Company Establishment
1.
Forming a Company
In order to set up a limited company
in Thailand, the following procedures should be followed:
A. Corporate Name Reservation
The name to be reserved must not
be the same or close to that of other companies. Certain
names are not allowed and therefore the name reservation
guidelines of the Business Development Office in the
Ministry of Commerce should be observed. The approved
corporate name is valid for 30 days. No extension is
allowed.
B. File a Memorandum of Association
A Memorandum of Association to be
filed with the Business Development Office must include
the name of the company that has been successfully reserved,
the province where the company will be located, its
business objectives, the capital to be registered, and
the names of the seven promoters. The capital information
must include the number of shares and the par value.
At the formation step, the authorized capital, although
partly paid, must all be issued.
Although there are no minimum capital
requirements, the amount of the capital should be respectable
enough and adequate for the intended business operation.
The Memorandum registration fee
is 50 baht per 100,000 baht of registered capital. The
minimum fee is 500 baht, the maximum 25,000 baht.
C. Convene 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 appointed.
A minimum of 25 percent of the par value of each subscribed
share must be paid.
D. Registration
Within three months of the date of the Statutory Meeting,
the directors must submit the application to establish
the company. Company registration fees are 500 baht
per 100,000 baht of registered capital. The minimum
fee is 5,000 baht; the maximum is 250,000 baht.
E. Tax Registration
Businesses liable for income tax must obtain a tax I.D. card
and number for the company from the Revenue Department
within 60 days of incorporation or the start of operations.
Business operators earning more than 600,000 baht per
annum must register for VAT within 30 days of the date
they reach 600,000 baht in sales.
2. Reporting Requirements
Firms must keep books and follow accounting
procedures 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 1206 of the Civil and Commercial Code provides
rules on the accounts that should be maintained as follows:
"The directors must cause
true accounts to be kept:
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Of the sums received and expended by the company and of the matters in respect of which each receipt or expenditure takes place; |
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Of the assets and liabilities of the company." |
A. Imposition of Taxes
Companies are required to withhold income tax from the salary
of all regular employees.
A value-added tax of seven percent
is levied on the value added at each stage of the production
process, and is applicable to most firms. The VAT must
be paid on a monthly basis.
A specific business tax is levied
on firms engaged in several categories of businesses
not subject to VAT, based on gross receipts, at a variable
rate ranging from 0.1 – 3.0 percent.
Corporate income tax is 30 percent
of net profits and is due twice each fiscal year. A
mid-year profit forecast entails advance payment of
corporate taxes.
B. Annual Accounts
A newly-established company or partnership should close accounts
within 12 months from the date of its registration.
Thereafter, the accounts should be closed every 12 months.
The performance record is to be certified by the company
auditor, approved by shareholders, and filed with the
Business Development Office, Ministry of Commerce, within
five months of the end of the fiscal year, and with
the Revenue Department, Ministry of Finance, within
150 days of the end of the fiscal year.
If a company wishes to change its
accounting period, it must obtain written approval from
the Director General of the Revenue Department.
C. Accounting Principles
In general, the basic accounting
principles practiced in the United States are accepted
in Thailand, as are accounting methods and conventions
as 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 classes of assets which have the
effect of depreciating the assets over periods that
may be shorter than their estimated useful lives. These
maximum depreciation rates are not mandatory; a company
may use lower rates that approximate the estimated useful
lives of the assets. But 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 these are actually
paid out to the employees, or the fund is approved as
a qualified fund by the Revenue Department and is 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 five percent of the annual net profits
arising from the business must be appropriated by the
company at each distribution of dividends until the
reserve reaches at least 10 percent 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.
D. Auditing Requirements
and Standards
Audited financial statements of
juristic entities (that is, a limited company, a registered
partnership, a branch, or representative office, or
a regional office of a foreign corporation, or a joint
venture) must be certified by an authorized auditor
and submitted to the Revenue Department and (except
for joint ventures) to the Commercial Registrar for
each accounting year.
Auditing standards conforming to international auditing
standards are, to the greater extent, recognized and
practiced by authorized auditors in Thailand.
