Briefly on the legal situation
Thailand protects its traders and service providers
Thailand protects its traders and service providers from competition by foreigners. Aliens are therefore prohibited from trading and providing services under threat of punishment. The term “foreigner” refers to all natural and legal persons with a foreign majority. Also, the employment of Thai employees is banned as an unauthorized branch office and additionally connected with major risks for the company and the employees in terms of tax law.
Contractual route to market: from a Business Unit to a Joint Venture
With Thai contractors all restrictions are removed
For foreigners who are operating business in Thailand through Thai contractors, all restrictions for trading and services do not exist. There are various methods to cooperate with a local partner. The classic path is the Importer as a Distributor. The advantage of such a solution is generally the absence of fixed costs, since the importer finances himself through his margin or commission. The negative side, on the other hand, is the lack of direct access to your customers and the increased market price due to an extra margin. Avoid typical faults in selecting a partner in Thailand and watch how a Professional Partner Search looks like. The most cost-effective approach to entering the market is a Business Unit Concept (for example at Sanet Trade & Services). Advantage: transparency and a fixed cost of the service and a dedicated, exclusive sales representative for each individual business, as well as involvement in the selection process. Disadvantage: stockholding limited to individual cases. The Joint Venture (JV) with 51 % Thai majority is likewise in principle unlimited in trading and in the provision of services. Sanet Legal Ltd. advises with profound experience on a smart allocation of the Thai majority amongst the legally mandatory minimum of three shareholders and a prudent drafting of the contract.
Entering the huge industrial market of Thailand is worth the effort. The legal barriers for trading and selling can be overtaken in several ways by experienced consulting. The Sanet Group since 2004 has in-depth entrepreneurial and legal experience when it comes to bringing foreign companies into the market.
Promotion through the Board of Investment (BOI)
From a Trade and Investment Service Office (TISO) to an International Procurement Office (IPO)
If you establish your own 100% subsidiary with usually at least 3 million Thai Baht (approx. 80,000 EUR) in capital, you have several options to become active in trading and providing services in Thailand. You will receive a Foreign Business Certificate via the BOI promotion as well as defined additional permits, for example for land ownership and for work permits. Ideal for machine builders is the TISO. Here, technical services of almost any kind are permitted, including the import and sale of machinery and equipment. The latter, however, is only permitted to distributors. One condition for this promotion is a detailed Business Plan, presenting the intended activities, the investments and the progress of the earnings. It is recommended to consult an Investment Advisor, e.g. SANET ASEAN ADVISORS, since the application process is rather demanding. Apart from that, you will find, for example, the International Procurement Office (IPO) or the International Business Center (IBC). The IPO enables import and even direct sales to industrial end customers. However, in requires a paid-in capital of 10 Mio. THB, a modern warehouse management system must be set up, the product range must meet certain requirements, and all traded goods must be intended for export. In return, the investor can expect to receive exemption from customs duties and even tax breaks for the management. The International Business Center (IBC) is designed to support affiliated companies, for example, through marketing campaigns, market research and outsourcing of services. Moreover, it is authorized to sell to distributors under acceptable conditions.
High equity or Foreign Business License (FBL)
Be careful about the Representative Office (RO)
The ban on trading goods only applies to foreign companies with a paid-up registered capital of less than THB 100 million (approx. EUR 2.6 million). Those who contribute this capital, however, are permitted to either sell to wholesalers or to (also industrial) end customers. Above 200 million THB of capital he is allowed to do both. But be aware: “Trading” means import and resale. “Drop shipment” on a commission basis might be considered an unauthorized service. Land ownership cannot be acquired with the capital either. There is also the option of applying for a Foreign Business License (FBL), with which specific activities on sales and services may be permitted. Applicants must demonstrate that the intended activity is of significant benefit to the development of the Thai Economy or Society. Application procedures with the Foreign Licensing Department of the Ministry of Commerce in Thailand can be lengthy and costly. The outcome is difficult to predict, not least because there are practically no well-defined criteria. In our experience, the chances of a successful application are well below 50%. Caution should also be exercised when it comes to Representative Offices (RO). Although such an office no longer requires a Business License, it is not permitted to engage in marketing activities others than publicize the companies’ goods, general market research, purchasing and quality control of purchased goods. Only already existing contractual importers may be supported in their trading and even supplied.