Foreign Business Act

Foreign Business Act

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The Foreign Business Act (FBA) of 1999 is a cornerstone of Thailand’s legal framework regulating foreign participation in various sectors. It seeks to balance economic growth with the protection of domestic industries, specifying activities open or restricted to foreign nationals and entities.

1. Scope and Definition of Foreign Businesses

Under the FBA, a foreign business includes:

  • Individuals without Thai citizenship.
  • Companies registered outside Thailand.
  • Thai-registered companies with more than 49% foreign ownership.

These businesses are subject to regulations that limit or restrict their operations in certain industries.

2. Lists of Restricted Activities

The FBA classifies restricted activities into three categories:

  1. List 1 (Prohibited Activities):
    Sectors reserved exclusively for Thai nationals, such as:

    • Farming and agriculture.
    • Traditional Thai arts and crafts.
    • Land trading.
  2. List 2 (Controlled Activities):
    Businesses vital to national security or cultural heritage, such as:

    • Mining and natural resources.
    • Transportation.
      Foreign entities may participate with cabinet approval or joint ventures where Thai nationals hold majority control.
  3. List 3 (Restricted for Thai Nationals):
    Activities where Thai businesses are deemed not yet competitive, such as:

    • Retail and wholesale trade.
    • Legal, accounting, and architectural services.
      Foreign businesses can apply for licenses to operate in these sectors.

3. Exemptions and Special Considerations

  1. Treaty of Amity:
    U.S. citizens and businesses are granted special rights under this treaty, allowing majority foreign ownership in most sectors, excluding List 1.
  2. Board of Investment (BOI) Promotion:
    Foreign companies receiving BOI promotion may receive exemptions from certain FBA restrictions, particularly in priority industries like technology and renewable energy.
  3. Industrial Estates:
    Businesses operating in government-supported zones often enjoy relaxed restrictions.

4. Foreign Business License (FBL)

  1. Application Process:
    Foreign entities must submit an application to the Department of Business Development (DBD) detailing their business plan, investment, and expected benefits to Thailand.
  2. Approval Requirements:
    Approval depends on factors like technology transfer, job creation, and economic benefits.
  3. Compliance:
    Licensed foreign businesses must adhere to Thai labor laws, tax regulations, and industry-specific guidelines.

5. Penalties for Non-Compliance

Operating a restricted business without a license carries severe penalties, including:

  • Fines up to 1 million THB.
  • Potential imprisonment for company executives.
  • Revocation of operating rights.

6. Practical Considerations for Foreign Investors

  1. Legal Due Diligence:
    Engage a legal expert to navigate licensing and compliance requirements.
  2. Thai Partnerships:
    Forming joint ventures with Thai nationals can facilitate entry into restricted sectors.
  3. Sector Analysis:
    Focus on industries with favorable policies, such as manufacturing, tourism, and technology.

Conclusion

The Foreign Business Act is a critical tool for regulating foreign investments in Thailand, offering both opportunities and challenges. A deep understanding of its provisions and strategic compliance ensures that foreign businesses can operate successfully and contribute to Thailand’s economic development.

Thai Business Partnership

Thai Business Partnership

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Thai Business Partnership. Thailand’s thriving economy offers exciting opportunities for both domestic and foreign entrepreneurs. For those seeking to venture into Thai business ownership, forming a partnership can be a strategic choice. This article explores the different types of Thai business partnerships and the key considerations for success.

Partnership Options in Thailand

Thailand’s legal framework recognizes two main types of business partnerships:

  • Ordinary Partnership: This is a simpler and more flexible option. It’s essentially a contract between two or more people agreeing to run a business together and share profits. However, there’s a crucial point to remember: all partners have unlimited liability. This means each partner is personally responsible for the partnership’s debts and obligations, even if they exceed their individual contributions. Ordinary partnerships don’t require registration, but doing so can offer some legal benefits.

