Challenges of Doing Business in Thailand

Famous for its beautiful beaches and warm hospitality, Thailand is also rapidly emerging as a potential location for foreign businesses. The country has a strong economy and is the second-largest economy in Southeast Asia after Indonesia.

The World Bank described Thailand as ‘one of the great development success stories’ regarding social and development indicators. However, starting or expanding a business in this country is not suitable for every entrepreneur or company and is certainly not without its challenges.

Starting a new business in Thailand is slow

There are five specific steps to starting a new business in Thailand, and these are:

• Obtaining a work permit
• Registering the company name
• Depositing funds into a bank account
• Applying for and obtaining the requisite business licence; depending on the type of business, there may be a requirement for additional licences and permits to be able to operate
• Obtaining a corporate seal

This process can take around a month if you don’t encounter any problems, so it’s certainly not the most rapid procedure; there are other Southeast Asian locations, like Singapore, where it’s possible to get up and running in just a couple of days.

Ownership restrictions

In Thailand, certain business activities are restricted to Thai nationals only. However, this can be circumvented by obtaining a foreign business licence (FBL) from the Department of Business Development.

If a company wants to operate a business classified as a restricted activity without an FBL, then under the Foreign Business Act of 1999, foreigners are not allowed to own more than 49% of the business.

Finding trustworthy Thai shareholders can be problematic, so businesses that need local investors will need expert help. Using Thai nominee shareholders is illegal in Thailand; this is a mechanism for foreign shareholders to effectively maintain control of the company. Penalties include substantial fines or imprisonment.

The flip side to having a smaller stake in a company than your Thai counterparts is that a majority Thai-owned company requires less capital to set up and has a reduced procedural start-up process. The other significant advantage is that a Thai majority company can purchase land that a foreign business may not.

There are exceptions to the 49% rule, as the Thai Board of Investment (BOI), a government agency, offers some incentives to encourage foreign investment. If your business is starting up in what the BOI classifies as an eligible industry, then it may qualify.

You will need a capital investment of at least 1,000,000 THB and already be a registered company in Thailand with at least three registered shareholders.

Restricted activities: obtaining a foreign business licence

Foreigners wanting to run a business in the areas in List 2 or List 3 of the Foreign Business Act 1999 will need to obtain an FBL. An application is filed with the Business Department and reviewed by the Foreign Business Committee or Cabinet. Not all applications succeed.

Success is more likely if the business promotes Thai interests and is not in direct competition with other Thai-owned companies and organisations. A lack of local employment opportunities and anything that is seen as impinging on the nation’s safety and security is likely to be rejected.

Does the US Treaty of Amity help?

Yes, it can do, but only if you are American.

The US Treaty of Amity is a bilateral agreement between Thailand and the USA providing US citizens who want to set up a business in Thailand with special rights and privileges granted under a Foreign Business Licence. For example, American companies can retain 100% ownership of a business. However, even with these concessions, there are still some business restrictions.

What is described as ‘Amity Treaty companies’ cannot own land or exploit natural resources, and they cannot operate a business in other reserved activities, including transportation and banking (involving deposit functions).

Prohibited activities

The Foreign Business Act prevents foreigners from carrying out business in these specific sectors and activities:

• Rearing livestock
• Arable farming, rice farming, and orchard farming
• Trading in land
• Forestry activities and processing wood from naturally grown forests
• Fishery, but this is confined to marine life in Thai waters
• Radio and television broadcasting
• Newspaper publishing
• Auctioning and trading in Thai antiques or items which are of historical value to the country
• The extraction of Thai medicinal herbs
• The manufacture of Buddhist images and alms bowls

The operating environment

Thailand has a complex regulatory environment that is challenging for foreign businesses and start-ups to navigate, and almost always requires expert help from qualified Thai professionals.

The banking sector in Thailand is much less developed than its Western counterparts. Many activities must be done in an actual branch, so choosing the bank with branches nearest the proposed business location is essential.

It will take several years in business before any bank considers issuing a foreign business owner a corporate credit card. The way around this is to apply for a personal credit card, which is much more accessible, and keep it strictly for business usage.

Accounting is one of the biggest challenges and involves a lot of paperwork. If a company is promoted by the Board of Investment, then tax filing systems are even more complex.

After the hit of a minimum capital set-up requirement under an FBL of THB 3 million for each business activity, investors will find that the business environment in Thailand is competitive. Staff salaries are high for multi-lingual workers, and skilled workers often command rates three or four times the average baseline salary, especially in ‘hot’ areas like e-commerce.

Salaries vary from sector to sector, but in the broader picture, companies should expect to pay higher wages for skilled workers in Thailand than in other Southeast Asian countries.

Infrastructure and logistics

Away from the urban centres, transportation and logistics are not well developed in rural areas. However, there are some glimmers of light on the horizon as Thailand sees a big push in the development of delivery companies, a fast-expanding sector that is growing to service the e-commerce industry.

Work permits

Any foreigner who wants to run a business in Thailand will need a work permit. Operating without one means you won’t be able to open a bank account or apply for the requisite licences and permits for the business. Illegal operation also means business owners can face hefty penalties and deportation.

Work permits are not always easy to obtain; you can only work at the company and location specified in the permit. Any change to this will require a fresh application.

Applying for a visa

The Thai government has introduced the SMART Visa for foreigners who want to start a business in Thailand. Promoted as a fast-track process, the Smart Visa allows foreigners to stay in Thailand for up to four years. This is an improvement on the Non-B visa, which only permitted residency for a year at a time.

Another advantage of a SMART Visa is that holders don’t need to obtain a work permit, and it avoids the 90-day reporting required under other visas at the immigration office.

The language barrier

English is not widely spoken in Thailand to a professional level, and all official documents must be written in Thai, making navigating the bureaucratic process very challenging. New and existing companies need a trustworthy representative who can help with document preparation and interpret the requirements.

Hiring foreign workers to circumvent the language problem is restricted. Unless your company is promoted by the Board of Investment (BOI), to obtain a work permit for each foreigner you hire, a business must have three or four full-time Thai employees on the payroll. The quota of foreign workers can also depend on the type of company incorporation, the amount of registered capital, or how much a business pays in taxes.

You don’t need to speak Thai to own and operate a business in Thailand, but some basic language knowledge can help. Hiring Thai staff who speak English means a significant jump in salary payments, often nearly double.

Final thoughts

Choosing to start a new business or expand an existing business in Thailand depends very much on the nature of the company’s activity. Thailand is an excellent place to operate for some companies; depending on sector and activities, the Thai government is business-friendly with policies to support the growth of small and medium-sized companies, and there is a fast-growing economy. There are plenty of opportunities in the service and industrial sectors as well as import and export industries.

However, the Thai government is also very protective of its trade and security, so for some companies, the environment may be too challenging compared to the potential for reward.

It is essential to undertake thorough research on the business environment in a particular sector and understand the consumer trends and regulations that apply there. Because of the lack of English, this is bound to require local support and assistance.

Even for companies who find the Thai landscape positive and profitable, expert help in navigating start-up or expansion is essential, both at the start and on an ongoing basis.