3.     Types of Business Organizations

Thailand recognizes 3 types of business organizations: partnerships, limited companies and joint ventures.

 

3.1     Partnerships

According to the Civil and Commercial Code (CCC), the partnerships can be divided into 2 types:

(1)        Ordinary Partnerships

(2)        Limited Partnerships

 

3.1.1       Ordinary Partnerships

In an ordinary partnership, all the partners are jointly and wholly liable for all obligations of the partnership. Ordinary partners may contribute money, other property, or labor to the partnership. These partnerships may be registered or unregistered. 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 Partnerships

The limited partnerships must have 2 kinds of partners as follows:

(1)              One or more partners whose individual liability is limited to the amount of capital contributed to the partnership, and

(2)              One or more partners who are jointly and 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. Limited partnerships must be only managed by a partner with unlimited liability.

 

The fee for registering a partnership is 100 baht per 100,000 baht of registered capital. A fraction of 100,000 baht is regarded as 100,000 baht. The minimum fee is 1,000 baht and the maximum fee is 5,000 baht.

 

3.2     Limited Companies

There are 2 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.

 

The 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.

 

The limited companies are managed by a board of directors in accordance with the company laws and its Articles of Association. In the board of directors’ meeting, director’s proxies and circular board resolution are not allowed.

 

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. Under certain conditions, a private limited company may be wholly owned by foreigners. However, in those activities reserved for Thai nationals under the Foreign Business Act, foreigner participation is generally allowed up to a maximum of 49% capital shares. The registration fee for the MOA and establishing the company is 5,500 baht per million baht of registered capital.

 

The 49% capital shares limited in certain reserved businesses can be exceeded or exempted if a Foreign Business License is granted. If the desired business is unique, does not compete with Thai businesses, or involves dealings among members of an affiliated company, the chance of approval is more probable. Conditions, such as minimum capital, transfer of technology and reporting requirements, may be attached to Foreign Business Licenses.

 

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) and the board of directors’ meetings must be held at least once every 3 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 2 years before they can be transferred, except with the approval of the shareholders at a meeting of shareholders. The board of directors must have a minimum of 5 members, at least half of whom must have a domicile in Thailand. Each share of the company shall be equal to value 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 company registration fee is 1,000 baht per million baht of registered capital.

 

The qualifications for independent directors of listed companies and securities companies that have initial public offerings were amended in April 2009, as follows:

(1)           At least one-third of the board’s complement should be independent directors, and in any case, the number should not be fewer than 3. This will apply for listed companies’ annual general shareholders’ meetings from the year 2010 onwards. In the case of an IPO, the requirement for independent directors has to be complied with from 1 July 2008 onwards.

(2)           The independent director must not have any business or professional relationship with the head office, subsidiaries, associates, or jurist person in his own interest, whether directly or indirectly, as outlined in the Thai Securities and Exchange Commission Circular No. Kor Lor Tor Kor (Wor) 11/2552 Re: the Amendment of the Regulation regarding the independent director.

 

3.2.3       Scrutinization of Thai Shareholders in Limited Companies

In 2006, the Commercial Registrar prescribed new rules for the registration of the 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 the foreigners hold between 40% and 50% of the shares.

(2)        A company in which the foreigners hold less than 40% of the shares, but a foreigner is an authorized director of 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 6 months old may be submitted to the MOC provided that entries on at least 1 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

3.3.1       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.

 

Having a branch office in Thailand, the foreign corporation could be exposed to civil, criminal and tax liability if the branch office violates any law in Thailand. The foreign head office must appoint at least one branch office manager to be in charge of operations 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 that require special registration (e.g., VAT registration, taxpayer identification card, Commercial Registration Certificate, Foreign Business License, etc.), either before or after the commencement of activities. Therefore, foreign business establishment 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 subject to Thai corporate income tax at the regular 20% rate on income derived from its business operations in Thailand. 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. Therefore, for tax purposes, a branch office is required to apply for a taxpayer identification card and VAT certificate (if applicable) and to file annual corporate income tax returns with the Revenue Department.

 

A branch office of a foreign entity cannot carry out any reserved business without a Foreign Business License. It must apply for a Foreign Business License with the MOC first, and can operate in a reserved business only after the License has been issued. If the desired business is unique, does not compete with Thai businesses, or involves dealings among members of an affiliated company, the chance of approval is more probable. Conditions, such as minimum capital, transfer of technology and reporting requirements, may be attached to Foreign Business License. The minimum investment capital must be greater than 25% of the estimated average annual operating expenses of the operation calculated over 3 years, but not less than 3 million baht.

