Call us now:
Why is it necessary to structure and secure a foreign venture capital investment in Thailand?
Venture capital in Thailand (risk capital) corresponds to an equity investment in a startup or unlisted company with strong growth potential. The investor contributes capital in exchange for shares and becomes a shareholder in the company. Unlike a loan, this investment does not guarantee any repayment. Profitability depends mainly on the future valuation of the company and the occurrence of a liquidity event, such as a strategic acquisition or an initial public offering.
In Thailand, venture capital investors are often international. They may be investment funds, family offices, or technology companies based in Europe, the United States, or Asia. In many cases, these investments are structured through a holding company based in Singapore or Hong Kong. This structure allows for the centralization of shareholdings, the organization of international financial flows, and the facilitation of investment management in the Asian region. The rise of technology startups and the attractiveness of economic incentives, particularly those offered by the Board of Investment (BOI), make this market particularly interesting in Thailand.
Rigorous legal structuring of the investment is essential in view of the applicable legal framework, which is based in particular on the Civil and Commercial Code, the Public Limited Companies Act B.E. 2535 (1992), the Securities and Exchange Act B.E. 2535 (1992), the Foreign Business Act B.E. 2542 (1999), and the Revenue Code of Thailand. As such, Benoit & Partners regularly assists international and expatriate investors in structuring their investments in Thailand. This expertise enables the firm to assist its clients throughout all stages of a venture capital investment, from the legal analysis of the project to the implementation of the investment structure and the contractual securing of the transaction.
Get expert legal guidance.
Table of Contents
Legal framework applicable to foreign venture capital investments in Thailand
Restrictions under the Foreign Business Act and their impact on your foreign participation
The Foreign Business Act B.E. 2542 (1999) is one of the main pieces of legislation governing foreign investment in Thailand. This law regulates the economic activities in which foreign investors may participate and imposes restrictions in sectors considered sensitive.
According to Section 4 of the Foreign Business Act, a company is legally classified as foreign when more than 50% of its capital or voting rights are held by foreign individuals or legal entities. In this case, certain commercial activities may be prohibited or require a specific license. In the context of venture capital investments, it is therefore essential to identify the activity carried out by the target startup.
The strategic role of the Board of Investment in the startup ecosystem
The Board of Investment (BOI) is a government agency responsible for encouraging investment in strategic sectors of the Thai economy. Its operations are based on the Investment Promotion Act B.E. 2520 (1977). In particular, it supports investment in technology industries, software, digital platforms, artificial intelligence, robotics, biotechnology, and advanced industrial technologies through various support measures.
The most effective investment structures for venture capital in Thailand
Optimizing investment flows through a regional holding company
The use of an intermediate holding company in Singapore or Hong Kong is the standard structure for venture capital in Thailand. This arrangement optimizes financial flows by taking advantage of particularly favorable double taxation agreements (DTAs).
For outgoing dividends, Thailand applies a 10% withholding tax (standard rate capped by the tax treaty). The foreign holding company then receives these funds completely tax-free in Singapore or Hong Kong. This structure facilitates the immediate reinvestment of capital within the ASEAN region, without additional tax friction or major exchange control constraints.
In order to structure and optimize your investment, as well as dividend payments and future share disposals, we invite you to seek the expertise of our firm, Benoit and Partners. We will assist you in developing your holding structure to secure your assets and ensure full compliance with regional regulations.
Structuring investment flows through Thai venture capital funds
In addition to structuring as a holding company, investments can be made through a Thai-registered fund, which allows the capital of several investors (Limited Partners) to be pooled while benefiting from local expertise. Although based in Thailand, these vehicles often require target startups to adopt the holding company structure mentioned above in order to facilitate future international fundraising.
These funds operate in two distinct forms, depending on their size and strategy:
- The Private Limited Company: governed by the Civil and Commercial Code, this is the most agile form for small groups of investors. It confers limited liability but remains subject to the capital ratio (51% Thai/49% foreign) in order to retain its status as a local company and avoid the constraints of the FBA.
- SEC-regulated funds: For large-scale structures, registration as a private equity fund under the supervision of the Securities and Exchange Commission (SEC) offers a secure institutional framework. This status is particularly attractive as it allows for specific national tax incentives, such as capital gains tax exemptions for investments made in target technology sectors (S-Curve), thus creating a competitive tax gateway compared to offshore structures.
The legal security required for any venture capital investment in Thailand
Securing venture capital in Thailand investments is essential to ensuring profitability and protecting the investor’s interests. This process is based on due diligence and contractual protection, particularly through a solid shareholders’ agreement.
Securing assets through due diligence
Before making an investment, particularly in venture capital in Thailand, it is imperative that the investor (often via a holding company or investment fund) conducts rigorous due diligence. The objective is to identify all risks that could affect the viability of the investment.
During due diligence, the investor carefully examines aspects such as:
- Commercial contracts;
- Intellectual property rights (patents, trademarks, copyrights);
- Tax compliance;
- Ongoing litigation.
Protecting the investor with a shareholder agreement
Once the investment has been approved, contractual protection becomes essential. The shareholder agreement organizes the relationships between shareholders and defines the investor’s rights.
