Thailand recognizes 3 types of business organizations: partnerships, limited companies and other forms of corporate presence.
1.1.1 Partnerships
According to the Civil and Commercial Code (CCC), the partnerships can be divided into 2 types:
1 Ordinary Partnerships
2 Limited Partnerships
- 1.1.1.1 Odinary Partnership
In an ordinary partnership, all the partners are jointly and wholly liable for all obligations of the partnership. Ordinary partners may contribute money, other property, or labor to the partnership. These partnerships may be registered or unregistered. Therefore, an ordinary partnership can be divided into 2 types:- 1 Non-registered Ordinary Partnership – has no status as a juristic person and is treated, for tax purposes, as an individual.
- 2 Registered Ordinary Partnership – is registered with the commercial registrar as a juristic person and is taxed as a corporate entity.
- 1.1.1.2 Limited Partnerships
The limited partnerships must have 2 kinds of partners as follows:- 1 One or more partners whose individual liability is limited to the amount of capital
contributed to the partnership, and - 2 One or more partners who are jointly and unlimitedly liable for all the obligations of the partnership.
- 1 One or more partners whose individual liability is limited to the amount of capital
The limited partnerships must be registered and are taxed as a corporate entity.
1.1.1.3 Partnership Registration
When two or more people agree to invest in one of the aforementioned types of partnership, the appointed managing partner is responsible for registering the partnership with the commercial registration office of the province that the head
office of the partnership is located in. Limited partnerships must be only managed by a partner with unlimited liability.
The fee for registering a partnership is 100 Baht per 100,000 Baht of registered capital. A fraction of 100,000 Baht is regarded as 100,000 Baht. The minimum fee is 1,000 Baht and the maximum fee is 5,000 Baht.
1.1.2 Limited Companies
There are 2 types of limited companies: private limited companies and public limited companies. The first is governed by the Civil and Commercial Code and the second is governed by the Public Limited Company Act.
1.1.2.1 Private Limited Companies
Private Limited Companies in Thailand have basic characteristics similar to those of Western corporations. A private limited company is formed through a process that leads to the registration of a Memorandum of Association (Articles of Incorporation) and Articles of Association (By-laws) as its constitutive documents.
The shareholders enjoy limited liability, i.e. limited to the remaining unpaid amount, if any, of the par value of their shares. The liability of the directors, however, may be unlimited if stipulated as such in the company’s MOA.
The limited companies are managed by a board of directors in accordance with the company laws and its Articles of Association. In the board of directors’ meeting, director’s proxies and circular board resolution are not allowed.
All shares must be subscribed to, and at least 25% of the subscribed shares must be paid up. Thai law prohibits the issuance of shares with a par value of at least 5 Baht. Treasury shares are prohibited.
A minimum of 3 shareholders is required at all times. Under certain conditions, a private limited company may be wholly owned by foreigners. However, in those activities reserved for Thai nationals under the Foreign Business Act, foreigner participation is generally allowed up to a maximum of 49% capital shares. The registration fee for the MOA and establishing the company is 5,500 Baht per million Baht of registered capital.
The 49% capital shares limited in certain reserved businesses can be exceeded or exempted if a Foreign Business License is granted. If the desired business is unique, does not compete with Thai businesses, or involves dealings among members of an affiliated company, the chance of approval is more probable. Conditions, such as minimum capital, transfer of technology and reporting requirements, may be attached to Foreign Business Licenses.
1.1.2.2 Public Limited Companies
Subject to compliance with the prospectus, approval, and other requirements, public limited companies registered in Thailand may offer shares, debentures, and warrants to the public and may apply to have their securities listed on the Stock Exchange of Thailand (SET).
