Thailand foreign owned companies

[whatspat]

I've been doing a lot of study recently trying to find an efficient way to improve my setup in Thailand and paying a lot of attention to the rules regarding foreign-owned companies.

One of the historical challenges with foreign-owned entities in Thailand has been the requirement to obtain a foreign business license to operate a wide variety of business types (including almost all services businesses). This requires a submission demonstrating (among other things) how the business will benefit Thailand, and a lengthy review process with no certainty of approval (and I understand rejections are not uncommon).

What's interesting is that in 2013, 2016, 2017 and 2019, more exemptions from the foreign business license requirement have been added, and in particular, the most recent update allows for management, marketing, HR and IT consulting services between related entities (4 definitions for "related" are given). These rule changes, combined with the "branch office" or "representative office" registration forms potentially provide a local legal structure that could work for me (obtain work permit with minimal reporting and cost overhead), and I'll be investigating further with local lawyers. While the "representative office" structure probably won't suit me personally, I note that the legislation explicitly excludes funds remitted by the parent to support the local operation from being assessable income for tax purposes, which might be an interesting loophole for some.

Interested to hear from anyone else who has been down these rabbit holes or has any experience to share.

 

[JackAlabama]

I've been doing a lot of study recently trying to find an efficient way to improve my setup in Thailand and paying a lot of attention to the rules regarding foreign-owned companies.

One of the historical challenges with foreign-owned entities in Thailand has been the requirement to obtain a foreign business license to operate a wide variety of business types (including almost all services businesses). This requires a submission demonstrating (among other things) how the business will benefit Thailand, and a lengthy review process with no certainty of approval (and I understand rejections are not uncommon).

What's interesting is that in 2013, 2016, 2017 and 2019, more exemptions from the foreign business license requirement have been added, and in particular, the most recent update allows for management, marketing, HR and IT consulting services between related entities (4 definitions for "related" are given). These rule changes, combined with the "branch office" or "representative office" registration forms potentially provide a local legal structure that could work for me (obtain work permit with minimal reporting and cost overhead), and I'll be investigating further with local lawyers. While the "representative office" structure probably won't suit me personally, I note that the legislation explicitly excludes funds remitted by the parent to support the local operation from being assessable income for tax purposes, which might be an interesting loophole for some.

Interested to hear from anyone else who has been down these rabbit holes or has any experience to share.

Id approach these things from another angle, you can imagine what i mean.

Do you have a wp right now or why do you need one rn?
well there's a specialist regarding stuff like that on the forum @wellington

 

[wellington]

Unless you are doing business in Thailand I.e operations or selling into - I wouldn’t bother with anything local and for a number of reasons

Will try and read later and respond more in depth

On this

While the "representative office" structure probably won't suit me personally, I note that the legislation explicitly excludes funds remitted by the parent to support the local operation from being assessable income for tax purposes, which might be an interesting loophole for some.

This is false - we set up two major investments for one office in India and one office in Thailand - we went the BOI route after speaking with the ambassador team at the UN investment conference - we then proceeded with - when it was coming to a close we opted to shelf the BOI and go with a local director directly - we were establishing a research arm in Thailand and worked with 2/3 universities where we had interns from and they had field experience in AI.

Safe to say somewhere in-between the revenue department reached out and “encouraged” us to not do it as a investment but local revenue - we pointed out this wasn’t proper and couldn’t be explained on the parent company level appropriately - their encouragement grew stronger.

We did it - Covid occurred and due to the restrictions and literal headache we closed the Thai operations down - this is where the fees started hitting us, the company had already been paying tax on these “encouraged revenues” - all staff were paid off - their severance was enough each to buy a car to put into perspective - offshore university educated staffing - not run of the mill somchais, then were told the assets of the company that depreciated by about 85% had to have tax as part of closure of the company - there was no way to sell as it was specialist equipment - a super computer for example - in the end I opted to “paper buy” then on advice from accounting and legal a and pay off the tax over a number of years - the equipment can’t be exported - too costly - thus sits in storage - and I paid the final tax payment last month after three/four years.

Most other countries a investment for research purposes is treated as a write down, in Thailand it’s a taxing opportunity regardless of their public statements as the local revenue department is like a fiefdom

As for the company if you do want to go ahead with it - buy a existing company and make changes opposed to establishing a new one - a lot less headache

 

[whatspat]

Appreciate the responses from both of you, great community! Not sure I am smart enough to read between your lines @JackAlabama, so please be patient with me.

