Expanding to Thailand

Boasting a stable political climate and a GDP exceeding $1.279 trillion (as of 2023), Thailand presents a compelling destination for businesses seeking global expansion. This blog will explore the key advantages of establishing a presence in Thailand and the exciting possibilities that await your business venture. 

How to Set Up a Business in Thailand

Thailand's dynamic economy and strategic location in Southeast Asia make it an attractive destination for international businesses seeking expansion. However, navigating the legalities and processes of establishing a company in Thailand can seem overwhelming. 

But let us equip you with the knowledge and confidence to embark on your Thai business adventure.

Factors to Consider for Starting a Company in Thailand

Before diving into the specifics of company registration, it's crucial to consider some key factors that will influence your approach:

• Business Structure: Thailand offers various business structures, each with its own advantages and limitations. Popular options include sole proprietorships, partnerships, and limited companies. Consider factors like ownership control, liability protection, and tax implications when choosing the most suitable structure for your business goals.
• Foreign Ownership Restrictions: Foreign ownership limitations exist in certain sectors to protect domestic businesses. Research any restrictions applicable to your industry and explore potential workarounds, such as partnering with a local Thai entity.
• Visa and Work Permit Requirements: To operate legally in Thailand, you and any foreign employees may require specific visas and work permits. The type of visa and work permit needed depends on your nationality, business structure, and planned activities.

How to Set Up a Company in Thailand

Here’s how to set up a company in Thailand, ensuring a smooth and successful entry into the market:

1. Choosing Your Business Structure

Thailand offers various business structures, each with its own set of regulations and advantages. Here's a breakdown of some common options:

• Sole Proprietorship: The simplest and quickest structure to establish, but offers limited liability protection. Foreigners can own sole proprietorships limited to certain service industries.
• Partnership: Two or more individuals can form a partnership, sharing profits and losses. Liability is unlimited for all partners.
• Limited Company: The most popular choice for foreign investors, offering limited liability protection for shareholders. There are two main types of limited companies:some text
  • Thai Limited Company: Requires at least two shareholders, one of whom can be foreign. A minimum registered capital of ฿2 million (approximately $60,000 USD) is required.
  • Foreign Business License (FBL): This is a license required for a Thai limited company with majority foreign ownership to operate in certain business activities. FBLs face certain restrictions in permitted business activities.

2. Business Registration Process

Once you've chosen your business structure, the following steps outline the company registration process:

• Company Name Reservation: Reserve your desired company name with the Department of Business Development (DBD).
• Prepare Registration Documents: Gather necessary documents, including a Memorandum of Association (MOA), shareholder information, and proof of registered capital.
• Register with the DBD: Submit your registration documents and fees to the DBD.
• Obtain Business Licenses: Depending on your industry, you may need to acquire additional licenses from relevant government agencies.
• Open a Corporate Bank Account: Open a corporate bank account in Thailand to manage your business finances.

3. Local Regulations

Understanding and adhering to local regulations is crucial for operating legally in Thailand. Here's a general overview:

• General Business Laws: Thailand's legal system is based on civil law. The Foreign Business Act (FBA) regulates foreign business operations in Thailand.
• Compliance: Regular compliance with tax, accounting, and labor regulations is mandatory. Penalties for non-compliance can be severe.

Industry-Specific Regulations: Certain industries have specific regulations and restrictions. Research and determine the regulations applicable to your industry before commencing operations.

4. Taxation

• Corporate Tax Rate: Thailand's corporate income tax rate is a flat 20% for most businesses. However, small and medium-sized enterprises (SMEs) may qualify for a lower tax rate depending on their annual income and operating expenses.
• Tax Incentives: The Thai government offers various tax incentives to attract foreign investment, such as tax holidays and promotion privileges. Explore these benefits to reduce your tax burden potentially.
• Tax Obligations: Businesses in Thailand are subject to various taxes, including corporate income tax, value-added tax (VAT), and withholding tax on employee salaries. Consult with a tax advisor to understand your specific tax obligations.

5. Banking and Finance

• Opening a Corporate Bank Account: A corporate bank account in Thailand is essential for managing business finances. Foreign-owned businesses may require additional documentation to open an account.
• Foreign Exchange Controls: Thailand has a liberalized foreign exchange regime, but some restrictions may apply to certain transactions. Consult with a bank to understand any relevant foreign exchange controls.

How Do I Go About Manpower and Human Resources in Thailand?

Building a successful team is essential for any business venture. Thailand boasts a skilled and talented workforce, but navigating the legalities of hiring and managing employees requires careful consideration. 

