Background - Foreign Controlled Company
A foreign controlled company is the most common form of doing business in Thailand for foreigners. This structure requires that the company have a Thai majority shareholder and a Thai director. Thai majority owned companies are exempt from the provisions of the Foreign Business Act (FBA) and allowed to perform all types of businesses in Thailand. The FBA restricts majority foreign owned companies from performing service type businesses in Thailand without first going through a risky, costly and time consuming application process to apply for a foreign business license or Board of Investment (BOI) license.
In order to avoid application of the FBA, it has been a common practice for foreigners in Thailand to establish a Thai majority owned / foreign controlled company. A Thai majority owned company is considered any company that has Thai person holding 51% or more of any class of shares in the company. A Thai owned / foreign controlled company is structured so a Thai person holds 51% of the shares and a foreigner to hold 49%.
The 51% shares owned by the Thai citizen would be categorized as a special class of shares (preference shares), which have minimal to no voting or dividend rights in the company. The 49% shares owned by the foreigner would be categorized in a separate class of shares (common shares), which have 100% of the voting and dividend rights in the company. The result of this type of company register is the foreigner would only own 49% of the company on paper, yet legally have 100% control over the company’s business & funds while avoiding the application of the FBA.
How to register a foreign controlled company in Thailand?
A summary of the steps that should be taken to register a foreign controlled company are as follows:
- All Thai companies are required to have a minimum of two shareholders and one director.
- Find a Thai partner willing to be the 51% shareholder and Director of the company.
- Organize the required information of the Thai shareholders and company director including name, birthday, Thai ID card number or passport number, address, phone number, email address, citizenship and occupation.
- Choose a company name that includes the words "Ltd.", "Limited", "Co., Ltd." or "Company Limited". If you use the word "Thailand" in your company name it must be in brackets "(Thailand)".
- Obtain an address in Thailand for registering the company. Note a company can be initially registered at any address, but generally the Revenue Department will not allow VAT registration at residential homes or condos.
- Decide how much your company's registered capital will be. Note a company is required to have 2,000,000 Baht capital to sponsor a work permit for a foreigner. If such foreigner is married to a Thai citizen, then the company is only required to have 1,000,000 Baht capital instead of 2,000,000 Baht capital.
- Decide how much of the company's capital will be paid up. A company is required to pay up at least 25% of the company's capital upon registration. Another 25% is required to be paid up by the end of the first fiscal year. Another 25% is required to be paid up by the end of the second fiscal year and the remaining 25% is required to be paid up by the end of the third fiscal year. We recommend our clients to pay up 100% of the capital after registration if possible. Otherwise additional administrative work is required to update the amount of paid up capital with the DBD (Department of Business Development). Note it is better to finance a company in Thailand through capital rather than loans. The reason is because the Revenue Department can consider such payment to be the company's income rather than a loan if not paid back within a reasonable period of time.
- Decide on the fiscal year period. The fiscal year period can either be from January to December or starting in the month of registration and ending 12 months later.
- Decide on how many signatures will be required to legally bind the company. We normally recommend our SME clients to use only one signatory and for larger multinational companies to use multiple signatories. Note you can also set a limit on the Baht value amount a signatory can legally bind the company. For example, you could have a single signatory sign to legally bind the company for amounts less than 10,000 Baht or any other amount that is practical.
- Decide whether your company wants to use a company stamp. Contrary to popular belief, a company stamp is not required to be used in Thailand. We do not recommend our clients use a company stamp as the stamp and ink pad must be used when signing on behalf of the company which creates an extra unnecessary administrative burden.
- Document pre-operating expenses and include such information in the company registration application. If you fail to include pre-operating expense information in application, then such expenses will not be deductible for corporate income tax purposes. We recommend our clients only to include pre-operating expenses such as legal fees, government fee and VAT otherwise it can cause issues and delays upon registration.
- All Thai companies are required to have a minimum of two shareholders. We recommend our clients initially register a foreign controlled company using two Thai citizen shareholders and a Thai citizen director. If you try to register the company with both Thai citizen and foreigner shareholders or a foreign director, then the Thai citizen can be required to show their personal bank account proving they have the money to invest in the company. After the company has been registered, then the foreigner can be added as a shareholder or director without any scrutiny of their Thai partner's personal bank account.
- After the company is registered, a company bank account can be opened. Note only a Thai citizen or foreigner with a work permit can usually open a company bank account.
- After the company bank account is set up, the company's capital must be deposited.
NNP Group - Scope of Service
Our Thai owned company registration service includes the following:
- Consulting on shareholding structure, contracts, visa & work permit, tax returns, accounting, audit & corporate compliance.
- Provide required Thailand auditor ID number.
- Register company with the DBD (Department of Business Development).
- Translate company registration papers from Thai to English.
- Obtain corporate income tax ID number.
- Transfer shares to foreign shareholder after registration.
- Add foreign shareholder as director after registration.
- Correspondence by email, telephone and in person meetings when necessary.
