Thai Company And Business Formation

16 November 2009

Company formation (Thai limited company)

Under the 'Alien Business Act B.E. 2542 (A.D.1999)' of Thailand foreigners are prohibited from engaging in most business categories in Thailand unless an alien business operation permit is obtained from the Director-General of the Department of Commercial Registration with the approval of the Alien Business Committee. An alien (or foreign) business operation permit or 'Foreign Business License' can in principle only be granted for business categories listed in list 3 of the Alien Business Act and if the foreigner complies with all (many) conditions for the application of such a permit.

Most 'streetsmart' entrepreneurs in Thailand operate a business through a private Thai limited company. A Thai company is not subject to the Alien Business Act and it is deemed that the business is operated by a Thai entity not alien.

General procedure and requirements for the formation of a Thai limited company (threats and opportunities):

1 The first step in the formation of a Thai company is the reservation of a company name. Not more than 3 names (ranked by priority) can be submitted at the time. After approval to the company name, the company registration must be completed with 30 days. Failure with the company registration within 30 days after approval of the name, the second reservation of the company name is required again. The approved name is valid for 30 days, and can registered for another 30 days period each time until the company is registered.

2 A private limited company may be wholly owned by foreigners. However, if the nature of the business of the company is restricted under the Foreign Business Act or other laws then foreign ownership in the percentage of shares must be less than 50%.

A minimum of 3 shareholders is required at all times in a Thai limited company.

2.1 Some specific acts have a different foreigner definition and may require that the foreign ownership both in the number of shareholders and the percentage of shares owned must be less than 50% (e.g. the Land Code Act). Also different rules apply on the Thai shareholders when registering land to a company, as opposed to registering a Thai company with the Department of Business Registration.

2.2 If the nature of the business is restricted under the Foreign Business Act or other laws then there may be restrictions on the number or percentage of foreign directors in the company (e.g. a TAT tourist license).

2.3 In case the company has foreign promoters the company needs to comply with the Business Registration Rules preventing the use of Thai nominee shareholders (compliance with the foreigner definition section 4 of the Foreign Business Act). The use of Thai nominee shareholders by foreigners is prohibited under the alien or Foreign Business Act.

3 Then the Memorandum of Association has to be filed with the Commercial Registration Department and must include the name of the company that has been successfully reserved, the province where the company will be located, its business objectives, the capital to be registered, and the names of the at least 3 promoters. The company must have an address which it psychically owns or rents.

3.1 Following a statutory meeting is called during which the Articles of Association (by-laws) are approved, the Board of Directors is elected and an auditor appointed. Generally, there are no restrictions as to the nationality of the directors, except for companies that are engaged in certain commercial activities. The Articles of Association are the regulations of the company concerning its internal affairs such as weighted voting rights and matters requiring approval and protecting of certain classes of shareholders in the company.

3.2 Thailand (the Foreign Business Act) allows foreigners as a minority shareholder to control a Thai limited company, however there has been discussion (2007) in the Thai government and Ministry of Commerce if preference shares and foreign voting rights in a Thai company should be used as a criterion in defining a company foreign or Thai under the Foreign Business Act. The government withdrew the proposed amendments.

4 Thai companies must keep books and follow accounting procedures specified in the Civil and Commercial Code, the Revenue Code and the Accounts Act.

4.1 The general corporate tax rate in Thailand is 30% for companies with a paid up share capital of more than 5 Million Thai Baht. The government has reduced corporate tax rates to promote specific business sectors and small and medium enterprises. The tax rate for companies with a paid up share capital not more than 5 Million Thai Baht at the end of its tax year shall be taxed at rate of: 15% over the first one million Thai Baht profit; 25% over the profit between one million and three million and; 30% for profits over three million Thai Baht.

4.2 A newly established company in Thailand is liable for income tax and must obtain a tax I.D. card and number for the company from the Thailand Revenue Department within 60 days of incorporation or the start of operations. If it is expected that its gross income will exceed 1.8 million baht per annum it must register for Value Added Tax (current VAT rate is 7%) within 30 days of the date they reach 1,8 million baht in sales.