Public limited companies are governed by the Public Limited Company Act B.E. 2535 (A.D. 1992), as amended by Public Limited Company Act No. 2 B.E. 2544 (A.D. 2001) and Public Limited Company Act No. 3 B.E. 2551 (A.D. 2008). The rules and regulations concerning the procedure of offering shares to the public is governed by the Securities and Exchange Act B.E. 2535 (A.D.1992) and the amendments thereto, under the control of the Securities and Exchange Commission (SEC). All companies wishing to list their shares on the SET must obtain theapproval of and file disclosure documents with the SEC, and then obtain SET approval to list their shares
For public limited companies, there is no restriction on the transfer of shares (except to satisfy statutory or policy ceilings on foreign ownership); directors are elected by cumulative voting (unless the MOA provides otherwise) and the board of directors’ meetings must be held at least once every 3 months.
A minimum of 15 promoters is required for the formation and registration of a public limited company, and the promoters must hold their shares for a minimum of 2 years before they can be transferred, except with the approval of the shareholders at a meeting of shareholders. The board of directors must have a minimum of 5 members, at least half of whom must have a domicile in Thailand. Each share of the company shall be equal to value and be fully paid up.
Restrictions on share transfers are unlawful, with the exception of those protecting the rights and benefits of the company as allowed by law and those maintaining the Thai/ foreigner shareholder ratio. Debentures may only be issued with the approval of 3 quarters of the voting shareholders. The company registration fee is 1,000 Baht per million Baht of registered capital.
The qualifications for independent directors of listed companies and securities companies that have initial public offerings were amended in April 2009, as follows:
- 1 At least one-third of the board’s complement should be independent directors, and in any case, the number should not be fewer than 3. This will apply for listed companies’ annual general shareholders’ meetings from the year 2010 on wards. In the case of an IPO, the requirement for independent directors has to be complied with from 1 July 2008 onwards.
- 2 The independent director must not have any business or professional relation ship with the head office, subsidiaries, associates, or jurist person in his own interest, whether directly or indirectly, as outlined in the Thai Securities and Exchange Commission Circular No. Kor Lor Tor Kor (Wor) 11/2552 Re: the Amendment of the Regulation regarding the independent director.
1.1.2.3 Scrutinization of Thai Shareholders in Limited Companies
In 2006, the Commercial Registration prescribed new rules for the registration of the private limited companies. The rules require that sources of investment by Thai nationals in the following 2 categories of new companies be scrutinized:
1 A company in which the foreigners hold between 40% and 50% of the shares.
2 A company in which the foreigners hold less than 40% of the shares, but a foreigner is an authorized director of the company.
All Thai shareholders must disclose the source of their funds to the MOC.
An application for the incorporation of a limited company must now be accompanied by at least one of the following documents evidencing the source of funds of each Thai shareholder:
– Copies of deposit passbooks or bank statements disclosing transactions over the past 6 months;
– A letter issued by a bank certifying the financial position of the shareholder;
– Copies of other documents evidencing the source of funds (i.e. loan documentation). In addition, the MOC has issued internal guidelines in support of the rules, which set out the following matters:
– The amounts shown in the documents of each Thai shareholder evidencing the source of funds must equal or exceed the amount of funds invested by that Thai shareholder.
– The rules do not apply if a foreign national(s) has joint authority with a Thai national(s) to act on behalf of the limited company.
– Copies of deposit passbooks or bank statements disclosing transactions that are less than 6 months old may be submitted to the MOC provided that entries on at least 1 day identify a balance that is equal to or exceeds the funds invested by the relevant shareholder.
Thai shareholders must provide evidence of their sources of funds regardless of the value of their shares.
1.1.3 Other Forms of Corporate Presence
1.1.3.1 Branches of Foreign Companies
Foreign companies may carry out certain business in Thailand through a branch office. Branch offices are required to maintain accounts only relating to the branch in Thailand.
Having a branch office in Thailand, the foreign corporation could be exposed to civil, criminal and tax liability if the branch office violates any law in Thailand. The foreign head office must appoint at least one branch office manager to be in charge of operations in Thailand.
There is no special requirement for foreign companies to register their branches in order to do business in Thailand. However, most business activities fall within the scope of one or more laws or regulations that require special registration (e.g., VAT registration, taxpayer identification card, Commercial Registration Certificate, Foreign Business License, etc.), either before or after the commencement of activities. Therefore, foreign business establishment must follow generally accepted procedures.
