign work permits granted depends on a number of factors: how many Thai staff you employ, the registered capital [2 million baht of registered capital per work permit], and the strength or influence of your business in other ways.
Depending on the business, there are also specific acts governing operations and providing for certain safeguards. For example, the Ministry of Industry administers the Factory Act, which covers factory construction, operation, and licensing, as well as safety and pollution-control requirements. Other examples are the Copyright Act, Patent Act, and Trademark Act that afford protections on all types of intellectual property. Difference businesses also require special licenses.
*Treaty of Amity and Economic Relations is an exclusive agreement between Thailand and the USA. Signed in May 29th, 1968 it gives US citizens the right to own 100% of a company in Thailand and vice versa. Starting a company under the Treaty of Amity costs double compared to starting other corporation types as well as the same scrutiny and governmental regulations as forming a Thai corporation.