The Thai government has long believed in an open, laissez faire economy. Foreign investment is welcome, and various types of incentives – either tax incentives or non-tax incentives – are granted to attract foreign investment through government agencies, such as the Board of Investment (BOI) and the Industrial Estate Authority of Thailand (IEAT), and bilateral agreements that bind Thailand to other countries, such as 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 (Treaty of Amity).
In principle, the BOI maintains a policy of giving special consideration to investment projects that promote clusters to create and concentrate investment in accordance with regional potential, and to further strengthen value chains as well as promote investment in border provinces in southern Thailand and special economic zones, especially in border areas.
Priority Sectors
Under Thailand’s BOI policies, mainly specified in the BOI’s Announcement No. 2/2557, the government has placed an emphasis on attracting investment in six key sectors that have been identified as priority activities for the country’s development. These six target areas are:
• Promotion of investment that helps to enhance national competitiveness by encouraging research and development, innovation, value creation in the agricultural, industrial and services sectors, small and medium-sized enterprises, fair competition and inclusive growth;
• Promotion of activities that are environmentally friendly, save energy, or use alternative energy to drive balanced and sustainable growth;
• Promotion of clusters to create investment concentration in accordance with regional potential and strengthen value chains;
• Promotion of investment in border provinces in southern Thailand to help develop the local economy, which will support efforts to enhance security in the area;
• Promotion of special economic development zones, especially in border areas, both inside and outside industrial estates, to create economic connectivity with neighbouring countries and to prepare for entry into the ASEAN Economic Community; and
• Promotion of Thai overseas investment to enhance the competitiveness of Thai businesses and Thailand’s role in the global economy.
Activities
Specified criteria and requirements for particular sectors are included in subsequent BOI announcements. In Announcement No. 2/2557, as amended by Announcement No.6/2558 and No. Sor. 1/2558, activities eligible for investment promotion are classified into seven sections, as follows:
• 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; and
• Service and public utilities. In general, the activities on the list annexed to the announcement will be granted activities-based incentives, including tax and/or non-tax incentives, if certain conditions are met. The term for the tax benefits will vary. Activities may be granted additional merit-based incentives if the project has merits pertaining to enhanced competitiveness, decentralisation and industrial area development.
Industrial Development
The IEAT carries out the industrial development policy, which includes allocating land for expansion, improving land conditions, and providing accommodation and facilities to entrepreneurs. In addition to BOI incentives, businesses may enjoy tax and/or non-tax privileges granted for investment, such as land ownership, in industrial estates.
Restrictions On Foreign Investment
Despite the fact that Thailand generally welcomes foreign investment, some sectors are subject to foreign equity restrictions. While these restrictions are imposed through a variety of rules, regulations and Cabinet policies, the main governing law for such restrictions is the Foreign Business Act 1999 (FBA). Under the FBA there are 43 categories of business, divided into three lists, which are subject to different levels of restrictions for foreigners, unless the foreigner is able to obtain a foreign business licence. A company is considered “foreign” under the FBA if it is not registered in Thailand, or it is registered in Thailand but half, or more than half, of its shares are held by non-Thai natural or juristic persons.
Notably, there was some discussion by the Thai government during 2016 of expanding the definition of “foreign” under the FBA to include companies in which the majority of shares are held by Thai shareholders but the management of the company is controlled by foreigners. However, this possibility was subsequently withdrawn by the government.
Lists
Foreigners are prohibited from operating a business from any of the nine business categories on list 1 of the FBA, and therefore such businesses cannot obtain a foreign business licence under any circumstances. This includes businesses such as operating newspapers and radio or television stations, rice farming, fishery in Thai territorial waters and exclusive economic zones in Thailand, forestry or land trading.
For activities under list 2 of the FBA, a foreigner would require a licence from the Department of Business Development of the Ministry of Commerce along with an approval from the Thai Cabinet. Additionally, the company would have to be at least 40% owned by Thais (only 25% if the minister of commerce and the Cabinet have given special approval) and at least two-fifths of its managing directors would have to be Thai nationals. Business categories under list 2 of the FBA are businesses involving national safety or security including arms trade and domestic aviation business, businesses affecting arts, culture, traditional customs and folk handicrafts, and businesses affecting natural resources or the environment.
For activities under list 3 of the FBA, a foreigner would require a licence from the director-general of the Commercial Registration Department of the Ministry of Commerce and approval from the Foreign Business Committee. List 3 includes all service businesses (accounting, legal, architecture, engineering and any other category of service business except those prescribed in the ministerial regulations), as well as retail (unless the company’s registered capital is at least BT100m, $2.8m), hotel business, advertising, selling food and beverages, construction firms (with some exceptions) and others.
