Legal and Regulatory Framework for Setting Up a Company in Thailand

When setting up a company in Thailand, foreign investors must navigate several legal and regulatory requirements. From understanding minimum capital thresholds to complying with the Foreign Business Act (FBA), the regulatory framework is designed to both support and regulate foreign participation in the Thai economy. Here’s an overview of the key elements involved in setting up a company in Thailand.

1. Minimum Capital Requirements

One of the first steps in setting up a company in Thailand is ensuring you meet the minimum capital requirements. The amount of capital required depends on the type of business structure and whether the company will be foreign-owned or BOI-promoted (Board of Investment).

• Limited Company for Foreigners: If you are a foreigner establishing a company in Thailand, the minimum registered capital is typically 2 million THB. However, if the company wishes to employ foreign staff and obtain work permits, it must generally have at least 2 million THB per foreign worker. For example, if you plan to hire two foreign workers, you would need a registered capital of 4 million THB.
• BOI-Promoted Company: Companies that receive approval and promotion from the Board of Investment (BOI) often have higher capital requirements but benefit from a wide range of incentives, such as tax exemptions and the ability to hold 100% foreign ownership in certain industries. The minimum capital for BOI-approved companies can vary depending on the nature of the business but is usually higher than the standard threshold.

The capital must be deposited into a Thai bank account and is usually divided into ordinary shares owned by shareholders.

2. Foreign Business Act (FBA)

The Foreign Business Act (FBA) of Thailand plays a crucial role in regulating foreign ownership in various sectors. This law restricts foreigners from owning more than 49% of certain businesses unless they obtain a Foreign Business License (FBL) or the company is BOI-promoted, which may allow for 100% foreign ownership.

• Restricted Businesses: The FBA divides restricted businesses into three categories:
  • Category 1: These businesses are completely off-limits to foreign ownership (e.g., broadcasting, farming).
  • Category 2: Foreigners may engage in these industries, but only with special permission from the Ministry of Commerce (e.g., production of firearms, transportation).
  • Category 3: Foreign ownership is allowed but requires a Foreign Business License, as these industries are not yet ready to face full foreign competition (e.g., retail, construction).

Navigating the FBA’s restrictions is critical for foreign investors, as failing to comply can lead to fines or even the forced closure of the company. StMatthew Global can assist with obtaining the necessary licenses and ensuring your business is fully compliant with Thai regulations.

3. Shareholders and Directors

Shareholders

• Minimum of three shareholders: In Thailand, forming a limited company requires at least three shareholders. These shareholders can be individuals or legal entities. In the case of foreign-owned companies, at least 51% of the shares must be held by Thai nationals unless special approvals or BOI promotions are in place.
• Ownership and voting rights: Shareholders' voting rights are typically proportionate to their shareholdings. Therefore, structuring the company’s shares is important when determining control over the company.

Directors

• Thai nationals vs. foreign nationals: The company must appoint at least one director who is responsible for the day-to-day operations of the business. Both Thai nationals and foreign nationals can be directors, but certain activities, especially those that involve signing contracts on behalf of the company, may require the participation of a Thai national.
• Legal responsibilities: Directors in Thailand have fiduciary duties and are legally required to act in the company’s best interest. They must also ensure that the company complies with Thai law, including filing annual financial statements and maintaining proper corporate governance.

4. Company Registration Process

The process of registering a company in Thailand is relatively straightforward, but several steps must be followed to ensure compliance with local laws.

Step 1: Company Name Registration

The first step is to reserve a unique company name through the Department of Business Development (DBD) under the Ministry of Commerce. The name must not resemble or duplicate existing registered names. Once approved, the name is reserved for 30 days.

Step 2: Filing for a Tax ID

Once the company name is reserved, the next step is to register the company and obtain a Taxpayer Identification Number (TIN) from the Thai Revenue Department. All businesses in Thailand must be registered with the tax authorities, even if they are not initially generating revenue.

Step 3: VAT Registration

If the company’s annual revenue is expected to exceed 1.8 million THB, it must register for Value Added Tax (VAT). VAT in Thailand is currently set at 7%, and businesses must file VAT returns monthly.

Step 4: Opening a Thai Bank Account

After registration is completed, the company needs to open a corporate bank account in Thailand. The company’s registered capital must be deposited in this account, and this step is essential for obtaining work permits for foreign employees. Most Thai banks will require proof of company registration, articles of association, and documentation proving the director’s authority.

