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Archives for Foreign business in Thailand

Can a Foreigner sign forms to set up a Thai company from overseas?

Thai Business Expert got a interesting question from a foreigner who wants to set up a Thai limited company, but cannot come to Thailand at the moment.

Question:

Hi, I am busy with my business outside Thailand and cannot come to sign the application form to register my Thai company any time soon. However, i need to set up this new Thai limited company very quickly, what should I do?

Answer:

We can send the forms to register a Thai limited company to you where you are. However if the forms to register a Thai limited company are signed outside Thailand, the registrar only accepts the signed forms that were certified by the Thai embassy or consul in the country where the documents were signed. And the Thai embassy will only certify the documents that have been notarized by the notary public of that country.

Here is the Ministerial Regulations regarding Establishing the Partnership and Company Register Office, Appointing the Registrars and Prescribing Rules and Procedures for Partnership and Limited Company Registration B.E. 2549 (2006). Clause 6 specifies clearly how the forms to register a Thai company should be signed as follows:

Clause 6. In signing an application for registration, the registrant shall sign in person before the Registrar.

Where it is not possible to sign before the Registrar for any reason, the signature on an application for registration shall be deemed proper when the registrant signs in person before any of the following persons:

(1) In case of signing within the Kingdom:

(a) Administrative official or senior police officer stationed in the locality of the registrant’s domicile;

(b) Ordinary member or extraordinary member of the Thai Bar Association; or

(c) Other persons as prescribed and announced by the Central Registrar.

(2) In case of signing abroad:

(a) Authorized officer of the Thai embassy or Thai consul or chief of an office attached to the Ministry of Commerce who is in charge in that country, or an official authorized to act on behalf of that person;

(b) A person who can provide valid certification in the form of the laws of that country; or

(c) Two reliable persons who sign as certification before the Registrar that it is the true signature of that person.

Note that in practice the only way that is acceptable to the registrar is the forms that were certified by the Thai embassy or consul in the country where the documents were signed. And the Thai embassy will only certify the documents that have been notarized by the notary public of that country.

Contact MSNA for Thai company registration services.

 

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Can a foreigner set up a Thai limited company with nominee shareholders?

Nominee shareholders for Thai limited companies is an issue that clients ask MSNA very often.

If a foreigner wants to set up a Thai limited company with 100% shares held by foreigners, he needs to consider Thailand foreign business law. Most likely, he will need to apply for a foreign business license, which is very difficult to get. Some foreigners may opt to have a Thai partner hold the majority of the shares for them. Many of such cases are that the Thai shareholders are nominee shareholders, who just hold the shares on behalf of the real investors – the foreigners.

Whether your Thai shareholders are nominee shareholders or not, they have to show that they have the money to invest in the company. Since August 2006, the Central Registrar specified the rules and procedures for registration of a limited partnership and a limited company in the case of registration to establish a limited partnership or a limited company as follows:

  1. where the number of shares held by foreign partners or shareholders in a limited partnership or a limited company are at least 40% but less than 50% of the registered capital, or
  2. where a foreigner who holds less than 40% of the registered capital in a limited partnership or a limited company is a person authorized to act on behalf of the limited partnership or limited company

the Thai partner or shareholder must submit the evidence below showing the source of capital as an attachment to the application form to register the company, and those documents must show the amount of money corresponding to the amount of money put in their shares or shareholding:

1. Copy of bank deposit book or bank statements for the last 6 months, or

2. Document issued by a bank to certify or to show the financial status of the partner or the shareholder, or

3. Copy of the evidence showing the source of the money put in the shares or shareholding.

In short, the Thai shareholders need to present the evidence that they really have the money to invest in the new Thai limited company during the registration process.

ThaiLawyers.com provides consultation on the matter of nominee shareholders for Thai limited companies.

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Convert loans to shares of a Thai Limited Company

Question:

In order to set up my Thai limited company, I am thinking of getting some loans from my friends in Europe. I will make my friends shareholders in the Thai company that I would like to set up. So, I think I will personally sell shares to them and they transfer the money to my personal bank account in Thailand. It is a normal practice in Europe especially because there is no added value yet, that there is no taxation on selling shares. I assume this is the same in Thailand?