  • Limited Partnership: This structure provides more protection for some partners. A limited partnership consists of two categories of partners: general partners and limited partners. General partners manage the business and have unlimited liability, similar to an ordinary partnership. Limited partners, on the other hand, have their liability limited to the amount of capital they contribute. Limited partnerships must be registered with the Ministry of Commerce.

Choosing the Right Structure

The best partnership structure depends on several factors, including:

  • Level of Control Desired: If all partners want an active role in managing the business, an ordinary partnership might suffice. If some partners prefer a less involved role with limited liability, a limited partnership is preferable.
  • Financial Risk Tolerance: Partners with a high tolerance for risk might opt for the simpler ordinary partnership. Those seeking protection for their personal assets should consider a limited partnership.
  • Business Complexity: For complex businesses, a limited partnership might offer better structure and clarity regarding partner roles and responsibilities.

Foreigner Considerations

Foreigners can participate in Thai business partnerships, but there are regulations to be aware of. The Foreign Business Act restricts foreign ownership in certain sectors and limits the percentage of foreign investment allowed in a partnership. It’s crucial to consult with a lawyer specializing in Thai business law to ensure your partnership complies with all foreign ownership regulations.

Beyond the Legal Structure

A successful partnership goes beyond the legal framework. Here are some additional considerations for a thriving Thai business partnership:

  • Clear Partnership Agreement: A well-defined agreement outlining partner roles, profit-sharing, decision-making processes, and dispute resolution mechanisms is essential to avoid future conflicts.
  • Mutual Trust and Respect: Building strong personal relationships and fostering open communication are critical for navigating challenges and ensuring long-term success.
  • Complementary Skills and Expertise: Partners with a diverse skillset can bring a wider range of strengths to the table, enhancing the partnership’s overall capabilities.

Conclusion

Thai business partnerships offer a path to shared success for entrepreneurs. By understanding the partnership structures, legal considerations, and the importance of strong partner relationships, you can establish a business partnership that thrives in Thailand’s dynamic economic landscape.

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US-Thai Treaty of Amity

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The treaty allows American citizens or companies with majority shareholdings to operate business in Thailand. These companies are granted national treatment and are exempt from many of the restrictions imposed by the Foreign Business Act.

The process of obtaining protection under the US-Thai Treaty of Amity can be lengthy and complicated. GPS Legal has a great deal of experience in handling these applications for its clients.

Trade

The US-Thai Treaty of Amity enables American entities to maintain majority shareholdings or wholly own a company, branch office or representative office in Thailand and receive “national treatment,” which allows them to engage in business on the same basis as Thai businesses and to be exempt from many of the foreign investment restrictions of the Foreign Business Act.

Beyond cuts in tariffs, the agreement aims to increase market access for Thai and American goods by addressing sensitive issues such as excessive paperwork and opaque customs procedures. It would also help reduce barriers to investment in a range of sectors, including automotives and electronics.

For an Amity treaty company to sponsor a non-B visa for an American Citizen, the company must have 4 Thai Employees and at least 2 million in registered capital. GPS Legal has extensive experience in assisting clients to obtain US Amity certification and work permits in Thailand. Contact us today to schedule your initial consultation.

Investment

The US-Thai Treaty of Amity allows American citizens, companies or corporations to maintain complete ownership, or at least a majority of a Thai company. This is a major advantage for those who are looking to establish regional headquarters in Thailand, or even maintain a presence in the country.

In order to qualify for these provisions, a new or existing Thai company limited (Co., Ltd) must be set up, and evidence must be presented that the majority of the shares are held by American citizens or legal entities. The US Embassy will then issue a Foreign Business Certificate.

This removes the company from many of the restrictions on foreign investment in the country under the Foreign Business Act and allows it to operate on the same level as a Thai-owned company. Sunbelt is experienced in performing amity set-ups and can walk you through the process. We work hand-in-hand with the Commercial Department at the US Embassy to ensure all documentation is prepared and submitted properly.

