There is a long-term relationship between Thailand and Japan in terms of mutual trade and commerce. This bonding helps citizens of Japan or Japanese Expats in Thailand to setup up business units in Thailand easily. This article will vividly explain all the aspects and regulations which govern the Business Registration process in Thailand for Japanese Expats.
According to the Thailand Board of Investment (BOI), Japan is a major investor in Thailand. The contribution is notably significant in crucial fields such as the automobile sector. The Eastern Economic Corridor or the Eastern Special Development Zone is a special economic zone in three provinces on Thailand’s eastern seaboard. Japanese investors are also major investors.
Status of Thailand in attracting Foreign Investors
There is a significant growth in Thailand’s World Bank’s Ease of Doing Business rankings. This ranking analyzes business laws across 190 economies, where Thailand is at a rank of 21. Moreover, it holds an average score of 80.1 out of 100 in 2020, providing comfort to Japanese businesses considering investing in Thailand. However, Thailand is also one of the top marks for ease of doing business, with a score of 92.4 out of 100. For example, Private limited firms are the most prevalent type of business entity in Thailand as one can set it up in as little as one week.
Regulations governing Foreign Investment in Thailand
When entering the Thai market, one of the most important considerations is the foreign ownership restrictions applicable to certain enterprises. The Foreign Business Act of 1999 (FBA) or other special regulations govern such activities. According to the Thai Land Code, foreigners cannot own land in Thailand.
The Thai law, on the other hand, provides methods for authorizing company ownership, such as the utilization of BOI promotional privileges. Additionally, such privileges can grant 100% foreign ownership as well as other tax and non-tax benefits. One such non-tax benefit is the BOI’s ability to allow foreigners to acquire land. Similarly, it is applicable to the Industrial Estate Authority of Thailand, subject to the applicable terms and conditions in each case.
Japanese investors can also take advantage of the provisions of the Japan-Thailand Economic Partnership Agreement (JTEPA). JTEPA allows for a higher level of engagement in specific industries, including retail, wholesale, and restaurants, subject to certain requirements. The recent amendments on regulations on trade in services in the Japan-ASEAN Comprehensive Economic Partnership Agreement (JCEPA) show the possibility of up to 70% ownership in some services enterprises.
A foreign investor may not have a foreign business license and/or a BOI promotional certificate. In that case, the foreign investor may have to consider forming a special vehicle with Thai business partners to operate in Thailand. Establishing a joint venture with a Thai partner in the form of a private limited company is a standard way to do this.
Below is a quick rundown of key FBA provisions, as well as BOI promotional advantages and new developments.
Foreign Business Act: A Must-Know for Japanese Expats in Thailand
Foreigners cannot conduct certain businesses under the FBA. In this case, the foreigners must obtain approval or licenses from the Ministry of Commerce (MOC) to operate certain other firms. The limitations are divided into three schedules, which are briefly detailed below.
Schedule 1:
Foreigners have prohibitions from engaging in certain core business activities that are significantly important to Thailand’s national interest. Such activities can be farming, trading in Thai antiquities or artifacts of national historical importance, and trading inland.
Schedule 2:
To operate a schedule 2 business, a foreigner must first get a license from the MOC. Moreover, this MOC needs the approval of the Thai Cabinet, unless they have protection under treaties or privileges from the BOI.
Schedule 3:
This category includes the list of business activities where Thais are not yet ready to compete with foreigners. Schedule 3 includes a wide range of enterprises. It includes wholesale and retail trade, as well as the provision of professional services such as accountancy and legal services. It also has a category called “other services” that is a catch-all.
However, this is applicable only if the business has BOI privileges or protection under a relevant treaty. In some cases, one can rely on a minimum capital exemption. However, Schedule 3 businesses require a license from the Department of Business Development, under the MOC, before operations can begin lawfully by a foreigner.
A business’s licensing process under Schedule 3 can take many months. Approval is at the sole discretion of the director-general of the Department of Business Development. It is with the approval of a foreign business committee comprised of representatives from various government agencies. Moreover, many factors govern such as the type of business, as well as the reason and necessity for granting such a license.
How BOI Promotes Busines for Japanese Expats in Thailand?
