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Understanding the legal framework for starting a business in Thailand: essential laws and procedures
Thailand is an appealing destination for entrepreneurs seeking to start a business in Thailand or form companies in Southeast Asia. The country enjoys a sound legal system, strategic location and policies that encourage foreign investment. Nevertheless, foreign investors should also note that Thailand has relatively strict regulations on foreign business ownership, which are essentially controlled by the Foreign Business Act B.E. 2542 (1999). Under the Act, a 51% Thai ownership is required for foreign investment in some sectors, subject in some cases to exceptions.
Moreover, the practice of using Thai nominees (foreign shareholders appoint a Thai national to hold their shares) is absolutely forbidden and the offenders are liable to criminal penalties in Thailand. Thai authorities in particular the Department of Business Development (DBD) and Thai Police’s Economic Crime Division have stepped up their enforcement activities to crack down on nominee structures, seen as an attack on national sovereignty and economic policy.
Such a stringent legal structure does mean getting the right legal advice and due diligence in place if you are considering setting up a business in Thailand in vital. However, with company registration being made easy and the minimization of bureaucratic obstacles, Thailand is a popular destination for both domestic and foreign entrepreneurs due to ease of doing business.
At Benoit & Partners, we provide expert guidance to help you navigate the process of starting a business in Thailand. From choosing the right business structure to complying with legal and tax requirements, our team is here to guide you through each step. We specialize in offering a clear overview of the registration process, required documentation, and key regulations, ensuring your business is set up legally and successfully in Thailand.
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Table of Contents
Establishing a company to start a business in Thailand
Types of business entities
In Thailand, as in any other country, there are different types of business entities available to entrepreneurs that they can use to setup their business, and every form has its advantages and requirements. The private limited company is the most popular business structure and can be formed by both Thai individuals and foreign investors. There is a minimum requirement of two shareholders in the private limited company structure and foreign ownership is limited to 49%, subject to specific licenses or BOI approval. This is the structure of choice for the majority of investors, it offers simplicity and flexibility. There are alternative corporate structures organisations including the public company limited by shares, partnerships (general and limited), the representative office and the branch office, all tailored to certain operational and/or legislative requirements.
Obtaining a foreign business license to legally start a business in Thailand
Foreign investors wishing to start a business in Thailand and hold more than 49% of the shares must apply for a Foreign Business License (FBL). This license applies to sectors restricted under the Foreign Business Act (FBA), such as retail, real estate, agriculture, and certain services. These sectors are not open to foreign nationals in Thailand.
The Ministry of Commerce issues the FBL. The application process is strict and requires detailed business plans and disclosure of ownership structures. The business must align with Thailand’s economic interests. In some cases, exceptions exist. With Board of Investments (BOI) approval, foreign ownership is allowed in certain targeted industries. However, the FBL remains essential for foreign investors who do not qualify for exemptions and operate in regulated sectors.
Company formation process to start a business in Thailand
To start a business in Thailand and create a company, you must follow a specific legal process. The first step is reserving a company name with the Department of Business Development (DBD). Once the name is approved, you must write the Memorandum of Association (MOA), including details like the company name, address, objectives, capital, and shareholder information.
After the MOA is approved, the company is registered with the DBD, and a Certification of Incorporation is issued. The registration process typically takes a few days, and the company will receive a Tax Identification Number (TIN) from the Revenue Department. After registration, the company must also register its employees with the Social Security Office to comply with social security regulations.
Corporation tax you need to pay when you start a business in Thailand
Corporate Income Tax (CIT) obligations when you start a business in Thailand
When starting a business in Thailand, it is important to understand the corporate income tax (CIT) system for locally registered entities. According to the Thai Revenue Code, any company registered in Thailand must pay CIT on net profits derived from business operations within the country.
The standard corporate income tax rate is 20%. However, entrepreneurs starting a business in Thailand under the SME category can benefit from competitive and progressive tax rates. Companies with registered capital of up to 5 million THB and annual revenue below 30 million THB follow the following tax structure:
- The first 300,000 THB in net profit is exempt from CIT (0%);
- Income between 300,001 and 3,000,000 THB is taxed at 15%;
- Any amount above 3,000,000 THB is taxed at the standard 20% rate.
This favourable regime is designed to encourage investors and small businesses to start a business in Thailand under manageable tax obligations, particularly in the early stages of operation.
Value Added Tax (VAT) compliance when you start a business in Thailand
When starting a business in Thailand, it is crucial to understand VAT obligations to remain compliant with Thai tax regulations. According to the Revenue Code, Value Added Tax (VAT) is charged at a standard rate of 7% on the sale of goods and services within the Kingdom, as well as on the importation of goods.
Businesses must register for VAT if their annual turnover exceeds 1.8 million THB. However, some businesses may choose to voluntarily register for VAT even before reaching this threshold, such as to claim input tax credits.
