Thailand is one of the most enticing markets for business, and its strategic location, affordable labour, and cost-effective economy serve as an excellent investment centre. Thailand is the perfect plan for expanding your business and setting up a subsidiary in Thailand.
Thailand has a vibrant consumer market, and the country has been showing signs of steady growth. With solid exports, reasonable cost of services, abundant natural resources, and a thriving industrial market, the economy has managed to attract foreign investors.
Thailand also tops the charts because of its ease of doing business and clear legislation. The workforce available in Thailand is inexpensive, skilled, and diverse. When opening a subsidiary company in Thailand, consider it a safe option for investment in subsidiaries.
What are the types of subsidiaries in Thailand?
A subsidiary business in Thailand can be of the following types:
There are generally 3 kinds of companies operational in Thailand. These are partnerships, limited liability companies, and joint ventures. Following is a short explainer on each type:
A general partnership means when two or more people contribute resources and invest in various ways to start a business and share the profits, risks, and losses.
Let us take some wholly-owned subsidiaries in Thailand as examples of joint partnerships, including shops and establishments, medical groups, real estate investment companies, and accounting groups. Thailand offers three common types of business partnership structures.
- Unregistered ordinary partnerships – A simple, unincorporated partnership in which all partners are jointly and individually responsible for all responsibilities of the company.
- Registered ordinary partnerships – The incorporation of a subsidiary of a foreign company in Thailand makes the partnership a legal entity separate from each partner.
- Limited partnerships – The liability of individual partners is limited to the amount of capital that has contributed to the partnership. You need to register a limited partnership.
Limited Liability Company
A Limited Liability Company (LLC) is a business structure in which the owners are not personally liable for the debts or liabilities of the business. LLCs are hybrid forms that combine the features of a corporation with those of a partnership or sole proprietorship.
There are 2 categories of limited liability corporations: public companies and private or closely held companies.
- The first category complies with Thailand Civil Commercial Code, and the second complies with Public Companies Act.
A joint venture can be described as a group of people (individuals or entities) who have contracts to do business in line with standard practice. It is not yet recognized as a legal entity within civil and commercial law. However, income from joint ventures is subject to corporate tax under the Revenue Act, which classifies it as a single entity.
How to set up a subsidiary in Thailand?
To incorporate a subsidiary business in Thailand it is necessary to follow a checklist for the incorporation of foreign subsidiaries in Thailand. First, you must be aware of Thailand-specific business factors and government rules for subsidiary company formation in Thailand.
The Foreign Business Act or Law imposes specific regulations on foreign nationals and defines some industries that require special permits to set up a subsidiary system in Thailand.
- You also will need to understand the minimum capital and conditions required, along with free trade and economic partnership agreements between Thailand and Australia, Thailand and the United States, and Thailand and Japan.
- There are many states in Thailand, so you need to consider your business’s location carefully. Each state has different cost structures, laws, and often, different approval criteria.
- If you are new to the country and are unfamiliar with the difference in rules across cities, it is wise to work with your advisor or talk to professionals to find the best state for your industry.
Thailand offers 6 types of business to companies seeking incorporation of foreign subsidiaries in Thailand:
- Limited liability companies
- Joint ventures
- Representative offices
- Branch offices
- International headquarters
Each has its strengths and weaknesses, but most companies incorporate themselves as limited liability companies.
Let us learn how to register a subsidiary company in Thailand-
Select at least 3 promoters to sign together to prepare and register the charter, also called the MOA – Memorandum of Association.
Delivery of business, from promoters to directors
Collecting equity capital from organizers, subscribers, and promoters
Creating a registration application for your company branch
Submitting the duly filled form to the registrar
Benefits of setting up a Thailand subsidiary
Once you have a subsidiary or a branch office in Thailand, you can work in Thailand. However, establishing a limited liability company, in particular, has some additional advantages. Let us look at the main benefits of subsidiary companies in Thailand:
Ease of registration of a new company
The Thai Civil and Commercial Code does not distinguish between Thai and foreign shareholders. Accordingly, foreigners without a Thai partner can freely register a company in Thailand.
The investment miracles aren’t going to stop anytime soon in Thailand, as the country – with a GDP of $406.8 billion, a population of 68.9 million, and a GDP per capita of $16,885 – ranks ranked 8th in the top 10 countries to invest in for the year was elected in 2018.
Labour and productivity
Thailand is rich in natural resources, a cheap workforce, improved computer networks, skilled labor, and modern transport and communication, offering foreigners the best business and living opportunities.
Thailand – a leader in trade and commerce
Thailand has a large manufacturing sector producing a diverse range of goods. This resilience of several trade and commerce departments has enabled Thailand to be a leader and offer a variety of businesses to foreigners.
Taxation benefits of a subsidiary company in Thailand
You must comply with all subsidiary laws of Thailand. Subsidiaries in Thailand are treated as legal entities other than their parent company. This means that the two companies can limit joint responsibilities or obligations and be separated in terms of regulations or taxes. This massive taxation of foreign subsidiaries in Thailand benefits when operating business in Thailand.
Documents to prepare when opening a subsidiary in Thailand
The following documents are required to register a subsidiary business in Thailand.
- Memorandum of association
- Certificate of incorporation of the company
- Articles of association
- List of shareholders
- Company’s affidavit
- Share Certificates
- Share register book.
- Information on the Directors of the Business
- Registered Office Address of the Business
- A copy of a valid ID proof – a Passport (mandatory) in case of foreigners
What business forms can Thailand subsidiaries take?
