Foreign Business Structures in Thailand: Choosing the Right Structure for Your Business

Thailand remains an attractive destination for foreign investors seeking to establish a presence in Southeast Asia. Foreign investment spans a wide range of sectors, including manufacturing, trading, technology, professional services, logistics, and other commercial activities.

However, establishing a business in Thailand involves more than incorporating a company. Before setting up a business, a foreign investor should first determine whether the proposed activities may be carried out by a foreign-owned business and, if so, which legal structure is most appropriate.

The choice of business structure can have significant legal and commercial consequences. It may affect the level of foreign ownership permitted, licensing requirements, liability exposure, tax considerations, eligibility for investment incentives, and the way the business operates in Thailand.

The structure should therefore be considered at the outset, taking into account both the investor's business objectives and the regulatory framework applicable to the proposed activities.

Understanding Foreign Business Restrictions in Thailand

One of the first issues a foreign investor should consider is whether the proposed business activities are subject to restrictions under the Foreign Business Act B.E. 2542 (1999) (the "FBA").

The FBA regulates foreign participation in certain categories of business and restricts foreigners from engaging in specified activities unless the applicable requirements are satisfied. Depending on the nature of the business, a foreign investor may need to obtain permission or qualify for an applicable exemption before commencing operations in Thailand.

Importantly, incorporating a company under Thai law does not, by itself, mean that the company will be regarded as Thai-owned for purposes of the FBA. A Thai-incorporated company may still be considered a "foreigner" under the FBA where foreign shareholders hold at least 50% of its capital.

Accordingly, foreign investors should consider two questions together:

·       Who will own the business?

·       What activities will the business conduct in Thailand?

The answers to these questions will help determine whether foreign ownership restrictions apply and which structure may be suitable.

Business Structures Under the Thai Civil and Commercial Code

The Civil and Commercial Code (the "CCC") provides the principal legal framework for the establishment and operation of partnerships and companies in Thailand.

Under Section 1012 of the CCC, a partnership or company is formed by an agreement between two or more persons to undertake a common business with a view to sharing the resulting profits. Section 1013 recognizes three categories of partnerships and companies: ordinary partnerships, limited partnerships, and limited companies. Once registered, a partnership or company becomes a juristic person separate from the individuals who form it under Section 1015.

The principal structures are as follows.

Ordinary Partnership

Under Section 1025 of the CCC, an ordinary partnership consists of two or more persons who agree to undertake a business together, with all partners being jointly and unlimitedly liable for the obligations of the partnership.

Because partners may have unlimited personal liability, an ordinary partnership is generally less attractive to foreign investors seeking to establish an operating business in Thailand.

Limited Partnership

A limited partnership under Section 1077 of the CCC consists of two types of partners: partners whose liability is limited to the amount they have agreed to contribute, and at least one partner whose liability remains joint and unlimited.

While this structure may be appropriate in certain circumstances, the unlimited liability of the general partner can make it less suitable for foreign investors seeking to limit their exposure to business liabilities.

Limited Company

A Thai limited company is the structure most commonly used for establishing an operating business in Thailand.

The distinction between the CCC and the FBA is important. The CCC governs the formation, corporate structure, management, and liability of the Thai entity, while the FBA regulates whether and to what extent foreigners may participate in certain businesses carried on by that entity.

Thai Limited Company

A Thai private limited company is often the preferred structure for a foreign investor establishing a long-term operating business in Thailand.

Under Section 1096 of the CCC, a limited company is formed with capital divided into shares of equal value, and the liability of each shareholder is generally limited to the amount remaining unpaid on the shares held by that shareholder.

Following amendments to the CCC that took effect on 7 February 2023, a limited company may be promoted by at least two persons. Section 1098 also requires the memorandum of association to contain, among other matters, the company's name, registered office, objectives, share capital, and a declaration that shareholder liability is limited.

A Thai limited company has several practical advantages:

·       It is a juristic person separate from its shareholders.

·       It may enter into contracts, employ personnel, lease premises, acquire assets, and conduct business in its own name, subject to applicable laws and licensing requirements.

·       Shareholder liability is generally limited to the amount of capital contributed or remaining unpaid on the shares.

Foreign Ownership of a Thai Company

A common misconception is that every foreign-invested company in Thailand must have a 51% Thai / 49% foreign shareholding structure. This is not necessarily the case.

Where the proposed business activities are not restricted under the FBA, a foreign investor may, depending on the circumstances, establish a company with majority or even 100% foreign ownership.

Where the proposed activities are subject to restrictions, the investor may need to consider other options, such as obtaining a Foreign Business Licence, relying on an applicable exemption, or applying for promotion from the Thailand Board of Investment (the "BOI").

Foreign ownership should therefore be assessed together with the nature of the proposed business activities rather than determined solely by reference to a standard shareholding ratio.

Branch Office

A foreign company may also establish a branch office in Thailand.

Unlike a Thai limited company, a branch office does not have a separate legal personality from its foreign head office. It operates as an extension of the foreign company rather than as a separately incorporated Thai entity.

A branch may therefore be suitable where a foreign company wishes to conduct business in Thailand directly without establishing a separate subsidiary.

However, this structure also creates an important distinction in terms of liability. Because the branch is not legally separate from the foreign head office, the foreign parent may have direct exposure to liabilities arising from the branch's activities. This differs from the limited liability generally available to shareholders of a Thai limited company under Section 1096 of the CCC.

