Generally, if you have real intentions of doing business in Thailand, then setting up a company and doing legitimate business in Thailand is fairly straightforward and not difficult, especially compared to many other countries.
Thailand is a good place to do business, not a bad place. It is a fairly free-wheeling market economy, and reasonably flexible.
The Thai legal system as regards company and tax matters is largely patterned after the USA and European countries such as Switzerland and France. Most foreigners find it quite reasonable and easy to work within.
Many people have visited Thailand Guru's office feeling daunted by the requirements and process, and most have left thinking it's not quite so overwhelming after all. While it depends on what you need and want to accomplish (and of course this website doesn't attempt to cover all fields and technical matters, just links to them), it also depends on guidance and expert support.
The heart of doing business successfully in Thailand is, well, doing business well. By saying this, I mean to emphasize that the legal part should be the relatively easy part in Thailand. Don't let the tail wag the dog. The important part is whether your business is financially viable as regards the product(s) and/or service(s) you are providing. The legal part is the easy part and should follow that.
Often, people come to us scared by bad stories read on the internet or heard from others. From my 10+ years of experience in Thailand and from helping others, I have to say that it's usually a lot smoother than what I often read on the internet and hear from those I don't deal with, IF your business is really active in trying to provide products and/or services. There are two sides to every story, but sometimes the internet is like the news -- bad news is parroted and travels much further than good news, and people like to complain (the lowest common denominator fear instinct keeps people awake and gets attention). In reality, most of the world ... and most of Thailand ... is good, not bad. It's a lot like the "all Thai women really want only your money" myth on the internet. Get away from the dodgy groups and you'll discover differently.
This article covers the main issues usually raised, and gives helpful advice applicable to most people I have dealt with myself.
The Thai Company Ownership Issue
The laws in Thailand are pretty nationalistic. In the vast majority of cases, the company must be "majority owned" by Thais, in terms of shareholders. This means that the company can be no more that 49% foreign owned. Sometimes, it is a maximum of 39% foreign ownership, and occasionally even less. In most cases it's 49% foreign owned.
This is by far the most serious issue for the largest number of foreigners.
The exceptions -- majority foreign ownership -- require an Alien Business License a.k.a. a Foreign Business License from the Ministry of Commerce, normally granted with the blessings of the Board of Investment (BoI) on the basis of very large investments of money, very large numbers of Thais employed, and/or exceptionally strategic transfer of technology to Thais (such as in the energy field). There are also American Treaty Companies, which I will discuss later on this page. The ability to set up either kind of company depends on the sector of business you are in, and other factors.
I have seen some advertisements saying that you CAN set up a majority foreign-owned company. Sure you can. You can file papers with all foreign shareholders, 100%. You just can't do business with that company unless and until you get an Alien Business License.
However, control of a company, its money, property, decisions, etc., is not necessarily lost by not having "majority ownership". There are some simple measures whereby a foreigner can completely control the company. For example, let's say that you own just 39% of the stock, and the Thais 61%.
-You are the sole Managing Director
-Sole signatory authority -- the bylaws / Articles of Incorporation state that all decisions must be signed by this Managing Director
-You split the stock between "ordinary" and "preference" shares whereby your "ordinary" shares each have 2 times (or more) the voting power of the "preference" shares (preferred for dividend payments, not for voting) (Note: This is changing in 2007, whereby this is disallowed in many sectors, but the guidelines are not yet clear.)
Notably, in addition, you should:
-Set a quorum of shareholders at 65% (and thus, if you don't attend, there is no quorum and there are no surprises) so that the bylaws cannot be changed nor can the Managing Director be changed.
(Note: In Thailand, the definition of "ordinary" and "preference" shares varies from some other countries. Some give more voting power to preference shares. It's partly a matter of translation and definition, but there can be philosophical differences, too. In any case, in Thailand you clearly establish the different voting powers.)
The foreign Managing Director can, of course, be the largest shareholder.
Notably, with many law firms, it is common for foreigners to "pay off" the Thai shareholders whereby the Thai shareholders sign away their shares in an undated share transfer agreement right after setting up the company ... but for every Thai shareholder who "resigns" and makes available their share transfer deed, you must transfer the shares to someone else. Shares cannot just be left without an owner; they must be transferred, either to another Thai or else to yourself. If you transfer them to yourself, then you are violating the law by operating as an alien company, and subject to judgement. These law firms will point out that transferring the shares back to yourself "is a minor problem compared with other problems you could have". That depends ... However, in any case, if you go that route, you would just leave signed and undated share transfer agreements in your drawer untransferred and undated ... or in your safe, as that can be a huge risk. You must also report any share transfers in your Annual Report. You can give these shares to someone else as needed, but until someone else accepts these shares, the original shareholders still own them. Again, nobody can just sign away their shares without someone else accepting them.