The main clauses generally include:
- Preferential liquidation, which allows the investor to recover their capital first in the event of a sale or liquidation
- Anti-dilution mechanisms, designed to protect the value of the investment when new funds are raised
- Veto rights on certain strategic decisions
- Exit mechanisms, including forced sale and joint sale clauses.
Get expert legal guidance.
Tax optimization of venture capital investments in Thailand
Tax incentives applicable to companies promoted by the BOI
According to the Investment Promotion Act B.E. 2520 (1977), companies that receive BOI promotion can benefit from significant tax reductions or exemptions for several years, up to 8 years, depending on the nature of the investment and the sector concerned.
The main tax benefits include:
- Companies benefiting from BOI promotion may be exempt from corporate income tax for 3 to 8 years, depending on the type of activity and the location of the company.
- Investments in projects approved by the BOI may also benefit from partial or total exemption from customs duties on imported equipment necessary for production.
- Companies benefiting from BOI promotion and exporting products or services can obtain additional tax exemptions on income generated by exports.
- Other benefits include facilities for obtaining visas and work permits for expatriates, which is particularly relevant for venture capital companies that employ international talent.
Capital gains and dividend taxation for foreign investors
Thailand does not impose capital gains tax. However, capital gains from the sale of shares may be taxed as income in accordance with Section 40(4)(g) of the Revenue Code. When the seller is a foreign investor, taxation depends in particular on the location of the transaction and the existence of an applicable tax treaty. In some cases, a 15% withholding tax may be applied under Section 70 of the Revenue Code, unless a tax treaty provides for an exemption.
Dividends paid to foreign investors are subject to a 10% with holding tax under Section 50 of the Revenue Code. International tax treaties may reduce this rate and avoid double taxation. In this context, the use of a holding company located in a jurisdiction with an extensive network of tax treaties can optimize the overall taxation of the investment. The tax treaty (DTA) between Thailand and Singapore is crucial. Article 13(4) often allows for total exemption from capital gains tax in Thailand if the seller is a Singapore holding company (and not a predominantly real estate company).
Strategies for exiting a venture capital investment in Thailand to realize capital gains
Initial public offering (IPO)
An initial public offering (IPO) on the Stock Exchange of Thailand (SET) is one of the main avenues of liquidity for venture capital in Thailand investors. It allows investors to sell their stake in the company by making it available to the general public. This transaction is strictly regulated by the Securities and Exchange Act and requires governance in line with the requirements for listed companies.
Strategic sale to a third party
Strategic sale is a common option in venture capital in Thailand. This transaction allows an investor to sell their shares to another market player, often an industrial group in the same sector. This type of sale offers a faster exit than an IPO and allows the investor to recover their capital more quickly.
Compulsory sale and joint sale clauses
Tag-along and drag-along clauses are crucial instruments for ensuring a secure exit for all shareholders. The drag-along clause obliges minority shareholders to sell their shares in the event of a sale of the company, while the tag-along clause ensures that minority shareholders can sell their shares on the same terms as majority shareholders.
Why choose Benoit & Partners to support your venture capital investment project in Thailand?
Benoit & Partners is a Franco-Thai law firm recognized for its expertise in the legal and tax structuring of foreign investments in Thailand.
The firm assists investors at every stage of a venture capital in Thailand transaction, from analyzing the legal feasibility of the project to structuring the entire investment.
With its in-depth knowledge of Thai administrative and regulatory practices, the firm regularly assists its clients in their interactions with the main local authorities in matters of investment and immigration.
Conclusion
Venture capital in Thailand represents an increasingly attractive strategic opportunity for foreign investors. Thanks to an environment conducive to innovation and BOI tax incentives, investors can maximize their returns while securing their capital. However, sound legal structuring, risk analysis, and tax optimization are necessary to ensure the success of the investment.
If you need further information, you may schedule an appointment with one of our lawyers.
FAQ
The Foreign Business Act restricts foreign ownership in certain sectors. Foreign investors must structure their investment to optimize it.
Yes, bilateral tax treaties can reduce or eliminate capital gains taxes on certain foreign investments.
Yes, if the company’s activity is not restricted by the Foreign Business Act, it may be necessary to structure the investment through a foreign holding company.
Yes, companies promoted by the BOI can benefit from tax exemptions for a specified period, particularly for startups in strategic sectors.
No, dividends are subject to a 10% withholding tax, although tax reductions can be obtained through tax treaties.
Preferred shares are permitted in Thailand in accordance with Sections 1143 to 1145 of the Civil and Commercial Code. The rights attached to these shares must be clearly defined in the company’s articles of association, particularly with regard to voting rights, preferred dividends, or rights in the event of liquidation. Section 1142 prohibits the conversion of common shares into preferred shares after their issuance.
Yes, the shareholders’ agreement defines veto rights and anti-dilution mechanisms and guarantees investor protection.
Initial public offerings (IPOs) are relatively common, particularly in the technology sectors.
A holding company allows you to structure your investment optimally in order to benefit from tax advantages, while complying with the restrictions of the Foreign Business Act.
Yes, it is essential in order to structure the investment correctly, secure financial flows, and ensure the legal compliance of the transaction.