The Foreign Business Act 1999 regulates the business activities of foreigners in Thailand. The act classifies business activity into three categories and places restrictions of various degrees of severity on foreign ownership and operation of these businesses.
Foreigners can hold 100% ownership of businesses in non-restricted categories, such as exporting businesses and certain types of manufacturing businesses. Other methods to obtain 100% non-Thai control are through:
The minimum capitalization for a Thai company is 100,000 baht however this is generally the lowest amount of capitalization required. An international company with foreign shareholders normally requires a registered capital of 2,000,000 baht, in order to support a visa and work permit for a single non-Thai national. However, in order to obtain a license for certain business activities, normally a greater capitalization amount may be required.
The amount of time required for incorporation in Thailand depends on the type of company that is incorporated and whether the company is incorporated under the treaty of Amity or the BOI. A basic company can be incorporated in as few as 2-3 days.
A nominee shareholder is a shareholder in name only; in reality, nominee shareholders lacks any real financial stake or interest in the company. Under Thailand’s business law, the practice of nominee shareholders is illegal. The prohibition is found in the Foreign Business Act 1999 and the Land Act. Foreign companies with Thai nominee shareholders are coming under an increased amount of scrutiny.
Many foreigners choose to form a Thai majority company, (more than 50% of the shareholders are Thai), so that the Company is able to operate a business in a category that is restricted to foreigners. The registration of a Thai majority company generally requires less registered capital and less paperwork than the registration of a foreign company. A Thai majority company can also buy land.
In a Thai majority company, Thai shareholders own 51% or more of the shares. In the recent past, the maximum ratio of foreign ownership in Thai majority companies was considered to be 49% versus Thai ownership of 51%, However, for certain types of business activities, a 39% maximum ratio of foreign ownership is required.
Pursuant to the law, shareholders own the equity of a company in proportion to their share ownership. Therefore, the majority of the equity in a Thai majority company will almost certainly be owned by the Thai majority.
In general, the majority ownership of a company is able to select a director and make decisions as to the operation of the company. Under certain circumstances, the use of preferential voting rights and the requirement of a supermajority of shares to votes may alter voting rights in favor of minority shareholders.
The use of “nominee” shareholders is explicitly forbidden by the Foreign Business Act of 1999. It is a criminal offence with significant penalties including fines and imprisonment. Prior to the introduction of the revised act of 1999, it was common to utilize loan-pledge agreements as a method for foreign minority shareholders to control majority Thai shareholders. This entailed the Thai shareholders borrowing funds from the foreigner and “pledging” the shares back as security. However, the Act of 1999 made this practice illegal. While enforcement of the Thai nominee prohibitions of the Foreign Business Act has been infrequent, the practice is risky particularly if a company has engaged the use of professional nominees whose name appears on multiple company registrations.
The minimum number of persons needed to start a business in Thailand as shareholders of the company is 3 persons.
Thailand allows company promoters to file a memorandum in furtherance of registering a company in a single day on condition that all required documentation for company registration has been submitted. Previously there was a requirement of a formal notice and a seven day waiting period. As related government agencies gear towards the implementation of the new act, a period of adjustment may be expected in which government officials make the necessary changeover from the old way of doing things to the new.
A registered or limited partnership of not less than 3 persons is allowed to change its business entity to that of a limited company on the condition that all partners agree to the change and submit appropriate documentation. Once the business entity changes, the assets, debts, rights, and responsibilities transfer from a registered or limited partnership to that of a limited company.
The Treaty of Amity is an international treaty between the United States and Thailand with the object to promote trade, commerce, cultural understanding, and reciprocal legal rights between the countries. The treaty provides Thai and American nationals the right to operate in the other parties’ country with equal rights as those of the nationals of the country. Further, this national treatment includes reciprocal rights with regard to business and investment purposes. Although there are important exceptions, the treaty extends national treatment to Thai and US majority business entities engaging in commercial enterprises in the opposite party’s territory. Read more
What is the Thailand Amity Treaty Company?