Further restrictions on foreign ownership in specific sectors, such as telecommunications, banking or insurance, are regulated in specific laws pertaining to these sectors. Relevant legislation includes the Telecommunications Business Act 2006 and the Financial Institution Business Act 2008, the Life Insurance Act 1992 or the Non-Life Insurance Act 1992.
Exceptions from the restrictions of the FBA can be granted as promotional privileges by the BOI or IEAT, or, as a temporary measure, in the form of government approval issued by the Thai government.
Exceptions can also be provided based on international treaties that Thailand has entered into. US companies or nationals, under the Treaty of Amity, can be eligible for “national treatment”, whereby, with some exceptions, they are treated in the same way as Thai nationals. Other international treaties, such as the Thai-Australia Free Trade Agreement (TAFTA), the Japanese Thai Economic Partnership Agreement (JTEPA), the ACIA and the AFAS also provide for exceptions with conditions. By virtue of these international treaties, together with the FBA, qualified entrepreneurs may file a request for the issuance of a foreign business certificate from the director-general of the Department of Business Development.
Under the laws regulating the exceptions, such as promotional privileges by the BOI or IEAT, or foreign business licences, from foreign investment restrictions, the authorities issuing such exceptions have been provided with bureaucratic discretion to determine whether the exception will be granted.
In practice, however, the authorities, under the Treaty of Amity, are unlikely to exercise such bureaucratic discretion if applicants can meet the requirements under the treaty.
Export Incentives
To encourage export activities, a number of tax incentives are available for companies. For example, value-added tax (VAT) is applied at a rate of 0% to exported goods. Customs duties on exported goods are also generally exempted, except for certain goods and agricultural products, such as latex, lumber, rice and rubber sheets.
Import duty imposed on materials imported for the production of goods that are then exported can be refunded by the Customs Department. Further, exemption from Customs duties on imported goods is granted when goods are taken through a free zone established by the Customs Department or the IEAT.
National Tax Incentives
Thailand was the first country in Asia to introduce investment promotion laws to encourage investors to invest in Thailand. Under the Investment Promotion Act, the promotions include both tax and non-tax incentives.
Tax incentives consist of such benefits as import duty reduction or exemption on machinery and raw or essential materials; corporate income tax exemption from three to eight years (depending on the zone where the enterprise will be located in and the activity the investor will engage in), which will be 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 transportation, electricity and water costs; tax exemption for dividends paid out of the exempted profits during the tax exemption period; and tax exemption for fees for goodwill, copyright or other rights received from a promoted activity.
Tax incentives depend on 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 to the industry, the amount of minimum capital investment, and ISO 9000 or similar international standard certification. The corporate income tax exemption may be reduced to only one year if such ISO 9000 or other similar international standard is not qualified as per the time line imposed by the BOI. A promotion certificate will be granted if such activity is regarded as generating overall benefits to Thailand as compared to disadvantages. Activities that strengthen Thailand’s industrial and technological capability or use domestic resources generally qualify for a promotion certificate.
One of the attractive non-tax incentives is that investors granted investment promotion by the BOI who are regarded as foreigners under the FBA may have 100% ownership of businesses conducting activities specified in lists 2 and 3 of the FBA in accordance with the conditions prescribed by such authorities. They are exempt from obtaining a foreign business licence but need to notify the Ministry of Commerce and apply for a certificate, which is an administrative procedure rather than permission. Other non-tax incentives include permission for foreigners to own land, and visa and work permit privileges for expatriate employees who will work in the promoted company.
The investor must submit an application form along with supporting documentation to the BOI to be considered for incentives. In most cases, the processing of an application takes two to three months, depending on the investment size of the applied project. This will be subject to consideration of the subcommittee and BOI Board, as the case may be.
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, to obtain work permits for foreign technicians and experts who work for the industrial operator, and to take or remit foreign currency abroad. Industrial operators within the export processing zone may be granted additional tax-based incentives and privileges.
Regional Tax Incentives
Generally, certain tax privileges are provided to international headquarters (IHQ), which is a company incorporated in Thailand, in order to provide managerial, technical or supporting services (qualifying services) to its associated enterprises or branches, whether situated in or outside Thailand, including international trading companies which are granted IHQ status. These tax privileges include a tax exemption on corporate income tax for certain types of income such as income derived from services provided to its overseas associated enterprises and a reduction of corporate income tax from 20% to 10% on net profits derived from qualifying services provided to its local associated enterprises. Furthermore, IHQ expatriate employees may choose to pay tax at a rate of 15%. The period of tax incentives is 15 accounting periods.