3. Types
of Business Organizations
Thailand recognizes three types of business organizations:
A. Partnership
Thai and Western concepts of partnership are broadly
similar. Thailand provides for three general types of
partnerships:
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Unregistered ordinary partnerships, in which all
partners are jointly and wholly liable for all obligations
of the partnership |
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Registered ordinary partnerships. If registered,
the partnership becomes a legal entity, separate and
distinct from the individual partners |
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Limited partnerships. Individual partner liability is restricted to the amount of capital contributed to the partnership. Limited partnerships must be registered. |
B. Limited Companies
There are two types of limited companies, i.e., private
or closely held companies, and public companies. The first
is governed by the Civil and Commercial Code, the second
by the Public Company Act.
Private Limited Companies in Thailand have basic
characteristics similar to those of Western corporations.
A private limited company is formed through a process
which 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 values
of their shares. The liability of the directors, however,
may be unlimited if so provided in the company's memorandum
of association or the articles of incorporation. The
limited company is managed by a board of directors according
to the company's charter and by-laws.
All shares must be subscribed to, and at least 25 percent
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 no par value. It also stipulates
that only shares with par value of five baht or above
may be issued. Treasury shares are prohibited.
A minimum of seven shareholders is required at all
times. A private limited company may be wholly owned
by aliens. However, in those activities reserved for
Thai nationals, aliens’ participation is generally allowed
up to a maximum of 49 percent.
The registration fee for a private limited company
is 5,500 baht per million baht of capital.
Public Limited Companies registered in Thailand may,
subject to compliance with the prospectus, approval,
and other requirements, offer shares, debentures and
warrants to the public and may apply to have their securities
listed on the Stock Exchange of Thailand (SET).
A minimum of 15 promoters is required for the formation
and registration of the memorandum of association 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 of a public
limited company 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
except those protecting the rights and benefits of the
company allowed by law, and those maintaining a 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 capital for a public limited company.
C. Joint Venture
A joint venture may be described in accordance with
general practice as a group of persons (natural and/or
juristic) entering into an agreement in order to carry
on a business together. It has not yet been recognized
as a legal entity under the Civil and Commercial Code.
However, income from the joint venture is subject to
corporate taxation under the Revenue Code, which classifies
it as a single entity.
D. Other Forms of Corporate
Presence
Branches of foreign companies. 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. Foreign
business establishments must, therefore, follow generally
accepted procedures. It is important to clarify beforehand
what constitutes income subject to Thai tax because
the Revenue Department may consider revenues directly
earned by the foreign head office from sources within
Thailand as subject to Thai taxes.
As a condition for approval of an Alien Business License
to a branch of a foreign corporation, working capital
amounting to a total of five million baht in foreign
exchange must be brought into Thailand within certain
intervals over a four-year period.
The branch may be allowed to operate for a period of
five years, unless a shorter period is indicated in
the application as a result of a contract to be performed
in Thailand. Extension of the original duration of the
license to operate may be granted, provided the working
capital required to be brought into Thailand is met.
A representative office of foreign corporations may
also be established to engage in limited “non-trading”
activities, such as sourcing of goods or services in
Thailand for its head office or inspecting and controlling
quality of goods which its head office purchases in
Thailand. Other activities can cover disseminating information
about new products and services of its head office,
and reporting to its head office on local business development
and activities.
The working capital contributions as discussed above
in respect to branches apply.
E. Regional Offices
On December 28, 2001, the Board of Investment (BOI),
chaired by Deputy Prime Minister and Minister of Finance
Somkid Jatusripitak, met and approved amendments to
the investment promotion conditions for regional headquarters
(Category 7.9) with the aim of increasing employment,
the transfer of management technology and enhance personnel
practices.
The amendments brought the BOI's promotion of regional
headquarters in line with the Ministry of Finance measures
to support the establishment of Regional Operating Headquarters
(ROH), announced on December 11, 2001.
Projects approved under this category (7.9) will be
eligible to receive BOI non-tax incentives, such as
permission to own land and permission to bring in foreign
experts and technicians, as well as an attractive range
of tax-based measures that will be awarded by the Revenue
Department at the Ministry of Finance.
Conditions for approval have been liberalized to make
Thailand more attractive as a site for establishment
of ROHs. The previous condition requiring a company
to supervise activities in at least five countries has
been reduced to three countries, and the requirement
that companies invest a minimum of 40 million baht in
real estate has been eliminated.
Promoted projects will be required to have paid up
registered capital of at least 10 million baht and overseas
revenue must account for at least half of a project's
annual income. Below is a brief description of the ROH.
For complete information, check with the Ministry of
Finance.