It should be borne in mind that the branch is part of the parent company and therefore the parent retains legal liability for contracts, and for tortious acts done. For tax purposes, a branch is subject to Thai corporate income tax at the regular 20% rate on income derived from its business operations in Thailand. It is important to clarify beforehand what constitutes income that is subject to Thai tax because the Revenue Department may consider revenue directly earned by the foreign head office from sources within Thailand to be subject to Thai tax. Therefore, for tax purposes, a branch office is required to apply for a taxpayer identification card and VAT certificate (if applicable) and to file annual corporate income tax returns with the Revenue Department.
A branch office of a foreign entity cannot carry out any reserved business without a Foreign Business License. It must apply for a Foreign Business License with the MOC first, and can operate as a reserved business only after the license has been issued. If the desired business is unique, and does not compete with Thai businesses, or involves dealings among members of an affiliated company, the chance of approval is more probable. Conditions, such as minimum capital, transfer of technology and reporting requirements, may be attached to the Foreign Business License. The minimum investment capital must be greater than 25% of the estimated average annual operating expenses of the operation calculated over 3 years, but not less than 3 million Baht.
Conditions to be complied with by the Branch Office after Obtaining Permission for Operation
A Branch Office that is permitted to operate the business must comply with the following conditions:
1. There must be the minimum capital to be remitted to Thailand for the commencement of business operation as stipulated by law. Details of remitting the minimum capital are as follows:
- 1 First 25% of minimum investment within first 3 months;
- 2 Another 25% of minimum investment within first year;
- 3 Another 25% of minimum investment within second year; and
- 4 Last 25% of minimum investment within third year.
2. The total amount of loans utilized in the permitted business operation must not exceed 7 times the inward remitted funds for the permitted business operation;
Loans mean the total liabilities of the business, notwithstanding the liabilities incurred by any form of transaction but excluding trade liabilities occurred from the ordinary course of business, such as, trade creditors, accrued expenses.
3. At least one person out of the people responsible for operating the business in Thailand must have a domicile in Thailand;
Domicile means the contactable residence in Thailand which can be the place of business, excluding temporary residence such as hotels.
- 4. The document or evidence relating to the permitted business operation must be submitted when the official sends the summons or inquiry.
- 5. Their account and financial statements to be submitted to the Department of Business Development must be prepared.
Application fee (non-refundable) is 2,000 Baht. If the application is approved, the Government fee will be set at the rate of 5 Baht for every 1,000 Baht or fraction thereof of the registered capital of the parent company, with a minimum of 20,000 Baht and a maximum of 250,000 Baht. A fraction of 1,000 Baht in capital is regarded as 1,000 Baht.
1.1.3.2 Representative Offices of Foreign Companies
The operation of representative office in Thailand in order to render the service to its head office or the affiliated company or the group company in foreign country is the operation of business under the business listed in List 3(21) attached to the Foreign Business Act B.E.2542 i.e. other Service Businesses. If the foreigner wishes to operate such a business, the permission by the Director-General, Business Development Department with the approval of the Foreign Business Committee is required.
The minimum investment capital must not be less than 25% of the estimated average annual operating expenses of the operation calculated over 3 years, but not less than 3 million Baht (same as branch office).
The Foreign Business Operation Committee has determined the guidelines for approval as follows:
Characteristic of the Representative Office
The representative office must have all 3 characteristics as follows:-
- 1 Be the juristic person established in accordance with the foreign law and has to have established an office in Thailand in order to operate the service business to the head office or the affiliated company or the group company in foreign country only;
- 2 Renders services to the head office, affiliated company or group company with out receiving income from service, except for funds to cover the expenses of the representative office that are received from the head office;
- 3 The representative office has no authority to receive purchase orders or to offer for sale or to negotiate on business with any person or juristic person.