Human Rights

In the 1833 Treaty of Amity and Commerce, signed under the presidency of Andrew Jackson, the United States and the Kingdom of Siam pledged to establish “a perpetual peace.” Unfortunately, the United States cannot overlook Thailand’s recent moves that undermine democracy, human rights, the rule of law, and freedom of expression.

In principle, the Amity treaty allows American citizens and companies to maintain a majority shareholding in Thai businesses and be exempt from most restrictions on foreign investment that would otherwise apply under the Foreign Business Act. However, it takes more time and costs to set up an Amity treaty company than a non-Amity company.

The Amity treaty is also an important tool for promoting cooperation in the areas of maritime security, long-term modernization, and regional economic integration. We urge the Government of Thailand to re-examine the terms of the Amity treaty to ensure it remains a robust tool for advancing our shared interests.

Immigration

The US-Thai Treaty of Amity provides protection to American natural persons and companies that have been certified by the U.S. Commercial Service office at the US Embassy in Bangkok as being owned and managed by Americans. The certificate is issued after the US embassy confirms that the company meets the requirements of the treaty for national treatment under Thai law. Despite this, it would be wise for any prospective American business owner considering registering a company in Thailand under the amity treaty to seek qualified legal advice prior to doing so.

The treaty essentially allows a company with majority American ownership to operate on the same basis as a Thai company, exempting them from many restrictions of foreign investment that are otherwise applied under the Foreign Business Act. However, there are still limitations that apply, such as prohibitions against owning land; engaging in certain businesses such as domestic trade in agricultural products and exploitation of land or other natural resources; and banking involving depository functions.

Translation and Legalization in Thailand

Registering a Company Under the Thailand Board of Investment

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Registering a company under the Thailand Board of Investment is beneficial for foreign entrepreneurs. It enables them to receive more investment incentives than companies operating within normal industrial estates. This includes exemptions from corporate income tax and reductions of taxes on dividends paid to shareholders.

Non-tax incentives include reduced or no import duties on raw materials and lower costs of electricity, transportation, water supply and infrastructure installation. These perks are granted for varying periods of time.

Requirements

A BOI-promoted company offers a lot of benefits and privileges for foreign business owners. However, it can also be very time-consuming and frustrating. It is important to follow all of the rules and regulations for the process. If you don’t, you could end up having to visit the BOI several times and re-submit your forms.

Besides reserving the company name, foreign promoters should prepare all necessary documents like MOA, application form and list of shareholders, declaration of company office and address, and more. They should use the company stamp when signing all the documents.

After the company is registered, it must submit the documents to the BOI within six months. The BOI officer will then review the documentation and interview the company. Once the company is approved, it will receive a BOI certificate. In addition, the company can benefit from various perks, including exemptions on import duties on machinery and raw materials. This will help it compete with businesses in the international market and grow its business in Asia.

Procedures

If you want to register a company under the BOI, you must meet certain requirements. You must submit your documents and provide proof of funds. In addition, you must pay a prepaid tax of about half of the estimated annual profit. This money will be credited against your company’s future tax liability.

The BOI offers a wide range of benefits and privileges for companies that have been approved. These include 100% foreign ownership, reduced work permit and visa requirements, and other business benefits. In addition, a BOI-promoted company can deduct the cost of raw materials and machinery.

In order to qualify for BOI benefits, your company must be registered in Thailand and meet the requirements for each sector. Additionally, it must be owned by at least three people. Moreover, the shareholders must be natural persons and their details must be disclosed on a public file. The BOI will evaluate your application and notify you of their decision within seven days.

Costs

The registration process for a BOI-promoted company is quite time-consuming and there are several costs associated with the registration. These include legal fees and costs associated with office space, hiring staff, buying machinery, and more. These costs can easily add up to tens of thousands of dollars, which makes the process expensive and time consuming.

The BOI provides tax and non-tax incentives for companies that operate in targeted sectors of the economy. These benefits include up to 13 years of corporate income tax exemption, 100% foreign ownership, and work permit and visa help.

