“Thailand is one of the largest economies in Southeast Asia with a total population of approximately 67 million. 1 The country is considered an emerging economy and a newly industrialised country. After the Asian financial crisis in 1997-98, Thailand’s economy started to recover in 1999 with a GDP growth of 4.2 percent. To encourage the recovery, the Thai government approached an open-market policy by inviting foreign investment and pursuing strong growth in exports. During the last five years (2004-2008), the average real growth rate of the country’s GDP was 5.4 percent. 2
The majority of Thailand’s labour force is employed in agriculture. However, the contribution of agriculture to the country’s GDP has declined recently. In 2008, agriculture contributed 11.6 percent of the country’s GDP, while industry accounted for 45.1 percent. However, employment in the industry sector was estimated to be less than 15 percent of the total labour force. Tourism accounts for approximately 6-7 percent of Thailand’s GDP. 3 The figure is typically higher than those of other Asian countries.
Exports of products and services play a major role in Thailand’s economy. Thailand is the world’s largest exporter of rice and a major exporter of shrimp. Other major agricultural exports include coconuts, sugarcane, soybeans, corn and rubber. For the industry and manufacturing sectors, Thailand has become the world’s leading manufacturer and exporter of automobiles and automotive parts, and electrical appliances and components. Thailand’s major export partners include the US, Japan, mainland China, Singapore, Hong Kong and Malaysia.
Thailand is a member of the World Trade Organization (WTO), the Cairns Group of agricultural exporters and the Association of Southeast Asian Nations (ASEAN). Thailand has participated in a number of free trade agreements (FTAs) with trade partners around the globe, including ASEAN, China, Australia, New Zealand and Japan. In addition, FTA negotiations are currently being undertaken with the US, the European Union, India and Peru.
The country’s strong export performance has been enhanced by foreign investment that has witnessed major multinational companies establishing manufacturing operations for both local and international markets. To stimulate foreign investment, the Thai government offers various tax and non-tax benefits for investors through the Investment Promotion Act. In 2008, the inflow of foreign direct investment (FDI) amounted to EUR 6.2 billion. 4 Japan was the largest direct investor, accounting for approximately 34 percent of the total FDI inflow. Other large investors include Singapore, Taiwan, Malaysia, the Netherlands, Germany and the US.
Through commercial and export success, Thailand has evolved into a regional hub for various industries: automobile, electric and electronic products, medical services, gems and jewellery, food and agricultural products, and tourism.
The following report aims to elaborate on the most important issues pertaining to the administrative, legal and financial aspects of setting up businesses and hiring personnel, as well as the living conditions in Thailand.
This section explains the common investment vehicles available to foreign investors, the procedures to be followed in order to establish them and related regulations for each investment mode.
Table 1 lists the most common modes of setting up businesses by foreign investors and their governing laws. In addition to the various modes of businesses listed in the table, a partnership is another common mode. However, due to the owners
hip restrictions, foreigners are generally not able to operate their businesses as partnerships in Thailand.
Source: Board of Investment, Thailand
A private limited company is a company with the following requirements:
A minimum of three shareholders are required;
The capital is divided into shares with equal par value;
The par value of each share is not less than EUR 0.10;
Each shareholder has limited liability (i.e. the unpaid amount of the shares respectively held by them);
The company must be registered according to the Civil and Commercial Code.
A private company may be wholly-owned by foreigners. However, for the business activities reserved for Thai nationals, foreigner participation is generally allowed up to a maximum of 49 percent of the company’s shares.
The following process is required for setting up a private limited company in Thailand:
A minimum of three ordinary persons (called promoters) sign together to prepare a Memorandum of Association, and submit it for registration (registration of the Memorandum).
Once the Memorandum has been registered, the following activities shall be performed:
The meeting agenda shall include the following:
The directors shall ask the promoters and subscribers to pay the payable amount of the company’s shares (at least 25 percent of the share’s value).
Upon receiving the amount of shares, the director must register the company within three months from the date of the meeting to establish the company (registration of the company’s establishment).