Here's a breakdown of key aspects to ensure a smooth and compliant experience:

1. Work Permits and Visas

Foreigners working in Thailand require the appropriate work permit and visa. The specific visa type depends on your employee's nationality and job function. To work in Thailand legally, foreigners will need to have both a Work Visa (Visa) and a Work Permit. These two are not interchangeable.

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• A Work Visa is required for all non-Thai citizens who intend to work in Thailand and should be applied from their home countries. There are different types of visas that allow foreign nationals to later apply for a work permit once they entered Thailand, such as the Non-Immigrant Business visa (Non-B), Thai marriage visas (Non-O), etc. The work visa is issued by the Royal Thai Embassy, or the Consulate and the official visa document will be present on the passport or in e-Visa format. 

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• A Work Permit is to be obtained once the foreigners have entered Thailand with a proper Work visa. It is a legal document issued by the Ministry of Labor outlining the foreign employee’s occupation, position, and the hiring company. This permit allows non-Thai citizens to legally engage in work or start a business in Thailand. 

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Here’s a general overview:

• Non-Immigrant Business Visa (Type B): Also called Non-B visa with validity is 90-day, suitable for short-term assignments or business consultations and is the most common type to apply for a Work Permit. Limited work authorization may apply. The Non-B visa is extendable to Long-term visa with 12-month validity after foreigners are granted with the Work Permit.
• Work Permit: Mandatory for foreigners undertaking paid employment in Thailand. The employer typically sponsors the work permit application.
• Other Employment Visas: Other visa options like the Smart Visa or specialist visas for specific industries may be applicable depending on the employee's qualifications and expertise.

Requirements and Application Process: The requirements and application process for work permits and visas vary depending on the visa type. Partnering with a visa consultant can streamline the process and ensure all necessary documentation is collected and submitted.

2. Payroll Administration

Managing payroll efficiently is crucial for employee satisfaction and legal compliance. Here are some key aspects to consider:

• Minimum Wage: Thailand's national minimum wage varies by region. Ensure your employees are compensated at or above the minimum wage for their positions.
• Salary Payment: The standard practice is to pay salaries through a Thai bank account by the end of each month.
• Payroll Taxes: Employers are responsible for withholding income tax and social security contributions from employee salaries and remitting them to the relevant authorities.

3. Taxation Essentials

Understanding your tax obligations as an employer in Thailand is essential. Here's a quick overview:

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Thailand operates a progressive income tax system up to 35%. An individual is considered a tax resident if one stayed in Thailand for 180 days or more in a calendar year. All income derived from work performed in Thailand is subject to taxation, regardless of payment location. Residents are also taxed on foreign-sourced income if remitted into Thailand during the year received.

4. Social Security Contributions

Thailand has a mandatory social security program that benefits employees in case of sickness, injury, unemployment, old age, and maternity. Here's a breakdown of contributions:

• Employer Contributions: Employers contribute 5% of an employee's salary capped at THB 750 the social security scheme.
• Employee Contributions: Employees contribute 5% of their salary capped at THB 750 to the social security scheme, which their employer deducts from their salaries.

5. Contract Essentials

Thailand has a comprehensive labor law framework governing employment contracts. Here's a closer look at some key aspects to consider when drafting employment contracts, along with the typical standards followed in Thailand:

• Clearly define the employment terms:some text
  • Outline the employee's duties, tasks, and reporting structure within the organization.
  • Specify the employee's base salary, bonus structure (if applicable), and any fringe benefits offered.
  • Define the standard working hours per week and any overtime pay policy. (Thailand's standard workweek is 48 hours, with overtime pay mandated for exceeding these hours).
• Include a probation period (optional but common):some text
  • Employment contracts often include a probation period, typically lasting one to three months. During this period, the employer and the employee can assess the employee's suitability for the role.
  • During the probationary period, the employee or employer can terminate the employment contract without penalty if it’s within the first 119 days. The employer must notify the employee before the end of the probationary period. At 120 days onwards, if terminated, employee is entitled for severance pay.