A reduction of or exemption from Customs duties on imported goods is granted to member countries of certain international organisations or agreements such as the ASEAN, the ASEAN Free Trade Area, the TAFTA, the Thailand and New Zealand Free Trade Agreement (TNFTA), the JTEPA and the Agreement on Comprehensive Economic Cooperation between ASEAN and the People’s Republic of China. BUSINESS STRUCTURES – JOINT VENTURES: Joint ventures are permitted under Thai law. There are two forms of joint ventures. First, it may take the form of a partnership established by contract between one company and another company or juristic partnership or individuals that exists only for a particular project. Even if it is not registered as a legal entity, an “unincorporated joint venture” is treated as a juristic company by the Revenue Department for purposes of tax liability. The joint venture must, therefore, apply for a taxpayer identification card and VAT certificate if it engages in a business subject to VAT and will earn an income of more than BT1.8m ($50,708) in a fiscal year. Second, a joint venture can be registered as a legal entity – a limited company wherein the partners of the joint venture hold shares in an agreed proportion. The registration process and fees are similar to those in the formation of an ordinary limited company.
Nationality & Residency Requirements
Undefined Generally, there are no nationality or residency requirements to be a manager or director of a limited company, with the exception of companies seeking permission to conduct a business on list 2 of the FBA, in which case a minimum of two-fifths of the total number of 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 a company established under Thai-US Treaty protection, a majority of its directors must be American and/or Thai nationals. For an unincorporated joint venture, which is treated as a partnership, if the managing partner is a foreign individual, the partnership would be deemed an alien and subject to foreign ownership restrictions under the FBA.
Joint Venture Liability
If established by contract between investors and not registered, all parties to an unincorporated joint venture agreement have unlimited liability similar to the partners in a partnership. If registered as a limited company, the liability of parties to an incorporated joint venture is the same as that of the shareholders of a limited company – that is to say, shareholder liability is limited to the amount, if any, unpaid on the shares respectively held by them.
Restrictions On Capitalisation
A juristic person registered in Thailand with foreigners (either foreign natural persons or juristic persons) holding half or more of the shares is regarded as a foreign company and will be subject to the foreign ownership restrictions under the FBA, whereby the minimum capital used for the business operation is BT2m ($56,300). If the business requires a foreign business licence under the FBA, the company must have minimum capital of not less than 25% of the annual average of the first three years’ estimated expenditures or BT3m ($84,500), whichever is higher.
Taxation
Under the Revenue Code, a joint venture – whether incorporated or unincorporated – is recognised as a taxable entity and subject to corporate income tax in the same manner as a company. That is, it is subject to all the rules (i.e., computation of net profits and/or losses, filing of tax returns and payment of taxes) and tax rates applicable to a company. However, the share of profits under a joint venture received by a juristic company and partnership organised under Thai law or by a juristic company and partnership organised under a foreign law and carrying on business in Thailand is generally exempt from further corporate income tax once in the hands of the recipient (participating partners). BUSINESS STRUCTURES – LIMITED LIABILITY COMPANIES: Under Thai law, there are two types of limited companies: public limited (publicly held) and private limited (closely held) companies. The formation of a public limited company is governed by the Public Limited Companies Act, while the establishment of a private limited company is governed by the Thai Civil and Commercial Code.
A private limited company 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 company’s establishment. During its life, a minimum of three shareholders, who can be natural and/or juristic persons, must be maintained. The first step to establishing a private limited company is to reserve the company name; second, file a memorandum of association (MOA) with the registrar; and third, convene a statutory meeting.
During the statutory meeting, among other things, the articles of association must be adopted, auditors appointed and directors elected. Additionally, any pre-incorporation contracts entered into by promoters must be ratified, expenses incurred by promoters paid, preference shares (if there are any) established, and the number of ordinary shares or preference shares to be allotted and their prices fixed.
The fourth step is to register the company. If the necessary documents are complete and signed by all promoters, directors and shareholders, all four steps could be done in one day. The process of preparing documents for forming a company generally takes about two to three weeks. The company registration fee is BT5500 ($155) per BT1m ($28,200) registered capital, with a maximum fee of BT275,000 ($7750). BUSINESS STRUCTURES – PUBLIC LIMITED COMPANIES: A public limited company can be incorporated by at least 15 individual promoters, who must prepare the MOA and register the same with the registrar. Once the MOA is registered, the promoters can offer shares for sale to the public or any person according to the laws governing securities and exchanges. 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 number of shares specified in the MOA, a statutory meeting shall be called to consider, among other things, the following:
• The company’s articles of association (AOA);
• Ratification of the business done by the promoters and 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; and
• Election of the auditor and determination of the 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 and must not be later than six months from the date that the MOA is registered. Then, the directors shall register the company and submit, among other things, the company’s AOA, list of shareholders and minutes of the statutory meeting to the registrar within three months from the date of the statutory meeting.