A Thailand Amity Treaty Company is a Thailand registered business entity that is comprised of a majority of American shareholders which has been recognized by the Thailand Ministry of Commerce as operating under the Treaty of Amity. Read More.
What types of business entities qualify for privileges under the Amity Treaty?
Thailand registered business entities, in which a majority of shares are held by US citizens, may qualify for benefits under the Amity Treaty. In theory, other business entities aside from companies may also qualify for Amity Treaty benefits.
How do qualified entities receive Amity Treaty privileges?
In order for qualified entities to be recognized as Amity Treaty entities by Thailand government offices, approval must be issued by the Thailand Department of Commerce. The application process includes submitting evidence of Thailand company registration, as well as documentation from the US Commercial Services verifying that a majority of shareholders or partners are US citizens. The application must also specify the business activities in which the entity intends to engage.
What are the advantages of registering an Amity Treaty Company?
The Amity Treaty allows US citizens to hold a majority of shares in companies engaging in certain business enterprises in which majority ownership is generally restricted to Thai citizens under the Foreign Business Act.
Can Amity Treaty Companies engage in all the same activities as Thai companies?
The Amity Treaty specifies that companies with majority US ownership will be able to operate on the same basis as Thai companies. However, there are certain exceptions. Amity Treaty Companies are not allowed to own land or engage in certain enterprises such as domestic trade in agricultural products, land and natural resources exploitation, and the liberal professions. Further Amity Company is restricted to engaging in the activities that it has specifically been authorized to engage in by the Ministry of Commerce.
Are there any other disadvantages to Amity Treaty Companies?
Amity Treaty companies take longer and are more expensive to register than both Thai companies and non-Amity Treaty foreign majority companies. Amity Treaties also operate under a Foreign Business license and therefore generally are subject to greater scrutiny than Thai majority companies. If an Amity Company seeks to perform additional services or businesses other than those listed in its original Amity Certificate. This may require a new application to the Thailand Ministry of Commerce.
Are Americans able to purchase land with an Amity Treaty company?
No. Although the Amity Treaty affords Americans the right to own a majority of shares in a Thailand company and conduct a wide range of business activities, the Amity Treaty does not permit foreign majority companies to own land.
Generally, only Thai majority of companies are given the right to purchase land in Thailand. Foreign majority of companies registered in Thailand may, in some circumstances, be given the right to own land for a short period of time by the Board of Investment (BOI).
Buying property with a Thai majority company is fairly common for foreign investors. Over 50% of the shareholding in a Thai majority company must belong to Thai shareholders. Articles of Association and preferred share structures may provide protection to foreign minority shareholders. Proposed changes to regulations governing the business activities of foreign nationals however have made the use of Thai majority companies less attractive than in the past.
The main advantage of forming a company for the purpose of owning land is that it allows foreigners to acquire ownership interests in freehold land in Thailand. Unlike land leases, the ownership is continuous as long as the company stays in existence and does not sell or transfer the land. Forming a company may make sense for people seeking to hold land for long term investment purposes, to provide for their future heirs, or for those contemplating to do business in Thailand. Also, with ownership, it is possible to mortgage the land and/or subdivide the land for resale. These are not normally rights conferred by land leases. Additionally, there may be some tax advantages.
Many foreigners consider hiring or using Thai shareholders to act as their nominees when using a Thai company to buy land. The use of nominee shareholders is illegal and has come under increased scrutiny by the Thailand Land Department and other governmental agencies. A 2006 regulation requires Land Department officials to investigate the contributions of Thai shareholders when companies comprised of more than 40% foreign shareholders purchase land.
In the past, mechanisms such as registration of dual classes of shares, have been used to protect the interest of foreign minority shareholders. If proposed amendments to the legislation regulating foreigners’ business activities go into effect, some of these mechanisms may no longer be possible.
Another issue to consider before registering a Thai company to purchase land or buy property is maintaining regulatory compliance for the company. Thai law requires balance sheets to be filed yearly and a company address must be maintained. Inactive companies (companies not earning income) are subject to de-listing.