Thailand continues to be a popular place for foreign investment. It is due to its robust economy, welcoming business environment, and advantageous location in Southeast Asia. Foreign investment rose by 56% to THB 129 billion (USD3.75 billion) in 2022. Additionally, there is a significant rise in the number of company registration in Thailand by Japanese investors.
Currently, Japan has 151 investors (26% of all foreign investors) investing THB 39.5 billion (USD1.15 billion) in Thailand. This makes Japan the top foreign investor in Thailand. Thailand has a variety of investment prospects for Japanese investors in a number of industries. Primarily, this includes manufacturing, electronics, tourism, and renewable energy.
This article offers a comprehensive overview of investing in Thailand for Japanese outbound investors. It covers topics of the legal and regulatory environment surrounding foreign investment. Additionally, you can get insights into the markets and industries with the most promising investment opportunities.
Legal & Regulatory Framework
Before making an investment, foreign investors should seek advice on Thailand’s legal and regulatory environment. There are a number of different investment structures to take into account. These include subsidiaries, unincorporated joint ventures, branches of foreign parents, and unincorporated structures.
When choosing a structure, it is crucial to carefully evaluate the individual demands and objectives of the investment. It is because each structure has advantages and disadvantages of its own.
Acts governing Company Registration in Thailand for Japanese Investors
The Foreign Business Act and Investment Promotion Act are just two of the several laws and rules governing foreign greenfield investment in the nation. Understanding the legal and regulatory framework is essential in this regard. Foreign investors can maximize their chances of success and unlock the full potential of the economy by properly navigating these laws and regulations.
According to the act, foreign ownership is either limited or outlawed in a number of industries. This includes banking, telecommunications, and the media. Foreign investors may invest in some areas through legally binding joint ventures with Thai investors. Additionally, they can do so by securing special approval from the appropriate government bodies.
The establishment of foreign representatives and regional offices is likewise governed by the Foreign Business Act. Although these procedures are optional, they may be useful for certain non-trading tasks. Such tasks generally include market research, quality assurance work, and looking for Thai goods to export.
Thai Foreign Business License for Japanese Investors
However, to engage in such operations, a foreign company must first get a Foreign Business Licence (FBL). The Ministry of Commerce’s Directorate of Business Development of Thailand issues the license. Once accepted, the company can get up to two visas and work permits for a representative office. Alternatively, they can receive five visas and work permits for a regional office for its expatriate management. This procedure normally takes about three months. Under different legislation, foreign banks, securities firms, and finance firms may set up representative offices.
The FBL is necessary for all foreign-owned enterprises operating in Thailand. However, there are exceptions for companies excluded under the Foreign Business Act or the Investment Promotion Act. It permits foreigners to own 100% of a company organized under Thai law. The intended business activity and shareholding structure must be described in great detail as part of the FBL application procedure. The key to getting the license is demonstrating the transfer of technology and knowledge to Thai people, including local hiring.
The next step is to register the firm with the Department of Business Development. Henceforth, it will receive a company registration number after obtaining the FBL. Additionally, foreign-owned businesses must obtain tax identification numbers, registration for the value-added tax, and work visas for foreign employees.
Another important piece of legislation that promotes and controls foreign investment is the Investment Promotion Act. The statute offers numerous tax breaks, import duty exemptions, and authority to own land as incentives to foreign investors. The act’s incentives are designed to entice foreign investment to specific regions and industries.
Key Considerations for Company Registration in Thailand for Japanese Investors
There are a number of things to take into account when starting a business in Thailand. These include non-tax and tax issues.
From a non-tax standpoint, it is better to establish a Thai limited company than a branch of a foreign company. It is because the former allows for more ownership flexibility and might be simpler to secure registrations and licenses for. Being a Thai company is generally favorable when interacting with the Thai government. It is because it results in the granting of specific advantages and permissions.
On the tax front, corporate income tax on net profit is applicable to all businesses operating in the nation. It is irrespective of whether they are Thai or foreign business or both. However, for offices complying with Thai Law, the net profits of foreign branches will be liable to pay tax. If the representative and regional office engage in the same activity, there may not be a corporate income tax obligation.
The Investment Promotion Act may provide an exemption from the withholding tax applicable to dividends to overseas parent firms or shareholders. A withholding tax is also applicable to the profits that branches send to the main office.
Payments made by a branch to the head office of a foreign corporate shareholder in the form of interest, fees, and other amounts may be regarded as a taxable remittance of profit.
In rare circumstances, foreign tax credits might be offered. Note that, there are techniques for the Avoidance of Double Taxation Agreements between Thailand and pertinent nations. Notably, the Underlying Tax Credit and Tax Sparing Credit can eliminate double taxation. To ascertain the availability of double taxation elimination agreements, investors should consult with professional tax firms in Thailand.
Business Opportunities for Japanese Investors in Thailand
To enhance Japan-Thailand economic connections Japan-Thailand Economic Partnership Agreement (JTEPA) was signed in 2007. It is a bilateral free-trade agreement between the nations. They include faster customs processes, decreased tariffs on goods and services, and IP rights protection.
Thailand offers an experienced labor force, a key location in Southeast Asia, and a welcoming business environment. It boasts a thriving manufacturing sector with a heavy emphasis on the food processing, electronics, and automotive industries.
Japanese businesses have historically been among the biggest investors in Thailand’s manufacturing industry, with a concentration on automotive assembly and production.
Additionally, in fulfilling certain requirements, the Industrial Estate Authority Act offers the benefit of permitting foreign investors to purchase land.
Renewable energy is another industry with tremendous potential for Japanese investment. Thailand has set high goals for the development of renewable energy. It holds the vision to reach 30% of the world’s energy mix by 2037.
The nation provides a variety of incentives for the development of renewable energy, including tax breaks, feed-in tariffs, and lenient loan terms. With projects in solar, wind, and biomass energy, Japanese businesses have already made considerable investments in the field.
For Japanese investors, firms in the tourism industry also present significant investment opportunities. With millions of visitors each year, Japan is one of the top countries for foreign tourists, and the tourism industry contributes significantly to GDP.
With projects in hotel and resort construction, entertainment, and leisure, several Japanese firms have made investments in the tourism sector under the Foreign Business Act. Following the outbreak, the Thai government has stepped up its efforts to promote tourism globally. One such endeavor is the “Amazing Thailand” campaign, which aims to increase the number of foreign visitors.
The Bottomline
Thailand presents a viable investment opportunity for Japanese outbound investors due to its strategic position, competent workforce, and business-friendly climate. To invest in the nation, though, one must have a solid grasp of the legal and regulatory system as well as the intricacies of doing business in that culture.
To increase their chances of success in Thailand, Japanese investors should obtain professional guidance and collaborate with an experienced legal team. Japanese investors can successfully traverse the Thai market and realize considerable returns by carefully examining potential business opportunities, negotiating contracts effectively, recognizing cultural differences, and choosing the right investment structure.
We hold an experience of more than a decade in registering businesses for foreign investors in Thailand. Therefore, our team holds ample expertise and experience in company registration in Thailand for Japanese investors. Email us at [email protected] to kickstart your process of doing business here in Thailand.
