The Thai government has long believed in an open, laissez-faire economy that welcomes foreign investment. Various tax and non-tax incentives are granted to attract foreign investment through government agencies – such as the BOI and the Industrial Estate Authority of Thailand (IEAT) – and bilateral agreements that bind Thailand to other countries, including the ASEAN Comprehensive Investment Agreement (ACIA), the ASEAN Framework Agreement on Services (AFAS), and the Treaty of Amity and Economic Relations between Thailand and the US (ToA).
In principle, the BOI gives special consideration to investment projects that promote clusters to create and concentrate investment in accordance with regional potential. The board also works to strengthen value chains, promoting investment in border provinces in southern Thailand and special economic zones, especially those near borders.
Under the BOI’s policies primarily specified in Announcement No. 2/2557 in 2014, the government has emphasised attracting investment in key sectors that have been identified as instrumental to domestic development. The six investment promotion policies are:
• Helping to enhance national competitiveness by encouraging research and development; innovation; value creation in the agriculture, industry and services sectors; small and medium-sized enterprises; fair competition; and inclusive growth;
• Engaging in activities that are environmentally friendly, saving energy and using alternative energy to drive balanced and sustainable growth;
• Forming clusters to create investment concentration in accordance with regional potential as well as strengthen value chains;
• Supporting border provinces in southern Thailand to help develop the local economy, which will help to enhance security in the area;
• Developing special economic development zones – especially in border areas both inside and outside of industrial estates – to improve economic connectivity with neighbouring countries and prepare for entry into the ASEAN Economic Community; and
• Increasing Thai overseas investment to enhance the competitiveness of local businesses and Thailand’s role in the global economy.
Sector-specific criteria and requirements are included in subsequent BOI announcements. Announcement No. 2/2557, as amended by Announcement No. 6/2558 and No. Sor. 1/2558 of 2015, outlines seven industries eligible for investment promotion:
• Agriculture and agricultural products;
• Minerals, ceramics and basic metals;
• Light industry;
• Metal products, machinery and transport equipment;
• Electronics and electrical appliances;
• Chemicals, paper and plastics;
• Service and public utilities; and
• Technology and innovation development. According to the announcements, if stakeholders engaged in the aforementioned activities meet certain conditions, they will be granted targeted tax and/or non-tax incentives. The term for the tax benefits will vary, and industry players may be granted additional merit-based incentives if a given project contributes to enhanced competitiveness, decentralisation and industrial area development.
The government has prioritised industrial development, and the IEAT carries out the related policies. The authority’s responsibilities include allocating land for further expansion, improving land conditions, and providing accommodation and facilities to assist entrepreneurs. In addition to the incentives offered by the BOI, businesses may enjoy tax and/or non-tax privileges granted to investments – such as land ownership – in industrial estates.
In spite of Thailand’s general welcoming attitude towards foreign investment, some sectors are subject to foreign equity restrictions. While these are imposed through a variety of rules, regulations and cabinet policies, the main governing law for such restrictions is the Foreign Business Act (FBA) of 1999. The FBA defines 43 categories of business, divided into three lists, which are subject to different types of limitations for foreigners, unless a business owner obtains a foreign business licence. A company is considered “foreign” under the FBA if it is not registered in Thailand, or if it is registered in the country but half, or more than half, of its shares are held by non-Thai natural or juristic persons.
Notably, in 2016 the government discussed expanding the definition of “foreign” under the FBA to include companies in which the majority of shares are held by Thai shareholders but with a management that is controlled by foreigners. However, this possibility was later withdrawn.
Foreigners are prohibited from operating a business from any of the nine business categories mentioned in List 1 of the FBA. This means that such businesses cannot obtain a foreign business licence under any circumstances. This includes businesses engaged in:
• Operating newspapers and radio or television stations;
• Rice farming;
• Livestock farming;
• Forestry and timber processing;
• Fishery in Thai territorial waters and certain exclusive economic zones;
• Extraction of local medicinal herbs;
• Trading of antique or historical objects
• Making or casting of Buddhist artefacts; and
• Land trading. For activities under List 2 of the FBA, a foreigner requires a licence from the Department of Business Development (DBD) of the Ministry of Commerce, as well as approval from the Cabinet. The company must be at least 40% owned by citizens – though only 25% with special approval from the minister of commerce and Cabinet – and at least two-fifths of its managing directors would have to be Thai nationals. Businesses under List 2 are those involving national safety or security, including arms trade and domestic aviation; those affecting arts, culture, traditional customs and folk handicrafts; and those affecting natural resources or the environment.