Another questionable tactic is to have the law firm provide promoters/shareholders who never meet you and don't even know you. This is sometimes presented as "if they don't even know, that's another level of safety". It's illegal. Further, if your company gets rich or acquires property, then if you subsequently have an "unfortunate accident" (or are just murdered), guess who gets all that wealth and property (or arranges to have those shares transferred to them)? Do you really trust these people?
This is NOT to imply that others have such conspiratorial intentions. It is clear that they usually don't, and these things are rare. However, these things do happen occasionally, and these are risks you don't need to take. If you value a good night's sleep, then you might want to know and diversify your shareholders before they become shareholders.
It's also best to state clearly where the wealth of a company goes in case of the demise of the Managing Director, such as in your will, and that everyone knows this. It's also good to make sure that you keep some of your information confidential and safe.
Assigning the shares to your Thai wife and her family can be risky if you have problems with them later. Likewise, you don't want to assign shares to people who may want to take over your business or its assets, of course. It is best to assign these shares to a diversity of Thais who you think you can trust.
Most Thais don't understand their liability by owning company shares. If the shares are paid for, then there is no shareholder liability, generally speaking. That's the whole purpose of a company. If someone owns 500,000 baht of shares, and those shares are paid up, then they are not liable if the company loses money. However, if they own 500,000 baht of shares but only 200,000 baht are paid up, then if the company loses a lawsuit and owes money, they could lose up to 300,000 baht (the unpaid shares they own).
American Treaty Companies
Notably, one exception to this rule of Thai majority ownership has been that American citizens have been able to set up an "American Treaty" company majority American owned. This is the result of an old bilateral treaty from colonial times. It's a little bit more complicated that a regular company, but has been a commonly chosen alternative, and indeed Thailand Guru as done all the processing required to get this status for customers. Since 2004, when the treaty expired, the Thai government has been on-and-off about honoring applications. The plan is to phase out the American Treaty Company option, and revise the laws and regulations as regards foreign businesses, but this has been a slow and bumpy road with little progress thus far.
Things NOT to do
First, let me go thru a brief list of "DON'Ts":
Most of the serious problems I hear about come from people who are inexperienced in doing business, don't have a trustworthy and experienced business partner, get into trouble following tricky and dodgy guidance, and/or don't do the proper research and work in their particular field or specialization.
Notably, I advise people to NOT set up a company (nor employ my company's services) just to get a longterm visa in Thailand or to buy property in your company's name (since foreigners cannot own land in Thailand, with few exceptions). Shell companies for these two purposes are both illegal and discouraged by the Thai government. It's also a lot of paperwork, added expenses, and hassle -- overall just not worth it. It's better to just do visa runs (all considered) and get land on 30 year leases on property (extendable to 60 years and more) -- which are both legitimate. In my opinion.
Of course, there are many lawyers who are happy to take your money and set up one of these "legal constructs". However, you will be the one holding the baby. You may use their accountants recurrently, and there may be unforseen additional costs and hassles which they might attribute to changing government regulations, so you should consider all this before you try to set up any kind of shell company for a visa or property purchase.
I've know many foreigners who set up their first business (ever in their life) in Thailand and who are successful, but they had true intentions, were determined, committed, perseverant, self-disciplined, willing to learn, good natured, and had good guidance. If you're not really serious about starting up a business, then please don't inquire. It's OK if this is your first business, but you need to be committed, not just want some tricky shell company. We won't face the government officials and try to trick them.
Another don't: Do not believe everything you hear about bribes being required. Often, I hear of people saying that bribes to brokers are required for achieving ordinary things -- in which the bribes are NOT required and which we do routinely and quickly without offering bribes. What's to stop the broker from pocketing the bribe in whole or in part?
Few people will admit to screwing up or giving bad guidance, but there is a lot of questionable activity in Thailand, and peer groups of dodgy characters, all of which lead to "urban legends" being parroted. There are 2 sides to every story. In general, your "Thailand experience" will depend on considerable measure on the "karma" of those you choose.
