This is a guest post by Jeremy Mazzola, Esq., who is a litigation & tax lawyer from New York, currently living in Bangkok.
How to Start a foreign-controlled business in Thailand
Starting a foreign-controlled business in Thailand is not nearly as difficult as it is in Cambodia, Laos, Myanmar, or Vietnam; however, it is not nearly as simple as doing so in western countries. Filing an application for articles of incorporation and paying a fee, while designating an agent in your state capital, is not nearly enough.
Foreign-controlled businesses in Thailand are, on their face, illegal. With the exception of special economic needs and large, publically traded corporations, there is really only one business organization open to foreigners: the Thai limited company.
Maintaining Foreign Control
A Thai limited company can be formed with a minimum of one million baht (about $30,000 US), with three shareholders—one of whom who must be a Thai citizen owning over 50% of the shares. The other two can be foreigners with nothing more than tourist visas. The foreign owners can go on indefinitely without visas or work permits, as long as they pay their payroll withholding tax.
Foreign control is maintained by eliminating the Thai partner’s ability to be a signatory for the company in the articles of incorporation, as well as giving him or her non-preferential stock, and also removing him or her from the management duties in the articles, as well as not including him or her in the corporate bank account.
The capital from the shareholders must be certified by the bank; however, the Thai shareholder’s capital can remain in the bank account as briefly as a few hours while the certification is being processed, and then it can be redeposited into another account or repatriated to maintain control. It is not necessary to find a Thai that you trust; it is necessary to find a Thai that you can control for a short period of time. Most foreigners use wives, husbands, girlfriends, cousins, or employees who are Thai nationals.
Seeking Professional Help
The Thai Ministry of Commerce, under the Department of Business Development, regulates this. After you complete an application, you will be assigned a case officer. It is recommended that you hire a Thai accountant or CPA who speaks English. Thai lawyers do not handle this type of process, although a signature from a Thai lawyer and an auditor is required on the application.
The English speaking firms owned by foreigners charge more for this process, but they are the only firms that will walk you through the process and explain exactly what the application and the articles of incorporation say—as it is all in Thai and about 30 pages long. There are Thai-owned and operated firms with agents who speak English, but they will bill you in piecemeal, often stating they can register your business in five days for $500. This is untrue. It should cost a few thousand dollars, and it is recommended that you hire at least one foreign professional under the ethical and legal guidelines of a western country while doing this.
The goal of completing the process of opening a Thai business is to acquire two documents: a license from the Ministry of Commerce, and a tax license from a local tax office within the sub-district or city in which your registered office is located.
Business Visas
A word about visas; after the latest coup d’état in Thailand, obtaining a visa has become cumbersome and unclear. To obtain a business visa and work permit, a foreign shareholder must show two million baht in capital for each visa and work permit. Visas and work permits for foreign employees are much easier: one visa and work permit is allowed for every four Thai employees.
It is quite common to hire dummy employees to fill this quota. It is a mutually beneficial relationship that has been in practice for nearly four decades, allowing foreign companies to have as many foreign workers as they need, while giving poor Thai access to social security health insurance. It is a circular process of paying the minimum wage each month that can be redeposited into the corporate account under the budget line of your choice, minus about $15 a month for the social security contribution.
Risks & Business Practice Tips
A Thai limited corporation owned 49% by foreigners stands a good chance of being audited. As long as the books are done by a Thai accountant, this should not be a problem. If you want to avoid being audited, having a Thai partner with 66% of the capital will mitigate the risk of government audit. In addition, don’t show a loss in your first year—this will also invite an audit, especially if you have Thai staff. It is not a death knell, but it will certainly invite unpleasant attention.
Also, it is standard business practice—though not the law—to pay for at least 75% of your landlord’s property taxes. Negotiate something in exchange for it when you sign the lease. When negotiating with Thais, always have your money on the table—money amounts in the abstract carry little weight with Thais. They don’t believe it until they see it. This author has gotten tremendous bargains by having a stack of cash visible during negotiations. This is especially true for business property; it is a renter’s market; so bargain hard.
Maintaining two sets of books, and employing other techniques that westerners would find distasteful are normal and usual business practice in Thailand. However, any bribing of public officials is seriously punished—the days of flying fast and loose in Thailand are over.
Thai tax rates are similar to those in the west; however, actual profits are normally not shown on tax forms. The tax on business profit is in effect, extremely low. Your accountant can explain all of this to you. Even the government auditor expects you to have at least two sets of books.
All of this might dissuade the average American or westerner from doing business in Thailand. However, this should not be the case. After navigating a few idiosyncrasies of Thai business practices, once your licenses from the Ministry and the Revenue Department are established, it is just like running a business back home—in fact, it is more forgiving. Taxes are routinely paid late, with minimal fees, auditors for rental and property taxes measure square feet in their head without calculators, and actual profits are routinely ignored.
It is strongly recommended, if you have never spent time in Southeast Asia, that you spend at least six months to a year in Thailand before you embark on any business ventures there. It is an incredibly different culture. Join the American Chamber of Commerce. Befriend expatriates that have been in the country for years. Sino-Thai (Thai Chinese people) run most of the businesses and control the country. They expect to negotiate hard, but never, ever make them lose face. And never get them angry. You cannot recover a relationship if you make these errors. Bargain hard, but do so with a smile on your face, and offer all negotiations over some food.
Best of luck to you if you are going to start a business in Thailand. It is a great place to live, and it is a safe place to do business. Unlike many other countries in the region, you will not get shaken down by local officials or cops, gangsters, or corrupt bureaucrats. The banking system is stable and trustworthy, as are most of the local business service personnel. Westerners are afforded a certain level of respect in Thailand—especially Americans.
Jeremy Mazzola, Esq. is a lawyer from New York. He graduated from St. John’s Law School in 2003 and worked in litigation (Fager & Amsler) and taxes in New York and in Southeast Asia. He also has worked as a consultant for organizations such as World Bank as well as the Asian Development Bank, the United Nations Development Programme, the International Trade Center, and other multilateral development organizations. He currently lives in Bankok with his wife who is a Thai accountant and is working on his second Thai business.
The views & opinions expressed in this post are those of the guest author and do not necessarily reflect the opinions & views of Jiah Kim & Associates, P.C..
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.