Yes, it is possible. This possibility is high for businesses conducting export or BOI-approved business activities or for American Citizenship of business owners. However, you may not qualify for such types of entities. Yet, you will be able to perform your business by incorporating a private limited company. There are various other methods to form a company set up in Thailand with 100% foreign ownership. Let us check those methods so that they can help you with your Company Registration in Thailand.
Those who are at least somewhat familiar with doing business in Thailand are aware that foreign enterprises obey strict government regulations. The Foreign Corporate Act (FBA) was enacted in 1999. It divides business activity into three groups, each with its own set of regulations. Certain primarily involve the severity of the sanctions imposed on foreign ownership and operation of these companies.
General Rule: Foreign Company Setup in Thailand
In general, foreign ownership of a Thai limited company can be up to 49%. This indicates that foreigners can possess no more than 49% of the company’s shares. Novice investors may try to circumvent this barrier by hiring Thai nominee shareholders to hold a 51% stake in the company on their behalf. But this is against the FBA rules and one should strictly avoid this.
Despite the disadvantage of foreign ownership, Thai enterprises have a variety of advantages over foreign-owned companies. These include no restrictions on the sort of company they can participate in, lower startup costs, and the flexibility to own and own land. However, it is clear that this structure may not suit all international entrepreneurs, and those who desire more control over their businesses must seek alternative choices.
FBA Rules restricting 100% Foreign Ownership of Company Setup in Thailand
A foreign company is an alternative to a Thai firm. However, a juristic person is one in which the majority of its shares have foreign ownership. One of the most significant differences between foreign and Thai companies is that a foreign company’s business operations have strict FBA restrictions.
Foreigners are prohibited from partaking in most business categories under the FBA, and those that are available to foreign entrepreneurs must get a Foreign Business License (FBL) from the Department of Commercial Registration. Foreigners may also get an exemption based on treaties like the US-Thai Amity Treaty or a specific statute if approved by the BOI.
Apart from the obvious restrictions, foreign enterprises are also subject to unique rules and regulations, such as the requirement for a minimum registered capital of 3 million THB and the prohibition on land ownership. Enterprises with FBLs, on the other hand, have complete or majority business ownership and a higher work permit ratio than Thai companies.
How to get 100% Foreign Ownership of Business in Thailand Legally?
The good news for foreign investors and businesses is that there are legal ways to get the majority or even 100% foreign ownership of a Thai company.
The three legal ways to get 100% Foreign ownership of a Business in Thailand are:
- Obtaining a Foreign Business License
- Board of Investment (BOI) promotion
- Registration through the Treaty of Amity (for the US citizens only)
Certain enterprises in categories without restrictions, such as exporting and some manufacturing, are exempt from these limitations.
In the end, a firm with more than 50% foreign ownership is no longer a Thai corporation. Whereas, a foreign-majority company is subject to other rules as a result.
In the next two parts, we’ll go through the benefits and drawbacks of owning a foreign firm. Additionally, it will cover three legal and one alternative way to achieve 100% foreign ownership in Thailand.
Method 1: Obtaining a Foreign Business License
Currently, the FBA divides firms into three categories: List 1, 2, and 3, with only List 3 allowing foreigners to participate. Foreign enterprises willing to pursue business possibilities in one of the available categories must first apply for a Foreign Business License (FBL). Henceforth, they have to wait for the Foreign Business Committee’s decision. It’s vital to keep in mind that this procedure can take a long time and that rejections are typical. If the business is unique and does not compete with existing Thai businesses the odds of receiving a license will skyrocket.
A foreign business license is much similar to a company’s work permit. Foreigners in Thailand can only work in particular occupations and must have a Work Permit to do so. Similarly, foreign corporations can only operate in certain categories and must have an FBL. As a result, the Thai government will be able to restrict the influx of foreign enterprises into the country, protecting Thai citizens and their interests. Failure to obtain an FBL before beginning a business can result in a fine of 100,000 THB to 1 million THB and up to three years in prison.