A branch may also be subject to restrictions under the FBA. Where its activities fall within a restricted business category, the appropriate permission may need to be obtained before commencing operations.

Foreign investors should therefore consider both the operational benefits and the potential legal and financial exposure associated with operating through a branch.

Representative Office

A representative office is generally intended for a foreign company seeking to establish a limited presence in Thailand without conducting ordinary revenue-generating commercial activities.

Permitted activities may include:

·       conducting market research;

·       sourcing goods or services in Thailand;

·       monitoring the quality and quantity of goods purchased in Thailand;

·       providing information regarding the foreign company's products or services; and

·       reporting business and market developments in Thailand to the foreign head office.

A representative office is not intended to generate revenue from ordinary commercial activities in Thailand. It should therefore not be used as a substitute for a local operating or sales company that enters into commercial transactions with customers.

For foreign companies that are still assessing the Thai market, a representative office may provide a way to establish a limited presence before committing to a full commercial operation.

Assessing Foreign Ownership Restrictions

Foreign ownership is one of the key considerations when structuring a business in Thailand.

The FBA identifies categories of business in which foreign participation is restricted. Depending on the relevant activity, a foreign investor may be prohibited from conducting the business or may be required to obtain permission from the relevant authorities.

Importantly, the analysis should focus on the actual activities that the business will conduct in Thailand, rather than relying solely on the company's registered objectives. Although the company's objectives form part of the information required under Section 1098 of the CCC, the practical activities undertaken by the business will be relevant when assessing whether foreign business restrictions apply.

For example, a company broadly described as a "service company" may in practice provide several different types of services. Some activities may be subject to foreign ownership restrictions while others may not.

A proper structuring analysis should therefore identify the material activities the business intends to conduct and assess the applicable foreign ownership and licensing requirements for each activity.

Foreign Business Licence

Where a foreign-owned business intends to conduct an activity restricted under the FBA, obtaining a Foreign Business Licence ("FBL") may be one possible route.

An FBL allows a foreigner to conduct certain restricted business activities in Thailand, subject to the applicable requirements and conditions.

The approval process is not automatic. The relevant authorities may consider various aspects of the proposed business, including its investment, operations, technology, employment, and other relevant factors.

For this reason, an FBL should be considered as part of the initial structuring process. Foreign investors should avoid assuming that a business can commence operations first and address foreign business restrictions at a later stage.

BOI Promotion and Foreign Investment

Foreign investors should also consider whether their proposed investment may qualify for promotion from the Thailand Board of Investment.

For qualifying projects, BOI promotion may provide various incentives, including tax benefits and certain non-tax privileges. Depending on the nature of the promoted activity and the applicable conditions, BOI promotion may also provide greater flexibility regarding foreign ownership.

Accordingly, a foreign investor should not assume that the only options are a Thai-majority company or an FBL. For eligible projects, BOI promotion may provide an alternative structure for entering or expanding in the Thai market.

However, BOI promotion is available only for qualifying activities and is subject to specific conditions. Eligibility should therefore be assessed at an early stage before the investor relies on BOI incentives when structuring its investment.

Which Structure Is Right for Your Business?

There is no single business structure that is appropriate for every foreign investor. The right structure will depend on the investor's commercial objectives, proposed activities, ownership requirements, and intended level of involvement in Thailand.

In general:

Thai limited company

A Thai limited company is generally suitable for a long-term operating business with employees, customers, suppliers, contracts, and revenue in Thailand. It also provides the benefit of a separate legal personality and limited shareholder liability.

Branch office

A branch office may be appropriate where a foreign company wishes to conduct business in Thailand directly through its existing corporate structure and is prepared to accept the potential liability exposure associated with operating through an extension of the foreign company.

Representative office

A representative office may be suitable where the primary objective is to conduct market research, sourcing, monitoring, or other permitted non-revenue-generating activities before establishing a full commercial operation.

BOI-promoted structure

For qualifying investments, BOI promotion should be considered alongside the available corporate structures and foreign ownership options.

Establishing a Foreign Business in Thailand

Selecting the appropriate legal structure is an important first step for any foreign investor entering the Thai market.

Rather than selecting a structure simply because it is commonly used by other foreign investors, the decision should be based on the specific circumstances of the proposed investment, including:

·       the nature of the investment;

·       the activities to be conducted in Thailand;

·       the desired level of foreign ownership;

·       applicable licensing and regulatory requirements; and

·       the investor's long-term commercial objectives.

These considerations should be assessed together with the requirements of the CCC governing the relevant business vehicle and the FBA restrictions applicable to foreign participation.

Early legal and regulatory planning can help investors identify potential restrictions before establishing the business, avoid unnecessary restructuring costs, and select a structure that better supports their long-term objectives in Thailand

How We Can Assist

If you are considering establishing or expanding a business in Thailand, our corporate lawyers can assist with:

• assessing your proposed business activities and applicable regulatory requirements;

• reviewing foreign ownership restrictions under the FBA;

• advising on the appropriate business structure;

• assisting with the establishment of a Thai company, branch, or representative office;

• advising on Foreign Business Licence requirements; and

• assisting with BOI applications and investment-related approvals, where applicable.

Contact our legal team to discuss your proposed investment and determine the legal structure and regulatory approach that best suits your business objectives in Thailand.