 

Conditions to be complied with by the Branch Office after Obtaining Permission for Operation

A Branch Office that is permitted to operate the business must comply with the following conditions:

1.         There must be the minimum capital to be remitted to Thailand for the commencement of business operation as stipulated by law. Details of remitting the minimum capital are as follows:

(1)               First 25% of minimum investment within first 3 months;

(2)               Another 25% of minimum investment within first year;

(3)               Another 25% of minimum investment within second year; and

(4)               Last 25% of minimum investment within third year.

2.         The total of loans utilized in the permitted business operation must not exceed 7 times the inward remitted funds for the permitted business operation;

–      Loans mean the total liabilities of the business, notwithstanding the liabilities incurred by any form of transaction but excluding trade liabilities occurred from the ordinary course of business, such as, trade creditors, accrued expenses.

3.             At least one person of the responsible persons for operating the business in Thailand must have a domicile in Thailand;

–      Domicile means the contactable residence in Thailand which can be the place of business, excluding temporary residence such as hotels.

4.             The document or evidence relating to the permitted business operation must be submitted when the official sent the summons or inquiry.

5.             There must be the preparation of account and financial statements to be submitted to the Department of Business Development.

 

Fees for Branch Office

Application fee (non-refundable) is 2,000 baht. If the application is approved, the government fee will be set at the rate of 5 baht for every 1,000 baht or fraction thereof of the registered capital of the parent company, with a minimum of 20,000 baht and a maximum of 250,000 baht. A fraction of 1,000 baht in capital is regarded as 1,000 baht.

 

3.3.2       Representative Offices of Foreign Companies

The operation of Representative Office in Thailand in order to render the service to its head office or the affiliated company or the group company in foreign country is the operation of business under the business listed in List 3(21) attached to the Foreign Business Act B.E.2542 i.e. Other Service Businesses. If the foreigner wishes to operate such business, the permission by the Director-General, Business Development Department with the approval of the Foreign Business Committee is required.

 

The minimum investment capital must not be less than 25% of the estimated average annual operating expenses of the operation calculated over 3 years, but not less than 3 million baht (same as branch office).

 

The Foreign Business Operation Committee has determined the guidelines for approval as follows:

 

Characteristic of Representative Office

The Representative Office must have all 3 characteristics as follows:-

(1)       Be the juristic person established in accordance with the foreign law and established an office in Thailand in order to operate the service business to the head office or the affiliated company or the group company in foreign country only;

(2)       Renders services to the head office, affiliated company or group company without receiving income from service, except for funds to cover the expenses of the Representative Office that are received from the head office;

(3)       The Representative Office has no authority to receive purchase orders or to offer for sale or to negotiate on business with any person or juristic person.

 

Scope of Service of the Representative Office

In operation of business as the Representative Office, the scope of service is permitted to be rendered in any or all of the following 5 categories, depending upon the objectives and business characteristics of the Representative Office:

–              Finding sources of goods or services in Thailand for the head office.

–              Checking and controlling the quantity of goods purchased in Thailand by the head office.

–              Providing advice and assistance concerning goods of the head office sold to agents or consumers in Thailand.

–              Disseminating information concerning new goods or services of the head office.

–              Reporting on business developments in Thailand to the head office

 

If the representative office engages in other activities for which permission is not granted, such as buying or selling goods on behalf of the head office, it will be regarded as doing business in Thailand and may be subject to Thai taxation on all income received from Thailand. Also, the representative office may not act on behalf of third persons. Any such business or income-earning activities could amount to a violation of the conditions of the license to establish and operate a representative office, which in turn could result in revocation of that license.

 

A representative office that undertakes one or more of the approved activities in Thailand without rendering any service to any other person, and which refrains from prohibited activities, is not subject to Thai taxation. Such a representative office is understood to be receiving a subsidy from the head office to meet its expenses in Thailand. Gross receipts or revenues received by a representative office from the head office are not characterized as revenue to be included in the computation of juristic person income tax.

 

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.