Taxation System in Thailand

Thailand’s tax system is relatively straightforward but has several key elements that foreign entrepreneurs need to be aware of when establishing a business. The taxation structure includes Corporate Income Tax (CIT), Value Added Tax (VAT), and other taxes such as withholding tax and personal income tax. Additionally, Thailand’s Double Taxation Agreements (DTA) with various countries play an important role in international business operations.

1. Corporate Income Tax (CIT)

In Thailand, Corporate Income Tax applies to all businesses operating within the country. The standard rate of CIT is set at 20%, which applies to most companies. This tax is levied on net profits, and companies are required to file CIT returns annually with the Revenue Department.

Tax Reductions and Exemptions for BOI-Promoted Companies

For companies that qualify under the Board of Investment (BOI) scheme, several tax incentives and reductions are available. The BOI is designed to attract foreign investment in key industries such as manufacturing, technology, and tourism. Some of the benefits available to BOI-promoted companies include:

• Corporate tax exemptions: Depending on the type of project and sector, BOI-promoted companies can receive up to eight years of corporate income tax exemptions.
• Reduced CIT rates: In some cases, businesses may receive reductions in CIT rates beyond the standard 20%.
• Exemption from import duties: BOI companies are often exempt from import duties on machinery, raw materials, and other inputs.

Additionally, foreign companies with regional operating headquarters (ROH) in Thailand can benefit from reduced CIT rates and other tax benefits. This makes Thailand a strategic hub for international companies looking to manage regional operations.

2. Value Added Tax (VAT)

VAT is a significant part of Thailand’s tax system and applies to the sale of goods and services within the country. The standard VAT rate is 7%. However, VAT registration is mandatory only for businesses with an annual turnover exceeding 1.8 million THB. Companies that fall below this threshold are not required to register for VAT but may choose to do so voluntarily if they wish to claim VAT refunds on their expenses.

VAT Exemptions

Certain industries and sectors are exempt from VAT, which means that while they do not need to charge VAT on their goods and services, they also cannot reclaim VAT on their inputs. Exempt industries include:

• Healthcare services: Hospitals, medical professionals, and healthcare services are generally exempt from VAT.
• Education: Educational institutions, including schools and universities, are also VAT-exempt.
• Cultural and religious services: Services provided by religious organizations and some cultural activities are exempt from VAT.

In addition to these exemptions, some goods are subject to zero-rated VAT, which means that businesses do not need to charge VAT but can still reclaim VAT on inputs. Examples of zero-rated goods include exports and some agricultural products.

3. Other Taxes

In addition to corporate income tax and VAT, businesses in Thailand may also be subject to withholding taxes and have responsibilities regarding personal income tax for their employees.

Withholding Taxes

Withholding tax applies to certain types of payments made by companies, including dividends, royalties, and interest. The rates vary depending on the type of payment and the residency of the recipient. Common withholding tax rates include:

• Dividends: Subject to a 10% withholding tax for payments made to both resident and non-resident individuals and corporations.
• Interest payments: Generally subject to a 15% withholding tax when paid to non-residents.
• Royalties: Payments for royalties are usually subject to a 15% withholding tax for non-residents.

It is important for businesses to ensure compliance with withholding tax regulations, particularly when making payments to foreign entities, as failure to do so may result in penalties.

Personal Income Tax

Business owners and employees in Thailand are subject to Personal Income Tax (PIT), which operates on a progressive scale. The rates for personal income tax in 2024 range from 5% to 35%, depending on income brackets. Employers are required to withhold PIT from their employees’ salaries and remit it to the Revenue Department on a monthly basis.

For expatriates, it is essential to understand the tax residency rules. A person is considered a tax resident in Thailand if they stay in the country for more than 180 days in a calendar year. Tax residents are required to pay PIT on their worldwide income, while non-residents are taxed only on their Thai-sourced income.

4. Double Taxation Agreements (DTA)

Thailand has signed Double Taxation Agreements (DTAs) with more than 60 countries worldwide, including the United States, the United Kingdom, Japan, and most EU countries. These agreements are designed to prevent double taxation on income earned in more than one jurisdiction, which is particularly beneficial for international businesses.

The key benefits of DTAs include:

• Reduced withholding tax rates: DTAs often provide reduced rates for withholding taxes on dividends, interest, and royalties paid to residents of treaty countries.
• Tax credits: Businesses and individuals can claim foreign tax credits to offset taxes paid in one country against their tax liability in Thailand.
• Transfer pricing relief: DTAs help prevent tax authorities from taxing the same income twice in cross-border transactions, particularly when it comes to transfer pricing between related entities.

