Foreign business ownership/employment in Thailand. It was never easy, but the goal posts keep moving further away with Foreign Business Act changes...
Retire-Asia focuses mainly on information and advice from experience for ordinary foreign long term residents or those semi- or fully retired in Asia. But in today's changing world, most ex-pats need extra income, so many who come want to run their own business in Thailand, with or without Thai partners. This is still possible, but there are a lot of requirements which we will go into below. We strongly recommend you understand the implications of a foreigner running a business in Thailand before pursuing your 'tropical paradise dream'. It could end up as an expensive nightmare! So-called ''professional' companies selling businesses and law offices may tell you otherwise, but they are only interested in their commissions and fees, which are substantial.
To avoid most of the problems associated with starting a business in Thailand (or any foreign country) visit our easy alternative page.
As you will read below, the authorities seem to be going out of their way to discourage foreigner-owned small businesses. There were no changes made after the 2006 military coup, but the recently elected new government will proceed with new legislation. This includes changes to the Thai Foreign Business Act. Company control will be based on voting rights rather than shareholding. With a maximum of 49% foreign shareholding allowed, the owner may be outvoted by the 51% majority Thai shareholders in a control-related issue.
For certain categories of foreign business or investment, the Board of Investment of Thailand (BoI) offers a government-sponsored scheme which includes tax and other incentives. Preferential treatment is also given to US citizens going into business. Visit the BoI website for further information.
Many foreigners over the age of 50 take advantage of the retirement visa (non immigrant visa for retirees). The financial requirements are relatively easy to comply with, including a basic medical certificate, annual evidence of funds, a pension or regular income. There's more detail on our Visa Page. However, the retirement visa does not allow any form of employment or work, even as a consultant paid or not. Foreigners may receive profits from a business, so they can invest in Thai businesses, but cannot be involved in any way with the day-to-day running without a work permit specific to that business and its location. Few options are available to those who need to earn income in Thailand without transgressing the immigration and foreign labour laws. Internet-based business is possible but foreigners with business web sites are now supposed to declare this to the authorities. Non-Thai website hosting is advisable. Read more about internet businesses which can be managed from any physical location in Thailand, Asia or virtually anywhere else, with proceeds available as cash wherever you are.
Partnership with a Thai Citizen
To own and run a local small business, typically a restaurant, bar, guesthouse or retail shop, the usual method is to have a Thai partner (perhaps a wife, lover or friend) who will 'front' it. It is unwise to have your Thai lawyer as a partner, by the way. Inconspicuous Thai-owned small businesses have less to comply with regarding Thai bureaucracy. Provided the foreigner stays in the background or acts like a paying customer, fewer problems like licensing, VAT, accounting and auditing, to name some, are likely to be encountered. Most foreign-owned or run bars, restaurants and guest houses in Thailand and also the Philippines are operated this way.
Whether there is a profit at the end of it more or less depends on the relationship with the partner business or personal. Of the many ex-pats who try it, few are successful. Many end up losing all their money one way or another especially where there's a Thai wife, lover or other partner is involved. A word of warning to those who have never had a successful business in their own country: don't try it in Thailand! Stories of failure and loss are legendary.
Owner/operators (including Thai nationals) of bars and clubs which provide more personal hospitality or customer entertainment, apart from complying with local licensing and regulations, need to maintain good relationships with police or the local mafia who expect regular contributions to their 'welfare funds'. Depending on what type of entertainment or 'personal services' are on offer, these donations can be a considerable portion of gross income (not profit). However, more conventional businesses do not usually encounter these problems. Read an article on the 'joys' of owning a bar in Thailand.
Registering a Thai Company and Employing its Foreign Owner
For a foreigner to stay in Thailand and run (work in) even a perfectly legitimate business, there is really only one legal option and the requirements are quite extensive. The main requirement is the issue of a Work Permit. There is a list of business activities restricted to Thais only. Business applications need to be handled by a lawyer experienced in these matters. A reputable Thai lawyer (considered by some as a contradiction in terms!) is best found by recommendation from a foreigner already resident or in business in Thailand. Embassy lists are not reliable. Charges vary and will include application fees to the various government and licensing authorities. It is essential to get a quote or invoice beforehand, detailing as much as possible. Some lawyers will expect 50% of their fee on application and the remainder when completion is imminent. Due the nature of Thai law and regulations which often change without warning, this can be a frustrating and time-consuming exercise for all concerned, with inexplicable delays. However, there's much more to come after you have complied with all the requirements and are actually trying to run your new business! Read on...