 

Conditions to be complied with by the Representative Office after Granted Permission to Operate

A Representative Office that is permitted to operate the business must comply with the following conditions:

1.        There must be the minimum capital to be remitted to Thailand for the commencement of business operation as stipulated by law. Details of remitting the minimum capital are as following:

(1)    First 25% of minimum investment within first 3 months;

(2)    Another 25% of minimum investment within first year;

(3)    Another 25% of minimum investment within the second year; and

(4)    Last 25% of minimum investment within the third year.

2.       The total of loans utilized in the permitted business operation must not exceed seven times the inward remitted funds for the permitted business operation;

–      Loans mean the total liabilities of the business, notwithstanding the liabilities incurred by any form of transaction but excluding trade liabilities occurred from the ordinary course of business, such as, trade creditors, and accrued expenses.

3.        At least one person of the responsible persons for operating the business in Thailand must have a domicile in Thailand;

–      Domicile means the contactable residence in Thailand which can be the place of business, excluding temporary residence such as hotels.

4.        The document or evidence relating to the permitted business operation must be submitted when the official sent the summons or inquiry.

5.        There must be the preparation of account and financial statements to be submitted to the Department of Business Development.

 

Fees for Representative Office

Application fee (non-refundable) is 2,000 baht. If the application is approved, the government fee will be set at the rate of 5 baht for every 1,000 baht or a fraction thereof of the registered capital of parent company, with a minimum of 20,000 baht and a maximum of 250,000 baht. A fraction of 1,000 baht in capital is regarded as 1,000 baht.

 

Tax Position of Representative Office

The representative office is required to obtain a corporate tax identification number and submit income tax returns and balance sheets, even if nil.

 

Individual aliens and all local staff are required to obtain taxpayer cards and pay personal income tax.

 

3.4     International Headquarters (IHQ)

On 1 May 2015, Thailand introduced an International Headquarters (ITC) scheme to help boost Thailand's competitiveness and make Thailand the economic hub of Asia. The IHQ program replaces the Regional Operating Headquarters scheme that will expire on 15 November 2015.

 

Thailand defines International Headquarters (IHQ) as a company incorporated under Thai law that provides any of the following activities to their branches or “associated enterprises”, whether located in Thailand or overseas:

(1)         Managerial services or technical services

(2)         Supporting services engaged in:

2.1       General management, business planning, and business coordination

2.2       Procurement of raw materials and parts

2.3       Research and development

2.4       Technical support

2.5       Marketing and sales promotion

2.6       Human resource management and training

2.7       Financial advisory services

2.8       Economic and investment analysis and research

2.9       Credit management and control

2.10    Any other supporting services stipulated by the Director-General of the Revenue Department

(3)         Financial management, including:

3.1       Financial management by corporate treasury centers approved under The Exchange Control Law.

3.2       Borrowing and lending in Thai Baht for the following cases:

3.2.1     Borrowing in Thai Baht from financial institutes in Thailand or associated enterprises in Thailand

3.2.2     Managing Thai Baht obtained from 3.1 or 3.2.1 by lending in Thai Baht to associated enterprises in Thailand

(4)         International Trading Centers (ITC), which refers to companies incorporated under Thai law that purchase and sell goods, raw materials and parts or that provide international trading related services to juristic persons incorporated overseas. International trading related services include:

4.1   Sourcing of goods

4.2   Warehousing and inventory services prior to delivery

4.3   Packaging activities

4.4   Transportation of goods

4.5   Insurance on goods

4.6   Advisory, technical and training services on goods

4.7   Any other services stipulated by the Director General of the Revenue Department.

 

An associated enterprise refers to companies or juristic partnerships which are related to the International Headquarters, as follow:

1.       A company or juristic partnership that holds direct or indirect shares in the International Headquarters of not less than 25% of total capital

2.       A company or juristic partnership in which the International Headquarters is a shareholder or a partner with not less than 25% of total capital

3.       A company or juristic partnership in which the company or juristic partnership specified in number 1 is a direct or an indirect shareholder or partner with not less than 25% of total capital

4.       A company or juristic partnership which has the power to control or supervise the operation and management of the International Headquarters

5.       A company or juristic partnership in which the International Headquarters has the power to control or supervise the operation and management

6.       A company and juristic partnership in which the company or juristic partnership under number 4 has the power to control or supervise the operation and management.

 

International Headquarters (IHQ) projects receive the following incentives:      

Incentives offered by the Board of Investment (BOI)

–            Permission to bring in skilled personnel and experts into the Kingdom to work in investment promoted activities.