A public limited company is a company established for the purpose of offering shares for sale to the public and the shareholders have the liability limited to the amount paid for their respective shares. The above purpose must be stated in the company’s Memorandum of Association.
According to the Public Limited Company Act, a public limited company has the following requirements:
A minimum of 15 shareholders are required;
Each share has equal value and the payment of the share’s value must be done one time only;
A minimum of five directors are required, with at least half having their registered address in Thailand.
Subject to compliance with the prospectus, approval and other requirements, public limited companies registered in Thailand may offer shares, debentures and warrants to the public and may apply to have their securities listed on the Stock Exchange of Thailand (SET).
There is no restriction on transfer of shares for public limited companies (except to satisfy statutory or policy ceilings on foreign ownership).
A public limited company can be established through one of the following methods:
Registration of the company’s establishment
Transformation of a private limited company into a public limited company
At least 15 ordinary persons (called promoters) together prepare and register the Memorandum of Association. Once the registration is done, the promoters either prepare the prospectus to the public for buying the company’s shares, or once the promoters reserve to buy the shares as specified in the Memorandum of Association, they call a meeting for the company’s establishment. Afterwards, the promoters must hand over all the affairs and documents to the elected directors for the registration of the company’s establishment, which shall be done within three months from the date of the meeting.
A private limited company can be transformed into a public limited company once the company’s shareholders call for a meeting for extraordinary resolution according to the Civil and Commercial Code.
A branch office is the same legal entity as its foreign parent company. The parent company maintains legal liability for contracts and for tortious acts done. Operations of branch offices are restricted under the provisions of the Foreign Business Act.
For tax purposes, a branch office is considered a permanent establishment, and its revenue is subject to Thai tax. It is mandatory to clarify in advance the components of income that are subject to Thai tax because the Revenue Department may consider the revenue directly earned by the parent company from sources within Thailand to be subject to Thai tax.
To set up a branch office in Thailand, the foreign parent company must make a special application to the Ministry of Commerce for a Foreign Business Licence. Such applications must be approved by the Director-General of the Department of Business Development. A condition for the approval is that a minimum capital of EUR 102,200 shall be brought into Thailand within four years from the start-up date of the branch office. The operation of the branch may be allowed for a period of five years, unless a shorter period is applied for. If the working capital requirement is met, an extension of the original duration of the licence may be granted.
In terms of its legal structure, ownership and minimum capital requirement, a representative office is basically the same as a branch office. However, a representative office is not permitted to earn any income. The scope of the activities of a representative office is limited to the following approved activities:
Identifying sources of purchase of goods or services in Thailand for the parent company
Verifying and controlling the quality and quantity of goods purchased by the parent company for manufacturing in Thailand
Providing advices concerning goods of the parent company sold to distributors or consumers in Thailand
Distributing information concerning new goods or services of the parent company
Reporting movements of business in Thailand to the parent company
Similar to branch offices, a special application for a Foreign Business Licence must be made by the parent company in order to operate a representative office in Thailand. There are three types of licensing for representative offices:
Finance, security and credit financier offices
A regional operating headquarters (ROH) is considered as the same legal structure as a private limited company. However, it is qualified for specific tax benefits. An ROH provides managerial, administrative and technical services as well as other supporting services to its associated companies or its branches. Supporting services include the following:
General administration, business planning and coordination
Procurement of raw materials and components
Marketing and sales promotion planning
Corporate financial advisory services
Economic or investment research and analysis
Any other services designated by the Director-General of the Revenue Department
To be eligible for tax privileges, an ROH must meet the following requirements:
It has at least EUR 204,400 of paid-up capital on the closing date of any accounting period
It provides services to its associated companies or branches in at least three other countries (excluding Thailand)
At least 50 percent of its income must be earned from permitted services provided to its overseas associated companies or branches. The requirement is reduced to one-third of the income for the first three years
A qualified ROH is eligible for the following tax privileges:
Corporate income tax at the rate of 10 percent of net profit for income generated from services provided to its branches or associated companies
Corporate income tax at the rate of 10 percent of net profit for royalties received from its branches or associated companies for R&D done in Thailand
Corporate income tax at the rate of 10 percent of net profit and interest derived from its branches or associated companies for loans made by the ROH and extended to its branches or associated companies
Tax exemption for dividends received from its associated companies
Tax exemption for dividends paid to its shareholders not carrying on business in Thailand
In order to start a business, a certain number of legal and bureaucratic hurdles have to be overcome by companies/entrepreneurs. Registration is typically critical for accessing a range of market infrastructure including finance, physical infrastructure (electricity and water) and contract enforcement.