It is worth noting that Thai Immigration, which is a department of the Royal Thai Police uses the word 'alien' in English translations to describe anyone who is not a registered Thai citizen. This includes the many groups of hill tribe people who have lived in the north of the country for generations. Regulations become more stringent each year. Currently they require foreign 'aliens' to be employed by a limited company (Co., Ltd.), in a position that a Thai would not qualify for including certain businesses or professions. This legislation also covers work that most Thais feel is beneath them, like manual labour, which is why Lao and Burmese labourers are allowed into the country to work usually for a pittance.
Foreigners in Thailand are naive if they think that their knowledge, business skills, willingness to employ people or generate income and taxes for the overall benefit of Thailand and Thai people, is wanted, much less appreciated, by the Thais.
One-way investment including upmarket tourism is far more preferable and this is encouraged. There are former government-sponsored schemes to attract money from the rich and famous. Low budget tourists or retirees with relatively low resources are tolerated rather than welcomed, in spite of the overall financial benefits they bring.
A foreigner can form or buy a Thai company, and even be the sole director of it, but Thai citizens must jointly own at least 51% of its shares meaning a majority is technically under Thai control. Currently it is possible to allocate shares to several unrelated people, who could have no combined effect on the company's business, and this can be arranged by the lawyer, but along with most things connected with business in Thailand, there are considerable risks involved.
Amendments to the Foreign Business Act this year will change things for a foreign business owner in Thailand. Company control will be based on voting rights rather than shareholding. As only a 49% foreign shareholding is allowed, it would be technically possible for the owner to be outvoted by the Thai majority shareholders.
There is also a minimum amount of paid up capital required before a foreigner can be employed. Previously this was a figure on paper only. Now, evidence in the form of bank accounts or company assets need to shown. See further requirements below.
Work Permit and Visa
If the business application involves a foreigner being employed, then a Work Permit application can be started simultaneously. After the company has been set up or taken over and all the fees etc. paid, the Work Permit needs to be approved too. Any foreigner who wants to be employed by the company (with or without reimbursement), even a sole director, needs a Work Permit which is issued by the Employment Office of the municipality or city where the business will be located. This is not an easy process now, although it is believed that Phuket may be an exception to the general rule. The list of requirements (may also be available in English) is extensive and includes producing original documents regarding education (no matter how long ago they were issued), other qualifications and more, including identification and house papers for the minimum number of local staff that must be employed before a foreigner is allowed to be on the payroll.
Once you have your work permit, which can be issued for one or more years, you take it to Immigration and apply to have your visa changed to a non-immigrant (business) visa, paying the annual fee.
Tip: If you have been staying in Thailand on extension stamps during your application, you should briefly leave and re-enter before applying for the change of visa type, as the expiry date for your new business visa will be one year after your most recent entry into Thailand.
Now you can commence work, but strictly in the designated occupation at a single place of business for a certain period of time, after which the permit must be extended or renewed. Periodic inspections may be carried out and penalties for non-compliance include fines and or prison terms. Here is more on the different classes of business visa for Thailand.
Annual Re-application (renewal)
The non-immigrant business visa requires annual re-application with all the same personal paperwork being re-submitted, plus audited annual accounts (see below) for the business. Three sets of copies of each document (there may be a hundred or more) need to be signed by the director(s) over the company stamp.
Regulations for applications for extension of a Non Immigrant "B" visa have been further reinforced and now must be supported by the following documents:
Certified photocopies of the company's Affidavit and Shareholders' List certified as a true copy of the original by the Ministry of Commerce; the most recent Annual Financial Statements certified as a true copy of the original by the auditor who audited it; copies of the company's most recent Personal Income Tax Return (PND1) with the Revenue Department's receipt plus photocopy of the applicant's most recent Annual Personal Income Tax Return (PND91), certified as a true copy of the original by the Revenue Department; photocopy of the employing company's most recent Social Security Fund monthly return certified as a true copy of the original by the Social Security Fund Office.
In addition to the above, photographic evidence is now required when making the initial application to extend a Non Immigrant "B" visa. When making the first application for an extension the applicant must also supply photographs of every employee at their place of work. This came into effect in May 2007. It is so that Immigration has photographic records they can use to verify employees when making surprise checks on the premises.
These visits are to be carried out so as to check the supplied information is correct. Any discrepancies may result in cancellation of the visa application and reporting to the police of the company and the unregistered staff.
There is no automatic renewal. Each year is treated as a new application which may be submitted to a local Immigration Office, but the paperwork goes to Bangkok for approval. This usually takes several weeks, during which time short temporary visa extensions are granted, meaning more visits to both Immigration and the Labour Office, where additional fees will be payable.
A further point to note is that although the Work Permit and Business Visa are interdependent (they both need to be kept valid), their renewal dates will not coincide as they are issued by different authorities. Again, more visits and additional fees payable during the overlapping periods.