–            Permission to own land

–            Exemption of import duty on machinery (Only machinery for R&D and training activities)

–            Exemption of import duty on raw materials and parts for export purpose

 

Conditions to apply for privileges offered by the BOI

-             Must supervise associated enterprises in foreign countries or its foreign branches in at least one country

-             The paid-up registered capital must not be less than THB10 million

 

Incentives offered by the Revenue Department (RD)

Corporate Income Tax (CIT) for 15 accounting periods from the date of approval by the Director General of the Revenue Department

1.         Revenue subject to corporate income tax exemption:

1.1               Revenue received from managerial services or technical services, supporting services, or financial management services to associated enterprises established in accordance with foreign laws.

1.2               Revenue on royalties received from associated enterprises established in accordance with foreign laws.

1.3               Dividends received from associated enterprises established in accordance with foreign laws.

1.4               Revenue on capital gains received from associated enterprises established in accordance with foreign laws.

1.5               Revenue received from the purchase and sale of goods overseas 1) without importing goods into Thailand or 2) that are imported into Thailand through border crossing or transshipment according to customs laws, and revenue from providing services in relation to foreign trade to juristic persons established under foreign laws or revenue received overseas or generated overseas.

2.      Revenue subject to a 10% Corporate Income Tax (CIT) rate*

2.1               Revenue received from managerial, technical,, supporting or financial management services to associated enterprises established in accordance with Thai law.

2.2               Revenue from royalties derived by associated enterprises established in accordance with Thai law.

Note: The amount of revenue subject to corporate income tax reduction must not be more than revenue subject to corporate income tax exemption according to item 1.1 and 1.2.

 

Personal Income Tax – Personal income tax for expatriates at the specialist or executive level working in an IHQ is reduced to 15%.

 

Specific Business Tax – Exemption for the revenue from lending to associated enterprises

 

Withholding Tax Exemption for the following revenue:

-             Dividends paid by the IHQ (dividends paid from revenue subject to corporate income tax exemption) to corporate shareholders in foreign countries

-             Interest paid by the IHQ (interest from loans taken out by an IHQ to relend to associated enterprises under its corporate treasury center) to corporate lenders in foreign countries

 

Conditions to apply for privileges offered by the Revenue Department:

-             Must supervise foreign branch offices or associated enterprises in not less than one country.

-             Paid-up registered capital must not be less than THB10 million on the last day of each accounting period.

-             Total business spending (sales and administration expenses) must not be less than THB15 million per year in Thailand.

Note: If the IHQ is unable to meet any of the specified conditions within an accounting period, the tax incentives in that year will not be granted.

 

International Trade Center (ITC) projects receive the following incentives:

 

Incentives offered by the Board of Investment (BOI)

–                  Permission to bring in skilled personnel and experts into the Kingdom to work in investment promoted activities.

–                  Permission to own land

–                  Exemption of import duty on machinery

–                  Exemption of import duty on raw materials and parts for export purpose

 

Conditions to apply for privileges offered by the BOI

-             An ITC must have paid-up registered capital of not be less than THB10 million.

 

Incentives offered by Revenue Department (RD)

Corporate Income Tax (CIT)

For 15 accounting periods from the date of approval by the Director General of the Revenue Department, an ITC is entitled to corporate income tax exemption on:

1.         Revenue received from the purchase and sale of goods overseas 1) without importing goods into Thailand or 2) that are imported into Thailand through border crossing or transshipment according to customs laws.

2.         Revenue from providing services in relation to foreign trade to juristic persons established under foreign laws or revenue received overseas or generated overseas.

 

Personal Income Tax

Personal income tax for expatriates at the specialist or executive level working in an ITC is reduced to 15%.

 

Conditions to apply for privileges offered by the Revenue Department:

-             Paid-up registered capital must not be less than THB10 million on the last day of each accounting period.

-             ITC must have total business spending (sales and administration expenses) of at least THB15 million per year in Thailand.

Note: If the ITC is unable to meet either one of the specified conditions within an accounting period, the tax incentives in that year will not be granted.

 

In addition, to facilitate IHQ/ITC registration for a foreign business license, the Department of Business Development, Ministry of Commerce, has reduced the timeframe as follows:

-             30 days to 15 days for BOI-promoted companies

-             60 days to 30 days for non-BOI promoted companies

 

Last Updated: November 2015