Entering the Thai Market
Thailand is one of the success stories of the 21st Century, developing from a low-income economy to an upper-middle market with a Gross Domestic Product of 546 billion US dollars by the end of 2021, and predicted growth between 3% and 3.5% through 2022.
Thailand has the eighth strongest economy in Asia and in 2021 the Institute for Management Development (IMD) ranked Thailand 28th globally in its World Competitiveness Index.
At the crossroads of Asia, Thailand is a founder member of the Association of Southeast Asian Nations (ASEAN) formed in 1967. Apart from trade with its immediate neighbors, Thailand is in prime position for international trade with Singapore, Indonesia, China, and India among other Asian nations and into the Pacific Rim.
In addition to the economic potential, Thailand offers a stunning backdrop of royal palaces, ancient ruins and relics from a magical past, ornate temples – and mouth-watering cuisine. Visitors and tourists also know Thailand for its tropical landscape, jungles, stunning wildlife, and golden beaches. The futuristic and cosmopolitan capital Bangkok resonates with a vibrant modern lifestyle as a contrast to Thailand’s timeless heritage and history.
Of course, incoming companies intending to set up a subsidiary will find adjustments need to be made – and quickly. The employment market is framed by strictly applied laws and regulations … and they cannot be ignored or side-stepped.
Starting a Business into Thailand
International companies launching a business in Thailand to hire staff and run payroll have the option of establishing a legal entity subsidiary as private limited liability company.
The foreign-owned Thai limited liability company operates under the Foreign Business Act and requires a Foreign Business License. However, this need not apply to US companies, under the terms of the Treaty of Amity signed in 1966. US citizens can hold a majority or 100% of shares in a Thai limited company or open a branch or representative office without needing a license and operate equally with local Thai companies.
To start operating as a subsidiary, procedures and requirements include:
- Reserving the company name prior to the application and all documents being lodged with the Department of Business Development (DBD)
- At least three initial shareholders, founders or promoters must sign application documents
- Opening a head office in Thailand, confirmed by letter of consent from the landlord or owner, and obtaining registration number (Tabien Ban)
- Providing Memorandum of Association of the parent company
- Providing Articles of Association detailing subsidiary company by-laws
- Holding a statutory meeting, where directors and auditors are appointed
- Legally, the three initial minimum shareholders must each have shares worth THB 5, giving total share capital of THB 15 (€0.40, US$0.45)
However, companies are expected to have registered capital to cover business expenses for the first three years, as follows:
- Non-restricted companies with registered capital of THB 2,000,000 (€52,975, US$60,650), which can include US companies covered by the Treaty of Amity
- Restricted companies with THB 3,000,000 (€79,470, US$90,980) of capital
- Once registered with the DBD and issued with a Business Registration Certificate, the company can open a corporate bank account to deposit capital
- Obtain bank certificate confirming sufficient funds have been deposited
Expanding Business into Thailand
Opening a business in any overseas territory brings issues. Moving staff across the world means lengthy processes to obtain visas and work permits. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination, and severance? Drawing up an international expansion blueprint is not enough. Your business plan will have to answer all these questions.
Thailand generally welcomes foreign investment. However, there are restrictions on sectors where foreign companies cannot operate, as well as the number of foreign employees who are allowed to work in comparison with the number of Thais on the workforce. Employment legislation is a mix of statutory regulations, with some variations in Thailand’s 77 provinces, and workplace policies which act as collective agreements.
There are other issues, too. Where will you find manufacturers, offices, and distributors?
Thai Business Facts
- Capital – Bangkok
- Population – 66.77 million (projected end of 2021)
- Regions – Geographically, Thailand has six regions: Northern, Northeastern, Western, Central, Eastern and Southern. Administratively it is considered to have four regions with Eastern and Western combined into Central (Siam), plus Northern (Lanna), Northeastern (Isan), Southern (Tambralinga). In addition, there are 77 Provinces
- Official language – Thai
- Economy – GDP 546 billion US dollars, 26th in the world
- Leading Sectors by GDP – Services 58.25%, industry 33.1%, agriculture 8.63%
- Main exports include – Electronics 14%, vehicles 13%, machinery and equipment, agricultural goods (mainly rice and rubber) 8%, machinery and equipment 7.5%, foodstuffs 7.5%
- Main imports include – Crude petroleum, integrated circuits, petroleum gas, vehicle parts
- Main trading partners – Japan, US, China, Singapore, Malaysia
- Government – Parliamentary system, unitary state, constitutional monarchy
- Currency – Thai baht (THB)
Advantages and Challenges of the Thai Market
Advantages of expanding into the Thailand market include:
- Location: Geographical position in southeast Asia is ideal for further expansion among Asian and Pacific Rim economies
- Trade: Largely tariff-free agreements with nearly 20 nations, including China, Australia, New Zealand, and South Korea in addition to fellow member nations of Association of Southeast Asian Nations (ASEAN). Competitive in international trade and ranked 21st globally for ‘ease of trading across borders’
- Taxation: Comparatively low standard rate of 20%, with lower rate of 15% for companies with capital under certain limits
- Business: Thailand jumped six places to 28th out of 190 nations in the World Bank’s most recent ‘ease of doing business’ report
- Infrastructure: Plans for a high-speed rail link between three of the seven international airports. Government investment creating one of the region’s most extensive road networks. Six deep seaports and two river ports
- Investment: Board of Trade offers incentives in some sectors for foreign companies
Challenges of expanding into the Thailand market include:
- Workforce: Ageing population and declining labor force with slow movement away from working in agriculture
- Education: Regional imbalances in learning and acquiring skills
- Economy: Heavily dependent on trade and tourism
- Expansion: The Foreign Business Act and the Foreign Business License impose restrictions on foreign involvement in certain sectors
- Red Tape: Protracted procedures for obtaining work permits, which also strictly apply employment parameters for foreigners and the balance between local and foreign employees that can be hired by foreign companies
- Language: Thai is the official language for business. Government and legal documents are in Thai and although English is used in business, it is best to secure services of a certified translator
Limited Company / Subsidiary or Branch in Thailand?
International companies planning to expand into Thailand, hire staff and run payroll have the option of establishing a subsidiary as a limited liability. Companies that want to extend their global reach without this commitment, have the choice of opening a branch.
The foreign-owned Thai limited liability company operates under the Foreign Business Act and requires a Foreign Business License. They require a minimum of three shareholders. However, this need not apply to American companies. Under the terms of the Treaty of Amity signed in 1966, US citizens can hold a majority or 100% of shares in a Thai limited company or open a branch or representative office without needing a license and operate equally with local Thai companies.
Limited companies and branches have differences in how they are registered and how they operate.
Subsidiaries and branches have differences in how they are registered and operate.