Different company structure types in Thailand for Foreign Investment : A comprehensive overview

BOI Company: A company structure type in Thailand with Investment Promotion

Definition of the BOI company

A BOI company is a business licensed under the Investment Promotion Act B.E. 2520 (1977) and approved by the Thailand Board of Investment (BOI)  to function in distinguished sectors contributing to Thailand’s economic and technological maturation.

Legal requirements before the creation of the BOI company

Before creating this company structure type in Thailand, the founding members have to know if their business activities are eligible for the BOI promotion program. In fact, under the Investment Support Act B.E. 2520, the BOI promotes specific industries that align with national economic policies. Key sectors include high-technology manufacturing like electronics and automotive, renewable energy resources, cutting-edge agriculture, digital services such as software development and data centers, healthcare and biotechnology, as well as logistics and transportation. These industries must comply with BOI-announced activity lists and related prerequisites involving minimum capital requirements and technological benchmarks.

Furthermore, the minimum registered capital for this company structure type in Thailand is ordinarily one million baht. However, the threshold can increase depending on project type. For activities involving overseas ownership, the investment must additionally satisfy conditions established by the Foreign Business Act.
A BOI company must register under Thai law and meet the following conditions: articles of association drafted as indicated by the necessities of the Thai public and business code, shareholding structure must comply with the BOI’s outside ownership allowances and the executives’ forces must meet administration necessities under the Companies Act.

Conditions during the existence of the BOI company:

• A BOI company’s debt-to-equity ratio must not exceed 3:1 for fresh projects. This confirms financial stability and decreases over-reliance on outside funding.
• Every venture of BOI companies must contribute no less than 20% value addition to earnings. For knowledge-focused industries such as software progress, value addition can reach 50% or more.
• Machinery must meet the BOI’s standards for modern technology and efficiency. Importation of second-hand machinery by BOI firms is limited and must be permitted case-by-case. However, this company structure type in Thailand are granted tax exemptions for importing endorsed machinery.
• BOI companies’ projects must comply with Thai environmental protection laws such as the Environmental Quality Advancement B.E. 2535.

Legal Benefits of the BOI company structure type in Thailand

The BOI company structure type in Thailand offers a lot of legal benefits for foreigners seeking to invest such as:

• Exemption from the Foreign Business Act (FBA): BOI company structure type in Thailand can be wholly foreign-owned, bypassing the typical 51% Thai ownership requirement under the FBA. This makes it an attractive choice for industries where foreign knowledge and capital are crucial.
• Tax Incentives: Up to 8 years of corporate income tax exemption (Section 31 of the Investment Promotion Act). Additional incentives may apply for businesses in special economic zones. It also permits to benefit from Import duty exemptions on machinery and raw materials. Dividends distributed to foreign shareholders may be exempt from withholding tax, further enhancing profitability.
• Land Ownership: Section 27 of the Act permits BOI companies to own land for operational purposes.  which is otherwise restricted under the Land Code Act B.E. 2497 (1954).
• Work Permits and Visas: BOI companies benefit from streamlined procedures for obtaining work permits and long-term visas for foreign employees and their families in order to ensure smooth operations.

Challenges of the BOI company

The BOI companies are strictly confined to categories posted on BOI’s incentive list. Furthermore, they are required to comply with strict rules and to submit frequent reports, perhaps necessitating additional administration personnel.

Example of BOI Firms

A renowned example of this company structure type in Thailand could be Western Digital. In late 2024, the BOI approved a 23.5 billion baht investment from Western Digital for the enlargement of hard drive manufacturing facilities in Thailand. This bold initiative aims to meet the rapidly growing needs of cloud computing and data centers worldwide.

Foreign Business License Company: A company structure type in Thailand Under an FBL

Legal Framework of this company structure type in Thailand

An FBL company is authorized under the Foreign Business Act B.E. 2542 to engage in activities typically restricted to Thai nationals. Foreign ownership exceeding 49% is allowed for businesses operating with an FBL, provided they comply with the licensing requirements. This is an exception to the general rule limiting foreign ownership in certain sectors.

Legal Requirements of the FBL company

The Foreign Business Act divides categorizes business activities into three categories according to the permissible extent of foreign involvement: activities completely forbidden to non-Thais (L1); industries relating to safety, culture and natural resources requiring ministerial approval with cabinet consent for external participation (L2) ; and sectors where local businessmen are as yet unprepared to compete—in these a Foreign Business License (FBL) must be holding prior to foreign engagement (L3).