BOI-promoted companies are also exempt from paying import duties on raw materials and equipment. They can also receive deductions on transportation, electricity, and construction costs. In addition, they can hire foreign workers without meeting the four-to-one quota. The company can even own land in Thailand under certain conditions. Moreover, the company can transfer foreign currency abroad. All of these benefits make a BOI-promoted business an attractive investment option for investors.

Taxes

A company registered under the BOI gets a whole host of benefits. It is not only able to enjoy tax exemptions but also enjoys a number of non-tax benefits such as streamlined visa applications for foreign workers and waivers on foreign land ownership restrictions.

A Memorandum of Association must be prepared which should include the company name, address, business objectives, share capital, types of shares (ordinary and preferred), names of promoters (there should be at least 3 promoters) and their contact details. A copy of the MOA must be submitted to the registrar.

The amount of taxes a company pays depends on the type and value of its investment in Thailand. The BOI offers tax exemptions and deductions for foreign investments in certain promoted activities such as factories, electronics, pharmaceuticals, regional financial centres, and more recently digital businesses. Other benefits of being a BOI-promoted business include reduced immigration fees and relaxed rules for hiring skilled foreign employees.

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Set Up a Representative Office in Thailand

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A Representative Office in Thailand is an ideal business entity for conducting market research and finding new partners. It can be 100% foreign owned, but it must hire at least one Thai employee.

It can perform inspections on goods sent from the head office, and it can source products and services to send to the head office. It is exempt from income tax, but it must pay withholding tax on employees’ wages.

Legal Requirements

There are several legal requirements that need to be fulfilled before a foreign company can set up a representative office in Thailand. These include:

The requirements and procedures vary depending on the business type and industry, and there are often changes in the regulations. Therefore, it is advisable to consult with professionals who specialize in Thai company registration and setting up businesses in this country.

Generally, representative offices are exempt from paying taxes, since they do not generate income. However, they are required to comply with withholding tax obligations.

The representatives office must also report back to the head office about their movements in the country, so that the head office can make decisions regarding business development. The documents that need to be submitted include: a letter of appointment signed by the director; an investment plan for the first three years; financial statements; the address; and details of the directors, including their names, nationalities and the number of shares held.

Feasibility Study

A foreign company that wants to expand into the Thai market needs to conduct a feasibility study. This should cover the market potential, competition, and legal and regulatory requirements for setting up a representative office in Thailand. The research should also cover the costs and benefits of setting up this entity.

A representative office is a non-trading entity that carries out certain non-income-generating activities for the Foreign company. It can perform market research, source goods, inspect and control products, and offer advice regarding products sold to distributors or customers. However, it cannot conduct trading activities or generate income in Thailand. It also cannot accept purchase orders or make offers to sell goods to any natural or juristic person.

Moreover, a representative office can hire a maximum of two foreign employees to comply with labor laws in the country. In addition, it does not need to meet the quota of four Thai employees for one foreign employee that is required for a limited company.

Obtaining a License

The representative office manages service businesses in Thailand on behalf of the foreign head office or an affiliated company. It does not generate income in the Kingdom and is required to remit funds into Thailand for its operating expenditure.

It cannot accept orders or offers to buy and sell goods or services to natural persons or juristic persons in the country, nor can it negotiate business with any such persons. It can, however, conduct market research and find partners in the country.

To obtain a license for a representative office, the following documents are needed: the certificate of incorporation of the parent company and its financial statements; a letter of recommendation from the parent company; and a business plan outlining the intended activities of the representative office. Additionally, the manager of the representative office needs to submit a copy of his/her passport along with a non-immigrant visa and a power of attorney signed by the applicant (usually an outside lawyer). The license is issued within a week after submission of all the required documents.

Setting Up the Office

Setting up the office is a significant process and requires some investment, especially for foreign companies. It is recommended to consult with a professional business or legal advisor. Documents required include a certificate of incorporation from the head office and financial statements, letter of recommendation, the reason for establishing the Representative Office in Thailand, business plan for the first three years, budget for the office, machinery and equipment, and an affidavit that the Representative Office will be managed by an authorized signatory of the juristic person applicant with power of attorney to run the representative office.