Thailand Subsidiaries can take the following business forms:
- Private Limited Company
- Public Limited Company
- 51% LLC – It is also known as a locally-owned Thailand company. This type of company is typically used in Thailand when most shareholders and directors are residents of Thailand. This form of the company enjoys the principle of limited liability. The company is required to pay 20% corporate tax. The applicant can use this form of company for any purpose.
- 100% LLC – LLC is also known as a limited liability company or a limited liability corporation. This legal form of liability is limited to the number of subscribed shares. A foreigner usually owns 100% LLC. The minimum paid-up capital to form this type of company is $ 60,000. All partners and directors enjoy the company’s limited liability policy.
- Branch – A branch is usually an extension of a foreign parent company. The responsibility of this type of company lies with the foreign parent company. Corporate tax must be paid in this legal form as the company generates local profits. This legal form allows you to perform all kinds of operations.
- The Representative Office – This is also an extension of the foreign parent company. This office can only contact and act as a representative. Market research and promotional activities are included in the representative office’s range of activities. The representative office does not pay corporate tax because it is not a profitable activity.
Thailand subsidiary laws
When it comes to the incorporation of foreign subsidiaries in Thailand, certain rules and subsidiary laws for private and limited liability companies need to be followed. The rules are as follows:
- The Board of Directors should oversee the business structure, and the number of directors must be decided at a general meeting of shareholders.
- Some directors may be foreign nationals, but at least two-fifths must be Thailand citizens.
- Limited liability companies do not have minimum or maximum capital requirements.
- However, if the business is restricted to Thai citizens under the Foreign Business Law, only 49% of the stock capital may be owned by a foreigner.
- If your company has a foreign business license, this percentage of foreign ownership may change.
- Each year, within four months of the end of the fiscal year, company directors must convene a general meeting to obtain shareholder approval of the company’s audited financial statements.
- Board members must submit a final audited financial report and shareholder registry within one month of the meeting.
Once the legal entity registration is complete, the company registration number can be used as a taxpayer number for the Thailand tax authorities to measure compliance for the foreign subsidiary in Thailand.
- Suppose you are considering the incorporation of a wholly-owned subsidiary in Thailand immediately after establishing a corporation. In that case, you will need to apply for VAT registration before starting the business.
- When a company is established, it is also necessary to introduce a subsidiary system in Thailand to meet its standard submission requirements.
Taxes on Thailand subsidiaries
The taxation of foreign subsidiaries in Thailand is according to the business instrument. Companies operating in Thailand are subject to Thai Corporate Income Tax (CIT), Value Added Tax (VAT), and other commonly applicable taxes. Thailand has double taxation treaties with 61 countries, which offer preferential remittances over other countries.
In addition, foreign jurisdiction law may provide tax credits or tax credits paid by a Thai branch or subsidiary. Here are some necessary forms of taxes to be paid by Thailand Subsidiaries (depending on the type of business):
- Personal income tax (PIT) – PIT is taxed on net taxable income at a progressive tax rate ranging from 5% to 35%.
- Corporate Income Tax (CIT) – Companies (private and public), incorporated partnerships, foreign entities, unincorporated joint ventures, and foundations or associations are all responsible for CIT. A typical CIT rate is 20%, and specific laws and exceptions apply (for example, the tax may be reduced to 15% for small businesses or tax-exempt for BOI promotions). Generally, CIT is paid twice a year as follows:
- Value-added tax (VAT) – The current VAT rate is 7%
- Specific business tax (SBT) – Some companies are exempt from VAT but are eligible for SBT, with SBT rates ranging from 2.5% to 3%.
- Stamp duty.
Tax incentives for businesses setting up a subsidiary in Thailand
The Thailand Board of Investment (BOI) is a division of the Thai government sector that aims to promote business in Thailand, especially start-ups, to increase investment and revitalize the Thai economy. There are various incentives and benefits of a subsidiary company in Thailand offered to subsidiaries affiliates, and the criteria are:
These incentives include both tax and non-tax
- Corporate income tax exemption for up to 13 years (depending on company activity and other conditions)
- 50% reduction in corporate tax for 5 years (special investment promotion zone only)
- Exemption from import duties on raw materials or essential materials used for R & D purposes
- 100% foreign ownership (excluding certain activities and industries)
- Permission to own land
- Permission to employ foreign work skilled workers and professionals in Thailand.
Incentives Provided by the Revenue Department (RD)
- Corporate Income Tax (CIT) for 15 accounting periods from the date of approval by the Director of Finance Income is subject to a corporate tax rate of 10%
- Personal Income Tax for professional or managerial expatriates working at IHQ will be reduced to 15%.
Other important considerations
For setting up a subsidiary in Thailand, you need to create a budget for expansion, including travel, start-up, and related costs.
If you do not understand all of Thailand’s ancillary laws, you will need to appoint staff to learn them or work with an expert or a professional like Multiplier who can assist in the expansion. Also, the process can be time-consuming, so you should allow enough time for expansion.
How Multiplier’s Employer of Record can help you hire & expand in Thailand?
Setting up a subsidiary in Thailand offers numerous benefits. The country gives you long-term access to a thriving business economy, trade, and market. Expanding your business to a foreign country can involve immense knowledge of taxation of foreign subsidiaries in the Thailand system, tedious paperwork, and legal standards that should be religiously followed.
We recommend you trust the best global employment solution – Multiplier, for starting a subsidiary in Thailand. We have in-house professionals, experience, and a talented workforce that will help you conveniently set up a subsidiary business in Thailand. We also provide our clients with the global employer of record services.
When you need the best alternative to establish a Thailand subsidiary, an expert global employment solution such as Multiplier can prove of immense benefit. Our goal is to help you expand faster and easier. We already operate through already established subsidiaries, so you do not have to worry about the process of forming a wide range of subsidiaries when expanding your business overseas.