Paperwork, Bureaucracy and Accounting
Providing all the above goes well, and you're 'in business', there will be ongoing requirements for companies especially those owned by foreigners. Additionally there are paid-up capital issues, licensing, taxes on personal income as well as company profits; social services (medical treatment for staff including yourself a small perk!), workmens compensation contributions, VAT and probably other issues to comply with. Submissions and most payments are made monthly including withholding taxes on salaries and staff wages (minimum wages apply). As all accounts must be submitted in the correct format and in Thai language, the company will need the services of an accountant and the services of an independent auditor (a 'nice little earner' for those concerned) for the annual audit. Apart from the expense, this is time-consuming and often frustrating. At the end of it, your business will need to be quite profitable to cover all the overheads as well as allow drawings to cover normal living expenses, if this is the intention.
The required number of local staff per foreigner varies for the type of business. There must a minimum number of Thai citizens with proper ID cards and house papers. Other aliens such as hill tribe, Burmese or Lao who carry ID cards issued by the local municipality can be taken on as extra staff. These people often make better, more diligent and reliable employees than local Thais, especially in the service industry. Physical checks by Immigration at your place of business will be made before Work Permit/visa approval; also 'spot checks' if they believe they have reason (perhaps from an informant). There is the risk of heavy fines, imprisonment or deportation for foreign employers or staff for non-compliance with the law, and warning signs are displayed in English outside relevant government offices. Ignorance is no excuse.
Property Leases and Taxes
Rent is paid in advance either annually or for the full term of the lease. Monthly rental is less common, but may be agreed in advance. If you are leasing a property such as a shop-house, standard forms may be available in Thai. Get an English translation and make sure all contingencies are covered and that the English version is the legally registered one. Also if there is removable equipment or furniture involved, include an inventory as an addendum to the lease, also noting anything that is already damaged, broken or in disrepair. A refundable deposit will be required as part of the lease and Thai landlords are notorious for retaining part or all of this for 'damage' or missing items on termination or expiry. Depending on the condition of the premises before you move in it may be possible to negotiate a waiver of the equivalent of one month's rent for painting, decorating and repairs. Check electrical wiring and switches, and plumbing and waste water drainage, water pumps, tanks etc. beforehand. Do not sign or pay in full until promises of replacement or repair have been kept. Get signed receipts for everything.
Property tax must be paid on Thai properties leased for business purposes. Landlords are entitled to charge the tenant for it as part of the lease, and a clause is usually included. The tax may vary between areas but 12.5% is common. The landlord may present you with the bill from the municipality and will expect you to pay cash. You should see the receipt once the tax has been paid and keep the original (give the landlord a copy) for your own accounts.
Employment, Social Services, Income and Other Taxes
There are legislated minima for issues including a minimum number of Thai staff per working foreigner, their wages, foreigner salaries, social and medical benefits contributions. For 'aliens' it depends on which 'planet' you come from, but it's around USD1000 per month, and income tax is about 10%. The company will pay tax on your salary too, so if it's your company, you are effectively paying tax twice. Fees for licences and taxes may not seem large amounts compared to running a business in Western or other countries, but they can all add up to a significant portion of your profits. After a period of grace for new businesses, the accounts will need to show a profit on which Corporation tax will be payable. Thailand has caught up quickly with American and European bureaucracy. On the other hand, 'all-Thai' owned businesses are less conspicuous than foreign ones which can be closely monitored by the authorities.
Been there, done that...
From the above, you may have guessed that the writer has 'jumped through all the hoops' above. Repeatedly, for a small but successful restaurant for more than 5 years. Each year the 'red tape' and cost became longer and higher than the previous, until enthusiasm waned and a new owner took over three years ago. He confirms this to be the case in spite of having his Thai wife as a partner too.
Unless you really know what you are doing and also enjoying it, there's not much to gain (and potentially a lot to lose) by trying to set up and run a small business in Thailand, especially if you need to depend on it for a living. However, if you are prepared to risk it, it's a way for you to keep relatives and friends of your newly-discovered 'extended family' in gainful employment or doing something more useful than producing babies, sitting around doing little but watching mindless TV programs, drinking or playing cards, or even to keep you from being bored! But as far as making money is concerned, there are easier and safer ways. For example, costumeshaker made a real revolution in the industry. Another option is to simply leave your funds in the bank or invest them elsewhere maybe outside Thailand. Are you looking for "Travel blog"? Check out travelersdiary The passionate experts in this field are ready to answer all of your requests.
If by now you're totally put off starting a conventional business in the "Land of Guile", but still want to live in Thailand and earn a living, there's still hope as there are other ways of earning income while living or retired in foreign countries. Here's an easier alternative we found.
In spite of all this, Thailand can still be considered as a suitable destination for foreign retirees with modest resources.
See also our Foreign Business Ownership in Asia page for further reference. Visit Movers Perth if you have an interest in moving from Western Australia or biking vietnam.
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