If you’re getting setup advice that seems dodgy, it probably is. Setting up a startup properly in Bangkok is critical for peace of mind, scalability and investment
Being a foreigner in Thailand and owning a business can appear complicated and is often misunderstood. The details regarding how foreigners can legally run their own business, and even own a majority ownership aren’t always easy to find, and much of the information that is available isn’t accurate. If you’re looking to launch, incubate or accelerate a startup in Thailand, It’s vital you have decent understanding of your options.
In Thailand, a startup, indeed any business, is classified as a foreign entity if more than 50% of its shares or partner capital are foreign owned. This rule often leads people to believe their only option is to form a company with majority Thai ownership to ensure their business isn’t affected by any restrictions according to Thai law.
In fact, a foreigner can own and operate any kind of business except those specifically restricted.
When opening a “local” company, i.e. where more than 50% of its share capital is owned by a natural or juristic Thai person or persons, there’s the risk of falling afoul of shareholder nominee laws. You may have heard of business owners who fake the Thai shareholder component by having a Thai national “hold” shares they haven’t paid for. This is a serious misjudgement as it is explicitly illegal. Running afoul with regulations in Thailand, indeed anywhere, is highly ill advised.
You should instead consider sensible, alternative options for setting up your business in Thailand, that eliminate the need for nominee shareholders, while still allowing direct participation and control over your business.
The following four entities, sometimes less familiar to the public at large, are ideal for startups looking to setup, accelerate growth, and operate in Thailand:Foreign Representative Offices
A Foreign Representative Office is a registered foreign entity with no shareholding – it is entirely owned by its overseas parent company though doesn’t require a Foreign Business License. However, it can only operate as a cost center, limiting its Thai business activities to: sourcing and procurement; quality control; customer support; marketing and public relations; and/or market research.
When operating your startup locally as a Foreign Representative Office there are some restrictions to note: this entity may not liaise, receive or confirm orders, negotiate business deals or sign any contracts by itself or on behalf of the head office or associated companies. Furthermore, it cannot receive any income from its operations as the parent company must be solely responsible for its funding.
The second option is to open a Regional Office. Similar to a Foreign Representative Office, it is wholly owned by an overseas company with no shareholding. It must also be funded by its parent company, which manages at least one active branch, rep office, company or affiliate in Asia – but crucially, this must be outside of Thailand.
As a Regional Office your startup cannot generate income, trade, purchase, sell or negotiate by itself or on behalf of the parent company or associated companies. It’s operations in Thailand are restricted to:
By opening a Branch Office, you’re able to bring your startup into Thailand and make a presence without the complications of ownership and larger investment that are often the case when setting up a Thai limited company or partnership. Importantly, a Branch Office is allowed to generate income, so before it can move forward with its operations, it must apply for a Foreign Business License.
A Branch Office in Thailand operates in much the same way as a limited company except without shareholders or directors. It’s Important to note however that a Branch Office’s liabilities arising from local operations are not limited to the Thailand branch but extend to the overseas head office. And as mentioned, unlike Foreign Representative Offices and Regional Offices, Branch Offices are not limited to “non-trading” activities, meaning that they are permitted to generate income within Thailand.
*Please note: Capitalization rules apply to Foreign Representative Office, Regional Offices and 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, so if you’re bootstrapping and looking for the least expensive alternative, this might not be the best way to start.
You can also set up a company or partnership with foreign ownership by applying for a Foreign Business License. Contrary to what most people believe (or understand), this can be done on its own merits. Alternatively, if your business qualifies, you can apply for promotion through Thailand’s Board of Investment, which allows varying degrees of foreign ownership depending on the promoted business activity established by the BOI and the extent to which the activity may be restricted according to the Foreign Business Act.
Whether applying direct for a Foreign Business License or seeking promotion through the BOI, the process takes between 60 – 90 days and may require certain minimum capital investment commitments to qualify (denied applications can be appealed).
If your startup isn’t restricted by any list, or your products or services are sold exclusively outside Thailand, no Foreign Business License is required. Also, if you are an American or Australian national, it is worth noting there are treaties in place that allow you special rights to own and operate a majority foreign owned business, including fewer restrictions on the types of activities you can engage in, as well as a streamlined application process to obtain a Foreign Business Certificate.
As a foreigner looking to work in Thailand you must have a valid work permit alongside a business visa. However, the primary representative of either a representative, branch, or regional office no longer require a work permit due to recent changes in the law (but still need a valid business visa), though it is important to note that all other foreign staff must still comply. Depending on the size and purpose of your operations in Thailand, you may want to contemplate starting with one of these foreign entities.
If you’re contemplating opening a startup in Thailand, you’ll need to consider one of the above options unless you have a legitimate Thai investment partner. GPS Legal & Consulting routinely supports foreign startup entrepreneurs seeking to set-up in Bangkok. Reach out to them today for an initial consultation.
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