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• Outline termination procedures:some text
  • Termination procedures are outlined in the Labor Protection Act, specifying notice periods and severance pay requirements. 
  • Employment can be terminated in Thailand where there is ‘just cause’, which includes reasons of criminal offence, employee caused wilful damage, negligence causing serious damage to employer/put others at risk, employee violated work rules, regulations or orders even with written warning from employer, employee was absent for 3 consecutive days without notice or any justifiable reason or the employee is sentenced to imprisonment
  • The minimum notice period is 30 days with at least 120 days of service.
  • Severance payment is required for each employee who has worked for at least one year, at the equivalent of 30 days’ average wages for each year of continuous employment.
  • Severance pay is obligatory for employees who have worked for more than one year, regardless of the reason.
• Employees with more than 120 days of service but less than one year are entitled to 30 days severance pay.
• Employees with service of 1 year but less than three years are entitled to 90 days of severance pay.
• Employees with three years but less than six years are entitled to 180 days severance pay.
• Employees with six years but less than ten years are entitled to 240 days severance pay.
• Employees with service of 10 years but less than 20 years are entitled to 300 days severance pay.
• Employees with 20 years or more are entitled to 400 days severance pay.
• Detail employee leave entitlements:

Employees in Thailand are entitled to various paid leave entitlements for rest, recuperation, and personal reasons. Standard leave entitlements include:

• Annual Leave: Minimum of 6 days after completing one full year of employment. For employees who have not completed one year of service, the employer may provide a yearly leave on a pro-rata basis, increasing with seniority (up to 12 days after a year upon mutual agreement between employer and employee)
• Sick Leave: Up to 30 days paid leave per year with medical certificate, with some companies offering additional sick leave days.
• National Holidays: Thailand observes various national holidays around 13-16 paid holidays throughout the year depending on specific holidays observed.
• Maternity leave: 98 days paid leave for each pregnancy.

6. Other Employer Costs and Insurance

Beyond the direct costs of salaries, social security contributions, and payroll taxes, there are additional employer considerations in Thailand. One crucial factor is workers' compensation insurance. This insurance is mandatory for all employers in Thailand and protects employees in case of work-related injuries or illnesses. It covers medical expenses, lost wages, and rehabilitation costs, safeguarding your employees and business.

Thailand also has a severance pay requirement. In most cases of employer-initiated termination, employees are entitled to severance pay, typically calculated as many days' wages for each year of service. The minimum severance pay is 30 days' wages, but some industries or company policies may offer more generous severance packages.

Health insurance is not mandatory for employers to provide in Thailand. However, offering health insurance as a benefit can be a valuable tool for attracting and retaining talent. Private health insurance plans can provide employees with broader healthcare coverage compared to the Thai social security system.

Other potential costs may include industry-specific insurance, employee professional development programs, and office administration expenses. While not mandatory, these investments can contribute to a positive and productive work environment, benefiting your business.

Should I Set Up My Own Entity or Outsource to a Local Expert in Thailand?

The allure of Thailand's thriving economy and strategic location is undeniable for businesses seeking international expansion. However, navigating the legalities and intricacies of establishing a presence in Thailand can be daunting.  

Let us help you make an informed decision:

Setting Up Your Own Entity

• Pros:some text
  • Greater Control: You maintain complete control over the setup process and the ongoing operations of your Thai entity.
  • Cost Savings (Potential): If you have the internal resources and expertise, setting up your own entity can potentially be more cost-effective in the long run compared to ongoing fees associated with outsourcing.
• Cons:some text
  • Time Commitment: The process of registering a business, obtaining licenses, and complying with regulations can be time-consuming, especially for those unfamiliar with Thai legal and regulatory frameworks.
  • Compliance Challenges: Staying up-to-date with ongoing compliance requirements can be complex and lead to potential penalties for non-compliance.
  • Limited Local Knowledge: Navigating unfamiliar business environments can lead to unforeseen obstacles and delays.

Outsourcing to a Local Expert

• Pros:some text
  • Streamlined Process: A local expert can guide you through the entire setup process efficiently, saving you valuable time and resources.
  • Compliance Expertise: Local experts have in-depth knowledge of Thai regulations and ensure your business adheres to all legal requirements.
  • Reduced Risk: Minimize the risk of non-compliance issues and potential penalties with expert guidance.
  • Local Market Knowledge: Leverage the expertise of a local partner to navigate the Thai business landscape and avoid potential pitfalls.
• Cons:some text
  • Cost: Outsourcing services involves fees, which can add to the overall cost of expansion.
  • Less Control: You relinquish some control over the setup process, relying on the expertise and communication of your chosen partner.

Choosing the Right Path

The optimal approach depends on your specific circumstances. Here's a table to help you weigh the factors:

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Partnering with Innovare: Your Trusted Guide in Thailand

Regardless of your chosen approach, innovare can be your trusted partner throughout your Thai expansion journey. If you decide to set up your own entity, we can provide valuable resources and guidance to simplify the process. 

Alternatively, if outsourcing is your preference, Innovare offers comprehensive business establishment services, ensuring a smooth and compliant entry into the Thai market.

Contact Innovare today to discuss your needs and embark on a successful Thai business adventure!