The application process to get the FBL license is divided into several steps : 

• Step one: The founding members of a FBL company structure type in Thailand have to submit detailed documentation to the Department of Business Development (DBD), including comprehensive operational plans, fiscal records, and socioeconomic effect assessments.
• Step two: The application is reviewed by the Foreign Business Committee, which assesses factors such as economic benefits, market competition, and national security. Each FBL company must illustrate its contributions to employment, knowledge exchange, or regional financial progress.  
• Step three: Upon approval, the FBL is issued, specifying the permitted business activities and any conditions or restrictions

Furthermore, this company structure types in Thailand must begin with a minimum registered capital of THB 3 million per restricted activity, with higher stipulations for industries like mining or financing.

Advantages of the FBL company

• Industry Access: They enable overseas financiers to legally operate in limited fields, such as logistics, advising, and exchanging. Foreign ownership exceeding 49% is permitted in sectors listed in List 2 and 3, provided an FBL is granted.
• Legitimacy and Adherence: A FBL company can reduce risks of penalties, closings, or reputational harm related to unsanctioned procedures.
• Ease of Operation: Once an FBL is obtained, the firm can operate with fewer restrictions compared to companies that operate without a license

Challenges of the FBL company

Founding members of this company structure types in Thailand will face a lengthy and rigorous endorsement method, which may involve sessions with multiple governing bodies. FBL companies with majority foreign ownership are subject to strict compliance regulations:

• Debt-to-Equity Ratio: Maintain a debt-to-equity ratio not exceeding 7:1 (may vary depending on the activity).
• Economic Contribution: Demonstrate clear benefits to the Thai economy, such as technology transfer, employment generation for Thai nationals, or boosting exports.
• Annual Reporting: Submit reports to the Ministry of Commerce regarding business activities, financial status, and compliance with licensing conditions.

Thai Limited Companies: The Usual company structure type in Thailand 

By definition, Thai Limited companies regulated under the Civil and Commercial Code are the most prevalent company structure type in Thailand. They offer adaptability for both foreign and domestic enterprises.

Legal Requirements for a Thai limited company

Concerning its shareholder structure, three shareholders are minimum at registration. Thai nationals must hold 51% of the shares of a Thai Limited Company.
Furthermore, at least one director is required to manage operations. It must be named in the Articles of Association and he has the power to sign legal documents on behalf of the firm.
Moreover, minimum capital is 2 million baht with foreign shareholders, 1 million if the company is fully Thai-owned. If the firm sponsors foreign work permit, the required capital is 2 million baht per work permit. At least 25% must be paid upon the registration of the firm but the all registered capital does not need to be fully paid immediately.
The articles of association of this company structure type in Thailand are drawn up by the founding partners and must set out the objectives, rights and duties of shareholders, meeting procedures and other rules of governance. In addition, it is important to note that :

• The Thai Limited Company must reserve a unique name with the Department of Business Development avoiding conflicts. A registered Thai office address is mandatory for the firm
• Shares must be ordinary shares with equal worth. Shareholders shall pay at minimum 25% of the par value of shares upon registration. Preferred shares and voting rights can be specified if applicable
  After company registration, the company ought to obtain a Tax Identification Number (TIN), register for Value Added Tax (VAT) if the annual income exceeds 1.8 million baht or the company conducts business in a VAT-liable industry.

Benefits of the Thai limited company 

Compared to the different company structure types in Thailand, the Thai Limited companies benefit from numerous advantages such as:

• Limited Liability: Shareholders have limited liability under a Thai limited company structure. Their personal assets are protected from debts and obligations incurred by the business
• Credibility and Market Access: As local entities, such companies gain credibility while accessing industries open only to Thai-incorporated businesses. Government work is particularly accessible, expanding opportunities.
• Easy Transfer of Ownership: Freely transferring shares between investors provides flexibility for capital raising, ownership succession or profit realization over the lifespan of the venture.

Limitations of the Thai limited company

Despite of its numerous benefits, the Thai Limited Company may encounter limitations such as:

• Foreign Ownership Constraints: Foreign ownership is capped at 49% for most industries
• Work Permit and Visa Depency: Work permits for foreign employees are limited by the company’s registered capital. Furthermore, firms must maintain a ratio of 4 Thai employees per 1 foreign work permit, which can increase operational costs.
• Complex Compliance Obligations: Companies must comply with various legal obligations, including annual general meetings (AGMs), filing audited financial statements under the Accounting Act B.E. 2543 and regular reporting to the

Conclusion 

For outside financial specialists, the decision of the company structure type in Thailand relies upon components, for example, possession inclinations, industry, and operational scale:
Boi Firms offer the most extreme advantages, including 100% outside possession and huge tax reductions, yet are constrained to need regions.
FBL Firms give access to limited enterprises however include exacting consistency and endorsement forms.
Thai Limited Firms are the most available choice yet require greater part Thai possession except if explicit exemptions are conceded.
Lawful ability is basic to navigating these choices and confirming consistency with Thai laws. Counseling with a law office concentrating on Thai corporate law can help financial specialists recognize the most perfect structure, secure essential approvals, and set up a company establishment for achievement in Thailand.