It is important to note that a Representative Office cannot accept purchase orders or make offers for sale, nor negotiate business with natural or juridical persons in the Kingdom of Thailand. Nevertheless, it can perform other non-revenue-generating activities. A Representative Office is a popular choice for companies who wish to explore the market or allow their headquarters elsewhere to liaise with existing business interests in Thailand.

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Thai Limited Company Registration

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Company registration in Thailand is a complex process. It requires the preparation of several constitutive documents and follows accounting procedures governed by the Civil and Commercial Code, the Revenue Code, and the Accounting Act.

Firstly, the company name must be reserved with the Department of Business Development, which can usually be done within 1-3 days. Then the share structure must be defined.

Registration with the Department of Business Development

The Department of Business Development under the Ministry of Commerce regulates the process of registering a Thai limited company. The first step involves submitting a Memorandum of Association, which includes the company name and two alternative names that have been reserved, its business objectives, the province where it will be registered, its capital to be registered and the initial promoters/ shareholders.

It is necessary that at least three promoters/ shareholders are natural persons. Those promoters/ shareholders cannot be nominees, and must own at least one share of the company.

The MoA also needs to include a declaration that the liability of the shareholders is limited, and the amount of shares held by each shareholder. It must be signed by all promoters/ shareholders. This process takes a few days.

Drafting Articles of Incorporation and Bylaws

While there are several structures for setting up a business in Thailand, the most popular choice for foreign investors is the private limited company. This structure provides for maximum 49 percent foreign ownership, and it also supports work permits. For higher levels of foreign ownership, the investor would need to establish a BOI (Board of Investment) or register through the Treaty of Amity.

The next step in the process is drafting the company’s articles of incorporation and bylaws. This includes establishing the company’s share structure and identifying directors. It is important to note that bearer shares are not allowed in Thailand. Share certificates must be issued to shareholders and a record book kept at headquarters.

The company’s articles must contain certain required provisions, and there are also many optional provisions that can be included. These documents are filed with the Department of Business Development.

Convening a Statutory Meeting

When all shares subscribed for have been paid in, the promoters shall without delay hold a general meeting of share subscribers (the statutory meeting). This is where the regulations of the company are adopted and the board members elected.

There are no restrictions on foreign ownership of a Limited Company in Thailand, however certain business activities may require a work permit. In order to maintain a work permit, the company must show consistent business activity and must follow accounting procedures.

The directors must prepare lists of shareholders at the time of each annual shareholder’s meeting and a list of persons who no longer are shareholders from the date of the last meeting. The company must forward both of these to the Department of Business Development within 14 days of the meeting.

Obtaining a Business Name Board

A company that is registered allows third parties to examine the financial state of a company as well as its list of shareholders, directors, and other key details. This will give investors and other parties peace of mind knowing that a company is trustworthy.

A Thai limited company is a legal entity that is considered separate from its shareholders. This means that a creditor of a company cannot sue individual shareholders for debt repayment.

Before a company can be incorporated it must be proposed by its promoters and then approved by the Department of Business Development. A company must also file a Memorandum of Association and convene a statutory meeting. It should also register into the VAT system if required. If not, it may be eligible to apply for a tax ID number through the Treaty of Amity.

Obtaining a Tax ID Number

A registered Thai Limited Company is a legal entity that has its own rights, liabilities and duties independent from the shareholders. Any commitments or agreements made by the company bind only the company and not the shareholders, and third parties can hold the company liable for its debts.

To register a limited company in Thailand, you need to file a memorandum of association, convene a statutory meeting and register the company. The next step is to apply for a tax ID number and VAT registration (if applicable) with the Revenue Department.

A limited company in Thailand must have at least two shareholders and one director. It also needs to have a minimum of two million baht in registered capital, and must be fully paid up.