In the articles of association should be written that the capital of the company cannot be increased without my explicit permission. The shares can be paid in one go and that they are received immediately if they are paid on a monthly basis the shares will be received after the last payment has been executed. If this sounds as a workable idea, I only have to make up a transaction agreement and we are ready to go. They can bring it in as a cost, investment, and I have, hopefully, no tax to pay on this transaction so everybody is happy.

Also my idea is to start repaying the loan after my new Thai company has started to have income.

What are your thoughts?

Answer:

You cannot write in the articles of association that way. At least 25% of the registered shares have to be paid up on the day we register the company. And because you are a foreigner, you will need a work permit, so 100% has to be paid up.

I think the best way to do is to have a loan agreement between yourself and the lender saying that the loan will be given to you in installments (if they don’t want to give you the whole lump sum amount at one time) and that the repayment will be done after what condition, for example:

  1. The loan will be repaid in installments of $ xxx, after your new Thai company has shown a gross profit (which is gross income minus cost of sales, but before office and other expenses) of $xxxx. – This is because you said you wanted to pay back the loan when the new company has started to sell the products, or to make money.
  2. The loan will be repaid with the share of the company (your shares). You will not pay them with the shares held by the Thai partner because you need to maintain 51% Thai majority for the type of business you are planning to do.

When you sell your share or repay the loan with your shares, if the value of repayment is the same as the par value of the shares, then you don’t have to pay tax. For example you will pay them with 10,000 shares, Baht 100 par value (total value is Baht 1 M) to repay the loan of Baht 1M, then you have no capital gain so you have no tax to pay. But if you give them Baht 1M worth of shares to repay the loan of Baht 2M, then you have a capital gain of Baht 1M, which will be subject to tax.

Contact MSNA for your Thai company registration questions.

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Changes to condition and tax incentives for Regional Operating Headquarters in Thailand

Recently, some changes were made to the conditions and tax incentives of Regional Operating Headquarters (ROH). The changes are applicable to all ROH’s registered in accordance to Royal Decree No. 508, dated November 2010.

ROH’s need to always meet all of the following conditions otherwise their rights to corporate income tax reduction and exemption will be revoked retroactively, starting from the first accounting period:

  1. They have to have a paid up capital of THB 10 million or more at the end of each accounting period.
  2. They must provide qualifying services to their overseas associated enterprises or foreign branches.
  3. Their associated enterprises must have real business operations, with a physical presence and staff, as notified to the Thai Revenue Department
  4. They have to notify their ROH status in accordance with the rules, procedures, conditions and timeline prescribed by the Director-General of the Revenue Department.
  5. They must pay their staff the compensation at the required level from the third accounting period onwards.

The ROH’s that fail to meet any one of the following conditions in any accounting period will lose their rights to corporate income tax reduction and exemption for that particular accounting period:

  1. They must pay to recipients in Thailand operating expenses related to the ROH operations of at least THB 15 million or capital expenditures of at least THB 30 million in the accounting year.
  2. Their employees must have the skills prescribed by the Director-General of the Revenue Department.
  3. They must employ the required number of staff by the end of the third accounting period.

The ROH’s that are dissolved within 5 accounting periods from the date of registration as ROH will lose their rights to the corporate income tax reduction and exemption retroactively from the first accounting period.

Contact MSNA for accounting and tax consulting.

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Enforcement and punishment measures in land holding as an agent for a foreigner

If it happens that there is the treat of land holding as an agent for an alien, the measures to the land disposal and the offender punishment shall be enforced as follows:

1) Measures on land by enforcement to dispose of the land in accordance with legal procedures.

Under Section 94 and 96 of the Land Code, stipulate the regulation when it appears that person who obtained the land as an agent for an alien or alien entity or alien who obtained the land illegitimately, he/she shall dispose of such land in the portion of his/her possession within the period of time specified by the Director-General of the Department of Lands which shall be not less than one hundred eighty days and not more than one year. The Director-General shall have the power to dispose of such land if time limit elapses.