Table 2 lists data released by the World Bank related to starting a business in Thailand.
According to a World Bank report, the average time taken to start a business in Thailand is high in comparison to OECD nations, Mexico and Korea. Figure 1 illustrates the obstacles inherent in starting business ventures in various countries.
Source: Doing Business
Note: OECD = Organisation for Economic Co-operation and Development
Unless otherwise exempted, a foreigner wishing to enter Thailand must obtain a proper visa from either a Royal Thai Embassy or a Royal Thai Consulate-General prior to arrival in Thailand. However, there are certain exemptions if a person meets one of the requirements below:
Nationals of countries which are exempted from visa requirements when entering Thailand for tourism purposes:
Nationals of countries which hold bilateral agreements with Thailand on the exemption of visa requirements:
Source: Ministry of Foreign Affairs, Thailand
The requirements of documents to be provided by foreign citizens at the time of visa application vary depending on the types of visa. The following documents are required for all types of visa:
Passport or travel document valid for not less than six months
Two recent photographs of size 4cm x 6cm
Other supporting documents as required for the purpose of visiting Thailand
According to the Alien Working Act B.E. 2551 (2008), foreigners of the following three categories are qualified to apply for a work permit to work in Thailand: 11
Foreigners who reside in Thailand or are allowed to stay temporarily in Thailand, but are not tourists or transit travellers;
Foreigners who are allowed to work in Thailand according to the investment promotion laws or other laws;
Foreigners who have been deported but are allowed to work in certain locations in replacement of deportation or while awaiting deportation; foreigners who have illegally entered Thailand or are awaiting forced transfers out of Thailand; and foreigners who were born in Thailand but are not granted Thai nationality or were denaturalised.
Prior to applying for a work permit, foreign nationals wishing to work in Thailand must obtain a non-immigrant visa (category B). The visa can be applied either before or after arrival in Thailand. The work permit application can be done by either the foreigner or the employer of the foreigner. 12
The following documents are required from the applicant at the time of applying for a work permit:
A copy of the identification page of applicant’s passport
A copy of the passport page with the entry stamp
A copy of the applicant’s degree, resume or transcript
A medical certificate mentioning that the applicant’s health condition is suitable for work
Two recent photographs of size 4cm x 6cm
Additionally, the employer of the applicant is required to provide tax and legal documents concerning the nature of its business and employees.
The average office rental expense in Bangkok is much higher than in other cities in Thailand. According to reports by CB Richard Ellis, in Q2 2009, the average rent for Grade A CBD 14 office space was approximately EUR 14.31 per square metre per month. 15
Thailand is famous as a personal low-cost environment. Food, clothing, public transport, etc. in Thailand are cheaper than in developed countries. Some examples of the cost of living in Bangkok are listed below: 16
A meal in an inexpensive restaurant costs approximately EUR 1.36
A bottle (0.33 litres) of Coca Cola costs approximately EUR 0.29
Taxi fares for a 5-kilometre trip within the city centre in Bangkok cost about EUR 1.19
Metro fares in Bangkok range from EUR 0.33 to EUR 0.84
Rentals for serviced apartments within the city centre in Bangkok range from EUR 23 to EUR 35 per square metre per month 17
The cost of living in Thailand varies depending on the region in the country. The cost is higher in major cities or provinces such as Bangkok and Phuket, while the cost is lower in smaller provinces. Compared with major cities in Southeast Asia, Bangkok is less expensive than cities such as Singapore, Kuala Lumpur, Hanoi and Ho Chi Minh. 18 According to Mercer’s Cost of Living Survey Worldwide Rankings 2009, Bangkok ranked 98th worldwide and fourth in Southeast Asia; while Luxembourg ranked 38th worldwide. 19
The Thai Social Security Act requires employers and employees to participate in the social security system. All employers must register their employees in the system. All employees that meet certain criteria are insured.