By taking advantage of these agreements, businesses can reduce their tax burden and improve profitability when operating in multiple countries.

Thailand's taxation system provides a favorable environment for both domestic and foreign companies. With a standard corporate tax rate of 20%, accessible VAT regulations, and numerous incentives available for BOI-promoted companies, businesses can benefit from a competitive tax structure. Additionally, the country's network of Double Taxation Agreements further enhances Thailand’s attractiveness as a hub for international operations, reducing the risk of double taxation and making cross-border business smoother and more efficient.

Employment and HR Management in Thailand

When setting up a business in Thailand, it’s essential to understand the legal framework and obligations related to employment and HR management. This includes hiring Thai employees, managing work permits and visas for foreign workers, and handling payroll and social security contributions. Below is a comprehensive guide on these aspects.

1. Hiring Thai Employees

Legal Requirements

In Thailand, hiring local employees involves complying with several legal requirements. Every employer must provide their employees with a written contract, although verbal agreements are also enforceable under Thai law. Employment contracts typically include the following details:

• Job title and description: Clearly defining the role and responsibilities of the employee.
• Salary: The agreed wages, which must meet or exceed the minimum wage.
• Working hours: Standard working hours in Thailand are capped at 48 hours per week, with a maximum of 8 hours per day. Overtime is permitted but must be paid at a higher rate.
• Benefits: Employees are entitled to statutory benefits, such as annual leave and sick leave.

Minimum Wage and Employee Rights

The minimum wage in Thailand varies by region. In 2024, it ranges from 328 to 354 THB per day, depending on the province. Employers are required to ensure that no employee earns less than the set minimum wage for their region.

In addition to wages, Thai law provides employees with several rights:

• Annual leave: After one year of service, employees are entitled to a minimum of 6 days of paid annual leave.
• Sick leave: Employees are entitled to up to 30 days of paid sick leave per year.
• Maternity leave: Female employees are entitled to 90 days of maternity leave, with 45 days paid by the employer and the remaining covered by social security.
• Public holidays: Employees are entitled to at least 13 public holidays per year.

Thai labor law also mandates employers to provide written notice or compensation in lieu of notice if they terminate an employee without cause.

2. Work Permits and Visas for Foreign Workers

Work Permits

Foreign workers who wish to work in Thailand must obtain a work permit, which is typically sponsored by the employer. To secure a work permit, the company must first ensure that the foreign employee holds a valid Non-Immigrant B visa, which is the standard visa for business-related activities.

The employer must provide documents such as the company’s registration papers, tax records, and proof of Thai employee ratios when applying for the work permit. Once issued, the work permit must be carried at all times while working in Thailand.

Visa Requirements

To qualify for a Non-Immigrant B visa, foreign employees must meet specific criteria, including holding a valid job offer from a registered Thai company. The visa allows them to stay in Thailand for 90 days initially, and it can be extended once the work permit is issued.

4:1 Ratio of Thai to Foreign Workers

Thailand enforces a 4:1 ratio of Thai employees to foreign employees. This means that for every foreign worker hired, the company must employ four Thai nationals. This ratio applies to most companies, although some industries may have different requirements or exemptions, particularly for BOI-promoted companies. Businesses failing to meet this ratio may face difficulties in securing work permits for foreign employees.

3. Social Security and Payroll

Social Security Contributions

Employers in Thailand are required to register their employees with the Thai Social Security Office and make monthly contributions to the social security fund. Both employers and employees must contribute 5% of the employee's salary, up to a maximum monthly contribution of 750 THB each. This contribution provides employees with coverage for medical expenses, unemployment benefits, maternity leave, and pensions.

Employees become eligible for social security benefits once they have been registered with the system for at least six months. Employers are required to deduct employees' social security contributions from their wages and submit them to the Social Security Office alongside their own contributions.

Payroll Taxes

Employers in Thailand must withhold personal income tax from employees’ wages. The income tax rate in Thailand is progressive, ranging from 0% to 35%, depending on the employee's income. Payroll taxes must be filed with the Revenue Department monthly. Employers are responsible for ensuring that the correct amounts are withheld and submitted on time to avoid penalties.

Additionally, companies must submit monthly payroll reports detailing employee wages and tax deductions, along with social security contributions. This ensures that employees' benefits are maintained and that the company complies with local tax regulations.