2) Measures on individuals with criminal offense and to be punished in accordance with laws.

In the case of applying for land registration as an agent for an alien, there will be a criminal offense as follows:

2.1 Offenses against the Criminal Code Section 267 due to information the competent official to recode false statement in the official documents shall be subject to punishment with an imprisonment of not exceeding three years or a fine of not exceeding 6,000 Baht or both.

2.2 Offenses against the Land Code. The alien who commits the offenses under the Land Code Section 111, due to the acquisition of land illegitimately; shall be subject to punishment with a fine of not exceeding 20,000 Baht or an imprisonment of not exceeding two years or both. Juristic person who commits the offense under the Land Code Section 112, or Section 113 in case of Thai people; due to the acquisition of land as the agent for an alien or alien entity shall be subject to punishment with a fine of not exceeding 20,000 Baht or imprisonment of not exceeding two years or both.

Questions on enforcement and punishment of these measures, contact MSNA for consultation.

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Purchase of Land by foreigners in Thailand

According to Section 86 of the Land Code, a foreigner may purchase land in Thailand only by virtue of the provision of a treaty providing him with the right to own immovable property. Obtaining such acquisition is subject to the provision of the Land Code and the Ministerial Regulations issued under the Code, and the permission must be obtained from the Ministry of Interior. Before the termination of the treaty which was made on February 27th, 1970, there were 16 countries bided to the treaty ; USA, England, Switzerland, Germany, Denmark, Norway, the Netherlands, France, India, Belgium, Sweden, Italy, Japan, Burma, Portuguese, and Pakistan. Since then, Thailand has no longer made any treaty with any country to allow an alien to acquire land in Thailand by virtue of a treaty.

However, the Land Code has been amended with Section 96 bis providing that since January 19, 2002, a foreigner is allowed to purchase land in Thailand for residential purpose and the land to be purchased shall be not more than one rai in area, and the following rules and conditions must be met:

1. Bringing money not less than Baht forty million into the Kingdom for investment and maintaining the investment not less than five years;

2. Permission must be obtained from the Minister of Ministry of Interior;

3. Money brought into the Kingdom shall be invested in one of the following businesses or activities;

3.1 To purchase bonds of Thai Government, bonds of Thai National Bank, bonds of State Enterprise or bonds which the Ministry of Finance secures the capital or interest,

3.2 An investment in a property mutual fund, a property mutual fund or a mutual fund for resolving financial institution problems established under the law on Securities and Stock Exchange,

3.3 An investment in share capital of a juristic person, who is granted permission of investment under the law on promotion of investment,

3.4 An investment in an activity as declared by the Board of Investment to be an activity eligible to be granted promotion of investment under the law on promotion of investment;

4. The land to be purchased shall be located in Bangkok Metropolis, Pattaya City, or Tessaban (Municipality), or in the area specified as residential zone according to the law on Town and Country Planning and shall not be located in a military safety zone according to the law on Military Safety Zone;

5. A foreigner, who is granted permission, shall utilize the land only for residence for his/herself and the family in a way that is not contrary to the local custom or good living of the local community;

6. If a foreigner, who is granted permission to purchase such land, does not comply with the rules and conditions specified, he/she shall disposes of such land in the portion of his/her possession within the period of time specified by the Director General of the Department of Lands which shall be not less than one hundred eighty days and not more than one year. If the time limit elapses, the Director General shall have the power to dispose of such land;

7. If a foreigner, who is granted permission to purchase such land, does not utilize the land for residence within two years as from the day the registration for land acquisition is made, the Director General shall have the power to dispose of such land.

Besides the aforementioned rules and conditions, a foreigner may purchase land by inheritance as statutory heir, in this instance, the land devolved when combined with the land already purchased shall not exceed that specified by law, for examples, land for residential purpose not exceeding 1 rai per household, land for commercial purpose not exceeding 1 rai, land for industrial purpose not exceeding 10 rais, and land for agricultural purpose not exceeding 10 rai per household.

