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Forming a Company |
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Procedures for Establishing a Company
1. Procedures for Establishing a Company
1.1 Company Registration
1.1.1 Promoters
Company promoters are responsible for registering
the company with the Ministry of Commerce (MOC). The
promoters must be individuals (not juristic persons)
who are 20 years of age or older, and they must be
available to sign documentation during the registration
process. There must be a minimum of 3 promoters for
a private limited company and at least 15 promoters
for a public limited company.
Each of the promoters is required to hold a minimum
of one share upon the company's registration. However,
they are generally free to transfer those shares to
existing shareholders or third parties, thereafter,
if they wish. Promoters' potential legal liability
is generally limited to the par value of the shares
they will hold after registration is completed. The
promoters are also responsible for paying expenses
associated with the company's registration. After registration,
however, the company may choose to reimburse the promoters
for those expenses.
1.1.2 Timing
Registration of the company occurs at the MOC and
can be accomplished on the same day as the registration
of the memorandum of association provided that:
(1) All registered shares have been subscribed for;
(2) A statutory meeting is held to transact the business
with the presence of all promoters and subscribers,
and all promoters and subscribers have approved the
transacted business;
(3) The promoters have handed over the business to
the directors; and
(4) The payment of at least 25% of the total shares
has been paid by the shareholders.
If the company falls under the definition of "foreign" (as
defined in the Foreign Business Act (FBA)), it will
normally be required to obtain Cabinet approval or
a Foreign Business License prior to commencing operations.
Applying for and obtaining the company's tax ID card
and VAT certificate (if required) takes place after
registration with the MOC and can normally be accomplished
within seven to 10 days of the date of providing all
required information and documents to the Revenue Department.
1.1.3 Filings
All documents associated with the company's registration
must be submitted to the registrar of the Department
of Business Development of the MOC; or, if the company's
office is to be located outside of Bangkok, they must
be submitted to the filing office of the province where
the office will be located.
All documents associated with the registration of
the company's tax ID card and VAT certificate must
be submitted to the Central Filing Office of the Revenue
Department in Bangkok; or, if the company's office
is to be located outside of Bangkok, documents must
be submitted to the Revenue Office of the province
where the office will be located.
1.2 Registration Process
1.2.1 Corporate Name Reservation
The first step of the company registration process
is name reservation. To reserve a name, one of the
promoters is required to submit a signed Name Reservation
Form to the Department of Business Development of the
MOC.
The promoter is required to supply the requested company
name together with two alternative names. The registrar
will then examine the application in order to ensure
that:
a. No similar company names have previously been reserved;
and
b. The names do not violate any ministerial rules.
If the applicant's intended name is in conflict with
either of the above, that name will be rejected and
the registrar will consider the alternative names submitted.
This process can normally be completed within two to
three days. If all three names submitted are rejected,
the applicant will be required to re-submit the form
with three new names.
The registrar has considerable discretion with regard
to the matter of company names. Many times, the first
name or even the first two names are rejected for violating
one of the two rules stated above. Once the name is
approved, the corporate name reservation is valid for
30 days, with no extensions.
1.2.2 Filing a Memorandum of Association
After the name reservation has been approved, the
company's Memorandum of Association (MOA) must then
be submitted. The MOA must include the name of the
company, the province where the company will be located,
the company's business objectives, the capital to be
registered, and the names of the promoters. The capital
information must include the number of shares and their
par value. At the formation step, the authorized capital,
although partly paid, must all be issued.
The memorandum registration fee is 50 baht per 100,000
baht of registered capital. The minimum fee is 500
baht and the maximum fee is 25,000 baht. Although there
are no minimum capital requirements, the amount of
capital should be respectable and adequate for the
intended business operation. However, if the company
falls under the definition of a foreign company, the
following rules apply:
- If the company engages in activities specified in
the FBA, its minimum registered capital would be the
greater of 25% of the company's average per year expenses
for its first three years of operation and 3 million
baht (exceptions apply) fully (100%) paid up.
- If the company does not engage in activities specified
in the FBA, its minimum registered capital would be
2 million baht fully (100%) paid up. If the company
is to employ foreigners, other minimum registered capital
requirements may also apply.
1.2.3 Convening a Statutory Meeting
Once the share structure has been defined, a statutory
meeting is called, during which the articles of incorporation
and bylaws are approved, the Board of Directors is
elected, and an auditor is appointed. A minimum of
25% of the par value of each subscribed share must
be paid for.