Understanding employment laws and regulations is critical for successfully managing a business in Thailand. By adhering to the minimum wage laws, ensuring proper contracts, managing work permits, and handling payroll taxes and social security contributions, businesses can create a compliant and productive work environment. With the right approach, hiring both Thai and foreign employees can be a seamless process, allowing businesses to tap into a diverse talent pool while meeting regulatory requirements.

Post-Incorporation Obligations and Compliance in Thailand

After successfully incorporating a company in Thailand, businesses are required to fulfill several post-incorporation obligations to ensure they remain compliant with Thai laws and regulations. These obligations typically involve annual filings, financial audits, and statutory reporting. Below is an overview of these requirements and their significance for companies operating in Thailand.

1. Annual Filings

One of the primary post-incorporation responsibilities is the submission of annual financial statements and tax returns to the relevant authorities.

• Annual Financial Statements: Every Thai company is required to prepare and file annual financial statements with the Department of Business Development (DBD), part of the Ministry of Commerce. These statements must be submitted within five months of the company’s fiscal year-end. The financial statements must accurately reflect the company’s financial position and performance over the previous year, including profit and loss, balance sheets, and cash flow statements.
• Maintaining Accounting Records: According to Thai law, companies are required to maintain accurate accounting records and bookkeeping practices. These records should comply with Thai Generally Accepted Accounting Principles (GAAP) and must be kept for at least five years. Proper bookkeeping is critical not only for regulatory compliance but also to support the preparation of financial statements and tax returns.
• Tax Returns: Companies must file an annual corporate income tax return (form PND 50) with the Revenue Department. This filing is due within 150 days of the fiscal year-end, and it reports the company's taxable income for the year. Companies may also need to file withholding tax returns and value-added tax (VAT) returns monthly or quarterly, depending on the nature of their business and their VAT registration status.

Failure to comply with these filing requirements can lead to penalties, interest charges, and even the suspension of business operations. StMatthew Global can assist in managing these filings, ensuring that your company remains compliant with all Thai accounting and tax regulations.

2. Audits

In Thailand, certain companies are required to have their financial statements audited by a licensed certified public accountant (CPA), particularly those with significant revenues or large numbers of employees.

• Audit Thresholds: Companies that meet specific criteria, such as having annual revenue exceeding 30 million THB or employing more than 50 employees, are required to undergo an audit. The financial statements must be audited annually, and the auditor’s report must be submitted alongside the financial statements to the DBD and Revenue Department.
• Audit Scope: The audit ensures that the company’s financial statements present an accurate and fair view of its financial condition, in compliance with Thai accounting standards. Auditors will review the company’s records, transactions, and internal controls to ensure accuracy and transparency.
• Importance of Audits: Audits not only fulfill legal requirements but also enhance the credibility and trustworthiness of the company, especially for potential investors, partners, and stakeholders. An independent audit also helps to identify any discrepancies or areas of improvement within the company’s financial systems.

We provide assistance with the audit process, coordinating with qualified auditors to ensure a smooth and efficient review of your company’s finances, meeting all legal obligations without undue stress or delay.

3. Statutory Reporting

In addition to annual filings and audits, companies in Thailand must fulfill ongoing statutory reporting obligations to the Ministry of Commerce and the Revenue Department.

• Ministry of Commerce Reporting: Thai companies are required to submit annual general meeting (AGM) reports and updated information about shareholders and directors. The AGM must be held within four months of the company’s fiscal year-end, during which shareholders review and approve the audited financial statements and other key matters. Following the AGM, companies must submit the minutes of the meeting and an updated shareholder list to the DBD within one month.
• Revenue Department Reporting: Companies that are registered for VAT must file regular VAT returns. Additionally, they must file withholding tax returns if they have made payments subject to withholding tax, such as salary, rent, and professional services fees. Companies are also required to file monthly payroll taxes for their employees and ensure that social security contributions are deducted and paid accordingly.

Failure to meet these statutory reporting requirements can result in fines, penalties, and delays in processing company transactions. By partnering with StMatthew Global, we take care of all these statutory filings, ensuring that your company remains in good standing with the Thai authorities.

Staying compliant with post-incorporation obligations is critical to running a successful business in Thailand. From filing annual financial statements and undergoing audits to meeting statutory reporting requirements, each step is vital for maintaining legal and financial transparency. At StMatthew Global, we specialize in managing these obligations for our clients, ensuring they remain compliant with Thai regulations while focusing on growing their businesses. Let us handle the administrative and legal formalities so you can concentrate on your company's strategic goals.