List 3 of the FBA is more relaxed, but non-citizens still require a licence from the director-general of the DBD and approval from the Foreign Business Committee. This category includes services-based businesses (except those specified in the ministerial regulations), retail companies with registered capital of more than BT100m ($2.9m), hotels, advertising firms, any outfit selling food and beverages, and construction companies, with some exceptions.
Further restrictions on foreign ownership – for example, telecommunications, banking and insurance – are outlined in sector-specific laws, such as the Telecommunications Business Act of 2006, Financial Institution Business Act of 2008, and Life Insurance and Non-Life Insurance Acts of 1992. The BOI and IEAT can grant exceptions to these rules as promotional privileges, or the government can vote to approve a temporary measure.
International treaties also outline privileged status for some countries. For example, under the ToA, US companies and nationals are eligible for “national treatment”, whereby – with some exceptions – they are treated the same way as Thai citizens. Other international arrangements, such as the Thai-Australia Free Trade Agreement (TAFTA), Japanese-Thai Economic Partnership Agreement (JTEPA), ACIA and AFAS, also provide some exemptions. By virtue of these treaties and the FBA, qualified entrepreneurs may file a request for a foreign business certificate from the director-general of the DBD.
Under the laws regulating the exceptions from foreign investment restrictions, the relevant authorities have the bureaucratic discretion to decide who receives such privileges. In practice, however, the authorities are unlikely to deny any applicant meeting the specified requirements.
While foreign-owned firms are subject to some constraints, various tax incentives encourage export activities. For example, exported goods are subject to 0% value-added tax (VAT) and are generally exempt from Customs duties, with the exception of certain goods and agricultural products, such as latex, lumber and rice. Import duties on materials for the production of goods to be subsequently exported can be refunded by the Customs Department. Furthermore, Customs duties on imports are not levied on goods that enter the country through a free zone established by the Customs Department or IEAT.
National Tax Incentives
Thailand was the first country in Asia to introduce investment promotion laws. The Investment Promotion Act outlines a variety of tax and non-tax incentives. Tax-based benefits may take the following forms:
• Reductions in or exemptions from import duties for machinery and raw or essential materials;
• Corporate income tax exemptions for a period of three to eight years depending on the zone in which the enterprise will be located and the activity the investor will engage in (this was changed to be based on the activities the investor will engage in under the “merit-based incentives” policy for investment promotion applications submitted from January 1, 2015 onward);
• Double deduction from taxable income of transport, electricity and water costs;
• Exemptions for dividends paid out of the exempted profits during the tax exemption period; and
• Exemptions for fees for goodwill, copyright or other rights received from a promoted activity. These incentives depend on various considerations: the type of activity, location of the enterprise – which was changed to promote cluster zones and special economic development zones to create investment concentration and economic connectivity with neighbouring countries starting January 1, 2015 – and certain other conditions, such as introducing new technology, the amount of minimum capital investment and ISO 9000 or similar international standards certifications.
Corporate income tax exemptions may be reduced to one year if ISO 9000 or other international standards do not meet the requirements and timeline imposed by the BOI. A promotion certificate will be granted if a given activity is regarded as generating a net benefit to the country. Activities that strengthen Thailand’s industrial and technological capacity or use domestic resources generally qualify for a promotion certificate.
In addition to favourable tax structures, companies may receive other benefits. For example, foreign investors granted investment promotion by the BOI may be allowed to have 100% ownership of businesses conducting activities in Lists 2 and 3 of the FBA. Furthermore, qualifying companies are not obliged to obtain a foreign business licence but must notify the Ministry of Commerce and apply for a certificate, which constitutes an administrative procedure rather than a requirement for permission. Other incentives include the ability for foreigners to own land, as well as visa and work permit privileges for expatriate employees who work in a promoted company.
