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HOW CAN FOREIGNERS HAVE A BUSINESS IN THAILAND LEGALLY

The Thai legal system as regards company and tax matters is largely patterned after the USA and European countries such as Switzerland and France.

 

The Thai Company Ownership Issue

The laws in Thailand are pretty nationalistic. In the vast majority of cases, the company must be "majority owned" by Thais, in terms of shareholders. This means that the company can be no more that 49% foreign owned. Sometimes, it is a maximum of 39% foreign ownership, and occasionally even less. In most cases it's 49% foreign owned. This is by far the most serious issue for the largest number of foreigners.

 

The exceptions -- majority foreign ownership -- require an Alien Business License a.k.a. a Foreign Business License from the Ministry of Commerce, normally granted with the blessings of the Board of Investment (BoI) on the basis of very large investments of money, very large numbers of Thais employed, and/or exceptionally strategic transfer of technology to Thais (such as in the energy field).

 

I have seen some advertisements saying that you CAN set up a majority foreign-owned company. Sure you can. You can file papers with all foreign shareholders, 100%. You just can't do business with that company unless and until you get an Alien Business License.

 

 

Assigning the shares to your Thai wife and her family can be risky if you have problems with them later. Likewise, you don't want to assign shares to people who may want to take over your business or its assets, of course. It is best to assign these shares to a diversity of Thais who you think you can trust.

 

Most Thais don't understand their liability by owning company shares. If the shares are paid for, then there is no shareholder liability, generally speaking. That's the whole purpose of a company. If someone owns 500,000 baht of shares, and those shares are paid up, then they are not liable if the company loses money. However, if they own 500,000 baht of shares but only 200,000 baht are paid up, then if the company loses a lawsuit and owes money, they could lose up to 300,000 baht (the unpaid shares they own).

 

Things NOT to do

First, let me go thru a brief list of " DON'Ts":

 

Most of the serious problems I hear about come from people who are inexperienced in doing business, don't have a trustworthy and experienced business partner, get into trouble following tricky and dodgy guidance, and/or don't do the proper research and work in their particular field or specialization.

 

Your success or difficulty will mostly depend on things like:

 

The market for your services or goods

Your research

Any licenses required for your goods (especially things like foods requiring an FDA approval process)

Your general experience and ability to do business

Your partner(s), if any

The quality of the staff you hire

Your peer group and guidance

 

It is illegal for an individual to work in Thailand without a "work permit" (a little booklet that looks like a passport) and a tax ID number (you get a laminated card approximately the size of a driver's license).

 

After you set up your company, then you have your company apply for a work permit for you after company setup is completed. Then you can work legally, and your company can pay you.

 

You must maintain a ratio of Thais to foreigners in terms of fulltime employment (usually 4:1 but depends on your business), pay their and your own taxes, and be able to show sufficient capital investment.

 

You cannot just start a company and then bring in all your foreign staff. Your number of foreign work permits will be dependent upon your number of Thai employees, your investment (2 million baht "registered capital" per work permit if you aren't married in Thailand), and the strength of your business in other ways.

 

Before you get your work permit, your company can still do business with other companies, as it's a company to company transaction, not a transaction between you and another company. However, you cannot work, and your company cannot pay you a salary until you get your work permit and personal tax ID number. It is also illegal for others to pay you directly.

 

There are many cases of foreigners doing work in Thailand for other companies, and then the companies refusing to pay them until they get a work permit.

 

Other Issues

There are fields in which foreigners are not permitted to work. However, most of these are generally low skilled fields and not of interest. The majority of fields that farangs of class would want to work in are permitted.

 

An issue that everyone must deal with is that the rules, instructions and forms are all in the Thai language. Everything that is submitted to the government is in Thai. This requires a lot of adjustment for people like myself who have run our own businesses in our own country whereby we originally did our own legal and accounting paperwork. Almost all foreigners are illiterate in the Thai language, so we are dependent upon someone else to read the rules, instructions and forms, then tell you in plain English ALL that stuff, then get decisions from you, and then put those decisions back into Thai writing. Thai people must guide you and take care of things as they arise.

 

In fact, many, many farangs are asked by their lawyer to sign forms that aren't filled in, many blanks amidst the Thai writing, which the lawyer fills in and submits. You can ask the lawyer to fill them in before you read them, but even if they're filled in, could you read them?

 

If you get someone you can independently trust to proof-read the forms, make sure they are a well educated, skilled and responsible kind of person. (Some farangs have been known to ask their bargirl concubine to perform this task, which is a great mistake since most of them have just the free government 6th grade education or less, and you wouldn't have a similarly educated person in the west read your legal forms..., plus you need someone really interested and diligent by nature.)

 

You will need a good accountant to handle all the communications and tax matters with your clients' accountants and all officialdom. They will be needed for both spoken and written communications. They may also have to explain some accounting things to your employees.

 

Notably, accounting and auditing inside your company can be done in English. However, the standard forms submitted to the Thai government are in Thai, and other reports must be translated into Thai.

 

It is inevitable for the company that run business in Thailand without Accounting, Tax and Auditing matters. It has Accounting Act, Revenue Code and many other legal matters concerning your company; you need to follow. If you have a real transaction every month and you have to pay for service expense; it will have Withholding Tax matter which you have to deduct from your supplier and you have to file to Revenue Department in official form (Por Ngor Dor 3, 53) within date 7 th of next month. What about salary payment to your employee, it will have Personal Income Tax related to; you have to deduct for Withholding Tax concerning salary and filing Por Ngor Dor 1 to Revenue Department within date 7 th of next month.

What about Value Added Tax? What about Corporate Income Tax which you have to file to Revenue Department twice a year?

 

When you do business in company pattern, you must do accounting. You have to keep and control accounting documents and record in accounting book; and you have to prepare financial statement also; your financial statement has to be audited by Certified Public Account. Your audited financial statement has to be filed to Revenue Department and Department of Business Development, Ministry of Commerce; they are the government entities which control you.

 

If your company is small, then the bank may not give you a checking account when you first open your company account. You may get only a savings account, whereby you can only withdraw cash. You won't get an ATM card with a company account. You must go or send someone over to the bank with a withdrawal slip, with the authorized signature (e.g., yours) and stamped with your company stamp. The bank will write up individual bank cheques upon request, but this is a time consuming process. You often pay your clients in cash, or else transfer/deposit funds into their account at the bank.

 

 

There are many factors that may go into a decision on whether or not to do business in Thailand and set up a company. We, Suthipong Law Center can be of help in some ways, both directly and by referring you to other specialists.

 

For the formal part of setting up a company, you can consult us for the formal process of getting the company registered, getting your tax ID status, your work permit and dealing with visa matters. That's the technical and legal part. If you want us to help you set up a company, then we can advise and help you, including the legal, accounting and auditing part.

 

If you need help with other matters, let Suthipong Law Center know and we may be able to refer you to the appropriate entities, people we know to be good -- specialist lawyers. Let us know by contacting us.




Business in Thailand

HIRE A LAWYER BEFORE YOUR BUSINESS RUNS INTO TROUBLE article
VISA SERVICES article
ACCOUNTING AND TAXATION SERVICES article



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