The BOI aims to promote investment in Thailand under the Investment Promotion Act of 1977. The Thai government grants full ownership rights under IPA to foreigners who make large investments and transfer technology to Thailand.
BOI typically gran rights for both manufacturing items and non-manufacturing activities. Foreign nationals have to transfer a specified quantity of capital, technology, and equipment technology into Thailand. They must do so within a certain time frame and under certain conditions in order to qualify for BOI promotion.
In general, the BOI provides two types of benefits. They are tax-based incentives, such as tax holidays and tariff exemptions on imports. Additionally, there are non-tax benefits, such as the ability for foreign nationals to acquire 100% of a corporation. Moreover, non-tax benefits also include ownership of land, and taking advantage of favorable visa and work permit laws.
All BOI-promoted projects, regardless of location or industry type, are eligible for non-tax benefits. Moreover, tax-based incentives are on the basis of a variety of parameters of the promoted activity. It will only apply to initiatives that improve national competitiveness.
The investment value and the submission of a complete application with all documentation determine the time BOI needs to review applications. But, it can take anywhere from 40 to 90 working days as a general guide.
If a company qualifies for a BOI promotion permitting 100% ownership, or if it qualifies for JTEPA/JCEPA benefits, it can acquire a certificate from the MOC in a timely manner.
BOI Measures in 2021 for Japanese Expats in Thailand
The BOI is constantly expanding the range of benefits it provides. The BOI approved a set of investment acceleration measures on December 21, 2020. This approval is to promote Thailand’s economy and encourage firms to use digital technologies in 2021.
Announcement 1:
Within 12 months from the date of issue of BOI promotion certificate, investments in specific target industries with a realized investment of at least THB1 billion (US$32 million) are eligible for an additional 50% corporate income tax (CIT) deduction for a term of five years. This is on top of the typical CIT exemption period of five to eight years that the BOI usually grants. Before December 30, 2021, eligible applicants may apply for this investment promotion scheme.
Announcement 2:
The BOI extends the deadline to apply for the special incentive programme for special economic zones in ten provinces. Kanchanaburi, Chiang Rai, Trat, Tak, Nakhon Phanom, Narathiwat, Mukdahan, Songkhla, Sa Kaeo, and Nong Khai are among those. The BOI is also granting 14 target industries an eight-year CIT exemption and a 50% CIT deduction for another five years.
Announcement 3:
Similarly, the BOI extends the application time for the special incentive plan for the southernmost five provinces. They are Narathiwat, Yala, Pattani, Satun, and four districts in Songkhla. Moreover, the extension is until the last working day of 2022. The proposals include a THB500,000 minimum investment requirement, an eight-year CIT exemption, and a further five-year CIT reduction of 50%.
Announcement 4:
The Burapha University-based Genomics Thailand project has recently got recognition as a special zone for special activities such as the Eastern Airport City and Digital Park Thailand. For investments made in such zones, the BOI is proposing a CIT exemption for five to eight years. Additionally, it is facilitating a 50% CIT reduction for another two years.
Announcement 5:
The BOI provides eligible investments with a CIT exemption for 50% of the investment value. This is for a period of three years. Moreover, this is to encourage the incorporation of digital technology into the operation of new or existing investments. Big data, data analytics, and artificial intelligence are examples of digital technologies. Eligible candidates have until the last working day of 2022 to apply for this investment promotion scheme.
The Bottomline:
Board of Investment (BOI) Thailand has always declared schemes to promote Foreign Direct Investment and facilitate trade and commerce with foreign business bodies. Japan’s migration to Thailand has a long history and has accelerated in recent years. Thailand, after the United States, China, and Australia, has the fourth biggest number of Japanese expats in the world as of 2020, according to the Ministry of Foreign Affairs. Bangkok, which is home to two-thirds of all registered Japanese citizens in Thailand, has the world’s second-largest Japanese expatriate community, trailing only Los Angeles.
If you are in Thailand or planning to move to Thailand for any business venture, expect a warm welcoming gesture from Thai authorities and officials. For any type of legal and accounting support in setting up or continuity of your business in Thailand email us at [email protected].