Description:
A regional office of a multinational
corporation may also be established to coordinate and
direct the operation of the branches and affiliates of
the head office in the region on behalf of the head office.
A regional
office has the ability to coordinate and supervise the
company's branches and its affiliated companies in the
region on behalf of the head office. The regional office
may provide these branches and affiliated companies
with:
Benefits from Establishing a Regional Office
Companies establishing regional offices are eligible to
receive BOI non-tax incentives, such as permission to
own land and to bring in foreign experts and technicians,
as well as an attractive range of tax-based measures awarded
by the Revenue Department at the Ministry of Finance.
Inquire at the Ministry of Finance for details. Such companies
are not required to be registered or incorporated as juristic
persons in Thailand, and do not have to submit any financial
statements to the Department of Commercial Registration.
The Department will assist in customs clearance of the
personal effects of transferred foreign staff and in their
applications for further temporary stay in the Kingdom
or change in visa type. Work Permits for aliens performing
work in the regional office will be granted for up to
5 persons depending on necessity and volume of work in
each particular case.
Conditions for Permission to Establish a Regional
Office:
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Regional Office must not: |
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Derive any income from its activities. Expenditures incurred by the regional office shall be borne by the head office |
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Have the power to accept a purchase order or make a sales offer |
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Negotiate or enter into business arrangements with any natural or juristic person within the Kingdom. |
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A permit to establish a regional office, valid for five years, can be granted after application with the Alien Business Section of the Department of Commercial Registration at the Ministry of Commerce. The fee is five baht per every 1,000 baht of registered capital, not to exceed 5,000 baht.
When a permit to establish a regional office is issued,
it may be subject to the following conditions:
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The total debt financing used in the business shall not exceed seven times the portion of the capital owned by shareholders or the owner of the business |
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Money used in the regional office shall be remitted from abroad and shall not be less than a total of 5,000,000 baht. During the first year period, at least 2,000,000 baht of the total must be remitted, at least half of which must be remitted within the first six months. Then, no less than 1,000,000 baht should be remitted each succeeding year until the full 5,000,000 baht has been transferred. Documents verifying this transfer must be presented to the Department of Commercial Registration |
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At least one person who is responsible for operating the regional office must have their domicile in the Kingdom. |
The Director-General of the Department of Commercial Registration is also authorized to impose any conditions on a business permit granted under the rules.
F.
Regional Trade and Investment Support Offices
In April, 1996, the Board of Investment announced the
establishment of trade and investment support offices
would become a new category of activities eligible for
investment promotion.
Projects in this category are eligible for BOI non-tax
incentives, including:
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Permission to own land for an office |
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Permission to bring in foreign nationals to undertake
investment feasibility studies |
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Permission to bring in as many foreign technicians
and experts as required |
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Permission to take or remit foreign currency abroad |
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No limit on number of shares owned by foreigners. |
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The range of activities eligible for promotion are: |
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Controlling and advising affiliated companies |
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All types of consulting services, except those engaged
in: |
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Buying and selling securities |
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Foreign currency exchange |
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Accounting |
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Advertising |
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Legal affairs |
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Architecture |
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Civil engineering. |
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Note: Exceptions may be granted by permission from
the Department of Commercial Registration or concerned
government agencies
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Information services related to sourcing and procurement, but not brokerages or agencies |
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Engineering and technical services, except these related to architecture and civil engineering |
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Testing and certifying standards of products, production and services standards |
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Exporting of all types of products |
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Wholesaling of all types of products within the country, excluding local agricultural products, arts & crafts, antiques, and natural resources |
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Provision of training on the use of machinery, engines, tools, and equipment |
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Installation, maintenance, and repairing of machinery, engines, tools, and equipment |
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Calibration of machinery, engines, tools, and equipment |
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Computer software design and development. |
If there are any other activities deemed appropriate for
investment promotion under the Establishment of Trade
and Investment Support Offices, the Office of the Board
of Investment will consider them on a case-by-case basis.
Eligibility for regional trade and investment support
offices.
Applicants must be either companies established under
Thai law, or companies planning to establish under Thai
law.
Conditions for regional trade and investment support
offices:
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Operating licenses must have been acquired from all relevant government agencies |
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Operating expenses must amount to no less than 10 million baht per year, which shall consist of sales and administrative expenses, as set forth in the Revenue Code |
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Operating plans must be approved by the Board of Investment |
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Majority or total foreign ownership is allowed |
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Non-tax privileges, only, will be granted. |
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