Your success or difficulty will mostly depend on things like:
-The market for your services or goods
-Your research
-Any licenses required for your goods (especially things like foods requiring an FDA approval process)
-Your general experience and ability to do business
-Your partner(s), if any
-The quality of the staff you hire
-Your peer group and guidance
It is illegal for an individual to work in Thailand without a "work permit" (a little booklet that looks like a passport) and a tax ID number (you get a laminated card approximately the size of a driver's license). (Foreigners with real Thai families in clearly good standing with their good family are often given breaks in this regard, so if you fit this description but aren't good at business, be careful to not waste precious family resources.)
After you set up your company, then you have your company apply for a work permit for you after company setup is completed. Then you can work legally, and your company can pay you.
You must maintain a ratio of Thais to foreigners in terms of fulltime employment (usually 4:1 but depends on your business), pay their and your own taxes, and be able to show sufficient capital investment.
You cannot just start a company and then bring in all your foreign staff. Your number of foreign work permits will be dependent upon your number of Thai employees, your investment (2 million baht "registered capital" per work permit if you aren't married in Thailand), and the strength of your business in other ways.
Before you get your work permit, your company can still do business with other companies, as it's a company to company transaction, not a transaction between you and another company. However, you cannot work, and your company cannot pay you a salary until you get your work permit and personal tax ID number. It is also illegal for others to pay you directly.
There are many cases of foreigners doing work in Thailand for other companies, and then the companies refusing to pay them until they get a work permit.
A lot of foreigners work anyway, without a work permit, as you can read on the internet and find out in the general public, sometimes in their own startup business (such as testing the market or their business ability). It's not as if the Thai government people are "out to get you". However, it's not entirely without its risks, and most people who do this don't do it for long.
I get some inquiries about whether it's legal to work in Thailand for a company overseas, especially by internet. For example, I know a guy who does engineering design work on his computer at home for a company overseas. He designs a new school in California, a building in another state, and so on, for a company in the USA. They wire him the money. I can see nothing wrong with this in the law, and I've never heard of anyone having any problems. Yes, he's working in Thailand, but not for Thai companies or any entity in the Thai economy, and his work has nothing to do with Thailand except that he's sitting in his hotel longterm doing that work. I couldn't say for sure about how Thai law would apply to this, but I can say that I've never heard of anyone getting into trouble for something like this, and it appears to me that he's working in the USA.
Much more commonly, I get inquiries from people who want to export from Thailand. They come and find some products, such as hand made things around Chiang Mai, and sell them on eBay or elsewhere. On a small scale, they just go to the post office or FedEx and ship little things such as samples. However, as their business develops and they establish customers, they will need to set up a company and go thru the proper customs channels for shipping quantities of the same product, paying suppliers, paying themselves, paying taxes, hiring Thai staff, and so on. I have heard of people being gently but firmly forced to straighten out their Thailand paperwork as regards exports.
Other Issues
There are fields in which foreigners are not permitted to work. However, most of these are generally low skilled fields and not of interest. The majority of fields that farangs of class would want to work in are permitted.
An issue that everyone must deal with is that the rules, instructions and forms are all in the Thai language. Everything that is submitted to the government is in Thai. This requires a lot of adjustment for people like myself who have run our own businesses in our own country whereby we originally did our own legal and accounting paperwork. Almost all foreigners are illiterate in the Thai language, so we are dependent upon someone else to read the rules, instructions and forms, then tell you in plain English ALL that stuff, then get decisions from you, and then put those decisions back into Thai writing. Thai people must guide you and take care of things as they arise.
In fact, many, many farangs are asked by their lawyer to sign forms that aren't filled in, many blanks amidst the Thai writing, which the lawyer fills in and submits. You can ask the lawyer to fill them in before you read them, but even if they're filled in, could you read them?
If you get someone you can independently trust to proof-read the forms, make sure they are a well educated, skilled and responsible kind of person. (Some farangs have been known to ask their bargirl concubine to perform this task, which is a great mistake since most of them have just the free government 6th grade education or less, and you wouldn't have a similarly educated person in the west read your legal forms..., plus you need someone really interested and diligent by nature.)
You will need a good accountant to handle all the communications and tax matters with your clients' accountants and all officialdom. They will be needed for both spoken and written communications. They may also have to explain some accounting things to your employees.
Notably, accounting and auditing inside your company can be done in English. However, the standard forms submitted to the Thai government are in Thai, and other reports must be translated into Thai.
As has been noted elsewhere on this website, Thais in general do not have good spoken English, including in most government offices. The vocabulary for doing business is a very high vocabulary, unlike ordinary socializing and talking among vendors on the street.