Foreign investors must submit an application along with supporting documentation to the BOI to be considered for these benefits. The processing of an application typically takes two to three months, depending on the investment size of the relevant project. During review, proposals are subject to consideration of the subcommittee and BOI.
Thailand also grants tax and non-tax incentives for industrial development through the IEAT. Industrial operators are granted special incentives and privileges, including the right to:
• Own land in the industrial estate area;
• Obtain work permits for foreign technicians and experts who work for the operator; and
• Take or remit foreign currency abroad. Industrial stakeholders within a given export processing zone may also be granted further tax-based incentives and privileges.
A number of tax privileges are often provided to international headquarters (IHQs), which are companies incorporated in Thailand to provide managerial, technical or supporting services to its associated enterprises or branches. Businesses granted IHQ status may be primarily situated in or outside Thailand, including international trading companies. The following incentives are offered to IHQs and cover 15 accounting periods:
• Tax exemptions on corporate income tax for certain types of income, such as income derived from services provided to its overseas associated enterprises;
• A reduced corporate income tax from 20% to 10% on net profits derived from qualifying services provided to an IHQ’s local associated enterprises; and
• A lower personal tax rate of 15% for expatriate employees at IHQs. Furthermore, reductions in or exemptions from Customs duties on imported goods are granted to member countries of certain international organisations or agreements such as ASEAN, the ASEAN Free Trade Area, TAFTA, the Thailand and New Zealand Free Trade Agreement, JTEPA, and the Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the People’s Republic of China.
Joint ventures (JVs) are permitted under Thai law and may be realised in two ways. First, they may take the form of a partnership that exists only for a particular project, established by a contract between a number of companies, juristic partnerships or individuals. Even if it is not officially registered as a legal entity, the Revenue Department considers unincorporated JVs to be juristic companies for tax liability purposes. Therefore, the JV must apply for a taxpayer identification card and VAT certificate, given it engages in a business subject to VAT and earns income of more than BT1.8m ($52,100) in a given fiscal year.
Second, a JV can be registered as an official legal entity. In this case, it would be a limited liability company (LLC) wherein the partners of the JV hold some agreed upon proportion of shares. The registration process and fees for this type of organisation are similar to those ordinary LLCs are subject to.
If a JV is established by a contract between the investors and is not registered with the relevant authorities, all parties to an unincorporated JV agreement have unlimited liability, similar to partners in a partnership. If the JV is registered as an LLC, the liability of parties to an incorporated JV is the same as that of the shareholders of an LLC. This would mean that the liability of the shareholders is limited to the unpaid amount – if any – on the shares held by each respective member.
Nationality & Residency
Generally, there are no nationality or residency requirements to be a manager or director of an LLC, with the exception of companies seeking permission to conduct business in activities under List 2 of the FBA, in which case a minimum of two-fifths of the directors must be Thai nationals. The restriction on nationality may also be applied under special laws, such as the:
• Insurance Act;
• Air Navigation Act;
• Thai Vessel Act;
• Land Transport Act; and
• Travel Agency Business Act. For companies established under Thai-US Treaty protection, a majority of directors must be US and/ or Thai nationals. For unincorporated JVs – which are treated as partnerships – if the managing partner is not a Thai citizen, a partnership would be deemed foreign, and would thus be subject to foreign ownership restrictions under the FBA.
Restrictons on Capitalisation
A juristic company registered in Thailand with foreigners (either foreign natural persons or juristic persons) holding half or more of the shares is regarded as a foreign business and is therefore subject to the foreign ownership restrictions under the FBA, whereby the minimum capital used for business operations is BT2m ($57,900). If the enterprise requires a foreign business licence under the FBA, it must have minimum capital of no less than 25% of the annual average of the first three years’ estimated expenditures or BT3m ($86,800), whichever is higher.