A foreigner whose spouse is a Thai national either legitimate or illegitimate, that Thai national can purchase land but the foreigner spouse of that Thai national must give a joint written confirmation that the money which that Thai national will expend on purchasing the land is wholly the separate property or personal effects of that Thai national and not the Sin Somros or jointly acquired property.

Contact MSNA for land acquisition in Thailand questions.

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Payment of goods with Foreign Currency

Question:

We have previously sold our products in USD to a Thai customer. Now that we have incorporated our Thai company, is there any legal restriction on the local customers to continue paying us in USD because we need to pay USD overseas to import the products. Our Thai company hopes to avoid USD exchange rate risk. If it is in USD, how do we convert the exchange rate to calculate the withholding tax amount in Thai Baht?

Answer:

Please make sure you let the customers know that the price and payment will only be in USD even though they will pay you in THB (using the exchange rate on the day they pay the USD amount owed).

The invoice and tax invoice to issue will show the amount in USD in parenthesis only, the THB amount has to be shown on the tax invoice using the rate of the day before. When the customer pays, they will pay in THB (using the USD amount appeared on the tax invoice with the rate of the day). The difference in the Baht amounts on the day they pay and on the tax invoice will be gain/loss from exchange rate.

There is no withholding tax involved when it is sale of goods. Only when it is service fee will there be withholding tax.

Contact MSNA for your Thai accounting and tax questions.

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Foreign Business License in Thailand

A foreign business can operate in Thailand by obtaining a Foreign Business License. Hence, the foreign business applicant that has a good chance to be granted a “Foreign Business License” has to have all these 3 characteristics:

  1. Being a juristic person (company) registered overseas or Thailand (for example, a Thai registered company with majority foreign ownership).
  2. Going to operate business to provide products or services to the private sector, including the private parties that have contracts with government agencies or with other private parties.
  3. Having a service contract or sale contract that specifies the name of the foreign business applicant as the contractual party with another private party and the products or services to be provided must involve high-level technology or require specialized skills.

If the applicant is certain that its business has all the above characteristics, here are some criteria to meet in order to be successful in getting the Foreign Business License:

a. The foreign business products or services should involve high-level technology or require specialized skills, which are beneficial for technology transfer to the Thai people;

b. The foreign business products or services should contribute toThailand’s basic public utilities which are beneficial to its socio-economic development (for example, transportation system, tele-communication system)

c. The foreign business should know what industries will most benefit from its products or services and what industrial sectors will the products or services help to grow and become more competitive and more successful.

d. The foreign business needs to have a sales or service contract with the name of the client as the contractual party with the company, showing the scope of the sales or services, terms and conditions and the length of the sales or service period.

Contact MSNA, your business partner in Thailand to your company a Foreign Business License.

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MSNA Can Help You to Set up a US Company in Thailand

Today, Thai Business Expert summarizes the steps on how we can set up an American owned company in Thailand taking advantage of the Treaty of Amity between USA and Thailand.

Step 1. We will set up a new company in Thailand for you, with all 3 American shareholders (or two Americans and one Thai) with a registered capital of THB 3 M. This is because the foreign business law dictates the minimum capital to be THB 3 M for a company with majority foreign shareholders. Please note that all 3 shareholders will have to be in Thailand at the time of signing the registration papers. Once the papers are signed, the company will be registered the next day, only if the registered address is in Bangkok.

Step 2. We will apply with the US Commercial Service for a letter certifying that the shareholders of the company are American and so the company is entitled to the right (per Thailand – USA Treaty of Amity) to operate the business in Thailand. This step usually takes 1-2 weeks for the US Commercial Service to issue the certification letter.

Step 3. We will submit all the papers to the Office of Foreign Business Committee, Ministry of Commerce, to get the Foreign Business Certificate. It usually takes 3-4 weeks for the certificate to be issued. Please not that the director who will be responsible for Thailand operation has to have a non-immigrant business visa to enter Thailand and we will need the copy of this visa.