The social security system in Thailand comprises two funds: Social Security Fund and Workmen’s Compensation Fund. The Social Security Office, Ministry of Labour and Social Welfare, is the legal authority for both funds. The main focus areas of Thai’s social security system include medical, maternity insurance, accident and work-related injury, disability, old age, unemployment, assistance for family, and death.
Employers and employees are required to regularly contribute a certain amount to the funds. Employers must withhold social security contributions from the monthly wages of employees, and are also required to contribute the same amount as the contributions of their employees. The contributions must be remitted to the Social Security Office within the 15th day of the following month.
The conditions for applicants to be eligible for the old age pension benefit include the following:
The applicant has made contributions for not less than 180 months (consecutively or inconsecutively)
The applicant has reached 55 years of age
The applicant’s status of being insured has been terminated
The old age pension benefit is listed below:
An insured person who has made contributions for not less than 180 months is entitled to the old age pension benefit on a monthly basis at the rate of 15 percent of the average wage of the last 60 months used as a basis for calculation of the contribution before the termination of the status of being insured.
In the case of making contributions for over 180 months, the rate of old age pension benefit shall be increased at the rate of 1 percent per every 12 months of the period of making contributions exceeding 180 months.
The conditions for the applicants to be eligible for unemployment benefit are listed below:
The applicant must register at the State Unemployment Office within 30 days of being unemployed
The applicant is capable of undertaking work and is ready to take on any suitable job as offered
The applicant must not reject the job training
The applicant must not be entitled to old age benefit
The unemployment benefit is listed below:
In case of termination of employment, the insured person is entitled to the unemployment benefit for a maximum of 180 days per year at the rate of 50 percent of the wage calculated from the contributions made but not more than EUR 307.
In the case of resignation, the insured person is entitled to the unemployment benefit for a maximum of 90 days per year at the rate of 30 percent of the wage calculated from the contributions made but not more than EUR 307.
The conditions for applicants to be eligible for the child allowance benefit are listed below:
The applicant has made contributions of not less than 12 months within a period of the last 36 months prior to the month in which the applicant is entitled to the benefit.
The child allowance benefit is eligible for legitimate children aged not more than six years old, and is limited to not more than two children for an applicant.
The child allowance benefit is paid on a lump sum basis at the rate of EUR 7 per month per child.
The applicant for the death benefit must have made contributions for not less than 1 month within a period of the last 6 months.
The death benefit (payable to the legal beneficiary) includes the following:
The insured person is entitled to a funeral grant of EUR 818.
The insured person who has made contributions for over 3 years but less than 10 years is entitled to assistance benefit at the value of the average wage of 1.5 months.
The insured person who has made contributions for over 10 years is entitled to assistance benefit at the value of the average wage of five months.
Expenses for medical examination and treatment, hospitalisation, medicines, rehabilitation, ambulance fees, and other necessary expenses are provided. The insured person must register with a selected hospital in the Social Security Programme. Benefits are provided by the hospital the insured person is registered with. Medical treatment outside this hospital can be sought in cases of emergency and accident only, in which case costs are reimbursed. Additional benefits are as follows:
The insured person is entitled to a compensation benefit for loss of income at the value of half of the current wage based on the actual number of days of leave, but not exceeding 90 days per period, and not exceeding 180 days in a year.
In case of a chronic illness, the insured person is entitled to a compensation benefit for loss of income for a period not exceeding 365 days.
The applicant for disability benefits must have made contributions for not less than 3 months within a period of 15 months prior to the date of being declared a disabled person.
The disability benefit includes the following:
The medical treatment cost is reimbursed as actual, but not more than EUR 41 per month.
The compensation benefit for loss of income of 50 percent of the monthly wage is paid until death. The costs of artificial organs, equipment and therapeutic equipment are also paid.