1.2.4 Registration
Within three months of the date of the statutory meeting,
the directors must submit the application to establish
the company. During the registration process, the promoters
will be required to supply the name, license number,
and remuneration of the auditor the company is planning
to hire. The company registration fee is 500 baht per
100,000 baht of registered capital. The minimum fee
is 5,000 baht and the maximum fee is 250,000 baht.
1.2.5 Registering for Tax Documents
Companies liable for income tax must obtain a tax
ID card and number from the Revenue Department within
60 days of incorporation or the start of operations.
Companies that have turnover in excess of 1.2 million
baht must also register for VAT with the Revenue Department
within 30 days of the date the annual turnover exceeded
that threshold.
2. Accounting and Financial Reporting Requirements
2.1 Books of Accounts and Statutory Records
Companies must keep books and follow accounting procedures
as specified in the Civil and Commercial Code, the
Revenue Code, and the Accounts Act. Documents may be
prepared in any language, provided that a Thai translation
is attached. All accounting entries should be written
in ink, typewritten, or printed. Specifically, Section
12 of the Accounts Act of 2000 provides rules on how
accounts should be maintained:
"In keeping accounts, the person with the duty
to keep accounts must hand over the documents required
for making accounting entries to the bookkeeper correctly
and completely, in order that the accounts so kept
may show the results of operations, financial position
according to facts and accounting standards."
2.2 Accounting Period
A newly established company should close accounts
within 12 months of its registration. Thereafter, the
accounts should be closed every 12 months. If a company
wishes to change its accounting period, it must obtain
written approval from the Director-General of the Revenue
Department.
2.3 Reporting Requirements
All juristic companies, partnerships, branches of
foreign companies, and joint ventures are required
to prepare a financial statement for each accounting
period. The financial statement must be audited by
and subjected to the opinion of a certified auditor,
with the exception of the financial statement of a
registered partnership established under Thai law,
whose total capital, assets, and income are not more
than that prescribed in Ministerial Regulations. The
performance record is to be certified by the company
auditor, approved by shareholders, and filed with the
Commercial Registration Department of the MOC and with
the Revenue Department of the Ministry of Finance (MOF)
within 150 days of the end of the fiscal year.
2.4 Accounting Principles
In general, the basic accounting principles practiced
in the United States are accepted in Thailand, as are
accounting methods and conventions sanctioned by law.
The Institute of Certified Accountants and Auditors
of Thailand is the authoritative group promoting the
application of generally accepted accounting principles.
Any accounting method adopted by a company must be
used consistently and may be changed only with approval
of the Revenue Department. Certain accounting practices
of note include:
Depreciation: The Revenue Code permits the use of
varying depreciation rates according to the nature
of the asset, which has the effect of depreciating
the asset over a period that may be shorter than its
estimated useful life. These maximum depreciation rates
are not mandatory. A company may use a lower rate that
approximates the estimated useful life of the asset.
If a lower rate is used in the books of the accounts,
the same rate must be used in the income tax return.
Accounting for Pension Plans: Contributions to a pension
or provident fund are not deductible for tax purposes
unless they are actually paid out to the employees,
or if the fund is approved by the Revenue Department
and managed by a licensed fund manager.
Consolidation: Local companies with either foreign
or local subsidiaries are not required to consolidate
their financial statements for tax and other government
reporting purposes, except for listed companies, which
must submit consolidated financial statements to the
Securities and Exchange Commission of Thailand .
Statutory Reserve: A statutory reserve of at least
5% of annual net profit arising from the business must
be appropriated by the company at each distribution
of dividends until the reserve reaches at least 10%
of the company's authorized capital.
Stock Dividends: Stock dividends are taxable as ordinary
dividends and may be declared only if there is an approved
increase in authorized capital. The law requires the
authorized capital to be subscribed in full by the
shareholders.
2.5 Auditing Requirements and Standards
Audited financial statements of juristic entities
(i.e. a limited company, registered partnership, branch,
representative office, regional office of a foreign
corporation, or joint venture) must be certified by
an authorized auditor and be submitted to the Revenue
Department and to the Commercial Registrar for each
accounting year.
However, for a registered partnership with registered
capital of less than five million baht, total revenue
of no more than 30 million baht, and total assets of
no more than 30 million baht, financial statements
need only be submitted to the Revenue Department and
not to the Commercial Registrar.
Auditing practices conforming to international standards
are, for the most part, recognized and practiced by
authorized auditors in Thailand.