As part of the business setup process, VAT registration must be filed within 30 days from the date the business becomes liable, typically after exceeding the revenue threshold. Failure to comply can result in fines and penalties, making early planning crucial during company formation.
Other taxes
In addition to corporate income tax and VAT, businesses in Thailand are also liable for other taxes, such as withholding tax on dividend, interest, and royalty payments. The withholding tax rates vary depending on the type of payment and whether the receiving party is Thai or foreign.
Furthermore, companies that manufacture and sell certain goods are subject to excise taxes. These taxes are applied to goods such as alcohol, tobacco, and fuel.
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Certificates and permits needed to start a business in Thailand
Investors interested in starting a business in Thailand should be aware that obtaining the necessary permits or operating licenses can be rigorous, as many sectors are highly regulated. Regardless of the business type, owners must comply with licensing requirements set by various Thai authorities based on their business activity.
For example, opening a hotel requires approvals from the Tourism Authority of Thailand and local administrative bodies. Starting a restaurant or food business requires licenses from the Food and Drug Administration and, in some cases, the Excise Department. Construction firms and real estate developers need to obtain building permits and zoning approvals from the Department of Public Works and Town & Country Planning. Similarly, import-export firms must register with the Department of Foreign Trade and follow customs rules.
These processes involve extensive paperwork, inspections, and industry-specific regulations. Failing to secure the required permits can lead to delays, penalties, or legal consequences. Therefore, hiring a professional lawyer helps avoid violations and speeds up the business setup process in Thailand.
Employment and Labor Law rules to consider when you start a business in Thailand
Visa and work permit requirements for foreign employees when you start a business in Thailand
Starting a business in Thailand and employing foreign workers requires strict compliance with immigration and labor laws. Foreign workers need a suitable visa, usually a non-immigrant B visa, before applying for a work permit. Highly skilled professionals may qualify for the Long-Term Resident (LTR) visa, which offers more flexible terms. However, most foreign workers follow the usual process: obtaining a non-B visa before entering Thailand and applying for a work permit at the Department of Employment.
The employing company must meet legal requirements to qualify for work permits. The company needs a minimum registered capital of 2 million Thai baht per foreign employee. It must hire at least four Thai employees for each foreign worker, supporting the government’s initiative to promote Thai employment. Additionally, the foreign worker must earn a monthly salary between 35,000 and 50,000 Thai baht, depending on nationality and skill level. These requirements are strictly enforced, and applicants may face denial or fines for non-compliance.
Once a work permit is granted, foreign employees receive the same labor protections as Thai nationals under the Labor Protection Act B.E. 2541 (1998). This includes non-discrimination, minimum wage, and safe working conditions. Employers must comply with these requirements, including visa issuance, quota management, and corporate documentation, to avoid legal issues when hiring foreign workers.
Employment contracts
In Thailand, employers who want to start a business must provide written employment contracts to their employees. These contracts should specify the employee’s duties, compensation, and contract length. Employers must ensure these contracts comply with the Labor Protection Act B.E. 2541 (1998), which sets minimum standards for labor conditions in Thailand.
Conclusion
Starting a business in Thailand offers many advantages for foreign investors who understand the legal and regulatory framework. With knowledge of business structures, tax responsibilities, licensing requirements, and labor laws, entrepreneurs can form scalable business entities more quickly. The system is designed to facilitate foreign investment, and businesses can succeed in this emerging economy with proper guidance.
If you need further information, you may schedule an appointment with one of our lawyers.
FAQ
Yes, it is entirely possible to start a business in Thailand as a foreigner. However, certain restrictions apply, particularly with regard to majority ownership, under the Foreign Business Act B.E. 2542 (1999). To operate in regulated sectors, a Foreign Business License (FBL) may be required.
The Thai Limited Company (limited liability company) is the most common form. It requires at least two shareholders and allows up to 49% foreign ownership, with some exceptions (BOI or FBL promotion).
The main steps include:
- Reserving the company name with the Department of Business Development (DBD)
- Drafting the Memorandum of Association
- Registering the company
- Obtaining the certificate of registration and tax identification number (TIN)
- Registering employees with social security
The standard corporate income tax (CIT) rate is 20%. However, SMEs may benefit from reduced rates (0 to 15%) based on their turnover and capital. Understanding these rates is essential before setting up a business in Thailand.
Registration is mandatory as soon as turnover exceeds THB 1.8 million per year. However, voluntary registration is possible earlier. The VAT rate is 7% on most commercial transactions.
The company must have:
- Share capital of THB 2 million per foreign employee;
- A ratio of four Thai employees for every foreign employee;
- A minimum monthly salary (between THB 35,000 and THB 50,000 depending on nationality).
The employee must have a non-immigrant B visa and a work permit issued by the Ministry of Labor.