What Foreign Investors Should Know Before Setting Up a Company in Thailand

1. Start by Understanding the Laws and Restrictions Applicable to the Business

The first step is not simply to determine how to incorporate a company, but to understand what laws and regulatory requirements apply to the proposed business and whether the business is subject to any restrictions in Thailand.

Under the Foreign Business Act B.E. 2542 (1999) (the “FBA”), certain types of businesses are subject to restrictions on foreign participation. These businesses are classified into three lists under the FBA.

List One covers businesses that are prohibited to foreigners for special reasons. Examples include rice farming, crop cultivation, livestock farming, forestry and the processing of wood from natural forests, certain types of fishing, the extraction of Thai medicinal herbs, and certain businesses involving the trading or auctioning of antiques.

List Two covers businesses relating to national security or safety, as well as businesses that may have an impact on arts and culture, traditions, traditional handicrafts, or natural resources and the environment. Examples include certain businesses involving weapons, the manufacture of Thai musical instruments, mining, and salt farming. A foreigner wishing to operate a business under List Two must obtain the required permission in accordance with the procedures and conditions prescribed by law.

List Three covers businesses in which Thai nationals are considered not yet ready to compete with foreigners. These include certain service businesses, retail or wholesale businesses in certain circumstances, engineering services, hotel businesses, and advertising businesses. Where a business falls under List Three and is not otherwise exempt or entitled to operate under another legal basis, the foreigner must obtain permission to operate the business before commencing operations.

Accordingly, determining whether a business can be operated by a foreign investor cannot be based solely on the percentage of foreign shareholding. The analysis should take into account the nature and type of business, the identity of the investors and persons exercising control, the shareholding structure, and the applicable regulatory requirements. This allows the appropriate investment structure to be determined from the outset and ensures that the business is established in a manner consistent with Thai law.

2. The Shareholding Structure Should Reflect the Actual Investment

One of the key issues foreign investors should consider from the beginning is whether the company’s shareholding structure accurately reflects the underlying investment and the actual relationship among the parties.

Having Thai shareholders in a company does not, by itself, make a foreign investment structure lawful if those shareholders are merely holding shares on behalf of another person without making a genuine investment. If the actual investment arrangements or ownership interests do not correspond with the structure shown in the company’s corporate documents, the arrangement may give rise to legal issues, particularly where it constitutes nominee shareholding on behalf of a foreigner. Thai law contains specific provisions and penalties addressing such arrangements.

The Department of Business Development (“DBD”) may require additional documentation relating to the investment and source of funds in certain cases involving foreign investment. Depending on the circumstances, applicants may be required to provide financial evidence and other supporting documents as requested by the registrar.

This approach reflects the fact that, where foreign investment is involved, consideration of a company’s structure is not necessarily limited to the information appearing in its corporate registration documents. The actual investment arrangements and relationship among shareholders may also be relevant.

For this reason, the shareholding structure should be considered carefully as a whole, including the percentage of shareholding, the actual investment made by each shareholder, voting and control rights, and the relationship among the shareholders. The structure should ultimately reflect the commercial reality and comply with the laws applicable to the business.

3. Minimum Capital Should Be Appropriate for the Business and Its Operating Plan

For a foreign legal entity intending to conduct business in Thailand, minimum capital is another important consideration when structuring the investment. The applicable requirements depend on the nature of the business and whether the business falls within the lists under the Foreign Business Act B.E. 2542 (1999).

As a general rule, for businesses that do not fall within the Lists annexed to the Foreign Business Act B.E. 2542 (1999), the minimum capital required for a foreigner to commence business operations in Thailand is THB 2 million.

For businesses falling within the Lists annexed to the Foreign Business Act and requiring a foreign business license, the minimum capital requirement is generally THB 3 million for each type of business. However, certain types of businesses may be subject to additional minimum capital requirements or specific conditions under applicable laws and regulations.

For businesses requiring permission under the FBA, the applicable minimum capital requirements may depend on the type of business and the relevant regulatory requirements. Investors should therefore assess the applicable capital requirements based on the nature of the proposed business and the basis on which the business will be operated in Thailand.

Accordingly, capital planning for a business involving foreign investment should not be based solely on the statutory minimum. Investors should also consider the nature and scale of the business, projected expenses, operating plans, and the actual funding requirements of the project. This helps ensure that the capital structure is not only legally compliant but also sufficient to support the business from the outset.

4. BOI May Be a Strategic Option for Certain Businesses

For businesses that meet the relevant criteria for investment promotion, applying for promotion from the Board of Investment (BOI) may be another option to consider when structuring an investment and planning business operations in Thailand.

BOI promotion is not limited to tax benefits. Depending on the promoted activity and applicable conditions, non-tax incentives may include greater flexibility regarding foreign shareholding, permission for a promoted company to own land for the promoted business, and facilitation for bringing foreign skilled workers or experts into Thailand.

BOI promotion should therefore be viewed not merely as a source of tax incentives, but as a potential component of the overall investment and corporate structure. For qualifying businesses, it can provide greater flexibility in establishing and operating a business in Thailand. The appropriate approach should, however, be assessed on a case-by-case basis, taking into account the type of business, the conditions of the relevant promotion category, the proposed shareholding structure, and the rights and obligations associated with the investment promotion.

What Should Investors Consider Before Starting a Business in Thailand?

For foreign entrepreneurs, entering the Thai market should therefore begin with more than the question of “How do I set up a company?” The starting point should be to understand the laws and regulatory requirements applicable to the proposed business, followed by careful consideration of the shareholding and investment structure, appropriate capitalisation, and whether investment promotion or another form of regulatory approval may be suitable for the project.

Taking the time to establish the right structure at the outset can help ensure that the business is properly positioned to commence operations while reducing the risk of costly restructuring or legal complications in the future.