3. Types of Business Organizations
Thailand recognizes three types of business organizations:
partnerships, limited companies and joint ventures.
3.1 Partnerships
According to the Civil and Commercial Code (CCC),
partnerships can be divided into 2 types:
(1) Ordinary Partnerships
(2) Limited Partnerships
3.1.1 Ordinary Partnership
In an ordinary partnership, all the partners are jointly
and wholly liable for all obligations of the partnership.
An ordinary partnership may or may not register as
a juristic person. Therefore, an ordinary partnership
can be divided into 2 types:
(1) Non-registered Ordinary Partnership - has no status
as a juristic person and is treated, for tax purposes,
as an individual.
(2) Registered Ordinary Partnership - is registered
with the Commercial Registrar as a juristic person
and is taxed as a corporate entity.
3.1.2 Limited Partnership
In a limited partnership, there are:
(1) One or more partners whose individual liability
is limited to the amount of capital contributed to
the partnership, or
(2) One or more partners who are jointly and wholly
unlimitedly liable for all the obligations of the partnership.
Limited partnerships must be registered and are taxed
as a corporate entity.
3.1.3 Partnership Registration
When two or more people agree to invest in one of
the aforementioned types of partnership, the appointed
managing partner is responsible for registering the
partnership with the commercial registration office
of the province that the head office of the partnership
is located in. A limited partnership may only be managed
by a partner with unlimited liability. The fee for
registering a partnership is 1,000 baht for every 100,000
baht of registered capital. The minimum fee is 1,000
baht and the maximum fee is 5,000 baht.
3.2 Limited Companies
There are two types of limited companies: private
limited companies and public limited companies. The
first is governed by the Civil and Commercial Code
and the second is governed by the Public Limited Company
Act.
3.2.1 Private Limited Companies
Private Limited Companies in Thailand have basic characteristics
similar to those of Western corporations. A private
limited company is formed through a process that leads
to the registration of a Memorandum of Association
(Articles of Incorporation) and Articles of Association
(By-laws) as its constitutive documents.
Shareholders enjoy limited liability, i.e. limited
to the remaining unpaid amount, if any, of the par
value of their shares. The liability of the directors,
however, may be unlimited if stipulated as such in
the company's MOA.
Limited companies are managed by a board of directors
in accordance with the company's charter and by-laws.
All shares must be subscribed to, and at least 25%
of the subscribed shares must be paid up. Both common
and preferred shares of stock may be issued, but all
shares must have voting rights. Thai law prohibits
the issuance of shares with a par value of less than
five baht. Treasury shares are prohibited.
A minimum of three shareholders is required at all
times. A private limited company may be wholly owned
by foreigners. However, in those activities reserved
for Thai nationals, foreigner participation is generally
allowed up to a maximum of 49%. The registration fee
for a private limited company is 5,500 baht per million
baht of capital.
3.2.2 Public Limited Companies
Subject to compliance with the prospectus, approval,
and other requirements, public limited companies registered
in Thailand may offer shares, debentures, and warrants
to the public and may apply to have their securities
listed on the Stock Exchange of Thailand (SET).
Public limited companies are governed by the Public
Limited Company Act B.E. 2535 (A.D. 1992), as amended
by Public Limited Company Act No. 2 B.E. 2544 (A.D.
2001) and Public Limited Company Act No. 3 B.E. 2551
(A.D. 2008). The rules and regulations concerning the
procedure of offering shares to the public is governed
by the Securities and Exchange Act B.E. 2535 (A.D.
1992) and the amendments thereto, under the control
of the Securities and Exchange Commission (SEC). All
companies wishing to list their shares on the SET must
obtain the approval of and file disclosure documents
with the SEC, and then obtain SET approval to list
their shares.
For public limited companies, there is no restriction
on the transfer of shares (except to satisfy statutory
or policy ceilings on foreign ownership); director's
proxies are not allowed; circular board resolutions
are not allowed; directors are elected by cumulative
voting (unless the MOA provides otherwise); at least
50% of the directors must reside in Thailand; and board
meetings must be held at least once every three months.
Directors' liabilities are substantially increased.
A minimum of 15 promoters is required for the formation
and registration of a public limited company, and the
promoters must hold their shares for a minimum of two
years before they can be transferred. The Board of
Directors must have a minimum of five members, at least
half of whom are Thai nationals. Shares must have a
face value of at least five baht each and be fully
paid up.
