What is the optimal way of doing business in Thailand?
24 February, 2015
Thailand is a growing tourism and industrial hub in South-East Asia becoming the second-largest economy in the region. As a result, the country attracts many foreign entrepreneurs looking to expand in this part of the world.
This said, still many sectors of Thailand remain restricted from foreign ownership, resulting in difficulties for foreigners selling their products and services in Thailand.
Foreign Direct Investment and the Local regulation
The main regulation to oversee the foreign direct investments is The Foreign Business Act of 1999 confirming which foreigners may establish and do business in Thailand. While a considerable number of sectors are free for investment, the Act restricts certain business sectors to require majority-shareholding by Thai nationals or by Thai-registered entities. Simply put, most foreigners will require a Thai partner to operate and undergo commercial activities within Thailand.
With negotiations, some businesses may obtain a special approval from Thailand's Board of Investment and gain a licence to carry out business without the participation of Thai nationals. However, these cases are an exception to the general rule.
Foreign established companies in Thailand suffers a flat corporate income tax at a rate of 20 percent. This rate applies to the company's worldwide income for any entity in Thailand, and only to Thailand-derived income for a branch offices in Thailand. Dividend payments are subject to an additional 10 percent withholding tax when paid to resident individuals or companies outside of Thailand, for example branch profits remitted to a mother entity.
Importing in Thailand from outside
Did you know there is a possibility to make cross-border sales to Thai customers without any restrictions? For any global business that wants access to the Thai markets without establishing local entity this is possible. Take for example, an international web services provider may take on Thai customers, or a foreign manufacturer can sell to Thai Clients either straight forward or through a Thai wholesaler.
In Thailand, the new withholding tax rules confirm that the cost of these cross-border transactions will be calculated solely on type of product or service being imported. Consequently, foreign consulting businesses will incur a withholding tax of 15 percent on services involving knowledge transfer. On the other hand, royalties payments will incur withholding tax at 10 percent, while other sales are will not be subject to Thai tax at all.
With this, many foreign businesses are able to generate income from Thailand without establishing a costly presence in the country. This way it is both way simpler and tax efficient to carry on trade from abroad. Now your business can optimize the market and expand profits before taking the costs, efforts and expenses to enter Thailand more fully.
- Register a business in Thailand
- Thailand's restrictions under the Foreign Business Act 1999
- Doing business in Thailand as an American
- Thai accounting and tax rules
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