In general, foreigners in Thailand prefer to work in one of four industries: manufacturing, trade, exporting, or providing services. Although FBA does not ban foreigners from owning 100% of manufacturing, export, or trading, prospects in services have certain restrictions. The service industry is thought to be one in which Thais are not yet ready to compete, and the only method to fully own a foreign company is through BOI promotion.
Method 2: BOI Approval and Promotion
The second way to achieve 100% foreign ownership of a corporation is to have your company the BOI promotion. Thailand’s Board of Investment (BOI) is a branch of the Thai government that encourages new business ventures in sectors beneficial to the Thai economy. Thai BOI intends to strengthen Thailand’s competitiveness in Southeast Asia by encouraging enterprises in critical industries, bringing it on a level with countries like Hong Kong and Singapore.
Foreign entrepreneurs may find it difficult to start a business in Thailand in general. However, with the support of the BOI, operating in certain areas might become a lot easier. The advantages of becoming a part of this system never end with monetary gains as they extend well beyond that.
The types of business activities in Thailand that are eligible for BOI Promotion are –
- Agriculture and agricultural products
- Mineral, ceramics, and basic metals
- Light industry
- Metal products, machinery, and transport equipment
- Electronics and electrical appliances industry
- Chemicals, paper, and plastics
- Services and public utilities
Benefits of BOI Promotion for Foreign Company Setup in Thailand
Companies willing to participate in the BOI programme must meet the eligibility requirements and submit an investment proposal. After submission and BOI approval, the company can take advantage of a variety of benefits. These benefits include tax breaks, import tax relief or reductions, and transportation, electricity, and water expense deductions. Furthermore, foreigners can have up to 100% ownership of a BOI Company, own lands for industrial projects, and easily obtain work permits for foreign workers. The BOI benefits are as follows in comparison with a typical Thai company:
- The ratio of Thai to Foreign Employees in a Regular Thai Company is 4:1. This mandate does not exist in a BOI-promoted company, hence giving foreign business owners the right to decide their employment and hiring terms.
- The effective base Corporate Income Tax rate for a typical Thai Company is 20%. A BOI-promoted foreign business can enjoy tax exemptions resulting in a 0% CIT mandate.
- A maximum of 49% of foreign ownership is possible in a regular Thai company, whereas, it is up to 100% for a BOI-promoted company.
- A BOI-promoted company need not pay any VAT for the import of machinery to Thailand for the business.
- On-site inspections from Immigration are not done for a BOI-promoted company. BOI update form submission suffices this need.
Method 3: US-Thai Amity Treaty
The Treaty of Amity and Economic Relations between Thailand and the United States is a specific arrangement between the two countries. It allows American corporations or entrepreneurs to own a majority of a company in Thailand. Companies seeking protection under this treaty are treated similarly to their Thai counterparts in many ways. Additionally, there are exclusions from most of the FBA’s foreign investment regulations (some restrictions still apply).
FBL is mandatory for businesses operating under the BOI or the US Treaty. But, their participation in these schemes bypasses the normal process and they instantly get the license.
Alternative Methods
Businesses that are unable to obtain an FBL through any of the three procedures typically have a few more choices. To begin, foreign corporations can open a branch, regional, or representative office in Thailand. However, this option is only available to foreign companies already having a company setup in Thailand.
The second option is to establish a Thai business with majority Thai ownership. Foreigners can now have majority voting rights and control in a Thai limited company. Moreover, they can make preference shares and weigh voting rights for the most popular form of a business entity among international investors.
Even if you fail to entirely own the company, you’ll be able to control the majority of the shares.
We are a leading corporate services agency specializing in helping foreign entrepreneurs to launch and run successful businesses in Thailand. Mail us at [email protected]. We will guide and assist you in the process of your company setup in Thailand with up to 100% foreign ownership.