Restrictions on share transfers are unlawful, with
the exception of those protecting the rights and benefits
of the company as allowed by law and those maintaining
the Thai/foreigner shareholder ratio. Debentures may
only be issued with the approval of three quarters
of the voting shareholders. The registration fee is
2,000 baht per million baht of registered capital.
3.2.3 Scrutinization of Thai Shareholders in Limited
Companies
In 2006, the Commercial Registrar prescribed new rules
for the registration of both public and private limited
companies. The rules require that sources of investment
by Thai nationals in the following two categories of
new companies be scrutinized:
(1) A company in which foreigners hold between 40%
and 50% of the shares.
(2) A company in which foreigners hold less than 40%
of the shares but a foreigner is a director with the
power to bind the company.
All Thai shareholders must disclose the source of
their funds to the MOC.
An application for the incorporation of a limited
company must now be accompanied by at least one of
the following documents evidencing the source of funds
of each Thai shareholder:
* Copies of deposit passbooks or bank statements
disclosing transactions over the past 6 months
* A letter issued by a bank certifying the
financial position of the shareholder
* Copies of other documents evidencing the
source of funds (i.e. loan documentation)
In addition, the MOC has issued internal guidelines
in support of the rules, which set out the following
matters:
* The amounts shown in the documents of each
Thai shareholder evidencing the source of funds must
equal or exceed the amount of funds invested by that
Thai shareholder.
* The rules do not apply if a foreign national(s)
has joint authority with a Thai national(s) to act
on behalf of the limited company.
" Copies of deposit passbooks or bank statements
disclosing transactions that are less than six months
old may be submitted to the MOC provided that entries
on at least one day identify a balance that is equal
to or exceeds the funds invested by the relevant shareholder.
Thai shareholders must provide evidence of their sources
of funds regardless of the value of their shares.
3.3 Other Forms of Corporate Presence
Branches of Foreign Companies
Foreign companies may carry out certain business in
Thailand through a branch office. Branch offices are
required to maintain accounts only relating to the
branch in Thailand.
There is no special requirement for foreign companies
to register their branches in order to do business
in Thailand. However, most business activities fall
within the scope of one or more laws or regulations
which require special registration, either before or
after the commencement of activities. Therefore, foreign
business establishments must follow generally accepted
procedures.
It should be borne in mind that the branch is part
of the parent company and therefore the parent retains
legal liability for contracts and for tortious acts
done. For tax purposes, a branch is considered a permanent
establishment, and its revenue is subject to Thai tax.
It is important to clarify beforehand what constitutes
income that is subject to Thai tax because the Revenue
Department may consider revenue directly earned by
the foreign head office from sources within Thailand
to be subject to Thai tax.
A condition for approval of a Foreign Business License
for a branch of a foreign corporation is that minimum
capital amounting to no less than five million baht
be brought into Thailand within four years of start-up.
The branch may be allowed to operate for a period of
five years, unless a shorter period is applied for.
Extension of the original duration of the license to
operate may be granted, provided that the working capital
to be brought into Thailand requirement is met.
Representative Offices of Foreign Companies
Foreign companies may establish representative offices
in Thailand. Such an entity is regarded as a service
business within the meaning of Schedule 3 of the Foreign
Business Act as such an application to establish such
an entity is submitted to the Department of Commercial
Registration. These offices cannot engage in any profit-seeking
or profit-making enterprise. The scope of the activities
must be limited to approved activities, otherwise significant
Thai tax liabilities may arise. The risk of exceeding
the scope of activities is that the income of the parent
or affiliated companies may be deemed to have been
earned in Thailand and hence be subject to taxation.
In addition, the representative office cannot act on
behalf of third persons.
Approved Representative Office Activities:
* The finding of sources of purchase of goods
or services in Thailand for the head office
* The checking and controlling of the quality
and quantity of goods purchased or hired by the head
office for manufacturing in Thailand
* The giving of advice on various aspects concerning
goods of the head office sold to agents or consumers
in Thailand
* The dissemination of information concerning
new goods or services of the head office
* The report of movements of business in Thailand
to the head office
Thus, a representative office which undertakes one
or more of the approved activities in Thailand without
rendering any other service to any other person, and
which refrains from prohibited activities, is not subject
to Thai taxation. It is understood that such a representative
office may receive a subsidy from the head office to
meet expenses in Thailand. Gross receipts or revenues
received by a representative office from the head office
are not characterized as revenue and are thus not included
in the computation of juristic person income tax or
VAT.