Scope of Service of the Representative Office
In operation of business as the representative office, the scope of service is permitted to be rendered in any or all of the following 5 categories, depending upon the objectives and business characteristics of the representative office:
– Finding sources of goods or services in Thailand for the head office.
– Checking and controlling the quality and quantity of goods purchased in Thailand by the head office.
– Providing advice and assistance concerning goods of the head office sold to agents or consumers in Thailand.
– Disseminating information concerning new goods or services of the head office.
– Reporting on business developments in Thailand to the head office
If the representative office engages in other activities for which permission is not granted, such as buying or selling goods on behalf of the head office, it will be regarded as doing business in Thailand and may be subject to Thai taxation on all income received from Thailand. Also, the representative office may not act on behalf of third persons. Any such business or income-earning activities could amount to a violation of the conditions of the license to establish and operate a representative office, which in turn could result in revocation of that license.
A representative office that undertakes one or more of the approved activities in Thailand with out rendering any service to any other person, and which refrains from prohibited activities, is not subject to Thai taxation. Such a representative office is understood to be receiving a subsidy from the head office to meet its expenses in Thailand. Gross receipts or revenues received by a representative office from the head office are not characterized as revenue to be included in the computation of juristic person income tax.
Even though they are not subject to taxation in Thailand, all representative offices are still required to obtain a Corporate Tax Identification number and submit income tax returns and audited financial statements to the Revenue Department. They are also required to submit the same to the Department of Business Development.
Conditions to be complied with by the Representative Office after being granted Permission to Operate
A representative office that is permitted to operate a business must comply with the following conditions:
1. There must have the minimum capital to be remitted to Thailand for the commencement of business operations as stipulated by law. Details regarding the minimum capital are as follows:
- 1 First 25% of minimum investment within first 3 months;
- 2 Another 25% of minimum investment within first year;
- 3 Another 25% of minimum investment within the second year; and
- 4 Last 25% of minimum investment within the third year.
2. The total amount of loans utilized in the permitted business operation must not exceed seven times the inward remitted funds for the permitted business operation;
Loans mean the total liabilities of the business, notwithstanding the liabilities incurred by any form of transaction and excludes trade liabilities occurred from the ordinary course of business, such as, trade creditors, and accrued expenses.
3. At least one person out of the people responsible for operating the business in Thailand must have a domicile in Thailand;
Domicile means the contactable residence in Thailand which can be the place of business, excluding temporary residence such as hotels.
4. The document or evidence relating to the permitted business operation must be submitted when the official sends the summons or inquiry.
5. The account and financial statements submitted to the Department of Business Development must be prepared.
Fees for the Representative Office
Application fee (non-refundable) is 2,000 Baht. If the application is approved, the Government fee will be set at the rate of 5 Baht for every 1,000 Baht or a fraction thereof of the registered capital of parent company, with a minimum of 20,000 Baht and a maximum of 250,000 Baht. A fraction of 1,000 Baht in capital is regarded as 1,000 Baht.
Tax Position of the Representative Office
The representative office is required to obtain a corporate tax identification number and submit income tax returns and balance sheets, even if nil. Individual aliens and all local staff are required to obtain taxpayer cards and pay personal income tax. The representative office is not subject to any corporate income tax, except for interest on any remaining funds that it has received from the head office and deposited in its bank account.
1.1.4 International Business Center (IBC)
Thailand defines International Business Center (IBC) as a company incorporated in Thailand that provides managerial, technical, supporting, or financial management services to its associated enterprises, whether located in Thailand or overseas, or operate international trade. In late 2018, the Thai government approved the drafted new Royal Decree laws for offering the International Business Center (IBC) tax regime, and terminating the existing offer of the International Headquarters (IHQ) and the International Trade Center (ITC). Under the IBC, new conditions must be met to be eligible for the incentives and certain existing incentives would be reduced.
The Government’s resolution for approving the drafted new Royal Decree laws records that due to Thailand’s membership of the Inclusive Framework on Base Erosion and Profit Shifting of the OECD, Thailand has an obligation to cease and amend tax measures that erode the tax bases of other countries.