The applicant for childbirth benefits must have made contributions for at least 7 months within a period of 15 months prior to the expected date of childbirth.
The childbirth benefits include a childbirth grant paid on a lump sum basis of EUR 245 per birth.
Workmen’s Compensation Fund is for covering the compensation paid to employees in the following cases:
Disability resulting from undertaking work
There are two types of Special Economic Zones (SEZs) in Thailand: Export Processing Zones (EPZs) and Free Zones (FZs). The government has implemented various tax privileges in EPZ and FZ to promote international trade in the country.
An Export Processing Zone (EPZ) is an area designated for industrial operations, trading activities, services or other operations beneficial to or concerning industrial operations for the purpose of exporting products. Generally, EPZs are located in industrial estates. Companies in EPZs are granted tax and non-tax privileges offered by the Industrial Estate Authority of Thailand. Currently, there are 10 EPZs in Thailand.
Source: Customs Department, Thailand
The Industrial Estate Authority of Thailand offers various benefits for companies in EPZs, as listed below:
Exemption from special surcharges and import/internal taxes and duties
Exemption from export duty, excise tax and value-added tax
A Free Zone (FZ) is a designated area for industrial or commercial operations or any other operations involving economic growth and development. The Free Zone Programme has been implemented to promote competitiveness by encouraging companies to maintain and expand their operations in Thailand. Foreign and local goods transported into FZs are eligible for tax and duty privileges.
The government offers a package of tax and non-tax benefits for companies in FZs as listed below:
Exemption from import and internal taxes and duties
Exemption from export duties on re-exports
Exemption from standard/quality control requirements
Free Zones are typically private manufacturing sites approved by the Customs Department. State-owned companies or limited companies may apply for a grant of authority to establish a Free Zone. The main objective of setting up a Free Zone must not be only for benefit of any particular user of the zone. The licensee of the Free Zone must provide necessary utilities, facilities and services. In addition, the licensee must provide an appropriate office and residence for Customs officers. Residential areas are not permitted in Free Zones.
Users of a Free Zone are entities using the zone under an agreement with the licensee of the Free Zone. The Free Zone users must receive approval from the licensee and the Customs Department to undertake permitted activities in the zone.
The Thai banking industry is primarily made up of major Thai banks, including Bangkok Bank, Kasikorn Bank and Siam Commercial Bank. The industry is regulated by the Bank of Thailand. The Thai banking sector witnessed a net profit of EUR 2.07 billion in 2008. 30
Commercial banks in Thailand include local commercial banks, local retail banks, subsidiaries and branches of foreign banks. By September 2009, there were 5,673 bank branches established in Thailand, including 15 branches of foreign banks which are all located in Bangkok.
Generally, any type of juristic persons, including limited companies, branch offices and representative offices, are permitted to open bank accounts. The following documents are generally required for opening a company bank account:
Passports and work permits of the authorised persons
Memorandum of Association of the company
Commercial registration of the company
Signature specimens of the authorised persons
Minimum deposit (depending on the types of account and banks)
Foreigners who are working in Thailand can open personal bank accounts at any commercial bank. The following documents are generally required for opening a personal bank account:
Passport and work permit of the applicant
Minimum deposit (depending on the type of account and bank)
Various recruitment channels in Thailand include campus recruitment, media advertisements (newspapers, magazines, TV and broadcasting), Internet recruiting, on-site recruiting, internal references and head-hunting agencies. Additionally, there are public recruitment events and job fairs organised by either government organisations or the private sector.
Thailand’s labour laws are developed and regulated by the Ministry of Labour and Welfare. Employment legislation has a direct bearing on labour practices for each type of business. The main laws covering Thai labour laws are: 33
Labour Relations Act B.E. 2518 (1975)
Labour Protection Act B.E. 2541 (1998)
The Labour Relations Act concerns the labour relations enhancement system and procedures between employers and employees, such as procedures for submission of demand for modification to the conditions of employment and procedures for settling labour disputes. In addition, the law controls employer and employee rights to establish labour associations and labour unions for acquiring and protecting their interests relating to the conditions of employment. The law aims at creating a good understanding and successful reconciliation between employers and employees.
