Forming a Business in Thailand

A Memorandum of Association, to be filed with the Commercial Registration Department, 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 their 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.

Convene a Statutory Meeting
Once the share structure has been defined, a statutory meeting is called, during which the articles of incorporation and by-laws 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.

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.

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 start of operations. Business operators earning more than 1,200,000 Baht per annum must register for VAT with in 30 days of the date they reach 1,200,000 Baht in sales.

Reporting Requirements
Companies 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 followed:

"The directors must cause true accounts to be kept:

• Of the sums received and extended by the company and of the matters in respect of which each receipt or expenditure takes place;

• Of the assets and liabilities of the company.”

Imposition of Taxes

• Companies are required to withhold income tax from the salary of all regular employees.

• A value-added tax of 7 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 business not subject to VAT, based on gross receipts, at a variable rate 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.

Annual Accounts
If a company wishes to change its accounting period, it must obtain written approval from the Director General of the Revenue Department.

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 the Managing Director, and filed with the Commercial Registration Department at the Ministry of Commerce within 5 months of the end of the fiscal year and with the Revenue Department at the Ministry of Finance within 150 days of the end of the fiscal year.

Accounting Principles
In general, the basic accounting principles practiced in the United States of America are accepted in Thailand, as are accounting methods and conventions sanctioned by law. The Institute of Certified Accountants and Auditors of Thailand is the authority 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.

• Statutory Reserve
  A statutory reserve of at least 5 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.

Auditing Requirements and Standards
Audited financial statements of juristic entities (that is, a limited company, a registered partnership, a branch, a representative office or a regional office of a foreign corporation, 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.

Types of Business Organizations
Thailand recognizes three types of business organizations:

• Partnerships
  Thai and western concepts of partnership are broadly similar. Thailand provides for three general types of partnerships:
  
  1.) Unregistered ordinary partnerships, in which all partners are jointly and wholly liable for all obligations of the partnership;
  
  2.) Registered ordinary partnerships. When registered, the partnership becomes a legal entity, separate and distinct from the individual partners;
  
  3.) Limited partnerships. Individual partner liability is restricted to the amount of capital contributed to the partnership. Limited partnerships must be registered.

• 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 registered 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 a par value of 5 Baht or above may be issued. Treasury shares are prohibited.
  
  A minimum of seven shareholders is required at all times. Aliens may wholly own a private limited company. However, in those activities reserved for Thai nationals, the aliens’ participation is generally allowed only up to a maximum of 49 percent.
  
  The registration fee for a private limited company is 5,500 Baht per 1,000,000 Baht of registered 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 par value of at least 5 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 1,000,000 Baht of registered capital.

• Joint Ventures
  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 out 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.

Other Forms of Corporate Presence

• Branches of foreign companies
  In order to open a branch office, a license must be obtained from the Ministry of Commerce under the Annex of Alien Business Act 1999. The scope of the activities are to be the same as defined in the Memorandum of Association of its principle office overseas. The Registrar will consider giving a license under the following conditions:
  
  1.) A business, which requires special knowledge or skills which Thais do not readily possess;
  
  2.) Such business shall not compete with businesses operated by Thais;
  
  3.) The business shall use foreign knowledge or capital;
  
  4.) The business shall provide benefit to Thailand in the following ways:
  - Bringing in new technology.
  - Causing the full use of natural resources.
  - Supporting the export of Thai goods.

• Alien Business License
  Foreigners, whether individuals or juristic entities (companies, partnerships, etc.), who invest and carry out business in Thailand, may be restricted by the “Alien Business Act 1999”. This legislation came into force on December 4, 1999. The Act classifies businesses into 3 categories, details of which you can find at “The new Alien Business Act 1999” at our website. Generally, Category A businesses are closed to aliens for special reasons, while Categories B and C businesses are opened to aliens subject to conditions. There are remaining a number of businesses, including most manufacturing businesses, which do not fall within any of these three categories and are opened for investments by aliens.

Apart from the above, the 1996 Treaty of Amity and Economic Relations between Thailand and the USA provides an exemption from the restrictions in the Alien Business Act for US nationals and corporations for most (but not all) controlled businesses.

There is also the possibility of exemption under certain treaties to which Thailand is a party, as well as for businesses approved by the BoI.

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