Even though they are not subject to taxation in Thailand,
all representative offices are still required to obtain
a Corporate Tax Identification number and submit income
tax returns and audited financial statements to the
Revenue Department. They are also required to submit
the same to the Department of Business Development.
The head office must transfer at least 5 million baht
into Thailand as working capital for the representative
office, of which two million baht must be remitted
in the first year, and at least one million baht per
year after that. The manager of the representative
office must prepare an annual report on activities
undertaken and file this with the MOC as a condition
of the office being permitted to carry on its activities.
There are three types of representative offices that
require licensing:
(1) Finance, security, and credit financier offices
(2) Foreign bank offices
(3) International business offices
Certain requirements of the Bank of Thailand (BOT)
and the SEC must be met. There are also requirements
regarding the remittance of funds into Thailand.
3.4 Regional Operating Headquarters (ROH)
A Regional Operating Headquarters (ROH) is a juristic
company or partnership organized under Thai law to
provide managerial, technical, or other supporting
services (see below) to its associated companies or
its domestic or foreign branches.
Supporting Services
(1) General administration, business planning, and
coordination
(2) Procurement of raw materials and components
(3) Research and development
(4) Technical support
(5) Marketing control and sales promotion planning
(6) Training and personnel management
(7) Corporate financial advisory services
(8) Economic or investment research and analysis
(9) Credit control and administration
(10) Any other services stipulated by the Director-General
of the Revenue Department
Associated Company A juristic company or partnership
that is related to the ROH in one of the following
manners:
A. Shareholding basis:
i. A juristic company or partnership holding shares
in the ROH worth not less than 25% of total capital
ii. A juristic company or partnership in which the
ROH is a partner or holds shares worth not less than
25% of total capital
iii. A juristic company or partnership in which a juristic
company or partnership under (i.) is a partner or holds
shares worth not less than 25% of total capital
B. Control basis:
i. A juristic company or partnership that has the power
to control or supervise the operation and management
of the ROH
ii. A juristic company or partnership that the ROH
has the power to control or supervise the operation
and management
iii. A juristic partnership that a juristic company
or partnership in (i.) has the power to control or
supervise the operation and management
Incentives The government provides tax breaks and
incentives to attract foreign companies to set up in
the Kingdom.
A. Reductions/exemptions on Corporate Income Tax
i. Business income - ROH will be taxed at the reduced
corporate rate of 10% on income derived from the provision
of qualifying services to the ROH's associated companies
or branches.
ii. Royalties - Royalties received from associated
companies or branches arising from R&D work carried
out in Thailand will be subject to tax at a reduced
corporate rate of 10%. Royalties received from a non-related
company can also enjoy this reduced rate.
iii. Interest - Interest income derived from associated
companies or branches on loans made by an ROH and extended
to its associated companies or branches will be subject
to tax at a reduced corporate rate of 10%.
iv. Dividends - Dividends received by an ROH from associated
companies will be exempt from tax. Dividends paid to
companies incorporated outside of Thailand and which
do not carry on business in Thailand will be exempt
from tax.
B. Accelerated Depreciation Allowances
25% of asset value is allowed as an initial allowance
and the remaining can be deducted for over 20 years
for the purchase or acquisition of buildings used in
carrying out the operations of the ROH.
C. Expatriates
i. An expatriate who is assigned by the ROH to work
outside of Thailand is exempt from personal income
tax in Thailand for services outside of Thailand. However,
the said income must not be borne by the ROH or its
associated company in Thailand.
ii. An expatriate who works for an ROH may choose to
be subject to withholding tax at the rate of 15% for
up to 4 years. By doing so, the expatriate is allowed
to omit such income in the calculation of their annual
personal income tax liability.
Requirements In order for an ROH to be eligible for
tax benefits, it must fulfill the following conditions:
* The ROH must be a juristic company or partnership
incorporated under Thai law
*The ROH must have at least 10 million baht
in paid-up capital on the closing date of any accounting
period
* The ROH must provide services to its overseas
affiliated companies and/or branches in at least three
countries excluding Thailand
* At least half of the revenue generated by
the ROH must be derived from service provided to its
overseas affiliated companies and/or branches, although
this requirement will be reduced to not less than one-third
of the ROH's revenue for the first three years
* The company must submit the notification
to the Revenue Department
* Other requirements may be imposed by the
Director-General of the Revenue Department
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