Foreign Business Entities in Thailand: A Comparison
A business in Thailand is classified as a foreign entity if more than 50% of its share or partner capital is foreign owned. And while many people believe their only option is to form a “local” company with a majority Thai ownership to avoid perceived or actual business restrictions, a foreigner can in fact own and operate any kind of business except those specifically restricted.
The degree of the restriction depends on the nature of business to be undertaken which is grouped into three lists, loosely described as: 1) Strictly not permissible; 2) Mostly restricted; and 3) Somewhat restricted.
Those who choose to open “local” company’s often run the risk of falling afoul of shareholder nominee laws when they “fake” the Thai shareholder component by having a Thai person “hold” shares that they have not in fact paid for. This is explicitly illegal.
However, several sensible alternative options exist for foreign investors and entrepreneurs who wish to set up business in Thailand. They can do so without the need for nominee shareholders, while still allowing direct participation and control over their business.
Foreign Representative Offices
A Foreign Representative Office (aka “Rep Office”) is a registered foreign entity with no shareholding, wholly owned by its overseas parent company. It does not require a Foreign Business License. It may only operate as a cost center, with business activities limited to a) sourcing and procurement; b) quality control; c) customer support; d) marketing and public relations; and/or e); market research. The Representative Office may not liaise, receive or confirm orders, negotiate business deals nor sign any contracts by itself or on behalf of the head office or associated companies, nor can it derive any income from its operations – it must be fully funded by its parent company.
A Regional Office is also a wholly owned registered foreign entity, funded by its parent company, that manages at least one active branch, rep office, company or affiliate in Asia, but outside Thailand. As with a representative office, a Regional Office is not permitted to generate an income, trade, purchase, sell or negotiate by itself or on behalf of the parent company or associated companies. The operations that are permitted for a regional office in Thailand include:
- General administration, business planning, and business coordination.
- Research and development.
- Technical support.
- Marketing and sales support.
- Regional personnel management and training.
- Financial management.
- Economic and investment analysis and research.
A branch office is an option for overseas businesses that want to develop a presence in Thailand’s business market but without the complexities and larger investment that setting up a new limited company or partnership in Thailand might entail. Foreign companies may view establishing a branch office as an effective way to pursue market entry and/or low-cost projects. Also, like companies and partnerships, Branch Offices are required to apply for a Foreign Business License before commencing operations.
Branch offices in Thailand work the same way as limited companies, only there are no shareholders or directors, as it is not a registered company, but a local branch of a foreign Head Office. Unlike Foreign Representative Offices and Regional Offices, Branch Offices are not limited to “non-trading” activities – they may generate income. The Branch Office’s liabilities arising from local operations are not limited to Thailand but extend to the head office overseas.
Capitalization rules apply to Branch Offices. They will be calculated on at least 25 percent of average estimated expenses for the first 3 years of operations, but not less than 3 Million Baht.
Limited Companies and Partnerships
A foreign limited company or partnership doing business in Thailand can engage in certain businesses upon obtaining a Foreign Business License either directly or upon qualification, by seeking promotion through Thailand’s Board of Investment. The application process usually takes 60 – 90 days upon submission and may require certain minimum capital investment commitments to qualify. Denied applications can be appealed without prejudice or penalty.
If you are an American or Australian citizen, there are treaties in place that govern special relaxed provisions including significantly fewer business restrictions and a streamlined application process to obtain a Foreign Business Certificate.
A foreign limited company or partnership whose business is not restricted by any list, or whose products or services are sold exclusively outside Thailand, does not require any license or certificate at all.
New Regulations Regarding Work Permits and Visas May Affect Which Entity You Choose
While generally all foreigners working in Thailand must have a work permit supported by an underlying business visa, the primary representative (only) of either a rep, branch, or regional office are now exempt from this requirement due to recent changes in the law, though all other foreign staff must still comply. So, depending on the size and purpose of your operations in Thailand, you may want to contemplate starting with one of these foreign entities first.
Let GPS Help You
Only open a Thai company if you have a legitimate Thai investment partner (not a nominee), otherwise you want to consider one of the above options to best suit your needs.
GPS Legal & Consulting has advised and assisted many foreign investors and entrepreneurs set up their businesses in Thailand. We are extremely well-versed in the legal requirements and processes and would be delighted to discuss options to help you successfully establish your venture here in Thailand.