Doing Business in Thailand

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Thailand is one of the founding members of ASEAN and has been instrumental in the formation and development of the ASEAN Free Trade Area (AFTA).Thailand is ideally located at the crossroads of Asia with easy access to the region’s dynamic markets.

Thailand has long been a proponent of free and fair trade and its attractiveness as a production base for leading international companies. Thailand is certain to be a beneficiary of the ASEAN Economic Community (AEC), which enters into force at the start of 2016.

However there are a number of issues which you must consider when you are looking to set up your business in Thailand.

This document takes you through some of the common questions we come across and gives you practical information about the issues you need to consider.

What type of business structure should we use?

There are advantages and disadvantages to all of them. There is no one correct answer, it’s all dependent on your specific business circumstances and needs.

A brief overview of the main structures is below:

 

Establishment (a branch of your overseas business):

  • Not a separate legal entity but an extension of the overseas parent company
  • If a permanent establishment (PE) in Thailand then profits from this PE are liable to Thai corporation tax
  • Branch office is required to maintain only those accounts relating to the activities of the branch in Thailand. Working capital amounting to not less than Baht 3 million must be brought into Thailand.

 

Limited Company:

  • Provides limited liability and ring-fencing to Thai operations
  • Gives a perception of a local business, with longevity
  • Corporation tax to be paid on company’s taxable profits
  • May be wholly owned by aliens.  However, in those business activities reserved for Thai nationals, an alien’s participation is generally allowed up to 49%. No established minimum level of capitalization.
  • Accounts require auditing without exemption. Annual audited accounts must be filed with the Ministry of Commerce, and filed, along with the annual income tax returns, with the Revenue Department.
  • The accounting records and books of account must be kept the registered office of the company for a period of 5 years to meet the requirement of accounting law and for tax inspection purposes.

 

Limited Liability Partnership:

  • Members (partners) have limited liability
  • Profits are allocated to members who then pay Personal Income Tax on these profits personally
  • The tax residence of the member, and where the profits in the LLP originated will determine in what jurisdiction and how these profits are taxed

How much Corporation Tax will the business pay?

Current Corporation Tax rates in Thailand are:

General Companies or Limited Liability (Registered) Partnerships - tax rate at 20% of net taxable profit.

Small and Medium Entities (SMEs) - (the Company with Paid-up Capital Less than Baht 5million and income for the year less than Baht 30 million) are entitled to tax rate reduction as follows:

For the year 2016  
0% of net taxable profit up to Baht 0.3 million
10% of net taxable profit more than Baht 0.3 million
For the year 2017  
0% of net taxable profit up to Baht 0.3 million
15% of net taxable profit of Baht 0.3 million – 3.0 milion
20% of net taxable profit more than Baht 3.0 million

A separate profit remittance tax of 10% of the net amount remitted is imposed on foreign companies that remit their Thailand based profits offshore.

A foreign company, not conducting business in Thailand but deriving certain types of income from Thailand, such as service fees, interests, dividends, rents, or professional fees, may be subject to Tax on the gross amount received. 

It is collected in the form of withholding tax, by which the payer of income shall deduct the tax from the income. 

A foreign company engaged in international transportation is also only subject to tax on its gross receipts.

For income derived from countries that do have a Double Taxation Agreement (DTA) with Thailand, foreign tax credits are allowed.  These foreign tax credits are subject to certain criteria and conditions, up to the amount of Thailand tax that would have been payable had the income been derived in Thailand.

Each company is taxed as a separate legal entity.  Taxable losses incurred by one affiliate may not be offset against taxable profits made by another affiliate. Taxable losses incurred can only be carried forward for a maximum of 5 years.

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