Types of Business
Information about the different types of business structure in Thailand...
Information about the different types of business structure in Thailand...
In Thailand there are three main types of businesses:
- Limited Companies (public and private)
- Sole Proprietorships
The majority of foreign investors will form a private limited company.
In Thailand two types of limited companies are acknowledged: public companies and private companies. Public companies are regulated by the Public Companies Act and certain other Acts, and private limited companies are regulated mainly by the Civil and Commercial Code.
Private limited companies
Generally, businesses in Thailand are set up through private companies. In this type of business there is no limit on capital investment. Foreigners may in general own 100% of the shares of a private company but there are certain types of business that foreigners cannot own on a majority basis, under the Foreign Business Act and other industry specific legislation. In some cases it may be possible to apply for a licence or permission for majority foreign ownership.
Private companies need to have at least three promoters to register the company and a minimum of three shareholders must be maintained at all times. A minimum of one director is required. There are no general nationality requirements for directors. But (1) a majority of the directors of a public company must be resident in Thailand and (2) regarding businesses listed under Schedule 2 of the Foreign Business Act, and under certain industry-specific statutes, there may be director nationality requirements. In addition accounting, auditing and tax filing procedures described in the Civil and Commercial Code, the Revenue Code, and the Accounts Act, must always be complied with.
Setting up a limited company
To set up a limited company in Thailand, the following should be done:
Corporate name reservation: Some names are not allowed and others may be deemed not permitted as they are too similar to existing company names. There are reservation guidelines issued by the Commercial Registration Department at the Ministry of Commerce. Approval or disapproval of the proposed name can be obtained within 1-2 days. The validity of the approved corporate name reservation is limited to 30 days, but it can be reserved for an additional 30 days on expiration.File a memorandum of association: A memorandum of association should be drafted and filed with the Department of Business Development of the Ministry of Commerce and must have the reserved name of the company, the company's office location, the company's business objectives, the amount of share capital and how it is divided up and show the names of the three promoters who sign the Memorandum. In general the amount of capital to be registered need only be sufficient for its business operations, but in certain cases a minimum amount of capital is required to be paid in, depending on the nature of the business, or whether the company employs foreigners. Government fees arise when the memorandum of association is registered: a fee of 0.05 percent of the registered capital, up to a maximum of THB 25,000.Hold the statutory meeting of all shareholders: A meeting should be called after the share structure has been outlined. At least 25 percent equivalent to the value of each subscribed share must be paid up. In certain types of business, a specified minimum amount of capital must be fully paid, and a minimum amount of capital must be fully paid where the company is to employ foreigners.
A company must also deduct monthly withholding income tax and social security contributions and annual workmen's compensation contributions from employees' wages.
Legal reporting requirements for private limited companies
Companies must observe accounting procedures and keep books as specified in the Civil and Commercial Code, the Revenue Code and the Accounts Act. Accounts must be maintained and returns filed in Thai, though it is permissible to prepare translations in other languages for the company's internal purposes.
Imposition of taxes: Corporate income tax is generally set at 20 percent and is due twice a year, as described above. Companies must deduct monthly withholding income tax from employees' salaries and send it to the Revenue Department. At present, the VAT basic rate is 7 percent and must be paid monthly by many companies, as described above. There are other business specific taxes for some companies engaged in certain businesses. Check with an accountant or lawyer.
Annual accounts: Audited accounts must be prepared annually and approved by shareholders, and filed with the Commercial Registration Department, Ministry of Commerce, within five months of the end of the fiscal year, and with the Revenue Department, Ministry of Finance, within 150 days of the end of the fiscal year.
These companies are liable to more onerous requirements regarding minimum capital, the number of shareholders, public offering of shares and other financial instruments, additional financial requirements, and a far greater degree of accountability to their shareholders. There are many legal requirements for a public company. For example half of the promoters must be resident in Thailand and there must be 15 promoters for the Memorandum of Association.
By passing a special resolution of the shareholders as specified by the Civil and Commercial Code, a private company may be transformed into a public limited company. However, a public company may not be converted back to a private company.
For more information on the formation of companies in Thailand contact the Department of Business Development.
In a sole proprietorship one person is in charge of the business with unlimited liability. Legal action can be taken against the person's business and his assets. Other than those who are permitted under the United States-Thailand Treaty of Amity and Economic Co-operation, foreigners may not run sole proprietorships. A sole proprietor pays income tax at rate bands of 10 to 35 percent on the net profits, the same income tax rates that apply to individuals.
In Thailand, three types of partnerships are acknowledged. The tax treatment and degree of liability of the partners are the only differences between the partnerships. The Board of Investment generally does not encourage partnerships, so it's unusual for foreign investors to form this type of entity.
The three types of partnerships are:
Unregistered partnerships: all the partners are fully liable for all responsibilities of the partnership. Personal tax arises on net profits at rates of 5-35 percent
Registered partnerships: the partnership is a legal entity, and therefore, is separate and distinct from the partners. Tax is payable at the company rate of 20 percent
Limited partnerships: the amount of capital determines the liability of the partners. This type of business must be registered. Tax is payable at the company rate of 20 percent
There are other entities that may be formed, e.g.:
- The registered branch of a foreign company
- A representative office (these are not very popular as they may not carry out trading activities, they may only engage in market research and reporting of information to the head office)
- An International Headquarters. This attracts certain preferential tax rates on its income and the income of foreigners who are employed by it. But note that the permitted activities of an IHQ are limited.
- Associations and trade associations. These are special vehicles that are rarely encountered in practice.
- Foundations. These have similarities to charities in western legal jurisdictions. They take a long time to form as the promoters are subject to extensive police background checks.
Prepared by: Stephen Frost, Director, Bangkok International Associates 17th Floor ITF Tower, 140/36-37 Silom Road, Bangkok 10500, Thailand Tel: 02 231 6201-3 Fax: 02 231 6204 /e-mail email@example.com /Website www.bia.co.th Copyright © Bangkok International Associates 2017 All Rights Reserved