Regulatory Distinctions
A public limited company is a company established for the purpose of offering the sale of shares to the public. A private limited company cannot do so. The regulatory distinctions between closely held and publicly held companies involve the number of promoters and shareholders (private companies have a minimum of three shareholders, while public companies must have at least 15 shareholders). The board of a public limited company must consist of at least five directors, the majority of whom must reside in Thailand, whereas a private limited company can have only one director.
Registration & Incorporation
For a private limited company, registration may take from one day to two weeks, and for a public limited company, from four to five weeks, after the application and supporting documents are presented to the Ministry of Commerce. If a foreign business licence is required, registration will take an additional three to five months. BUSINESS STRUCTURES – SUBSIDIARIES & BRANCHES: A foreign entity may establish a branch office or subsidiary in Thailand. If the branch office or subsidiary will engage in a business reserved under the FBA, it must obtain a foreign business licence from the competent authority prior to commencing 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 activities prescribed below:
• 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. As the representative office performs service activities, which are covered by list 3 (21) of the FBA, it must obtain 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
A branch office generally requires no corporate registration unless it carries out restricted businesses that require a foreign business licence, in which case it will be subject to a fee of BT5 ($0.14) or BT10 ($0.28) per BT1000 ($28) capital, with a minimum of BT20,000 ($563) or BT40,000 ($1130) and a maximum of BT250,000 ($7040) or BT500,000 ($14,100), depending on the activity. If the activity is included on list 2 of the FBA, the cost is higher than if it is on list 3 of the FBA. The fee for establishing a subsidiary is the same as for a limited company.
For a private limited company, the registration fee is BT5500 ($155) per BT1m ($28,200) registered capital, with a maximum of BT275,000 ($7750), while the registration fee for a public limited company is BT2000 ($56) per BT1m ($28,200) capital, with a maximum charge of BT300,000 ($8450).
Liability
A branch office or representative office will be deemed as the same legal entity as its head office, and the head office in a foreign country is responsible for all liabilities of the branch or representative office. For a subsidiary, liability will be the same as that of a public limited company or private limited company. For a branch office or representative office, the manager need not be a Thai national. However, these offices must have at least one manager residing in Thailand responsible for all operations.
The branch office or representative office will be required to bring into Thailand working capital in foreign currency equivalent to a minimum of not less than 25% of the annual average of the estimated expenditures for the first three years of operation or BT3m ($84,500), whichever is higher.
Taxation
Foreign juristic entities carrying on business in Thailand through branch offices are subject to corporate income tax only for income arising from or in consequence of the business carried on in Thailand. A subsidiary of a foreign company is taxed on income derived in Thailand and worldwide.
A representative office is generally not subject to Thai tax if it complies with regulatory requirements. However, a representative office is required to obtain a tax identification card and file corporate income tax returns with the Thai Revenue Department, even if its income is nil. A subsidiary of a foreign company registered in Thailand is subject to income tax, VAT, stamp duty, and other taxes and duties in the same manner as a local company.
Employment of Foreigners & Nationals
Undefined The employment of foreigners is governed by the Foreign Employment Act and the Foreign Business Act. Both laws set employment preferences in favour of Thai nationals.
Although requirements may vary, as a general matter, employers must 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 considering whether to grant a work permit, the ministry is to consider:
• Whether the job could be done by a Thai employee;
• Whether the foreigner is qualified for the job; and
• Whether the job fits the present economic needs of the kingdom. Different requirements apply to firms promoted by the BOI, resulting in greater flexibility and ease in obtaining work permits for foreign nationals.
Labour Permits
Foreigners wishing to work in Thailand must apply for work permits with the Department of Employment (DoE) at the Ministry of Labour. The applicant must first enter Thailand with a non-immigrant visa, obtained from any Royal Thai Embassy/Consulate outside of Thailand. Presently, the DoE only grants a work permit to an expatriate who is employed by or sponsored by an entity in Thailand (whether a Thai company or a registered branch office of a foreign corporation). The DoE grants every company a general quota of one work permit each per BT2m ($56,300) capital plus four Thai employees of the company. The DoE normally takes around 10 days to process a complete work permit application. BOI-promoted companies may be granted a waiver of this quota limitation only with respect to executives, technicians and experts. The process takes about 7-10 days. Processing time is different in the case of a BOI-promoted company. The government fees for a work permit are as follows:
• BT850 ($24) for up to three months;
• BT1600 ($45) for more than three months but less than six months;
• BT3100 ($87) for more than six months but less than one year; and
• BT6100 ($172) for more than one year, up to a maximum period of two years.
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