The people at www.ThaiEnglish.com help foreigners new to Thailand in matters such as translation of documents, research in the Thai language web and other media, getting information over the phone -- completely, receiving calls for you, going to meetings with you as an interpreter, and other such matters where language limits foreigners otherwise -- being there when you need Thai language interpretation and translation.
If your company is small, then the bank may not give you a checking account when you first open your company account. You may get only a savings account, whereby you can only withdraw cash. You won't get an ATM card with a company account. You must go or send someone over to the bank with a withdrawal slip, with the authorized signature (e.g., yours) and stamped with your company stamp. The bank will write up individual bank cheques upon request, but this is a time consuming process. You often pay your clients in cash, or else transfer/deposit funds into their account at the bank.
Loans from local banks are not easy to get. Getting a loan from your bank overseas may be easier, even though you are transferring the money to Thailand.
Even though the Asia Economic Crash of 1997 was a long time ago, it was a very deep hole for Thai banks to start digging out of, and the amount of debt from these old non-performing loans (NPLs) is still very large.
There is a section explaining The 1997 Asia Economic Collapse. You can understand how this deeply affected Thai law and regulations.
The economy restructured and recovered, and the years since 2000 have been high growth years. This recovery was driven largely by SMEs (Small and Medium sized Enterprises), whereas leading old money entities up to 1997 were largely disabled by the crash. The recovery is a testimony to the free enterprise economy of Thailand, where countless opportunities exist and it's mainly a matter of entrepreneurs going out to implement. The recovery was much quicker than the bad news press predicted.
The biggest upcoming winners are companies that export goods and services. Notably, we have been interested in getting into exports, but are looking for purchasers. We have seen many people come to Thailand without much business but become successful rags-to-riches businesses in exports. A key is having someone overseas as the local representative / distributor / sales outlet. Most people are reluctant to buy over the internet from someone in another national legal jurisdiction, as it entails a lot of risk and hassle, compared to buying domestically. We have done a lot of research and have staff who previously worked for export companies now working for us, but we are trying to carve out our own niche. We have started with the website www.ExportBay.com and we hope to get that going in 2007.
There are many factors that may go into a decision on whether or not to do business in Thailand and set up a company. The ThailandGuru can be of help in some ways, both directly and by referring you to other specialists. Our core abilities are in our Thai language research and analysis services.
For the formal part of setting up a company, we recommend you explore the website at www.ThailandCompany.com for the formal process of getting the company registered, getting your tax ID status, your work permit and dealing with visa matters. That's the technical and legal part.
If you want us to help you set up a company, then we can advise and help you, including the legal part. However, I suggest you also consider talking with Steve Sykes, an American with a lot of business experience in Asia and Thailand who gives excellent personalized service and has a very trustworthy and straight operation (no dodgy methods) at www.indo-siam.com or www.ThaiStartup.com. If you don't feel comfortable investing too much money, time and effort into company setup, leasing and outfitting an office, rent, and staff, then you may choose to outsource the work, whereby Steve's operation already has a structure in place for serving as "employer of record" for Thai staff that work in dedicated support of overseas clients, at www.BangkokStaff.com. Their office is right across the street from our new office on Asoke (Sukhumvit 21), so you can get two visits in one trip, and see whether either one of us is interested in getting involved in helping you with your matters. (We are entirely independent of each other, in fact technically we could be seen as competitors in these sub-realms, but neither of us "needs" more business and it's just a matter of good decisions about who we get involved in helping. We both get busy at times and neither one of us is greedy. I'd just rather recommend entities I know are good.)
We can also help you in finding a good office location, your own employees, and other matters.
You probably won't get far without good marketing. A part of that is a website, which you can list on your business card and small advertisements, say over the phone, and of course submit to search engines, directories, and the websites of associates. For a good website design and marketing company in Bangkok, using economical Thais under the direction of an American internet veteran, see www.offshore-website-design.com which is a division of www.OffshoreLaboUr.com / www.OffshoreLabor.com (which for years did offshore outsourcing with quality work as our advantage).
For researching independently on the internet, you should look for and read the Foreign Business Act of 1999 (year 2542 in the Buddhist calendar of Thailand), which repealed the Alien Business Law of 1972. You can get a paperback version of this from various places. Much of what is written and advised on this website is based on that.
The Board of Investment (BOI) website has a good page on setting up a business in Thailand, at www.boi.go.th/english/business/
If you need help with other matters, let Thailand Guru know and we may be able to refer you to the appropriate entities, people we know to be good -- specialist lawyers, BOI associates, potential Thai advisors, etc. Let us know by contacting us.
No comments:
Post a Comment