@wellington I can certainly believe the challenges you faced, but from this and your prior comments, you're operating a business multiple orders of magnitude larger and more involved than my case. My primary objective is to build a structure which covers me legally and personal tax wise with respect to working in Thailand (i.e., an employer which provides work permit and substantiates personal income tax declarations).

One obvious pathway I've explored is an EOR; I found one provider who look reasonably solid who will do it for 12% of salary (taxes and other deductions would further reduce net income), and that's an option which ticks all the boxes, but I'm still trying to find any alternative to reduce that cost if possible.

The parameters and details which together build the costs or impose restrictions/limitations for most kinds of locally registered entities in my case include:

• 100% foreign ownership
• Mandatory annual audits (expected cost between THB30-50k/year)
• VAT registration address requirements (required for work permit), independent of personal residence, expect THB40k/year
• Time and cost of liquidation if required (as alluded to above)
• Corporate income tax isn't really a concern as the entity will only make a negligible profit (it's primarily a vehicle for self-employment)

@wellington regarding your comments on the local investment, I'm not sure I completely follow. Was your business in Thailand planned to make its own profit (from day one, or only potentially later, after an initial investment phase, or never) prior to the RD "suggestions"? I know the BOI is mostly interested in businesses which will export and/or employ lots of locals, but were they "suggesting" you needed to own your IP locally as well, rather than keep it as a "back office" for R&D with a foreign parent which earned the profit? Did their arm-twisting result in you paying local income tax on the investment capital remitted by the parent, or something even more strange? If you would prefer or allow it, I'd be quite happy to continue this conversation privately.

Again, I'm very appreciative of the input; it really helps me to straighten out my thinking before doing anything dumb.

 

[Mercury]

Time and cost of liquidation if required

Depending on your business complexity liquidating a Thai private limited company can take several years (generally not less than 3-4 years) as you will need a tax clearance from Revenue Department. Prices start from THB30K.
In the meantime, you still have to declare VAT (even at 0) and WHT (if any) monthly as well as filing an annual audit.

 

[whatspat]

Depending on your business complexity liquidating a Thai private limited company can take several years (generally not less than 3-4 years) as you will need a tax clearance from Revenue Department. Prices start from THB30K.
In the meantime, you still have to declare VAT (even at 0) and WHT (if any) monthly as well as filing an annual audit.

Yes, that's exactly what I meant. In comparison, dissolving one of the branch/representative/regional registrations seems much simpler and quicker (although again, that's "on paper" and actual practice could deviate significantly).

 

[JackAlabama]

Unless you are doing business in Thailand I.e operations or selling into - I wouldn’t bother with anything local and for a number of reasons

Will try and read later and respond more in depth

On this

While the "representative office" structure probably won't suit me personally, I note that the legislation explicitly excludes funds remitted by the parent to support the local operation from being assessable income for tax purposes, which might be an interesting loophole for some.

This is false - we set up two major investments for one office in India and one office in Thailand - we went the BOI route after speaking with the ambassador team at the UN investment conference - we then proceeded with - when it was coming to a close we opted to shelf the BOI and go with a local director directly - we were establishing a research arm in Thailand and worked with 2/3 universities where we had interns from and they had field experience in AI.

Safe to say somewhere in-between the revenue department reached out and “encouraged” us to not do it as a investment but local revenue - we pointed out this wasn’t proper and couldn’t be explained on the parent company level appropriately - their encouragement grew stronger.

We did it - Covid occurred and due to the restrictions and literal headache we closed the Thai operations down - this is where the fees started hitting us, the company had already been paying tax on these “encouraged revenues” - all staff were paid off - their severance was enough each to buy a car to put into perspective - offshore university educated staffing - not run of the mill somchais, then were told the assets of the company that depreciated by about 85% had to have tax as part of closure of the company - there was no way to sell as it was specialist equipment - a super computer for example - in the end I opted to “paper buy” then on advice from accounting and legal a and pay off the tax over a number of years - the equipment can’t be exported - too costly - thus sits in storage - and I paid the final tax payment last month after three/four years.

Most other countries a investment for research purposes is treated as a write down, in Thailand it’s a taxing opportunity regardless of their public statements as the local revenue department is like a fiefdom

As for the company if you do want to go ahead with it - buy a existing company and make changes opposed to establishing a new one - a lot less headache

Wow. Thats some high level bureaucrazy.. They must beat Germany at this point.

