Operating a business by foreigners in Thailand
Thailand restricts or prohibits economical areas and business categories for foreigners primarily in the Foreign Business Act. Foreigners can be granted a foreign business license for certain business categories, or may be granted an exemption based on a treaty or a specific act.
When you look around in Thailand you see many foreigners operating a business in Thailand without a foreign business license or exemption even though these business activities 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. Thai company means that the majority of the shares are held by a Thais. If the majority of the shares are held by a Thai national (or Thai nationals) the company will in principle be regarded as a Thai company and therefor, as a Thai company, the company will not be restricted by the Foreign Business Act. Foreigners are under the present FBA allowed to have majority voting rights and control in a Thai limited company.
Foreign Business Act
The 1999 FBA divided various types of business into three categories and subjected each category to different limitations with respect to foreign ownership:
- Generally those businesses listed in Category 1 are absolutely prohibited to foreigners unless there is an exemption contained in a special law or treaty.
- Category 2 refers to businesses owned by aliens that were in existence and actually operating prior to the enactment of the Foreign Business law. These businesses were permitted to apply for a special Alien Business license and to continue operating. Foreigners, however, are not permitted to start new businesses listed in this category unless they obtain special permission from the Minister with the approval of the Cabinet (unless there is an exemption contained in a special law or treaty).
- Category 3 businesses are treated in a manner similar to those in Category Two except that the power to grant an Alien Business License to foreigners who wish to start a new business is vested with the Director General and a committee (unless there is an exemption contained in a special law or treaty).
Limited companies in Thailand have basic characteristics similar to those of Western corporations. A private limited company in Thailand is formed through a process which leads to the registration of a Memorandum of Association (Articles of Incorporation) and Articles of Association (By-laws). The voting rights are written into the Articles of Association of the company. There must be at least 3 ‘promoters’ (since July 2008) for the company. The promoters can be foreigners and Thai nationals however, each promoter will be a shareholder of the company. To be regarded as a Thai Company the majority of the shares (51%) must be allotted to a Thai national or Thai nationals. A Thai company with a minority foreign shareholding but with a preference share structure allowing foreign control is in principle regarded as a Thai juristic entity, therefore such a company is not restricted by the Foreign Business Act.
Foreigners are prohibited in sections 36 and 37 of the FBA from using Thai nominee or proxy shareholders to circumvent the restrictions under the Foreign Business Act. The main long term concern in this structure is to find reliable Thai shareholders/ partners and possible future changes in the law (i.e. including voting rights and management as a criterion in defining a company Thai or foreign). The company formation and registration rules followed by the proposed amendments to the Foreign Business Act was the start of more restrictive regulations for the formation of party foreign owned Thai companies.
Operating a Thai company (balance sheet)
The Directors of every Thai company are required by law to cause an audited financial report (balance sheet) to be prepared annually and to be filed with the Commercial Registration Department of the Ministry of Commerce, duly signed and sealed by the binding director(s) of the Company. The financial year of the Company ends on December 31 of each year unless the Company has registered with Commercial Registration Department a financial year which is different from the calendar year. Under the provisions of Civil and Commercial Code of Thailand an annual ordinary general meeting of the shareholders must be held to examine and approve the company's balance sheet within four months after the close of its fiscal year. The balance sheet must be submitted to Commercial Registration Department not later than one month after it has been adopted by the General Meeting.
The "General Meeting" is another way of referring to the aforementioned Annual Ordinary General Meeting. The Civil and Commercial Code Section 1171 states in part: "A general meeting of shareholders shall be held within six months after the registration, and shall subsequently be held once at least in every twelve months. Such meeting is called an ordinary meeting...."
When the company hasn't done anything or made any money still the company is required to have an auditor and have an annual balance sheet prepared and filed with the authorities or the company will be in violation of provisions of the Thailand tax laws.
Section 1138 of the Civil and Commercial Code provides that every limited company must keep a register of shareholders containing the particulars set forth in Section 1138. Section 1139 states in part: "...It shall be the duty of the directors to send once at least in every year to the Registrar, and not later than on the fourteenth day after the ordinary meeting, a copy of the list of all persons who are shareholders at the time of such meeting and of those who have ceased to be shareholders since the date of the last ordinary meeting. Such list shall include all the particulars specified in the foregoing section."
Read more: company formation and registration
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