Under the Revenue Code, a JV – whether incorporated or unincorporated – is recognised as a taxable entity and is subject to corporate income tax in the same manner as any other company. That is, it is subject to all the same tax rates and rules as other organisations, such as:
• Computation of net profits and/or losses;
• Filing of tax returns; and
• Payment of taxes However, once in the possession of the participating partners, the share of profits received may be exempt from further corporate income tax. This is true of the following types of juristic companies and partnerships:
• Those organised under Thai law; or
• Those formed under foreign laws and conducting business in Thailand LLC REGULATIONS: Under Thai law, there are two types of LLCs: public and private LLCs. The formation of a public LLC is governed by the Public Limited Companies Act of 1992, while the establishment of private LLCs is governed by the Thai Civil and Commercial Code, as well as the relevant regulations issued by the DBD.
A private LLC requires a minimum of three individual promoters who must also be shareholders and subscribe to at least one share each at the time of the establishment of the company. During its life, a minimum of three shareholders, who can be natural and/or juristic persons, must be maintained.
The first step in the process requires application for and reservation of a company name with the DBD. This can be done online and typically takes one day. Second, following the reservation of a company name, the promoters must file application documents for registration of a memorandum of association with the DBD within 30 days.
Among other requirements, the statutory meeting – the third step – must clarify the following:
• The articles of association must be adopted;
• Auditors must be appointed;
• Directors must be elected;
• Any pre-incorporation contracts entered into by promoters must be ratified;
• Expenses must be paid;
• Preference shares (if there are any) must be established; and
• The number of ordinary and preference shares must be allotted and their prices must be fixed. The fourth and final step is to register the company. If the necessary documents are complete and duly signed by all promoters, directors, shareholders and witnesses, the incorporation process could be completed within one day. The process of preparing documents for forming a company generally takes about two to three weeks. The company registration fee is set at BT5000 ($145) irrespective of the applicant’s capitalisation level. Businesses that register on the DBD’s online system before the year 2020 receive a 30% discount on those fees.
A public LLC is governed by the Public Limited Company Act BE 2535 of 1992, as amended. A public LLC is a separate type of entity established to offer shares for sale to the public. The rules and regulations concerning the procedure of offering shares for sale to the public are set by the Securities and Exchange Act BE 2535 of 1992 and the amendments thereto, under the control of the Securities and Exchange Commission.
A minimum of 15 promoters – who must be natural persons – is required to form and register the memorandum of association of a public LLC. At least half of the promoters must be residents of Thailand. Once the memorandum is registered, shares can be offered for sale to the public or any person, according to the laws governing securities and exchanges, with no legal maximum number of shareholders. Once the subscription of shares reaches the number specified in the prospectus or public offering document – which shall not be less than 50% of the shares specified in the memorandum of association – a statutory meeting shall be called to consider, among other things, the following:
• The company’s articles of association;
• Ratification of the business undertaken by the promoters;
• Approval of expenses spent in the establishment of the company;
• Determination of the amount of money to be paid to the promoters (if specified in the prospectus);
• Specification of the nature of the preferred shares;
• Determination of the number of ordinary shares or preferred shares to be issued if the payments have been fully made;
• Election of directors;
• Election of the auditor; and
• Determination of audit fees. The notice calling for the statutory meeting must be issued within two months from the date on which the subscription of shares reaches the specified number. This also be no later than six months from the date on which the memorandum of association was registered. Following this, the directors must register the company and submit to the Registrar, among other things, the following within three months of the date of the statutory meeting:
• The company’s articles of association;
• A list of shareholders; and
• The minutes of the statutory meeting.
A public LLC is a company established for the purpose of offering the sale of shares to the public, but a private LLC is not permitted to do so. There are a number of regulatory distinctions between closely and publicly held companies. For example, private companies must have a minimum of three shareholders, while public companies must have at least 15. Furthermore, the board of a public LLC must consist of at least five directors, at least half of whom must reside in Thailand, whereas a private LLC has no statutory minimum requirement on the number of directors, meaning it must only have at least one director. While there is no legal minimum, from a practical perspective, a private LLC should have at least two directors to be able to hold a board meeting.
Registration times also vary. Following the submission of an application and all supporting documents to the Ministry of Commerce, registration may take from one day to approximately two weeks for a private LLC. This process typically takes between four and five weeks for a public LLC.