 

[JackieTsan]

Hello @JackAlabama and @wellington . I had a chat today with one of the best accountants, and I was discussing something like that. Tax resident of Thailand, owning a company in UAE with him or no as a director (but 100% shareholder). According to the law, as they say "not remitted in Thailand", taking the dividends to an offshore account (from the UAE company account to the Thai resident own name - outside Thailand always) it should be not taxed. Am I correct?
Today he discussed that can be considered as PE (permanent establisment) etc. The company (from UAE) does NOT do any business inside Thailand, no customers in Thailand, income never coming in Thailand. But he told me can be considered as Thai income as the UBO is in Thailand (resident/tax resident).
Is this true? I'd extremely appreciate your approach. Again, none of this money are getting in Thailand never ever. No customers in Thailand, nothing.
He told me that the right way would be to invoice (from my company in Thailand), the UAE company as that I am providing services for them (the UAE company) and that with this way it will be better as will appear that I am getting paid for this so there is NOT PE.
I personally believe the opposite. That this might raise concerns that the UAE company indeed does job in Thailand (as UAE will pay my company in Thailand so that i "offer" services to them).
What do you think / suggest on the matter?
Thank you!

 

[JackAlabama]

Hello @JackAlabama and @wellington . I had a chat today with one of the best accountants, and I was discussing something like that. Tax resident of Thailand, owning a company in UAE with him or no as a director (but 100% shareholder). According to the law, as they say "not remitted in Thailand", taking the dividends to an offshore account (from the UAE company account to the Thai resident own name - outside Thailand always) it should be not taxed. Am I correct?
Today he discussed that can be considered as PE (permanent establisment) etc. The company (from UAE) does NOT do any business inside Thailand, no customers in Thailand, income never coming in Thailand. But he told me can be considered as Thai income as the UBO is in Thailand (resident/tax resident).
Is this true? I'd extremely appreciate your approach. Again, none of this money are getting in Thailand never ever. No customers in Thailand, nothing.
He told me that the right way would be to invoice (from my company in Thailand), the UAE company as that I am providing services for them (the UAE company) and that with this way it will be better as will appear that I am getting paid for this so there is NOT PE.
I personally believe the opposite. That this might raise concerns that the UAE company indeed does job in Thailand (as UAE will pay my company in Thailand so that i "offer" services to them).
What do you think / suggest on the matter?
Thank you!

that doesnt look right to me. You should also name "one of the best accountants", because everyone and their dog claims this.

Imagine you hold like 100 stocks (nvidia, tesla, pg etc), will these companies be now have a thai pe just because you live there? After all you own a piece of it and are its ubo at the end . Having it managed and some substance elsewhere will have the pe there.

 

[JackieTsan]

Nice approach but you know they can say whatever they want. It’s so strange though that he insist of having the offshore company paying the thai company as this will “solve the PE issue”. But from what I am reading, about PE, this is the case that will create the issue and the risk, as in this case, the offshore company will be really doing business in Thailand since they will g give payment to the Thai company (to supposedly pay me for the services to the offshore). I believe that this is bs, or I am too wrong so much?

 

[JackAlabama]

Nice approach but you know they can say whatever they want. It’s so strange though that he insist of having the offshore company paying the thai company as this will “solve the PE issue”. But from what I am reading, about PE, this is the case that will create the issue and the risk, as in this case, the offshore company will be really doing business in Thailand since they will g give payment to the Thai company (to supposedly pay me for the services to the offshore). I believe that this is bs, or I am too wrong so much?

its like in the nightlife of which I partook a lot when I was young.
My learning from back then is: "If something feels off the slightest, don't engage."

 

[JackieTsan]

that doesnt look right to me. You should also name "one of the best accountants", because everyone and their dog claims this.

Imagine you hold like 100 stocks (nvidia, tesla, pg etc), will these companies be now have a thai pe just because you live there? After all you own a piece of it and are its ubo at the end . Having it managed and some substance elsewhere will have the pe there.

I said this for Apple stock and he responded “do you own 100% of Apple”? (Meaning as I own the shares of my company).

 

[JackAlabama]

I said this for Apple stock and he responded “do you own 100% of Apple”? (Meaning as I own the shares of my company).

you really should name this genius here.
If thats an arbitrarily criteria, where is the threshold? 51%?