The Labour Protection Act concerns the rights and duties of employers and employees. It primarily establishes minimum standard practices in general labour force utilisation, women and children labour utilisation, severance and remuneration. In addition, the law prescribes the interventions by government officials in providing protection to ensure fairness and sound occupational health for the maximum benefit of both employers and employees.
Table 7 lists the major recruitment agencies in Thailand and their websites.
The median salary ranges (per year) by job, employer type, industry, city and degree in Thailand in 2009, as per PayScale, are presented in tables 8 to 12 below:
In Thailand, taxes are imposed at both national and local levels. The central government is the main taxing authority. The principal taxes levied by the central government include direct taxes (such as personal income tax, corporate income tax and petroleum income tax), and indirect income taxes (such as valueadded tax, specific business tax, customs duties, excise tax and stamp duties).
The principal tax law in Thailand is the Revenue Code, which governs personal and corporate income taxes, value-added tax, specific business tax, and stamp duties. The Revenue Department – Ministry of Finance is the main authority responsible for the tax administration. In addition, the Customs Department – Ministry of Finance regulate customs duties; and the Excise Department – Ministry of Finance, is responsible for the administration of excise tax.
All juristic companies and partnerships established under Thai or foreign law which carry on business in Thailand are subject to corporate income tax. A Thai company is subject to tax on worldwide income, while a foreign company is subject to tax on income generated in Thailand.
Tax is generally levied at the rate of 30 percent of net profit. However, there are specific tax rates for certain types of taxpayers.
Source: The Revenue Department, Thailand
Foreign companies that do not carry on business in Thailand are subject to withholding tax on certain categories of income generated in Thailand. The withholding tax rates applied to foreign companies may be further reduced or exempted under tax treaties.
Source: The Revenue Department, Thailand
Taxable income (net assessable income) of an individual is derived after all expenses and allowances have been deducted from the assessable income. Taxable income shall be subject to tax at progressive rates ranging from 5 percent to 37 percent, with an exemption on the first EUR 3,066 of net assessable income.
Source: The Revenue Department, Thailand
Value-added tax (VAT) is an indirect tax collected upon consumption, i.e. at each stage of production or distribution of goods or provision of services. The standard rate for VAT is 7 percent. All sales of goods, provision of services and imports of goods are subject to this rate. However, certain business activities are subject to VAT at the rate of zero percent, including the following:
Services performed in Thailand but utilised in a foreign country
International transport services through aircraft or sea vessels
Supply of goods and services to government agencies or state-owned companies under foreign aid programmes, and the United Nations and its organisations
The Board of Investment of Thailand provides tax incentives to investors and companies who invest in projects in Investment Promotion Zones. The tax incentives vary depending on the location of the investment. In fact, the tax incentives are categorised based on three zones throughout the country.
Source: The Board of Investment, Thailand
Thailand has concluded double taxation agreements with many countries, including Luxembourg. The general principle is that the country in which the income arises (source country) has the prior right to tax and the country of residence will grant relief (tax exemption or tax credit) from paying taxes twice on the same income. Another advantage of tax treaties is to provide cooperation between governments in preventing tax evasion.
The agreement regarding double taxation between Thailand
and Luxembourg is specified in the Convention between the
Kingdom of Thailand and the Grand Duchy of Luxembourg for
the Avoidance of Double taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income and on Capital. The
convention applies to taxes on income and on the capital of
individual and juristic entities, including the following:
The repatriation of after-tax profits of a branch office in Thailand to the foreign parent company, or keeping such profits abroad where the parent company has directly received a payment for goods sold or services performed in Thailand, is subject to further income tax at the rate of 10 percent of the after-tax profits actually or deemed to be remitted. Repatriation of assessable income from Thailand to foreign companies not carrying on business in Thailand is subject to the following withholding taxes:
15 percent of royalties, interest, rent, service fees or capital gains
Regional operating headquarters (ROH) are exempted from withholding taxes on profit repatriation.
Royal Thai Consulate-General, 14,
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