The laws relating private limited company or closely held company and other business law in Thailand is covered under the “Thai Civil and Commercial Code”. However a separate Act called “The Alien Business Act”, has been enacted by the Govt. which covers the most important law governing majority alien-owned businesses in Thailand. And the Public Company Act governs the laws for Public Company. The aforesaid statutes and the Revenue Code and the Accounts Act cover issues like the procedures to set up a business concern, Investment, taxation on business concern etc.
Under Thai Law majority share ownership by foreigners in a Thai company, although not forbidden, is severely restricted. As a result most non-Thais will opt for a majority Thai shareholding (51%) in their company. Exceptions are made for American Nationals (under the Thai American Treaty of Amity) or businesses with BOI (Board of Investment) privileges (mostly manufacturing plants) in which case 100% foreign ownership is allowed subject to certain conditions. The Thai majority shareholder(s) does, however, not necessarily have to be a director or have any signatory rights for that matter. A non-Thai may in theory engage in business in the form of a single proprietorship, limited company, limited partnership, a joint venture, a branch of a foreign corporation, a representative office or a regional office.
The three types of partnership in Thailand differ principally in the liability attached to each.
An unregistered ordinary partnership has partners who are jointly liable, without any limitation on the partnership’s total obligations. A new partner becomes liable for all obligations incurred by the partnership before or after his association with the partnership. This type of partnership is not a legal entity and is subject to taxation as if it were an individual.
A registered ordinary partnership is a juridical entity having a separate and distinct personality from each of the partners by virtue of its registration with the Commercial Registrar. A registered ordinary partnership is treated as a corporate entity for tax purposes.
A limited partnership is one in which there are one or more partners whose individual liabilities are limited to their respective contributions and one or more partners jointly liable without any limitation on all the obligations of the partnership. A limited partnership is taxed as a corporate entity.
The Thai private limited company is basically similar to what is commonly referred to as a corporation. In Thailand a corporation must have at least seven shareholders. In theory the company may be wholly owned by aliens (as Thai law calls all foreigners). However, in those business activities reserved for Thais nationals (the other 99.99%), an alien’s participation is generally limited to 49%. However, this obstacle is routinely circumvented by the use of Thai nominees who sign blank share transfer certificates at the start-up of the company (usually for a small fee).
The liability of shareholders is limited to the amount of their contribution to the capital. The liability of the directors, however, can be unlimited if so stipulated in the articles of incorporation.
Although there is no required minimum level of capitalization, the private limited company’s capital must be sufficient to accomplish its objectives. All of the shares must be subscribed to and at least 25% of the subscribed shares (authorized capital) must be paid up. Shares must have a minimum value of 5 Baht, there must be a minimum of seven shareholders and the issuance of non-voting stock, common or preferred, is not allowed.
A public limited company with an authorized capital of 2 billion Baht may, after five years, be turned into a public limited company by offering shares to the public.
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 but is nevertheless taxable as a corporation under the Revenue Code.
All persons about to start a business must register with the Revenue Department. In addition, if annual turnover exceeds 1.2 million Baht registration for Value Added Tax is also required. Withholding Tax on salaries and services as well as VAT filings must be submitted and settled to the Revenue Department on a monthly basis.
Currently corporate tax is at a flat rate of 30% of net profits, tax on dividends is 10% and VAT is at 7%. Personal income tax varies according to income, marital and parental status with a maximum of 37% for annual income exceeding 4 million Baht (US$ 100,000) after deductions and allowances.
Generally, the basic accounting principles practiced in the U.S. are recognized and accepted in Thailand. The Institute of Certified Accountants of Thailand is the authoritative group promoting the application of generally accepted accounting principles (GAAP). In addition, however, the basic financial statements (balance sheet and income statement) must be audited by a Thai CPA annually.
More Information on Starting up a company in Thailand:
ThaiVest is a free online resource and community for anybody living or wishing to live in Thailand aiming at being financially independent.
ThaiVest covers the following topics:
Property in Thailand
Start-up & Company formation
Living in Thailand & Thai Culture
Visa & Residency