Subsidiaries & Branches
A foreign entity may establish a branch office or subsidiary in Thailand. If the branch office or subsidiary will engage in an activity reserved under the FBA, it must obtain a foreign business licence from the relevant authorities before they may commence operations. Under Thai law, a representative office – which is also a branch office – may be established by a foreign entity and is allowed to conduct only the following activities:
• Finding sources of goods or services in Thailand for the head office or its affiliated company;
• Checking and controlling the quantity of goods purchased in Thailand by the head office or its affiliated company;
• Providing advice and assistance concerning goods of the head office or its affiliated company sold to agents or consumers in Thailand;
• Disseminating information concerning new goods or services of the head office or its affiliated company; and
• Reporting on business developments in Thailand to the head office or its affiliated company. Activities performed by the representative offices that fall under the scope of activities under List 3 (21) of the FBA can only be conducted upon obtaining a foreign business licence. The representative office cannot generate any income in Thailand and, thus, need not pay tax. All operational expenditures incurred by the representative office in connection with its activities must be covered by foreign remittances from the head office only.
Costs & Fees
Branch offices generally are not obliged to undertake corporate registration unless they are involved in restricted activities outlined in the FBA that require a foreign business licence. In this case, they will be subject to a maximum of BT250,000 ($7240) or BT500,000 ($14,500) of government fees, depending on the type of business activity. If the activity is included on List 2 of the FBA, the cost is higher than if it is on List 3. The cost of establishing a subsidiary is the same as that of creating an LLC. For a private LLC, the registration fee is BT5000 ($145) while that of a public LLC is BT1000 ($29) per BT1m ($28,900) capital, up to a maximum of BT250,000 ($7240).
A branch office or representative office will be considered as the same legal entity as its head office, and the head office in a foreign country is responsible for all liabilities of its branch or representative office. For a subsidiary, liability will be the same as that of a public or private LLC.
A branch office or representative office is required to bring working capital into the country. This must be the foreign currency equivalent to a minimum of 25% of the annual average of the first three years’ estimated expenditures, or BT3m ($86,800), whichever amount is higher.
Foreign juristic entities conducting business in Thailand through branch offices are subject to corporate income tax only for income either directly arising from or in consequence of the business they undertake Thailand.
A representative office is generally not subject to tax in Thailand if it complies with its relevant regulatory requirements. However, a representative office is required to obtain a tax ID card and file corporate income tax returns with the Thai Revenue Department, even if it has no income.
A subsidiary of a foreign company is taxed on income both derived from within the country and worldwide. These subsidiaries registered in Thailand are subject to income tax, VAT, stamp duty, and other taxes and duties in the same manner as a local company.
The employment of foreigners is governed by the Royal Decree on Managing the Work of Aliens BE 2560 and the FBA. Both laws set employment preferences in favour of Thai nationals. Although requirements may vary, employers must generally hire four Thais for every one foreign employee. Without exception, foreign private sector employees require work permits, which are granted by the Ministry of Labour. In the process of determining whether to grant a work permit to a foreign national, the ministry is to consider whether:
• The job could be done by a Thai employee;
• The foreigner is qualified for the job; and
• The job fits the present economic needs of the country. Different requirements apply to companies promoted by the BOI, which typically result in greater flexibility and ease in obtaining work permits for non-Thai citizens.
Foreigners wishing to work in Thailand must apply for work permits with the Department of Employment at the Ministry of Labour. The applicant must first enter Thailand with a non-immigrant visa, obtained from any Royal Thai embassy or consulate outside of the country. As of 2018 the Department of Employment only grants a work permit to expatriates who are employed or sponsored by an entity in Thailand. This body can be a Thai company or a registered branch office of a foreign corporation. The department grants every domestically operating company a general quota of one work permit per BT2m ($57,900) of capital plus four Thai employees. Companies promoted by the BOI may be granted a waiver of this quota only with respect to executives, technicians and experts.
The processing time for a work permit application typically takes between seven and 10 days. Processing time is different in the case of a company that is promoted by the BOI. The government fees for a work permit are the same regardless of whether they are promoted by the BOI, and are as follows:
• BT850 ($25) for up to three months;
• BT1600 ($46) for more than three months but less than six months
• BT3100 ($90) for more than six months but less than one year; and
• BT6100 ($177) for more than one year, and up to a maximum period of two years.
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