Step 4. We will register the new company into the Thai tax system (including VAT). We need only one day to do this step.

Step 5. We will assist in getting a work permit for an authorized American director so that he can be authorized signatory for the bank accounts and he can sign any papers to bind the company. This takes 10 days to process.

IMPORTANT POINTS:

You can use your US company (if its majority shareholders and directors are American) to do business in Thailand without setting up a new company in Thailand and that means we can skip step 1 and save on the related professional fee and government fees. If you choose to go that route, we will need to draft an affidavit for your US Company and you will need to have the US Company’s documents and affidavit notarized before we can start step 2.

Also if you choose to register a new company (which means we need step 1), but want your US company to be the major shareholder, we will need to draft an affidavit for your US company and you will need to have the US company’s documents and affidavit notarized. Then we can continue on to step 2.

Contact MSNA for your business needs and questions on Treaty of Amity and Thailand company registration.

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Registration of a Representative Office in Thailand

Application for registration of a representative office in Thailand of a foreign company engaged in international trading business

Scope of Activities of a Representative Office

As required by the Thai law, the business activities that a representative office can carry out in Thailand are limited to five business activities concerning:

  • Sourcing of goods or services inThailand for head office
  • Checking and controlling the quality and quantity of goods purchased or hired to manufacture in Thailand by the head office
  • Giving advice concerning goods of the head office sold to agents or consumers in Thailand
  • Propagation of information concerning new goods or services of the head office
  • Reporting on business trends in Thailand to the head office.

The above activities are regarded as service activities under List 3 (21) of the Thailand Foreign Business Law, and thus the registration of a representative office requires a Foreign Business License from the Director-General of the Department of Business Development.

General Characteristics of a Representative Office

  1. It has non income-generating activities;
  2. It has no authority to accept purchasing order or to make offer for selling or to negotiate for carrying out of business with person or juristic person in the country in which it is registered;
  3. All of its incurred expenditures must be shouldered by its head office;
  4. Normally, it is not subject to Corporate Income Tax, in accordance with the Revenue Code except for deposit interest of remitted funds from the head office has to pay tax.

Out of scope activities of a Representative Office

The following are the services that a representative office is not permitted to do otherwise it will be considered as an entity doing business here in Thailand and may be subject to the revocation of its license:

  1. Purchasing order or payment of goods on behalf of the head office or its affiliated companies or any activities concerning purchasing;
  2. Shipment of goods of the head office or its affiliated companies already purchased;
  3. Checking and controlling the quality and quantity of goods for any companies that are not the head office nor its affiliated companies;
  4. Executing after sale service concerning installation and maintenance;
  5. Performing advice concerning goods that were not produced nor sold by the head office or its affiliated companies;
  6. Receiving purchase order or service on behalf of the head office or its affiliated companies;
  7. Coordinating in purchasing or selling on behalf of the head office or its affiliated companies;
  8. Propagation of information concerning previous goods or services that are already sold inThailand;
  9. Carrying out activities as middleman or agent between customers in Thailand
    and head office or its affiliated companies;
  10. Planning and coordinating with any organization in terms of business on behalf of the head office or its affiliated companies;
  11. Being a representative in making any contracts or activities on behalf of the head office or its affiliated companies;
  12. Reporting information to any companies that are not the head office nor its affiliated companies

Government Fees for a Representative Office

Application fee (nonrefundable) is THB 2,000. If the application is approved, the government fee will be set at the rate of THB 5 for every THB 1,000 or a fraction thereof of the registered capital, with a minimum of THB 20,000 and a maximum of THB 250,000.

Tax Position of Representative Office

The representative office is required to obtain a corporate tax identification number and submit income tax returns and balance sheets, even if there was no transactions in the past accounting period.

Individual aliens and all local staff of a representative office are required to obtain taxpayer cards and pay personal income tax.

At MSNA, we can assist foreign companies in the Thailand business setup process.

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