This measure is in response to the Harmful Tax Practices – 2017 Progress Report on Preferential Regimes (Inclusive Framework on Base Erosion and Profit Shifting (BEPS): Action 5) in which Thailand’s regional/international headquarters, trading and treasury hub regimes were identified as harmful tax practices.
An International Business Center (IBC) receives the following incentives:
▶ Incentives offered by the Thailand Board of Investment (BOI)
- Exemption from import duty on machinery (only for machinery used for R&D and training activities).
- Majority or 100% foreign ownership
- Permission to own land
- Permission to bring in skilled personnel and experts into the Kingdom to work in investment promoted activities.
▶Conditions to apply for privileges offered by the Thailand Board of Investment (BOI)
Must have a plan to provide any of the following series to its associated enterprise:
- 1 General administration, business planning and business coordination
- 2 Procurement of raw materials and components
- 3 Research and development of products
- 4 Technical support
- 5 Marketing and sales promotion
- 6 Personnel management and training
- 7 Financial advisory services
- 8 Economic and investment analysis and research
- 9 Credit management and control
- 10 Treasury Center (TC) permitted under the law on foreign exchange control falls under the definition of IBC
- 11 International trade
- 12 Any other support services specified by the Director General of the Revenue Department
- Paid-up capital must be at least 10 million Baht on the last day of each accounting period.
- Total operation expenses paid to recipients in Thailand must be at least 60 million Baht per accounting period
- Must hire at least 10 knowledgeable and skilled permanent staff for the IBC. (This excluded treasure center where at least five knowledgeable and skilled staff must be employed.)
▶ Incentives offered by Revenue Department
3% CIT on IBC net profits, if IBC’s total expenses paid to recipients in Thailand are at least 600 million Baht per accounting period
5% CIT on IBC net profits, if IBC’s total expenses paid to recipients in Thailand are at least 300 million Baht per accounting period
8% CIT on IBC net profits if IBC’s total expenses paid to recipients in Thailand are at least 60 million Baht per accounting period
▶ Withholding tax exemption for the following revenues:
Dividend received from the IBC, only if paid out of income entitles to CIT reduction (exemption of dividends received from associated enterprises)
Interest received from the IBC (only if derived from loans taken out by the IBC to relend to associated enterprises for financial purpose).
▶ Personal Income Tax reduction(PIT reduction)
Reduction of personal income tax rate for expatriates working in an IBC is reduced to 15% on gross income and benefit derived from employment.
▶ Specific business tax exemption
Exemption of Specific Business Tax on the gross receipts from providing financial management services to associated enterprises.
▶ Incentives offered by the Bank of Thailand (BOT)
The Bank of Thailand (BOT) offers incentives for the Treasury Center (TC), including the International Business Center (IBC) that provides treasury services. The incentives include the followings:
– Reduce transaction costs and help increasing company’s efficiency and competitiveness through cash pooling, and netting.
– Facilitate Multi National Corporation (MNC), either their parent companies overseas or in Thailand, to centralize all treasury management in Thailand.
– Purchase/sales Foreign Exchange (FX) both for itself and group companies.
– Multi-netting of revenue and expense from goods and services.
– Lend and borrow FX to/from group companies in Thailand or overseas.
– Deposit Foreign Currency Deposit (FCD) overseas in conformity with the rules.
– Neither required to fill in the FX transaction nor submit documents of underlying transactions
▶ Existing IHQ and ITC Companies
The Government’s approval also includes a proposal for companies receiving IHQ and ITC tax concessions under their respective Royal Decrees at the time of the termination of IHQ and ITC privileges to continue until the end of their approved initial periods of time or to transfer to an IBC structure and terminate their IHQ or ITC tax concessions.
Source: Thailand Board of Investment, as of November 2018
EY Company Limited, as of November 2018
Sherrings Tax & Business Advisors Limited, as of November 2018 Bank of Thailand, as of February 2019
