Thailand recognizes three types of business organizations: partnerships, limited companies and joint ventures.
According to the Civil and Commercial Code (CCC), partnerships can be divided into 2 types:
(1) Ordinary Partnerships
(2) Limited Partnerships
- 1.1 Ordinary Partnership
In an ordinary partnership, all the partners are jointly and wholly liable for all obligations of the partnership. An ordinary partnership may or may not register as a juristic person. 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.
- 1.2 Limited Partnership
In a limited partnership, there are:
(1) One or more partners whose individual liability is limited to the amount of capital contributed to the partnership, or
(2) One or more partners who are jointly and wholly unlimitedly liable for all the obligations of the partnership. Limited partnerships must be registered and are taxed as a corporate entity.
- 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. A limited partnership may only be managed by a partner with unlimited liability.
2. Limited Companies
There are two 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.
- 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.
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.
Limited companies are managed by a board of directors in accordance with the company's charter and by-laws. 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. A private limited company may be wholly owned by foreigners. However, in those activities reserved for Thai nationals, foreigner participation is generally allowed up to a maximum of 49%.
How to register a Thailand limited company? Click here for more details.
- 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); at least 50% of the directors must reside in Thailand; and board meetings must be held at least once every three 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 two years before they can be transferred. The Board of Directors 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, 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 registration fee is 2,000 baht per million baht of registered. capital.
3. Other Forms of Corporate Presence
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.
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. Therefore, foreign business establishments 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 considered a permanent establishment, and its revenue is subject to Thai tax. 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.
A condition for approval of a Foreign Business License for a branch of a foreign corporation is that minimum capital amounting to no less than five million baht be brought into Thailand within four years of start-up. The branch may be allowed to operate for a period of five years, unless a shorter period is applied for. Extension of the original duration of the license to operate may be granted, provided that the working capital to be brought into Thailand requirement is met.
- The finding of sources of purchase of goods or services in Thailand for the head office.
- The checking and controlling of the quality and quantity of goods purchased or hired by the head office for manufacturing in Thailand.
- The giving of advice on various aspects concerning goods of the head office sold to agents or consumers in Thailand.
- The dissemination of information concerning new goods or services of the head office.
- The report of movements of business in Thailand to the head office.
- Finance, security, and credit financier offices
- Foreign bank offices
- International business offices
- General administration, business planning, and coordination.
- Procurement of raw materials and components.
- Research and development.
- Technical support.
- Marketing control and sales promotion planning.
- Training and personnel management.
- Corporate financial advisory services.
- Economic or investment research and analysis.
- Credit control and administration.
- Any other services stipulated by the Director-General of the Revenue Department.
- i. A juristic company or partnership holding shares in the ROH worth not less than 25% of total capital.
- ii. A juristic company or partnership in which the ROH is a partner or holds shares worth not less than 25% of total capital.
- iii. A juristic company or partnership in which a juristic company or partnership under (i.) is a partner or holds shares worth not less than 25% of total capital.
- i. A juristic company or partnership that has the power to control or supervise the operation and management of the ROH.
- ii. A juristic company or partnership that the ROH has the power to control or supervise the operation and management.
- iii. A juristic partnership that a juristic company or partnership in (i.) has the power to control or supervise the operation and management.
- i. Business income - ROH will be taxed at the reduced corporate rate of 10% on income derived from the provision of qualifying services to the ROH's associated companies or branches.
- ii. Royalties - Royalties received from associated companies or branches arising from R&D work carried out in Thailand will be subject to tax at a reduced corporate rate of 10%. Royalties received from a non-related company can also enjoy this reduced rate.
- iii. Interest - Interest income derived from associated companies or branches on loans made by an ROH and extended to its associated companies or branches will be subject to tax at a reduced corporate rate of 10%.
- iv. Dividends - Dividends received by an ROH from associated companies will be exempt from tax. Dividends paid to companies incorporated outside of Thailand and which do not carry on business in Thailand will be exempt from tax.
- i. An expatriate who is assigned by the ROH to work outside of Thailand is exempt from personal income tax in Thailand for services outside of Thailand. However, the said income must not be borne by the ROH or its associated company in Thailand.
- ii. An expatriate who works for an ROH may choose to be subject to withholding tax at the rate of 15% for up to 2 years. By doing so, the expatriate is allowed to omit such income in the calculation of their annual personal income tax liability.
- The ROH must be a juristic company or partnership incorporated under Thai law.
- The ROH must have at least 10 million baht in paid-up capital on the closing date of any accounting period.
- The ROH must provide services to its overseas affiliated companies and/or branches in at least three countries excluding Thailand.
- At least half of the revenue generated by the ROH must be derived from service provided to its overseas affiliated companies and/or branches, although this requirement will be reduced to not less than one-third of the ROH's revenue for the first three years.
- The company must submit the notification to the Revenue Department.
- Other requirements may be imposed by the Director-General of the Revenue Department.
3.2 Representative Offices of Foreign Companies
Foreign companies may establish representative offices in Thailand. Such an entity is regarded as a service business within the meaning of Schedule 3 of the Foreign Business Act as such an application to establish such an entity is submitted to the Department of Commercial Registration. These offices cannot engage in any profit-seeking or profit-making enterprise. The scope of the activities must be limited to approved activities, otherwise significant Thai tax liabilities may arise. The risk of exceeding the scope of activities is that the income of the parent or affiliated companies may be deemed to have been earned in Thailand and hence be subject to taxation. In addition, the representative office cannot act on behalf of third persons.
Approved Representative Office Activities:
Thus, a representative office which undertakes one or more of the approved activities in Thailand without rendering any other service to any other person, and which refrains from prohibited activities, is not subject to Thai taxation. It is understood that such a representative office may receive a subsidy from the head office to meet expenses in Thailand. Gross receipts or revenues received by a representative office from the head office are not characterized as revenue and are thus not included in the computation of juristic person income tax or VAT.
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.
The head office must transfer at least 5 million baht into Thailand as working capital for the representative office, of which two million baht must be remitted in the first year, and at least one million baht per year after that. The manager of the representative office must prepare an annual report on activities undertaken and file this with the MOC as a condition of the office being permitted to carry on its activities.
There are three types of representative offices that require licensing:
Certain requirements of the Bank of Thailand (BOT) and the SEC must be met. There are also requirements regarding the remittance of funds into Thailand.
3.3 Regional Operating Headquarters (ROH)
A Regional Operating Headquarters (ROH) is a juristic company or partnership organized under Thai law to provide managerial, technical, or other supporting services (see below) to its associated companies or its domestic or foreign branches.
Associated Company A juristic company or partnership that is related to the ROH in one of the following manners:
A. Shareholding basis:
B. Control basis:
Incentives The government provides tax breaks and incentives to attract foreign companies to set up in the Kingdom.
A. Reductions/exemptions on Corporate Income Tax:
B. Accelerated Depreciation Allowances:
25% of asset value is allowed as an initial allowance and the remaining can be deducted for over 20 years for the purchase or acquisition of buildings used in carrying out the operations of the ROH.
Requirements In order for an ROH to be eligible for tax benefits, it must fulfill the following conditions: