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As published in the
Business Handbook for Royal Thai
Embassies and Consulates-General 2000, by the Ministry of Foreign
Affairs,
Kingdom of Thailand. View the original document in PDF format Ministry of Foreign Affairs Business Handbook Section 5 Starting a business in Thailand Section profile This section deals primarily with legal and management issues involved with establishing a business entity in Thailand. Details are provided on tax policy, trade and investment incentives, labour laws and immigration policy, industrial licensing, and intellectual property rights. Section contents 5.1 Types of business organisations 2 5.2 Joint ventures 5 5.3 Joint venture partners 6 5.4 Other types of collaborative ventures 7 5.5 Other types of corporate presence 8 5.6 The Foreign Business Act and restricted occupations 11 5.7 Taxation 16 5.8 Investment and trade incentives 23 5.9 Labour and related issues 26 5.10 Immigration, visas and work permits 29 5.11 Industrial licensing and regulations 34 5.12 Intellectual property rights 36 5.13 Export and import regulations 42 5.14 Rights of foreigners to possess real estate 43 5.15 Regional resources and opportunities 45 5.15.1 Northern region 46 5.15.2 Northeastern region 46 5.15.3 Upper Central region 47 5.15.4 Eastern region 48 5.15.5 Southern region 49 5.15.6 Western region 50 Section 5: Starting a business in Thailand Page 1 Ministry of Foreign Affairs Business Handbook 5.1 Types of business organisations Sole proprietorships A sole proprietorship is a business owned by one person with unlimited liability. A proprietor's business and personal assets are subject to attachment and other forms of legal action. Foreigners, unless covered under the United States-Thailand Treaty on Amity and Economic Co-operation, are not permitted to operate sole proprietorships. Partnerships Thailand acknowledges three general types of partnerships. The main difference between them is the degree of liability of the partners under each type of organisation. Partnerships are not promoted by the Board of Investment, and thus are rarely used by foreign investors in Thailand. The three types are: · Unregistered ordinary partnerships, in which all partners are jointly and wholly liable for all obligations of the partnership · Registered ordinary partnerships. If registered, the partnership becomes a legal entity, separate and distinct from the individual partners · Limited partnerships. Individual partner liability is restricted to the amount of capital contributed to the partnership. Limited partnerships must be registered. Limited companies There are two types of limited companies private or closely held companies, and public companies. The first are governed by the Civil and Commercial Code, the second by the Public Company Act. Private limited companies In Thailand, they are similar to those of Western corporations, and are the most popular vehicle used to establish a permanent business in Thailand. Although there is no established minimum level of capitalisation, the private limited company's capital must be sufficient to accomplish its objectives. All of the shares must be subscribed to, and at least 25 percent of the subscribed shares must be paid up. It should also be noted that private limited companies are required to have capitalisation of two million baht, fully paid up, per each work permit the company desires A minimum of seven shareholders is required at all times. A private limited company may be wholly-owned by aliens. However, in those activities reserved for Thai nationals, aliens' participation is generally allowed up to 49 percent. Meetings of shareholders and directors must conform to the requirements set forth in the Civil and Commercial Code and/or the Articles of Association of the company. Public limited companies Such companies registered in Thailand may, subject to the compliance with the prospectus, approval, and other requirements, offer shares, debentures and warrants to the public and may apply to have their securities listed on the Stock Exchange of Thailand (SET). A public limited company must: · Have a minimum of 15 promoters for the formation and registration of the Memorandum of Association · Have not less than half of the promoters domiciled in Thailand · Have the promoters' subscribed shares, which will be paid up in money, equal to not less than 0.05 percent of the registered capital. These prescribed shares cannot be transferred within two years of the date of registration of the company, except with the consent of a general meeting of shareholders Section 5: Starting a business in Thailand Page 2 Ministry of Foreign Affairs Business Handbook · Have a statutory meeting within two months from the date when the shares have been fully subscribed, as specified in the prospectus, but not more than six months from the date of approval of the memorandum by the registrar · Have a minimum of five directors, at least half of whom must be domiciled in Thailand · Ensure that the directors are 20 years of age or older, and they must have clean legal records · Have subscribers pay the full amount of each share · Not stipulate any provisions which would prevent shareholders from becoming directors of the company · Hold a meeting of the Board of Directors at least once every three months where a directors certificate must be obtained and the minutes must be recorded · Have an auditor present at all times when the balance sheet is submitted for adoption by general meeting of the shareholders A private limited company may be transformed into a public limited company by passing a special resolution of the shareholders as stipulated by the Civil and Commercial Code. Procedures for forming a limited company: In order to set up a limited company in Thailand, the following procedures should be followed: Corporate name reservation The name to be reserved must not be the same or close to that of other companies. Certain names are not allowed and therefore the name reservation guidelines of the Commercial Registration Department in the Ministry of Commerce should be observed. The approved corporate name reservation is valid for 30 days. The corporate name can be reserved for an additional 30 days upon expiration of the initial period. File a memorandum of association A memorandum of association to be filed with the Commercial Registration Department must include the name of the company that has been successfully reserved, the province where the company will be located, its business objectives, the capital to be registered, and the names of the seven promoters. The capital information must include the number of shares and the par value. At the formation step, the authorised capital, although partly paid, must all be subscribed by the initial shareholders. Thai law does not provide for treasury shares. Although there are no minimum capital requirements, the size of the capital should be respectable enough and adequate for the intended business operation. The memorandum registration fee is 50 baht per 100,000 baht of registered capital. The minimum fee is 500 baht, the maximum 25,000 baht. Convene a statutory meeting Once the share structure has been defined, a statutory meeting is called. A minimum of 25 percent of the par value of each subscribed share must be paid. Registration Within three months of the date of the Statutory Meeting, the directors must submit applications to establish the company. Company registration fees are 500 baht per 100,000 baht of registered capital. The minimum fee is 5,000 baht; the maximum is 250,000 baht. Tax registration Businesses liable for income tax must obtain a tax I.D. card and number for the company from the Revenue Department within 60 days of incorporation or the start of operations. Section 5: Starting a business in Thailand Page 3 Ministry of Foreign Affairs Business Handbook Business operators earning more than 600,000 baht per annum must register for VAT within 30 days of the date they reach 600,000 baht in sales. Reporting requirements: Firms must keep books and follow accounting procedures specified in the Civil and Commercial Code, the Revenue Code and the Accounts Act. Documents may be prepared in any language, provided that a Thai translation is attached. Imposition of taxes Companies are required to withhold income tax from the salary of all regular employees. A value-added tax of seven percent is levied on the value added at each stage of the production process, and is applicable to most firms. The VAT must be paid on a monthly basis. A specific business tax is levied on firms engaged in several categories of businesses not subject to VAT, based on gross receipts at a variable rate ranging from 0.1 3.0 percent. Corporate income tax is 30 percent of net profits and is due twice each fiscal year. A mid- year profit forecast entails advance payment of corporate taxes. Annual accounts A balance sheet must be prepared annually. The performance record is to be certified by the company auditor, approved by shareholders, and filed with the Commercial Registration Department, Ministry of Commerce, within five months of the end of the fiscal year, and with the Revenue Department, Ministry of Finance, within 150 days of the end of the fiscal year. Company registration Limited partnership/ registered ordinary partnership · Apply for permission to use the partnership name; request for research of records to ensure that the name intended for use does not coincide with any existing trade name. · Enter relevant details, such as the name of partnership, addresses, ages, nationalities, investments and signatures of all partners, names of managing partners and their limitation of power (if any). The application form will be affixed with the partnership and handed in by the managing partner. Usually, the managing partner has to sign the application form in the presence of the Partnership & Company Registrar, but he may sign the form in the presence of an ordinary or extraordinary member of the Thai Bar Association. Alternatively, an attorney may be appointed to effect the registration on behalf of the partnership. · The fee shall be based on the number of partners. For three partners, the fee is 1,000 baht. The fee for each additional partner is 200 baht. · After registration, a certificate will be issued. Limited companies · Apply for permission to use company name; request for search of records to ensure that the name intended for use does not coincide with the name or any existing trade name. · Make a memorandum of association. Enter in the application for the name of the company, address of the principal office, nature of business, capital to be registered, number of shares, par value, names, addresses, ages, occupation, number of shares subscribed by promoters (each of which is to subscribe at least one share), signatures of all promoters. An application for registration of memorandum of association (with a 200- baht stamp duty) shall be submitted by any promoter or his attorney. The fee for registration of memorandum of association shall be based on the capital, that is, for each Section 5: Starting a business in Thailand Page 4 Ministry of Foreign Affairs Business Handbook 100,000 baht of capital, the fee shall be 50 baht. The minimum fee shall be 500 baht and the maximum 25,000 baht. · After registration of the memorandum of association, company registration may be effected. The promoters must invite the share subscribers to attend a statutory meeting. The directors appointed by the statutory meeting shall collect the money from the share subscribers for the shares the first collection shall be at least 25 percent. The director with the authorised signature shall apply for company registration within 30 days from the date of the statutory meeting. The registration fee shall be based on the capital, that is, for each 100,000 baht of capital, the fee shall be 500 baht. The minimum fee shall be 5,000 baht and the maximum 250,000 baht. · Usually, the promoter or authorised director has to sign the application for registration of the memorandum of association and company registration in the presence of the registrar, but they may also sign such applications in the presence of ordinary or extraordinary members of the Thai Bar Association. Public companies The status of limited public company can be acquired by three different methods: ! Registration of newly established public limited company · Apply for permission for use of a company name; request for search of records to ensure that the Thai and foreign names intended for use do not coincide with any existing trade names. · Make a memorandum of association. Enter in the application for registration of the memorandum of association and the company names in Thai and in a foreign language. (The Thai name must begin with the word "Company" and end with the words "Limited (Public)." Foreign names must end with the words "Public Company Limited." The nature of business, capital to be registered, value of shares, numbers of ordinary shares and preferred shares, address of the principal office; names, dates of birth, nationalities and addresses of promoters, number of shares subscribed by each promoter (the value of shares subscribed by all promoters must be at least five percent of the registered capital) and signatures of all promoters. Application for registration of memorandum of association may be made by any promoter or his attorney. The registration fee shall be based on the registered capital. The fee shall be 1,000 baht for every one million baht of registered capital the fraction of a million baht shall be rounded up to one million baht. The fee shall not exceed 25,000 baht. · After registration of the memorandum of association, registration of public limited company may be effected. All the shares may be subscribed by promoters. The public may also be invited to subscribe shares. Within two months from the date of complete subscription of shares, the promoters are to call for a statutory meeting. The directors appointed at the meeting shall collect full payments from subscribers. Within three months from the date of the statutory meeting, application for public limited company registration shall be made. The registration fee shall be based on the registered capital. The fee shall be 1,000 baht for every one million baht of registered capital the fraction of a million baht shall be rounded up to one million baht. The fee shall not exceed 250,000 baht. · The promoter and authorised director shall sign the applications for registration of memorandum of association and registration of the company in the presence of the Limited Public Companies Registrar, attorney at law or auditor registered with the registrar. ! Turning limited company into public limited company Section 5: Starting a business in Thailand Page 5 Ministry of Foreign Affairs Business Handbook A limited company wishing to turn public must hold a shareholders' meeting to pass a special resolution in favour of turning public. Then, its memorandum of association and articles of association must be amended in line with the Public Company Limited Act of 1992. New directors and an auditor must be appointed. The articles of association of such public company limited must cover the issuance and transfer of shares, shareholders' meeting, appointment of directors, office term of directors, leaving office before the end of the office term, leaving office at the time of meeting, scope of the power of the directors, accounting, finance, audit, issuance of preferred shares and conversion of preferred shares to ordinary shares. Such articles of association must neither be in conflict with the memorandum of association nor the Public Company Limited Act of 1992. Application for registration of a public company limited must be made by a director within 14 days from the date of meeting resolution to that effect. The registration fee is 10,000 baht. ! Merger of limited company with public limited company A limited company may be merged with a public limited company. The newly formed company shall have the status of a limited public company. The merger shall comply with the special resolution passed by the limited company pursuant to the Civil and Commercial Code and Public Company Limited Act of 1992. Then, such limited public company must hold a shareholders' meeting. A quorum is said to be formed when holders of shares with one quarter of voting rights attend such meeting. The fee for registration of the merger is 5,000 baht. 5.2 Joint ventures A joint venture may be described as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together. Incorporated joint ventures A Thai private limited company that is owned by two or more companies or groups of shareholders is often referred to as a joint venture (although there is no language governing incorporated joint ventures in Thailand's legal code). There are no specific restrictions on joint ventures, except that companies which are majority foreign-owned are treated as "foreign". Joint ventures which receive promotional incentives from the Board of Investment (BOI) can be exempted from restrictions that would be imposed on a "foreign" venture. Unincorporated joint ventures In a contracted project, which cannot be carried out by a single company, it is common for a company to join with others in the form of a joint venture. Although the joint venture may engage in business, it cannot be registered. The Revenue Department, however, treats a joint venture as a juristic company for purposes of tax liability. The joint venture must, therefore, apply for a taxpayer identification card. Moreover, Value Added Tax registration is required if a joint venture is qualified under the requirements of the Revenue Code. This Code requires that at least one of the joint venture partners be a juristic entity, and the Revenue Department further stipulates that the joint venture must have two elements: · A joint investment in the joint venture and a sharing of profit or loss under the joint venture agreement; and · The partners have joint liability to third parties dealing with the joint venture. A foreign company which participates in an unincorporated joint venture is required to obtain an Alien Business Permit and create a branch office in Thailand to engage in business as a partner of the joint venture. Such foreign partners do not need to register for their own taxpayer identification card, because merely acting as a partner is not considered "doing Section 5: Starting a business in Thailand Page 6 Ministry of Foreign Affairs Business Handbook business." However, the joint venture itself must register. The registration process for the permit of the foreign partner and the taxpayer identification card of the joint venture takes about 5-7 weeks to complete. The government fee, collected upon issuance of the business permit to the foreign partner, will be five baht per 1,000 baht of the registered capital of the foreign partner, with 10,000 baht as the maximum fee. 5.3 Joint venture partners General guidelines Joint ventures between Thai and foreign companies are increasingly common in manufacturing, marketing/distribution and services. As in other countries, joint venture partners are usually companies or individuals operating in the same or related manufacturing activities or markets, with similar business objectives and growth strategies. General guidelines for Thai joint venture partner selection by foreign partners are: · Interest in a joint venture relationship · Compatible size with a foreign partner · Effective two-way communications · Compatible corporate · Complementary products, markets vision/strategies and services. · Compatible management styles · Financial strength and stability Joint venture with family-owned groups Most Thai companies started up as family-run enterprises, and several of Thailand's largest business groups are still family-controlled. Thus, family members are logical prospects as joint venture partners. Joint venture with the Crown Property Bureau The Crown Property Bureau, a Thai government agency that manages Royal properties, takes equity positions in public and private companies as a passive investor. Association with the Crown Property Bureau confers legitimacy and prestige on a joint venture. Joint venture with a commercial bank Commercial banks are permitted under Thai law to invest up to 10 percent of their assets in companies. Most banks have investment arms, which can commit such investments. Banks are desirable JV partners because of their prestige, connections and capital resources. Joint venture agreements Joint venture collaboration is usually governed by legal agreements, which follow standard legal forms, used in other countries, e.g., Memoranda of Understanding, Confidentiality Agreements, Joint Venture Partner Agreements, etc. In addition to standard legal provisions in JV agreements, negotiating points, which usually require special attention, are: · Ownership split · Technology transfer and methods of · Management control transfer · Specifics of contributions by each JV · Dispute resolution partner · Termination provisions · Protection of intellectual property rights Identification of joint venture partners Foreign firms can identify attractive collaborative partners from a number of sources, including: Section 5: Starting a business in Thailand Page 7 Ministry of Foreign Affairs Business Handbook · The Board of Investment · Federation of Thai Industries (FTI) · Law firms · Thai Chamber of Commerce (TCC) · Auditing and accounting firms · Foreign chambers of commerce · Consulting firms · Thai/foreign business councils · Commercial banks · Commercial offices of foreign · Merchant banks embassies · Securities firms BOI joint venture criteria For investment projects in agriculture, animal husbandry, fisheries, mineral exploration and mining, or service sectors, Thai nationals must hold no less than 51 percent of the registered capital. However, for projects with investment of over one billion baht, foreigners may initially hold the majority or all of the shares, but Thai nationals must acquire at least 51 percent of the shares within five years of operation. For manufacturing activities, majority or total foreign ownership of projects is permitted, and there is no foreign export requirement for any project. Existing projects that were subjected to export requirements as a result of previous joint venture criteria may request the removal of the export requirement from their investment promotion certificate. Projects in Zones 1 and 2 For new projects, applications must be submitted to the Board of Investment no later than June 30, 2000. For existing projects that have not yet started operations, majority or total foreign ownership is permitted if the consent of the existing Thai shareholders is obtained. Applications must be submitted to the Board of Investment no later than June 30, 2000. For existing projects that have already begun operations, majority or total foreign ownership is permitted if the consent of the existing Thai shareholders is obtained. Since the Seventh Development Plan period (1992-96), the foreign ownership requirement for projects in the following areas have been established by the responsible Ministries, and the BOI will not consider the foreign ownership issue: Development of transportation systems Public utilities Environmental conservation and restoration Direct involvement in technological development 5.4 Other types of collaborative ventures Agency/distribution agreements Thailand does not impose any restrictions or conditions on agency/distribution agreements between foreigners and Thai citizens. Such agreements may be made and terminated freely at the discretion of the parties involved. Licensing agreements Licensing permits an enterprise rights to use technology for a financial consideration. The licensor is obligated to provide the means by which the technology can be effectively transferred, such as blueprints, manuals and training. Although licensing agreements must be registered, there are effectively no restrictions on them. Section 5: Starting a business in Thailand Page 8 Ministry of Foreign Affairs Business Handbook Manufacturing agreements These describe the terms and conditions under which foreign companies sub-contract manufacturing activities to companies in Thailand. They may also give Thai companies the right to distribute products in certain territories. 5.5 Other types of corporate presence There are three types of offices that may be set up by a foreign or multinational company in Thailand representative, regional or branch. Branches There is no special requirement for foreign companies to register their branches in order to do business in Thailand. However, most business activities fall within the scope of one or more laws or regulations, which require special registration, either before or after the commencement of activities. Foreign business establishment must, therefore, follow generally acceptable procedures. It is important to clarify beforehand what constitutes income subject to Thai tax because the Revenue Department may consider revenues directly earned by the foreign head office from sources within Thailand as subject to Thai taxes. As a condition for approval of an Alien Business License to a branch of a foreign corporation, working capital amounting to a total of five million baht in foreign exchange must be brought into Thailand within certain intervals over a five-year period. The branch may be allowed to operate for a period of five years, unless a shorter period is indicated in the application as a result of a contract to be performed in Thailand. Extension of the original duration of the license to operate may be granted, provided the working capital required to be brought into Thailand is met. Representative offices The Regulation of the office of the Prime Minister BE 2529 (AD 1986) defines a representative office as an office of a foreign company which is located in Thailand and in the business of trading internationally. Trading representative offices may carry out the following activities: · Finding suppliers of goods or services in Thailand for the overseas head office · Checking and controlling the quality and quantity of goods purchased or hired by the head office for manufacturing purposes in Thailand · Providing advice on various aspects of goods sold by its head office to agents, distributors and/or customers in Thailand · Providing information to interested persons in Thailand concerning goods or services of the head office; and · Reporting to the head office on movements of business in Thailand. The definition of a representative office excludes regional offices and other business-related trading activities. A representative office in Thailand is considered a liaison office and may not engage in any profit-seeking or profit-making enterprise. Over the five-year initial life of the permit, at least five million baht must be remitted into Thailand for operational expenses of the representative office, with two million baht in the first operational year, and a least one million baht in each of the following three years. Remittances can be made only after the permit is granted. Section 5: Starting a business in Thailand Page 9 Ministry of Foreign Affairs Business Handbook Representative offices do not generate income and therefore pay no tax. If the representative office exceeds the scope of the above activities, it may be regarded as doing business in Thailand and become subject to taxation on all income received in Thailand. A representative office must obtain an Alien Business Permit under Annex C, Chapter 3(1) of NEC Announcement No. 281 (the Alien Business Law) to start its activities. This Permit, valid for five years, serves as the permission/license to establish a representative office. An application for a permit to establish a representative office, together with supporting documents, as well as applications for work permits and visas, must be filed with the Commercial Registration Department of the Ministry of Commerce. Normally, work permits will be granted for up to five persons. Regional offices In order to promote Thailand as the region's commercial centre, in 1992, the Prime Minister's office passed a regulation facilitating the formation of regional offices of trans-national corporations within the Kingdom. This regulation is designed to create a "one-stop service" with the Department of Commercial Registration for trans-national corporations. A regional office has the ability to co-ordinate and supervise the company's branches and its affiliated companies in the region on behalf of the head office. The regional office may provide these branches and affiliated companies with: · Advisory and management services · Financial management services · Training and personnel development services · Marketing control and sales promotion plans · Product development · Research and development services. Benefits from establishing a regional office Companies establishing regional offices are not required to be registered or incorporated as juristic persons in Thailand, and do not have to submit any financial statements to the Department of Commercial Registration. The Department will assist in customs clearance of the personal effects of transferred foreign staff and in their applications for further temporary stay in the Kingdom or change in visa type. Work Permits for aliens performing work in the regional office will be granted for up to five persons depending on necessity and volume of work in each particular case, and fees of not more than 1,000 baht per year must be paid for a Work Permit or its renewal. Conditions for permission to establish a regional office A regional office must not: · Derive any income from its activities. Expenditures incurred by the regional office shall be borne by the head office · Have the power to accept a purchase order or make a sales offer · Negotiate or enter into business arrangements with any natural or juristic person within the Kingdom. A permit to establish a regional office, valid for five years, can be granted after application with the Alien Business Section of the Department of Commercial Registration at the Ministry of Commerce. The fee is five baht per every 1,000 baht of registered capital, not to exceed 5,000 baht. When a permit to establish a regional office is issued, it may be subject to the following conditions: Section 5: Starting a business in Thailand Page 10 Ministry of Foreign Affairs Business Handbook · The total debt financing used in the business shall not exceed seven times the portion of the capital owned by shareholders or the owner of the business · Money used in the regional office shall be remitted from abroad and shall not be less than a total of 5,000,000 baht. During the first year period, at least 2,000,000 baht of the total must be remitted, at least half of which must be remitted within the first six months. Then, no less than 1,000,000 baht should be remitted each succeeding year until the full 5,000,000 baht has been transferred. Documents verifying this transfer must be presented to the Department of Commercial Registration · At least one person who is responsible for operating the regional office must have their domicile in the Kingdom. The Director-General of the Department of Commercial Registration is also authorised to impose any conditions on a business permit granted under the rules. Regional trade and investment support offices In support of the government's policy to develop Thailand as a regional centre for trade and investment, in April 1996, the Board of Investment announced the establishment of trade and investment support offices would become a new category of activities eligible for investment promotion. Activities in this category include, but go far beyond, regional offices. The activities covered are quite broad, ranging from engineering, testing and training services to consulting services, as well as from wholesaling and retailing of machinery to provision of training and installation, maintenance and repairing of machinery, tools, engines, and equipment. Projects in this category are eligible for BOI non-tax incentives, including: · Permission to own land for an office · Permission to bring in foreign nationals to undertake investment feasibility studies · Permission to bring in as many foreign technicians and experts as required · Permission to take or remit foreign currency abroad · No limit on number if shares owned by foreigners. The range of activities eligible for promotion are: · Controlling and advising affiliated companies · All types of consulting services, except those engaged in: Buying and selling securities Foreign currency exchange Accounting Advertising Legal affairs Architecture Civil engineering. Exceptions may be granted by permission from the Department of Commercial Registration or concerned government agencies. · Information services related to sourcing and procurement, but not brokerages or agencies · Engineering and technical services, except these related to architecture and civil engineering · Testing and certifying standards of products, production and services standards · Exporting of all types of products · Wholesaling of all types of products within the country, excluding local agricultural products, arts and crafts, antiques, and natural resources · Provision of training on the use of machinery, engines, tools, and equipment Section 5: Starting a business in Thailand Page 11 Ministry of Foreign Affairs Business Handbook · Installation, maintenance, and repairing of machinery, engines, tools, and equipment · Calibration of machinery, engines, tools, and equipment · Computer software design and development. If there are any other activities deemed appropriate for investment promotion under the Establishment of Trade and Investment Support Offices, the Office of the Board of Investment will consider them on a case-by-case basis. Eligibility for regional trade and investment support offices Applicants must be either companies established under Thai law, or companies planning to establish under Thai law. Conditions for regional trade and investment support offices · Operating licenses must have been acquired from all relevant government agencies · Operating expenses must amount to no less than 10 million baht per year, which shall consist of sales and administrative expenses, as set forth in the Revenue Code · Operating plans must be approved by the Board of Investment · Majority or total foreign ownership is allowed · Non-tax privileges, only, will be granted. Section 5: Starting a business in Thailand Page 12 Ministry of Foreign Affairs Business Handbook 5.6 The Foreign Business Act and restricted occupations There are two sets of regulations that place work restrictions on foreigners in Thailand A Royal Decree which list occupations closed to foreigners, and a Law which closes certain activities to foreigners. Restricted occupations A Royal Decree in 1973 listed 39 occupations that were then closed to aliens. This list has been amended on several occasions by subsequent Royal Decrees, the latest one in 1979. Prohibited occupations are: · Labour · Manufacture of bronzeware · Work in agriculture, animal breeding, · Thai doll making forestry, fishery or general farm · Manufacture of mattresses and padded supervision blankets · Masonry, carpentry, or other · Alms bowl making construction work · Manual silk product making · Wood carving · Buddha image making · Driving motor vehicles or non- · Manufacture of knives motorised carriers, except for piloting · Paper and cloth umbrella fabrication international aircraft · Shoemaking · Shop attendant · Hat making · Auctioning · Brokerage or agency work, except in · Supervising, auditing or giving international business services in accounting, except · Dressmaking occasional international auditing · Pottery or ceramics · Gem cutting and polishing · Manual cigarette rolling · Hair cutting, hair dressing and · Legal or litigation service beautician work · · Clerical or secretarial work Hand weaving · · Manual silk reeling and weaving Mat weaving or making of wares from reed, rattan, kenaf, straw or bamboo · Thai character type-setting pulp · Hawking business · Manufacture of manual fibrous paper · Tourist guide or tour organising · Manufacture of lacquerware agency · Thai musical instrument production · Architectural work · Manufacture of nielloware · Civil engineering work · Goldsmith, silversmith and other precious metal work The Foreign Business Act The Foreign Business Act (the Act) was approved on 15 October 1999 by the Senate and on 20 October 1999 by the House of Representatives, and it was published in the Government Gazette on December 4, and it will be enforced from March 4, 2000. The Act repeals and replaces the 1972 National Executive Council Announcement No. 281 (or Alien Business Law, ABL). As with the Alien Business Law, the businesses attached to the Act are still divided into three categories List 1, List 2, and List 3. The ABL divided businesses into Annex A, Annex B and Annex C. However, the business categories in the Act have been substantially changed from those of the ABL. Under the Act, a Foreign Business Board will review the businesses listed at least once a year, and present it to the Commerce Minister. The Commerce Minister, acting in terms of the recommendations of the Foreign Business Board, is empowered to issue Section 5: Starting a business in Thailand Page 13 Ministry of Foreign Affairs Business Handbook Ministerial Regulations. The Foreign Business Board will consist of 19 committee members from both government and private agencies. The latter will include the Thai Chamber of Commerce and the Federation of Thai Industries. A maximum of five experts can also sit on the committee. List 1 activities are strictly prohibited to aliens. List 2 is prohibited to aliens unless permission is granted by the Commerce Minister by and with an appropriate Cabinet resolution. Alien juristic entities allowed to engage in the businesses in List 2 must meet the following two conditions: (1) At least 40 percent of all of the shares are held by Thai persons or non-alien juristic entities. (2) Two-fifths of the members of the Board of Directors are Thai. List 3 is prohibited to aliens unless permission is granted by the Director-General of the Department of Commercial Registration, Ministry of Commerce, by and with approval of the Foreign Business Board. An alien can engage in businesses in List 2 and/or List 3 if he is a promoted investor in accordance with either the Investment Promotion Act, Industrial Estate Authority of Thailand Act, or other laws. They must then notify the Commerce Minister. Major features of the Foreign Business Act compared with the Alien Business Law Definition of Alien Alien Business Law 1. A natural person or a juristic person who is not of Thai nationality; 2 A juristic entity of which foreigners hold one-half or more of either the number of the shares or the value of the shares; 3 A juristic entity of which foreigners account for one-half or more of the shareholders; 4 A limited partnership or a registered ordinary partnership with a foreign managing partner or a foreign manager. Bearer (no name) certificate shares of a limited company shall be considered shares owned by aliens, unless otherwise prescribed by Ministerial Regulation. Foreign Business Act 1 A natural person who is not of Thai nationality; 2 A juristic entity which is not registered in Thailand; 3 A juristic entity incorporated in Thailand with foreign shareholding accounting for one-half or more of the total number or value of shares; 4 A limited partnership or registered ordinary partnership whose managing partner or manager is a foreigner. Bearer (no-name) certificate shares of a limited company shall be considered shares owned by aliens, unless otherwise prescribed by Ministerial Regulation. Shareholding limit in other business Alien Business Law An alien as a permit holder or shareholder or partner of a juristic entity under the alien definition, shall not become a partner or shareholder in any other partnership or company with more than one-third of the total shares of the company or with more than one-third of the total capital of the partnership, or buy out such businesses, unless permission has been granted by the Director-General, who may prescribe certain conditions. Foreign Business Act None Section 5: Starting a business in Thailand Page 14 Ministry of Foreign Affairs Business Handbook Minimum capital Alien Business Law None Foreign Business Act The minimum capital is three million baht for businesses listed in the Act, and two million baht for businesses not listed in the Act. However, the minimum capital requirement shall not been imposed in cases of re-investment. List of prohibited and restricted businesses Alien Business Law Businesses subject to the Act are classified into three categories Annex A, Annex B, and Annex C. Any businesses specified in Annex A are strictly prohibited to aliens. An alien cannot engage in any businesses in Annex B and/or Annex C unless he is granted investment promotion by the Board of Investment. An alien cannot engage in any businesses in Annex C unless he is granted permission by the Director-General. Foreign Business Act Businesses subject to the Act are classified into three categories List 1, List 2, and List 3. List 1 consists of businesses strictly prohibited to aliens. List 2 is prohibited to aliens unless permission is granted by the Commerce Minister by and with an appropriate Cabinet resolution. Alien juristic entities allowed to engage in the businesses in List 2 must meet the following two conditions: (1) At least 40 percent of all the shares are held by Thai persons or non-alien juristic entities. (The minimum threshold may be lowered to 25 percent given reasonable grounds.) (2) Two-fifths of the members of the Board of Directors are Thai. List 3 is prohibited to aliens unless permission is granted by the Director-General of the Department of Commercial Registration, Ministry of Commerce, by and with approval of the Foreign Business Board An alien can engage in businesses in List 2 and/or List 3 if he is a promoted investor in accordance with either the Investment Promotion Act, Industrial Estate Authority of Thailand Act, or other laws. Changes in business categories attached Alien Business Law Wholesales of all kinds of products (Annex C) except those specified in Annex A, and retailing of all products (Annex B and Annex C), require an investment promotion by the Board of Investment, or a permission by the Director-General of the Department of Commercial Registration, Ministry of Commerce. Broker or agent business (Annex A) is prohibited to aliens. All kinds of Businesses in services are specified in Annex A, Annex B, and Annex C. Those are under the Law. Particularly, accounting, legal, and architectural services are under Annex A, while engineering service is under Annex C. Building construction business is under Annex A, and other construction businesses are under Annex C. The business of Internal trade concerning local agricultural products and advertising is under Annex A. Section 5: Starting a business in Thailand Page 15 Ministry of Foreign Affairs Business Handbook Foreign Business Act The businesses of wholesale and retail of all kinds of goods still require licensing under List 3 except a wholesale business which the minimum capital of each store is 100 million baht or more, and a retail business which the total minimum capital is 100 million baht or more, or the minimum capital of each store is 20 million baht or more. The business of broker or agent is under List 3 and may be engaged in by aliens if such aliens obtain a Foreign Business License. However, the business as the following is exempt from the Act: Trading in securities or services concerning futures trading in agricultural commodities, financial instruments or securities; Trading in or the procurement of goods and services needed for production by, or providing the services of, an enterprise in the same group; Trading, purchasing (for other) or distributing or finding domestic or overseas markets for selling goods made domestically or imports as an international trading business, with a minimum capital of the alien of at least 100 million baht; and Other lines of business stipulated in Ministerial Regulations. While all types of service business (except for those to be prescribed in Ministerial Regulations) are under List 3 and can be licensed, a major change has been to allow for accounting, legal, and architectural services (previously not capable of licensing), and engineering service to be licensed. The business of construction is capable of licensing under List 3; however, it is exempt from the Act in case of its business relates to: Construction of things that provide basic services to the public with respect to public utilities or communications and which require the use of special instruments, machinery, technology, or expertise in construction and a minimum capital of the alien of at least 500 million baht; Other categories of construction as stipulated in Ministerial Regulations. Domestic trade concerning indigenous agricultural produce or products not prohibited by any other law, and advertising are in List 3 and may be engaged in by aliens if such aliens obtain a Foreign Business License. Revision of prohibited and restricted businesses Alien Business Law An alien can engage in any businesses listed in Annex A or Annex B if permitted by a Royal Decree. An amendment of Annex C can only be made by a Royal Decree. Foreign Business Act An amendment of List 1 and Chapter 1 of List 2 can only be made by an Act. Other amendments will require a Royal Decree. The Foreign Business Board is required to review and revise the business listed at least once a year and to present an opinion as to any changes to the Commerce Minister. Penalties Alien Business Law A fine of 30,000-500,000 baht Foreign Business Act A fine of 100,000-1,000,000 baht and imprisonment of no more than three years List of business activities Section 5: Starting a business in Thailand Page 16 Ministry of Foreign Affairs Business Handbook List 1 Business that aliens are not permitted to do for special reasons: (1) Newspaper undertakings and radio and television station undertakings (2) Lowland farming/upland farming, or horticulture (3) Raising animals (4) Forestry and timber conversions from natural forests (5) Fishing for aquatic animals in Thai waters and Thailand's exclusive economic zones (6) Extraction of Thai medical herbs (7) Trade in and auctioneering of Thai ancient objects or ancient objects of national historical value (8) Making or casting Buddha images and making monk's bowls (9) Dealing in land. List 2 Businesses concerning national security or safety with an adverse effect on art and culture, customs or native manufacture/handicrafts, or with an impact on natural resources and the environment. Chapter 1: Businesses concerning national security or safety (1) Production, disposal (sale) and overhaul of: (a) Fire arms, ammunition gunpowder and explosives (b) Components of fire arms, gunpowder and explosives (c) Armaments, and military vessels, aircraft or conveyances (d) All kinds of war equipment or their components. (2) Domestic transport by land, water or air inclusive of the undertaking of domestic aviation. Chapter 2: Businesses with an adverse effect on art and culture, customs or native manufacture/handicrafts (1) Dealing in antiques or objects of art and works of art, and Thai handicrafts (2) Production of wood carvings (3) Raising silkworms, producing Thai silk thread and weaving or printing patterns on Thai silk textiles (4) Production of Thai musical instruments (5) Production of articles of gold or silver, nielloware, nickel-bronze ware or laqurware (6) Production of crockery and terra cotta ware that is Thai art or culture. Chapter 3: Businesses concerning natural resources and the environment. (1) Production of sugar from sugarcane (2) Salt farming, inclusive of making salt from salty earth (3) Making rock salt (4) Mining, inclusive of stone blasting or crushing (5) Timber conversions to make furniture and articles of wood. List 3 Businesses which Thais are not ready to compete in undertakings with aliens (1) Rice milling and production of flour from rice and farm crops (2) Fishery, limited to propagation of aquatic animals (3) Forestry from replanted forests (4) Production of plywood, wood veneer, chipboard or hardboard (5) Production of natural lime (6) Accounting service undertakings (7) Legal service undertakings (8) Architectural service undertakings (9) Engineering service undertakings Section 5: Starting a business in Thailand Page 17 Ministry of Foreign Affairs Business Handbook (10) Construction except: (a) Construction of things that provide basic services to the public with respect to public utilities or communications and which require the use of special instruments, machinery, technology or expertise in construction and a minimum capital of the alien of at least 500 million baht (b) Other categories of construction as stipulated in ministerial regulations (11) Brokerage or agency undertakings except: (a) Trading in securities or services concerning futures trading in agricultural commodities, financial instruments or securities (b) Trading in or the procurement of goods or services needed for production by or providing the services of and enterprise in the same group (c) Trading, purchasing (for others) or distributing or finding domestic or overseas markets for selling goods made domestically or imports as an international trading business, with a minimum capital of the alien of at least 100 million baht (d) Other lines of business stipulated in ministerial regulations (12) Auctioning, except: (a) International bidding that is not bidding in antiques, ancient objects or objects of art that are Thai works of art, handicraft or ancient objects, or of historical value (b) Other types of auction as stipulated in ministerial regulations (13) Domestic trade concerning indigenous agricultural produce or products not prohibited by any present law (14) Retail trade in all kinds of goods where the total minimum capital is 100 million baht or more, or the minimum capital of each store is 20 million baht or more. (15) Wholesale trade in all kinds of goods with a minimum capital for each store of more than 100 million baht (16) Advertising undertakings (17) Hotel undertakings, except for hotel management services (18) Sale of food or beverages (19) Plant breeding and propagating, or plant improvement undertakings (20) Doing other service businesses except for service businesses prescribed in ministerial regulations. Section 5: Starting a business in Thailand Page 18 Ministry of Foreign Affairs Business Handbook 5.7 Taxation The Revenue Code outlines regulations for the imposition of taxes on income, with income tax divided into three categories: Corporate income tax, value added taxes (or specific business taxes), and personal income tax. Corporate income tax Incorporated firms operating in Thailand pay income tax at a rate of 30 percent of net profits. Foundations and Associations pay income taxes at a rate of two to 10 percent of gross business income, depending upon the activity. International transport companies face a rate of three percent of gross ticket receipts and three percent of gross freight charges. All companies registered under Thai law are subject to taxation as stipulated in the Revenue Code and are subject to income tax on income earned from sources within and outside of Thailand. Foreign companies not registered or not residing in Thailand are subject to tax only on income derived from sources within Thailand. Normal business expenses and depreciation allowances, at rates ranging from five to 100 percent, depending on the item, or at rates under any other acceptable depreciation method, are allowed as deductions from gross income. Inventory must be valued at cost or at market price, whichever is lower. Net losses can be carried forward for up to five consecutive years. Interest payments on some foreign loans may be exempt from a firm's income tax. Inter-corporate dividends are exempt from tax on 50 percent of dividends received. For holding companies and companies listed on the SET, dividends are completely exempt, provided the shares are held three months prior to and after the receipt of dividends. Deductions for gifts and donations up to a total of four percent of net profit are available, as follows: · Two percent to approved public charities or for public benefit · Two percent to approved education or sports bodies. No deduction is permitted for any expenditure that is determined on the basis of net profit (e.g. bonuses paid as a percentage of net profit) at the end of an accounting period. Depreciation of assets of limited companies and partnerships is based on cost. The rates of annual depreciation permitted by the law generally vary from five to 20 years. Entertainment and representation expenses are deductible up to maximum limits as a percentage of gross sales, or of paid-up capital at the closing date of the accounting period, whichever is the greater. Taxes are due on a semi-annual basis within 150 days of the close of a six-month accounting period, and employers are required to withhold personal income tax from their employees. Except for newly incorporated companies, an accounting period is defined as a duration of 12 months. Returns must be accompanied by audited financial statements. A corporate taxpayer must file a half-year return and pay 50 percent of the estimated annual income tax by the end of the eighth month of the accounting period. Failure to pay the estimated tax or underpayment by more than 25 percent may subject the taxpayer to a fine amounting to 20 percent of the amount in deficit. Section 5: Starting a business in Thailand Page 19 Ministry of Foreign Affairs Business Handbook Failure to file a tax return, late filing or filing a return containing false or inadequate information may subject the taxpayer to various penalties. Failure to file a return, and subsequent non-compliance with an order to pay the tax assessed, may result in a penalty equal to twice the amount of tax due. Filing a return with a tax deficiency may result in a penalty equal to the amount of tax. All penalties must be paid within 30 days of being assessed. Value Added Taxes The value added tax (VAT) system, which came into effect on 1 January 1992, largely replaced the old business tax system, which critics claimed caused inefficient redundancies and facilitated tax evasion. Under the new tax regime, value added at every stage of the production process is subject to a seven percent tax rate. Those who are affected by this tax are: Producers, providers of services, wholesalers, retailers, exporters and importers. VAT must be paid on a monthly basis, calculated as: Output tax - input tax = tax paid where output tax is the VAT which the operator collects from the purchaser when a sale is made, and input tax is the VAT which an operator pays to the seller of a goods or service which is then used in the operator's business. If the result of this calculation is a positive figure, the operator must submit the remaining tax to the Revenue Department not later than 15 days after the end of each month. However, for a negative balance, the operator is entitled to a refund in the form of cash or a tax credit, which must be paid in the following month. Zero rate VAT · Exports · Services provided in Thailand for persons in foreign countries · International transportation by air and sea by Thai juristic persons. Foreign juristic persons may enjoy zero percent when its country applies zero percent to Thai juristic persons operating there · Sale of goods or services to civil service or state enterprises under foreign loan or aid schemes · Sale of goods or services to the UN and its agencies, foreign embassies and consulates · Sale of goods or services between bonded warehouses, between operators in export processing zones, or between the former and the latter. Operators whose gross earnings from the domestic sale of goods and services exceed 600,000 baht, but are less than 1,200,000 baht per year, can choose between paying a gross turnover tax of 1.5 percent or the normal VAT. However, operators paying the gross turnover tax may not offset this tax by charging VAT to their customers in any step of production. Special exemption from VAT · Operators earning less than 600,000 baht a year · Sale or import of agricultural products, livestock, and agricultural inputs, such as fertiliser, feed and chemicals · Sale or import of published materials and books · Auditing, legal services, health services and other professional services · Cultural and religious services · Educational services · Services provided by employees under employment contracts · The sale of goods as specified by Royal Decree Section 5: Starting a business in Thailand Page 20 Ministry of Foreign Affairs Business Handbook · Goods exempt from import duties under the Industrial Estate Authority of Thailand (IEAT) Act · Domestic transportation (excluding airlines) and international transportation (excluding air and sea lines). VAT refunds Problems with VAT refunds persist. The Revenue Department has acknowledged that irregularities with paperwork has held up more than six billion baht in refunds, and that there are a number of concerted efforts to defraud the government through illegitimate tax refund claims. The Revenue Department has thus committed to directly assist companies having problems with VAT refunds and to point out irregularities in documentation. From June 1 1999, tourists shopping in Thailand have been able to obtain VAT refunds as a part of the country's tourist promotion policy. Specific Business Tax (SBT) A specific business tax of approximately three percent is imposed, in lieu of VAT, on the following businesses: · Commercial banks and similar businesses · Insurance companies · Financial securities firms and credit fonciers · Sales on the stock exchange · Sales of non-movable properties · Pawn shops. The SBT is computed on the monthly gross receipts at the following rates: Type of business Tax rate Banking or similar business: finance, securities and credit 3 percent foncier business Insurance Life 2.5 percent Insurance against loss 3 percent Pawnshop 2.5 percent Sale of immovable property in 3 percent a commercial manner for profits Remittance tax Remittance tax applies only to profits transferred or deemed transferred from a Thailand branch to its head office overseas. It is levied at the rate of 10 percent of the amount to be remitted before tax, and must be paid by the remitting office of the offshore company within seven days of the date of remittance. However, outward remittances for the purchase of goods, certain business expenses, principal on loans to different entities and returns on capital investment, are not subject to an outward remittance tax. The tax does not apply to dividends or interest payments remitted out of Thailand by a company or partnership; these are taxed at the time of payment. Section 70 of the Revenue Code addresses income paid to foreign juristic persons. When a company or partnership incorporated under a foreign law and not carrying on business in Thailand receives "assessable income" paid either from or in Thailand, the payer is usually required to deduct income tax at a rate of 15 percent of the gross remittance. In 1992, Section 5: Starting a business in Thailand Page 21 Ministry of Foreign Affairs Business Handbook standard deductions, which used to vary with each type of income, were abolished, making the flat 15 percent rate effective on all assessable income except for dividend income, on which the 20 percent withholding tax was reduced to 10 percent. There is no withholding tax on capital gains or on the share of profit paid to foreign investors in mutual funds, if in the SET. Physical remittance of funds may not be necessary in order to incur either the dividend or interest tax liabilities. These taxes may be incurred by making book entries. Personal income tax Every person, resident or non-resident, who derives assessable income from employment or business in Thailand, or has assets located in Thailand, is subject to personal income tax, whether such income is paid in or outside of Thailand. Exemptions are granted to certain persons, including United Nations. officers, diplomats and certain visiting experts, under the terms of international and bilateral agreements. Personal income tax is applied on a graduated scale as follows: Net annual income (baht) Tax rate 0 100,000 5 percent 100,001 500,000 10 percent 500.001 1,000,000 20 percent 1,000,001 4,000,000 30 percent > 4,000,000 37 percent Individuals residing for 180 days or more in Thailand for any calendar year are also subject to income tax on income from foreign sources if that income is brought into Thailand during the same taxable year that they are a resident. Exchange control laws stipulate that all foreign exchange earned by a resident, whether or not derived from employment or business in Thailand, and brought into Thailand, must be sold to or deposited with commercial banks within 15 days, unless permission for an extension is granted. Personal income taxes and tax returns must be filed prior to the end of March of the year following the year in which the income was earned. A standard deduction of 40 percent, but not in excess of 60,000 baht, is permitted against income from employment or services rendered or income from copyrights. Standard deductions ranging from 10 percent to 85 percent are allowed for other categories of income. In general, however, taxpayers may elect to itemise expenses in lieu of taking standard deductions on income from sources specified by law. Other types of taxable income and the rate of standard deduction include: · Interest, dividends, capital gains on the sale of securities: Forty percent, but not exceeding 60,000 baht. · Rental income: Ten percent to 30 percent depending on type of property leased. · Professional fees: Sixty percent for income from medical practice, 30 percent for others. · Income derived by contractors: Seventy percent. · Income from other business activities: Sixty-five percent to 85 percent depending on the nature of the business activity. Annual personal allowances permitted Taxpayer 30,000 baht Taxpayer's spouse 30,000 baht Section 5: Starting a business in Thailand Page 22 Ministry of Foreign Affairs Business Handbook Each child's education 15,000 baht For taxpayer and spouse for contributions to an 10,000 baht approved provident fund For taxpayer and spouse for interest payments on 10,000 baht loans for purchasing, hire purchasing or construction of residential buildings For taxpayer or spouse with respect to contributions Actual contribution not more than 10 to social securities funds or the amount actually percent of adjusted income paid if less Only three children per taxpayer family qualify for the child allowance, but this limitation applies only to children born on or after 1 January 1979. Therefore, in counting the number of children, a child born prior to 1979 can also be counted. For example, a taxpayer with four children born before 1979 continues to qualify for an aggregate allowance of 60,000 baht. A fifth child, born in 1979, would not qualify. Additional taxes can be assessed, within a period of two years from the date of filing a return, and up to five years for tax evasion or tax refund. If an individual fails to file a return, the assessment officer may issue summons within a period of 10 years from the filing due date. Treaties to avoid double taxation Thailand has treaty agreements to eliminate double taxation with the following countries: Austria, Australia, Bangladesh, Belgium, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Hungary, Indonesia, Israel, Italy, India, Japan, Laos, Luxembourg, Malaysia, Mauritius, Nepal, Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland, Romania, Singapore, S Korea, S Africa, Spain, Sri Lanka, Sweden, Switzerland, United Kingdom and Northern Ireland, United States and Vietnam. The treaties generally place taxpayers in a more favourable position for Thai income than they would be under the Revenue Code, as profits will only be taxable if the taxpayer has a permanent establishment in Thailand. Other taxes Petroleum income tax The Petroleum Income Tax Act replaces the Revenue Code in imposing a tax on income from firms which own an interest in a petroleum concession granted by the Thai government or which purchase oil from a concession holder for export. Net income from petroleum operations includes revenue from production, transport or sale of oil and gas, the value of gas delivered to the government as a royalty and the proceeds of a transfer of interest in a concession. The tax rate for most operators is not less than 50 percent and not more than 60 percent of net profits. Stamp tax The Revenue Code contains a Stamp Duty Schedule listing transactions subject to stamp tax. Rates depend on the nature of the transaction, and fines for failure to stamp documents are very high. Excise tax Excise tax is levied on the sale of a number of goods, including petroleum products, tobacco, liquor, soft drinks, cement, electrical appliances, and automobiles. Section 5: Starting a business in Thailand Page 23 Ministry of Foreign Affairs Business Handbook Property tax Owners of land and/or buildings in designated areas may be subject to annual taxes levied by the local government. Under the Local Development Tax Act of 1965, rates per unit vary according to the appraised value of the land. However, land for the personal residence of the owner, animal husbandry, or land cultivation is exempted from this Act. For land taxable under the House and Land Tax Act of 1932, which is based on the value of the land and buildings or any other improvements, annual tax is levied at the rate of 12.5 percent of the assessed assumed rental value of the property, and only owner-occupied residences are exempt. Tax courts Tax cases are considered different in nature from normal civil cases. The Tax Court Establishment and Procedure Act, effective since 1985, provides special and accelerated procedures for tax litigation. Tax courts have authority to judge the following cases: · Appeals against the decision of tax officers or committees · Disputes over the claims of state tax obligations · Disputes over tax refunds · Disputes over rights or obligations concerning tax collection obligations. Disputes over the right or obligations regarding tax collection obligations · Other cases made subject to the Act as prescribed by other laws. Decisions of the tax courts may be appealed to the Supreme Court within one month after the date of the judgement. Tax clearance certificates As of May 1991, requirements for tax clearance certificates have been significantly reduced. Provided that an individual demonstrates compliance with tax laws, he is not required to secure a tax clearance certificate within 15 days before leaving the country. Employees of businesses incorporated under foreign law, but which carry out business in Thailand, must acquire a certificate from the Revenue Department before departure. The requirement is not enforced if the individual has been in Thailand less than 90 days in any tax year and not received any income. Tax reforms In August 1999 the Cabinet approved several important tax and tariff measures to promote private investment, lower production costs, improve corporate liquidity, and reduce consumer prices. The Cabinet also eliminated the registration requirement for the import and export of gold. Tariff measures The Customs Department collects import duties on over 9,000 items. As part of its continuing efforts to improve the tariff structure, the Ministry of Finance is in the process of preparing a comprehensive reform of the country's tariff structure in line with the country's development and forthcoming international commitments. Under the ASEAN Free Trade Area (AFTA) agreement, for example, import duties will have to be reduced to 0-5 percent on 85 percent of total product items, representing over 7,000 items, on January 1, 2000. Furthermore, under the Information Technology Agreement (ITA), 153 items will be exempt from import duties. Given the difficulties faced by producers due to economic conditions and these forthcoming international commitments, the Cabinet approved a variety of tariff measures to lower costs and enhance competitiveness. Section 5: Starting a business in Thailand Page 24 Ministry of Foreign Affairs Business Handbook In identifying these tariff measures, the Ministry of Finance consulted with the Federation of Thai Industries and the Thai Chamber of Commerce. The measures focus on capital goods, raw materials, and products that are not being produced domestically. The measures include reduced tariffs on capital goods, raw materials, and other products. Capital goods Tariff reduction on machinery and mechanical appliances and parts; electrical machinery and equipment and parts; and measuring, checking, precision instruments and apparatus from five and 20 percent to three percent for 326 items. Raw materials · Tariff exemption on fish or crustaceans, molluscs or other aquatic invertebrates for breeding, which previously faced a tariff rate of 60 percent. · Tariff reductions on raw materials for cosmetic, pharmaceutical, food and other industries including lanolin, jojoba oil, vitamin premix, dried glands and organs for medical use from 10 percent to five percent; and on artificial waxes and prepared waxes from 20 percent to 10 percent for 26 items. · Tariff exemption and reduction on chemical products which are inorganic chemicals, organic chemicals, fertilisers, and miscellaneous chemical products from five and 10 percent to one percent for 148 product items; from 10 percent to five percent for 69 items; and tariff exemption on five products which previously faced a five percent import duty. · Tariff reduction on 11 plastic items from 20 percent to 10 percent. · Tariff reduction on lupins, alfalfa, and canola meal from 10 to 40 percent down to five percent for five items. · Tariff exemption on five cotton items, which help to improve the quality of textile products, and which previously faced a five percent import duty. · Tariff reduction on copper cathode from six to one percent. · Tariff reductions on 12 iron items including Tin Mill Black Plate (TMBP) iron and Hi Carbon iron from two, 10, and 12 percent to one percent. · Tariff exemptions on precious metals including pearl, silver, and platinum for 21 items, which previously faced import duties of one, five, and 10 percent. Tariff reductions on artificial jewellery from 30 and 60 percent to 20 percent for two items. · Tariff reduction on other raw materials including skins and other parts of birds from 20 and 35 percent to 10 percent; on waste and scrap glass from five to one percent; and on glass rods from 10 percent to five percent for six items. Other products The tariff rates of three other products will be restructured in line with the new Harmonised System. The above tariff reductions and exemptions are on a permanent basis, except for the following reductions which are temporary: · The tariff reductions on inorganic chemicals, organic chemicals, TMBP iron, and Hi Carbon iron to one percent are valid until 31 December 2003, when the tariff rates will be increased to their respective rates in the tariff structure or set at appropriate rates to be considered by the Ministry of Finance. · The tariff reduction on copper cathode to one percent is valid until 31 December 2000, when the Ministry of Finance will re-consider the appropriate rate. Section 5: Starting a business in Thailand Page 25 Ministry of Foreign Affairs Business Handbook Removal of the import duty surcharge The Cabinet has decided to remove the 10 percent import duty surcharge which has been collected since October 15, 1997 on items with a tariff rate over five percent. These measures will directly assist producers in a wide range of industries. For example, the food processing industry will benefit from the tariff reduction on TMBP iron. Producers in the pharmaceutical and cosmetic industries will benefit from lower tariffs on key inputs. The textile industry will benefit from lower cotton and chemical tariffs, while the electronics industry will benefit from lower copper cathode duties. Furthermore, producers in general will face lowered production costs because of the reduced tariffs on chemicals and machinery. At the same time, the removal of the import duty surcharge will lessen the degree of protection provided to industry and encourage more efficient production. Consumers will also benefit from these measures in the form of lower prices of goods. The Cabinet has mandated the Ministry of Commerce to monitor the prices of items, which have been affected by the tariff reductions. Accelerated depreciation of fixed assets While current tax regulations allow businesses to calculate depreciation expenses according to any generally accepted accounting method, any changes in the method used require the approval of the Director-General of the Revenue Department. In practice, the majority of businesses currently employ the straight line method of depreciation. To encourage private investment and enhance the productivity of the private sector, under the measure approved by the Cabinet, businesses can now freely choose the double declining balance method of depreciation, by which assets can be depreciated at twice the rate of the straight line method. Furthermore, businesses can fully depreciate the remaining book value of the asset in the last accounting period of the useful life of the asset. This measure will be applied to fixed assets such as machinery and parts, office equipment, forklifts, aircraft, boat, and other vehicles, but does not apply to passenger cars. Elimination of export and import registration requirement for gold On October 15, 1990, the Cabinet approved the deregulation of the export and import of gold and mandated the Ministry of Finance to amend the necessary rules and regulations accordingly. To this end, the Ministry of Finance amended regulations to allow the general public to register for licenses for the export and import of gold. To further liberalise the export and import of gold and support industries such as jewellery and electronics that require gold as an input, the Cabinet has eliminated the registration requirement. Customs duties Tariff duties on goods are levied on an ad valorem or a specific rate basis. The majority of goods imported by businesses are subject to rates ranging from five percent to 60 percent. The majority of imported articles are subject to two different taxes: Tariff duty and VAT. Tariff duty is computed by multiplying the CIF value of the goods by the duty rate. The duty thus determined is added to the value of the goods determined with reference to the CIF price. VAT is then levied on the total sum of the CIF value, duty, and excise tax, if any. Goods imported for re-export are generally exempted from import duty and VAT. Export duties are imposed on only a few items, including rice, hides, skins and leather, scrap iron or steel, rubber, teak and other kinds of wood. Section 5: Starting a business in Thailand Page 26 Ministry of Foreign Affairs Business Handbook Two exceptions to the obligation to pay customs duties apply to the importation of machinery, equipment, and materials for the use by: · Oil and gas concessionaires and their contractors · Certain companies promoted by the BOI. Section 5: Starting a business in Thailand Page 27 Ministry of Foreign Affairs Business Handbook 5.8 Investment and trade incentives Board of Investment (BOI) promotional incentives The Board of Investment is the government agency responsible for providing incentives to stimulate investment in Thailand. In addition, the BOI conducts extensive investment promotion activities, both in Thailand and abroad. NOTE: The BOI is in the process of refining a new investment policy scheduled to be introduced in the first quarter of 2000. It is, however, in the drafting and consultation stage, and the existing policy outlined below is still in force. The BOI is governed by the 1977 Investment Promotion Act, as amended by the Investment Promotion Act of 1991. The Board is chaired by the Prime Minister, with economic ministers, senior civil servants, representatives of major private sector organisations, and academics serving as Board Members or Advisors. The BOI promotes projects that: · Strengthen Thailand's industrial and technological capability · Make use of domestic resources · Create employment opportunities · Develop basic and support industries · Earn foreign exchange · Contribute to the economic growth of regions outside of Bangkok · Develop infrastructure and conserve natural resources · Reduce environmental problems. The BOI is empowered to grant a wide range of fiscal and non-fiscal incentives and guarantees to investment projects that meet national economic development goals. In addition to investment incentives, the BOI also offers comprehensive business-related services to investors and potential investors. These services range from working with investors to help them obtain licenses and permits to the identification of promising investment projects and joint-venture partners. In addition, the BOI offers assistance to Thai firms interested in investing overseas, especially in Indochina and in Association of Southeast Asian Nations (ASEAN). The BOI currently has six regional offices: Nakhon Ratchasima and Ubon Ratchathani in the Northeast, Songkhla and Surat Thani in the South, Chiang Mai in the North, and Chon Buri (Laem Chabang) in the Eastern Seaboard area. The BOI maintains permanent investment promotion offices in Frankfurt, New York, Paris, and Tokyo. These offices offer potential foreign investors a complete range of information on business opportunities and incentives in Thailand. Depending on which sector their proposed activity falls under, projects are assigned to one of the seven Investment Promotion Divisions within the Board of Investment. Each of the divisions is empowered to handle all aspects of a promoted project so that investors only need to deal with one division for most of their business with the BOI. Functions of the seven divisions include: The screening and appraising of applications for investment incentives; reviewing specific duty and tax exemptions for machinery and raw materials; monitoring the operations of promoted projects to ensure compliance with conditions stipulated in their promotion certificates. The division also provides information to investors on the industry sector in which they are involved. Section 5: Starting a business in Thailand Page 28 Ministry of Foreign Affairs Business Handbook These divisions also consider various measures to assist promoted industries, including import duty reductions, duty exemptions and rebates, and tariff increases on competing imports. The BOI Unit for Industrial Linkage Development (BUILD) encourages growth in supporting industries in Thailand. BUILD provides information on subcontracting opportunities and offers its support to buyer firms seeking sourcing networks in Thailand. It helps small and medium-sized Thai suppliers achieve standards required to enter into productive subcontracting arrangements. BUILD's extensive database on subcontractors in Thailand provides matchmaking services for firms seeking specific components or raw materials. The BOI provides investment matchmaking services to both Thai and foreign investors seeking co-operation in the areas of technology, management and marketing. In addition, the BOI offers a matchmaking service for investors in regional areas looking for joint-venture partners from Bangkok and abroad, as well as for firms that want to invest in provincial areas. Tax incentives · Tax incentives offered by the BOI include: · Exemption or reduction of import duties on imported machinery · Exemption or a reduction of import duties on imported materials and components · Exemption of corporate income taxes for three to eight years, with permission to carry forward losses and deduct them as expenses for up to five years · Exclusion of dividends derived from promoted enterprises from taxable income during the corporate income tax holiday. Additional incentives for enterprises in the Special Investment Promotion Zones include: · Reduction of corporate income tax by 50 percent for five years after the exemption period · Double deduction from taxable income of water, electricity, and transport costs for 10 years from the date of first sales · Deduction, from net profit, of 25 percent of the project's infrastructure installation or construction cost. Additional incentives for export enterprises: · Exemption of import duties on imported raw materials and components · Exemption of import duties on re-exported items · Exemption of export duties · Allowance to deduct from taxable corporate income an amount equivalent to five percent of an increase in income derived from exports over the previous year, excluding the cost of insurance and transportation. Criteria for project approval In determining both the economic and technological suitability of a project for which investment is requested, the Board applies different criteria depending on the level of investment capital. For a project with investment capital, excluding land and working capital, not greater than 200 million baht, the following criteria are used: · Value added not less than 20 percent of sales revenue, except projects which export more than 80 percent of total sales, or use domestic agricultural resources as raw materials, or conserve, restore or develop natural resources and the environment · Registered capital is at least 20 percent of the total investment · Modern machinery and production processes are used Section 5: Starting a business in Thailand Page 29 Ministry of Foreign Affairs Business Handbook · Adequate environmental protection systems are installed. For a project with investment capital, excluding land and working capital, greater than 200 million baht, the same criteria as for projects with investment capital less than or equal to 200 million baht, plus: · Impact on its own industry · Impact on government finances · Impact on consumers · Contribution to technological development. For a project with investment capital, excluding land and working capital, of over 500 million baht, the same as for projects with investment capital greater than 200 million baht, plus: · A feasibility study. Projects which qualify for investment promotion incentives and the conditions under which awards are made are set out on BOI's "List of Promoted Activities." The List is broad enough to encompass most industrial projects. The award of tax-related incentives is based on project location and, in certain cases, on type of industry or export orientation. The BOI divides Thailand into three investment zones for promotional purposes. These are: · Zone 1, comprising Bangkok and five contiguous provinces; · Zone 2, comprising 10 provinces, most of which are within a 180-kilometre radius of Bangkok; · Zone 3, comprising all other provinces. Standard BOI incentives provided to promoted firms include: · Investment guarantees against nationalisation, state monopolies, price controls, tax exempt imports by government agencies, export restrictions · Visas and work permits for expatriate personnel · Permission to own land · Permission to remit money abroad in foreign currency The principal incentives offered by Zone are: Zone 1 · No tax exemption or reduction on machinery, except projects which export not less than 80 percent of total sales or locate their factories in industrial estates or promoted industrial zones. Such projects will receive a 50 percent import duty reduction on machinery which is not included in the tariff reduction notification of the Ministry of Finance (Notification No.C 13/2533) and which is subject to import duty greater than or equal to 10 percent · No corporate income tax exemption, except for projects that export not less than 80 percent of total sales and locate their factories in industrial estates or promoted industrial zones, in which case a three-year exemption will be granted · Exemption of import duty on raw or essential materials used in export products for a period of one year for projects exporting at least 30 percent of total sales. Zone 2 · A 50 percent import duty reduction on machinery that is not included in the tariff reduction notification of the Ministry of Finance (Notification No. C 3/2533) and that is subject to import duty greater than or equal to 10 percent · Corporate income tax exemption for three years, extendible up to seven years for projects that locate their factories in industrial estates or promoted industrial zones · Exemption of import duty on raw or essential materials used in export products for a period of one year for projects exporting at least 30 percent of total sales. Section 5: Starting a business in Thailand Page 30 Ministry of Foreign Affairs Business Handbook Zone 3 · Import duty exemption on machinery · Corporate income tax exemption for eight years · Exemption of import duty on raw or essential materials used in export products for a period five years for projects exporting at least 30 percent of total sales · 75 percent import duty reduction on raw and essential materials used in production for domestic sales for five years. This reduction is renewable on an annual basis, provided that raw or essential materials comparable in quality are not being produced or are not originating within the Kingdom in sufficient quantity to be acquired for use in such activity. This does not include projects or factories in Laem Chabang Industrial Estate. Special privileges are granted as follows: · Reduction of corporate income tax by 50 percent for five years after the exemption period · Double deduction from taxable income of water, electricity, and transport costs for 10 years from the date of first sales · Deduction, from net profit, of 25 percent of the project's infrastructure installation or construction cost. Priority activities The Board has identified projects in the following five areas to be priority activities: · Basic transportation systems · Public utilities · Environmental protection and/or restoration · Direct involvement in technological development; and · Basic industries. Such projects will be eligible to receive the following privileges: · Corporate income tax exemption for eight years, regardless of location · A 50 percent import duty reduction on machinery which is not included in the tariff reduction notification of the Ministry of Finance (Notification No. C 13/2533) and which is subject to import duty greater than or equal to 10 percent for projects located in Zones 1 or 2 · Import duty exemption on machinery for projects located in Zone 3. Industrial Estate Authority of Thailand (IEAT) incentives The IEAT, established in 1979 as a State Enterprise under the Ministry of Industry, is charged with carrying out the government's industrial development policy. The IEAT is the principal regulatory authority for industrial estate construction and operation. The Authority is also the sole investor in three industrial estates, including Map Ta Phut and Laem Chabang Industrial Estates on the Eastern Seaboard, and more than 20 more joint operations with the private sector. There are 17 export processing zones (free trade zones), where machinery, goods and materials may be imported free of duty and tax to facilitate production for export. Finished products produced in export processing zones are treated like imports when they are distributed in Thailand. Import duties are paid at the gate of the Zone. Section 5: Starting a business in Thailand Page 31 Ministry of Foreign Affairs Business Handbook Additionally, the IEAT may grant non-tax investment incentives (essentially the same as BOI's non-tax incentives) to companies that locate in industrial estates. Most industrial estates also offer "one-stop shop" services to foreign investors in the estates. Duty drawback scheme Under the duty drawback scheme, exporters may recover import duties paid for importing raw materials that are processed into finished goods for export. Processing takes approximately three months. The duty drawback scheme is a workable alternative to import duty exemptions on raw materials provided by the BOI. Applications for duty drawback should be submitted to the Customs Department. Bonded warehouses Under the bonded warehouse program, manufacturers which import and export may import goods under bond into bonded warehouses without payment of import duties. No import duties need be paid on the goods unless they are distributed into the local economy. The program works in two ways. Importers and manufacturers may use the services of private companies operating commercial bonded warehouses, and manufacturers may request the Customs Department to designate their factories as bonded warehouses. In both cases, the Customs Department stations one or more officials at the bonded warehouse to facilitate import and export paperwork. Manufacturers must have a paid-in registered capital of at least 10 million baht of goods per year to qualify for bonded warehouse status. 5.9 Labour law and related issues Labour protection In August 1998, the Labour Protection Act (1998) went into effect. It applies to all businesses with at least one employee. Under the law, employers who disregard the law are subject to fines ranging from 5,000 baht to 200,000 baht and imprisonment of up to one year. Domestic workers (household staff) are not included in the definition of "employee" and are not covered by the labour Act. All other employees, whether full or part time, seasonal, casual, occasional or contract, are covered. Important protections contained in the new law Work hours and holidays: The maximum number of work hours for non-hazardous work is eight hours a day or 48 hours a week in total. In some types of work as stipulated by law, the employer and the employee may agree to arrange the period of working hours, but it still must not exceed 48 hours a week. Hazardous work may not exceed seven hours a day, or 42 hours per week. Employees are entitled to no fewer than 13 national holidays a year, and a minimum of six days of annual vacation after working consecutively for one full year. Employees have the choice of whether they wish to work overtime or on holidays. A female employee is entitled to maternity leave for a period of 90 days including holidays, but the number of paid leave shall not exceed 45 days. All employees are entitled to a daily rest period of at least one hour after working five consecutive hours. The employer and the employee may arrange the daily rest period to be shorter than one hour at each time, but it must not be less than one hour a day in total. A weekly holiday of at least one day a week at intervals of a six-day period must be arranged by the employer. For work performed in excess of the maximum number or working hours fixed either by law or by specific agreement (if the latter is lower), employees must be paid overtime compensation. The rates for overtime vary and range from 1-1/2 times to three times the Section 5: Starting a business in Thailand Page 32 Ministry of Foreign Affairs Business Handbook normal hourly wage rate for the actual overtime worked. The maximum number of overtime working hours is limited to not more than 36 hours a week. The minimum age for employment is 15 years, and workers below the age of 18 are banned from dangerous and hazardous jobs. They are also prohibited from working overtime, on holidays, or between the hours of 10 p.m. and six a.m. Pregnant employees are also prohibited from working overtime, on holidays, or between the hours of 10 p.m. and 6 a.m Sick Leave: Employees can take as many days of sick leave as necessary, but if an employee takes three months of sick leave, the employer is required to pay only one month's wages. Severance Pay: Employees who have worked more than 120 days, but less than one year, are entitled to 30 days severance pay. For personnel employed between one and three years, the severance pay is not less than 90 days pay. Employees with three to six years of service will receive six months salary, those with more than six to 10 years service will receive eight months salary, and employees with more than 10 years service will receive 10 months salary. Termination of employment: Conditions for termination of employment are also laid out in the Act, and a code governs unfair practices and unfair dismissals, which often are the result of the failure to follow correct legal procedures. Employee Associations and Labour Unions must be registered at the Labour Department, and require a license for operation. Finally, a Labour Court specifically settles employment disputes. If an employment contract does not specify any duration, either party can terminate the contract by giving notice at or before any time of payment, to have effect in the next pay period. Employee Welfare Fund: For companies with at least 10 employees that do not have a provident fund, an Employee Welfare Fund will be established to compensate employees who resign, are laid off, or die in service. Employers and employees will be required to contribute to this fund. Note: Implementation of this fund will be delayed until the economy improves. In addition to these provisions, there are restrictions on the kind of work that women and children can perform. Guidelines are set for wages and overtime, as well as resolution of labour-management disputes. Employers are required to pay workers compensation if an employee suffers injury, sickness or death in the course of work. Thai law also requires employers to provide welfare facilities, including medical and sanitary facilities. Section 5: Starting a business in Thailand Page 33 Ministry of Foreign Affairs Business Handbook Workmen's compensation The Compensation Act prescribes that an employer must provide the necessary compensation benefits for employees who suffer injury or illness or who die as a result or in the performance of their work at the rates prescribed by law. The compensation benefits can be grouped into four categories: The compensation amount, the medical expenses, work rehabilitation expenses, and funeral expenses. The payment of compensation benefits is made in accordance with the criteria and rates prescribed by law depending on the seriousness of the case. In general, the compensation amount must be paid monthly at the rate of 60 percent of the monthly wages of the employee but not lower than 2,000 baht and not exceeding 9,000 baht a month. Actual and necessary medical expenses must be paid but not exceeding 35,000 baht for normal cases and 50,000 baht for serious injury. The work rehabilitation expenses must be paid as necessary according to the criteria procedures and rates prescribed by law but not exceeding 20,000 baht. In the case of death, funeral expenses will be paid at a maximum amount equal to 100 times of the minimum daily wage rate prescribed by law. Minimum wages These regulations apply to all businesses and rates depend largely on the location of the workplace. The minimum wage per day effective January1, 1998 are: 162 baht for Bangkok, Nakhon Pathom, Nonta Buri, Pathum Thani, Phuket, Samut Prakan and Samut Sakhon. 140 baht for Chonburi, Chiang Mai, Nakhon Ratchasima, Phangnga and Ranong 130 baht for all other areas. Social security The Social Security Act requires that all employers with 10 or more employees to withhold social security contributions from the monthly wages of each employee. The prescribed rates to the monthly wages are: · From Jan. 1, 1999 to Dec. 31, 1999: two percent · From Jan. 1, 2000 to Dec 31, 2000: three percent · From Jan 1, 2001 onwards: 4.5 percent. The maximum monthly wage base on which the rates are applied must not exceed 15,000 baht. The employer is required to match the contribution from the employee. Both contributions must be remitted to the Social Security Office within the 15th day of the following month. Employees with social security registration may file claims for compensation in case of injury or illness, disability or death which is not due to the performance of their work, and for cases of child delivery, child welfare, old age pension and unemployment. Labour management In general, Thai labour laws provide for considerable freedom in managing labour, and unions are not very effective. Further, the government doesn't interfere with a company's retrenchment policies when economic conditions necessitate cutbacks. There is no "first in, last out" requirement in Thailand. Section 5: Starting a business in Thailand Page 34 Ministry of Foreign Affairs Business Handbook Similarly, Thai employers have the right to transfer employees to other work locations, provided the transfer is not ordered with the exclusive intent to create hardship on them. Refusal to transfer is legal cause for dismissal. Employee records An employer with 10 or more regular employees is required to establish written rules and regulations in Thai language governing work performance. The regulations must be display on the work premises within 15 days of the date from which the number of employees reached 10 or more. An employer with 10 or more regular employees is also required to maintain an employee register in Thai language with documents pertaining to the payment of wages, overtime, holiday work etc. 5.10 Immigration, visas, work permits Work permits The Alien Occupation Law, adopted in 1973, requires all aliens working in Thailand to obtain a Work Permit prior to starting work in the Kingdom. An updated version of the Act, adopted in 1978, describes the procedures for issuance and maintenance of Work Permits and lists certain occupations from which aliens may be excluded. Exemptions The Act grants exemptions from the Work Permit requirement to the following professionals: · Members of the diplomatic corps · Members of consular missions · Representatives of member countries and officials of the United Nations and its specialised agencies · Personal servants coming from abroad to work exclusively for persons listed under the above items · Persons who perform duties on missions in the Kingdom under an agreement between the government of Thailand and a foreign government or international organisation · Persons who enter the Kingdom for the performance of any duty or mission for the benefit of education, culture, arts, or sports · Persons who are specially permitted by the government of Thailand to enter and perform any duty or mission in the Kingdom. Special cases While most aliens must apply for a Work Permit, and may not begin work until the permit is issued, the Alien Employment Act does provide special treatment in the following circumstances: Urgent and essential work: Exemption from Work Permit requirements is granted to aliens who enter the Kingdom temporarily, but in accordance with the immigration law, to perform any work of any "urgent and essential nature" for a period not exceeding 15 days. However, such aliens may engage in work only after a written notification on a prescribed form, signed by the alien and endorsed by his employer, has been submitted to and accepted by the Director-General or his designee. Aliens entitled to this treatment may enter Thailand with any kind of visa, including a transit visa. The term "urgent and essential work" is not explicitly defined and consequently, the issuance of this sort of exemption is a matter of administrative discretion. Section 5: Starting a business in Thailand Page 35 Ministry of Foreign Affairs Business Handbook Investment promotion An alien seeking permission to work in the Kingdom under the Investment Promotion Law must submit his application for a Work Permit within 30 days of notification by the Board of Investment that his position has been approved. An alien in this category may engage in authorised work while the application is being processed. Procedures The Act requires that any alien working in Thailand must obtain a Work Permit before beginning work. Section 8 of the Act stipulates that while a prospective employer may file an application on the alien's behalf in advance of his commencing work, the actual Work Permit will not be issued until the alien has entered Thailand in accordance with the immigration laws and has presented himself to receive his Work Permit. The permit initially will be valid only for the period of the alien's Non-Immigrant visa permits him to remain in Thailand under the Immigration law. The Work Permit will be subject to renewal in accordance with the renewed or extended visa. For aliens who are holders of a Thai Certificate of Residence, the Work Permit can be renewed annually. The Labour Department, subject to subsequent renewal, will in principle grant an initial duration of one year for the Work Permit. A Work Permit must be renewed before its expiry date or it will automatically lapse. Applicants for Work Permits may not enter the Kingdom as tourists or transients. Required documentation The following documents must be attached to a Work Permit application: · For non-permanent residents, a valid passport containing a Non- Immigrant visa · For permanent residents, a valid passport, residence permit and alien book · Evidence of applicant's educational qualifications and letter(s) of recommendation from the former employer, describing in detail the applicant's past position, duties, performance, and place and length of employment. If the documents are in a language other than English, a Thai translation certified as correct by a Thai Embassy (if abroad) or Ministry of Foreign Affairs (if in Thailand) must be attached · A recent medical certificate from a first-class licensed physician in Thailand stating that the applicant is not of unsound mind and not suffering from leprosy, acute tuberculosis, elephantiasis, narcotic addiction or habitual alcoholism · Three 5x6 cm. full-faced, bareheaded, black and white or colour photographs, taken no more than six months prior to the filing of the application · If the application is to be filed by another person, a valid power of attorney in the prescribed form must be attached with a 10 baht duty stamp · On the application form, the "job description" entry must be completed with a detailed statement as to what job is expected to be performed, how it is related to other people, and what materials will be used in the work (additional paper to be used if necessary) · If the job applied for is subject to a license under a particular law, in addition to the Alien Occupation Law, a photocopy of such license, (e.g. teacher's license, physician's license, press card from the Public Relations Department, certificate of missionary status from the Office of Religious Affairs, etc.) shall be attached · If the applicant is married to a Thai national, the original and photocopies of the following must be presented: Marriage certificate, spouse's identity card, birth certificates of children, household registration, as well as a photocopy of every page of the applicant's passport If the job being applied for is not in Bangkok, the application should be filed at the relevant province's Department of Employment, or in the absence of such an office, at the province's city hall Section 5: Starting a business in Thailand Page 36 Ministry of Foreign Affairs Business Handbook Additional evidence as requested. It may be necessary to translate any or all documents into Thai. Permitted activities Thai law prohibits employers from allowing aliens to perform any function other than that described in the alien's Work Permit. Employers must report changes in employment, transfers and termination of all aliens in their organisation within 15 days of any such action. In cases of dismissal, aliens must return their Work Permit to labour authorities in Bangkok at the Alien Occupation division or, if they are in a provincial area, to the province's Department of Employment. Failure to do so will result in a fine of up to 1,000 baht. Any alien who engages in work without a Work Permit, or in violation of the conditions of his work as stipulated in his permit, may be punished by a term of imprisonment not exceeding three months or a fine of up to 5,000 baht, or both. Aliens engaged in work prohibited to them by Royal Decree shall be liable to imprisonment for a term not exceeding five years or to a fine ranging from 2,000 to 100,000 baht, or both. An employer who permits an alien to work in his organisation without a Work Permit or to act in violation of the nature of the work specified in the permit may be punished with imprisonment not exceeding three years or fined up to 60,000 baht or both. Permit holders must obtain prior permission to change their occupation and/or place of work. Change of employer location or the residential address of the permit holder must be properly endorsed in the Work Permit by the labour authorities. The Alien Employment Act does not prevent an alien from engaging in work in more than one field or for more than one employer. Visas and immigration law All persons, other than those in transit and citizens of certain countries, are required to obtain a visa in order to enter Thailand. Foreign nationals who intend to remain in Thailand to work or conduct business must comply with visa requirements in addition to obtaining a work permit. Visa categories The Immigration Act of 1979 as amended in 1980 establishes the following visa categories: · Tourist · Visitor transit · Immigrant · Non-quota immigrant · Non-immigrant Nationals of most countries will, without applying for a visa from a Thai embassy or consulate in advance, be given a 30 day-visa, except for those who are eligible for 90 day- visas. Nationals of some countries who are entitled to the 30 day-visa may be requested by the immigration officials to produce an onward ticket to establish that they will leave the Kingdom within 30 days. Tourist Tourist visas are initially valid for 60 days and are renewable at the discretion of the Immigration Department. Renewals are normally granted for periods of up to 30 days at a time. Section 5: Starting a business in Thailand Page 37 Ministry of Foreign Affairs Business Handbook Visitor transit Aliens who have obtained a transit visa from a Thai embassy or consulate will be granted a 30-day stay in the Kingdom. Extensions of stay are normally granted for periods of seven to 10 days. Transit, visitor transit and tourist visa holders are not authorised to work in Thailand. Non-quota immigrant This category includes, former residents who have lost their resident status but who have reapplied to resume their residency and who have been able to demonstrate a convincing reason to support the granting of this type of visa. Members of the diplomatic or consular corps, aliens coming to perform their duties in Thailand with the approval of the Thai government, aliens performing their duties in Thailand under an agreement between the Thai government and a foreign government, heads of international organisations or agencies operating in Thailand, and dependants of all the aforementioned persons, including private servants of members of the diplomatic corps, are exempted by the Act from the normal visa requirements. Non-immigrant visa Aliens seeking a prolonged stay, or those coming to work in Thailand, should obtain non- immigrant visas for all family members prior to entering the Kingdom. There are several categories of Non-Immigrant visas which include business visa category (B); dependent visa category (O); investment subject to the provision of the laws on investment promotion (BOI IB); diplomatic and consular visa category (D); performance of duties with the mass media (M); performance of skilled or expert work (EX); investment (with concurrence of ministries and departments concerned)-(capital investment IM); study or observation (ED). A non-immigrant visa entitles the holder to apply for a multiple re-entry visa to Thailand from the Immigration Division in Bangkok, as well as allowing the holder to apply for permanent residence in Thailand. It also provides eligibility for the issuance of a Work Permit, and eligibility for temporary visa renewal while processing issuance of a long- term annual visa. Aliens are advised to strictly adhere to the rules governing each visa category. They should report any changes of address or status to local police within 24 hours. Transit, visitor transit, tourist and non-immigrant visas are issued only for the following purposes and duration: · Diplomats or consular missions (duration as necessary) · Official missions (duration as necessary) · Tourism (90 days) · Sports (30 days) · Business purposes (one year) · An investment which has received authorisation from the appropriate government authorities (two years) · Investment or other business in connection with investment under the investment promotion act (as determined by the Board of Investment) · Transit (30 days) · The controller or crew of a conveyance entering a port or other locality in the kingdom (30 days) · Work as a skilled labourer or specialist (one year). In order to facilitate and speed up the process of issuing visas and work permits, the Thai government has established a One-Stop Service Centre for Visas and Work Permits where Section 5: Starting a business in Thailand Page 38 Ministry of Foreign Affairs Business Handbook applications, once all relevant paper work is in place, can be processed in a few hours. This includes a multiple re-entry visa for the period of the validity of the visa usually one year. Work permits, which are valid for the period of the visa, have to be renewed every year. When an individual applies for a renewal of visa, he or she has to show that taxes for the previous year have been paid. If an individual stays in Thailand for an unbroken period of 90 days, he or she has to notify immigration officials accordingly. Guidelines for foreign investors on acquiring permanent residence in Thailand Qualifications · A foreign national of any country who has legally entered Thailand by passing through an immigration checkpoint · Free of disease and not prohibited from entering Thailand under the Immigration Act · Able to submit a money certificate for funds transferred from abroad through one or more banks in Thailand in the name of the applicant, amounting to not less than 10 million baht. Applications may be submitted under one of five categories of investments: · Investment in a private company or public company · The purchase of a condominium from the owner of the condominium project · The purchase of government bonds or state enterprise bonds · Deposit(s) totalling not less than 10 million baht in one or more Thai banks · Other investments in accordance with the specification of the Immigration Commission. Criteria For a successful application for permanent residence for investment in Thailand, the project must benefit the country in the following ways: · Produce for export · Increase employment · Utilise indigenous raw materials · Locate in provincial areas · Encourage technology transfer to Thai nationals. Projects in the following categories will not be taken into consideration: · Those restricted by law · Those which compete in such as way as to destroy existing domestic businesses · Those which hinder the growth of existing domestic businesses or domestic businesses which have not yet been developed. For any project eligible for investment promotion which has submitted an application for promotional status or has already been granted promotional status, the applicant must bring in funds to invest in the new project that has not yet started operations. Such investment must be in the form of a joint venture in a newly or already established company. This joint venture must economically benefit the project, for example by assisting in export marketing or by bringing in appropriate technology. Remitted funds must be invested in ordinary shares of the limited company that is set up to implement the approved project. The applicant must hold more than 25 percent of the registered capital unless the size of the project exceed |