Starting a business in Thailand offers tremendous opportunities, but navigating the legal landscape can be challenging, especially for foreigners. Many international entrepreneurs encounter common legal pitfalls that can delay or derail their business ventures. Here, we outline the top legal mistakes foreigners often make when starting a business in Thailand—and how you can avoid them.
1. Not Understanding the Foreign Business Act (FBA)
The “Foreign Business Act (FBA)” is one of the most important laws that foreigners must be familiar with when starting a business in Thailand. The FBA restricts foreign ownership in certain types of businesses and classifies industries into three categories:
- List 1: Businesses that are completely prohibited for foreign ownership.
- List 2: Industries related to national security, culture, natural resources, and traditional knowledge, where foreign participation is restricted. To engage in these sectors, foreigners must obtain approval from the Ministry of Commerce and Cabinet.
- List 3: Businesses where Thais are not yet ready to compete with foreigners. These require a foreign business license from the Director-General of the Department of Business Development.
Before setting up your company, it’s essential to determine whether your intended business activity falls under any of these restricted categories. If your business falls under List 2 or List 3, you may need to apply for a special permit or foreign business license.
Tip: If you want to retain full ownership of your business, consider applying for “Board of Investment (BOI)” privileges. The BOI allows for 100% foreign ownership in certain industries such as technology, manufacturing, and tourism, which are considered high-priority sectors for Thailand’s economic development.
2. Not Meeting the Minimum Capital Requirements
One of the most overlooked requirements for foreign businesses in Thailand is the minimum capital investment. Thailand requires foreign-owned businesses to have a minimum paid-up capital of 2 million THB in order to obtain a work permit for foreign employees. This capital must be fully paid up—not just pledged.
If your business operates in sectors listed under the FBA’s restricted lists, the capital requirement may be even higher.
Tip: For each additional foreign employee, you will need to increase your paid-up capital by an additional 3 million THB per employee. Planning your capital structure properly from the outset is crucial to avoid operational delays and complications with visa and work permit applications.
3. Improper Company Structure
A popular choice for foreign entrepreneurs in Thailand is the “Limited Company (บริษัทจำกัด)”. However, this legal structure comes with specific requirements. According to Thai law, a limited company must have at least two shareholders, and unless you have BOI privileges or other special approvals, at least one shareholder must be Thai.
Common Mistake: Some foreigners appoint “nominee” shareholders—individuals who hold shares on behalf of the foreigner to meet the legal requirements. This practice is “illegal under Thai law” and can result in severe legal consequences, including fines and criminal charges. Always use legitimate shareholders who play a real role in the business.
Ensure that your shareholders and directors understand their rights and responsibilities, including voting rights, profit-sharing, and potential liabilities, to avoid future disputes.
4. Ignoring Thai Labor Laws
Thailand’s labor laws are strict, particularly when it comes to employing foreign workers. You must comply with the “Alien Employment Act “, which regulates the jobs foreigners are permitted to perform in Thailand. Every foreign employee needs a valid work permit, and businesses must also adhere to Thai labor regulations, including minimum wages, working hours, and employee benefits.
Tip: Familiarize yourself with the “Thai Labor Protection Act” to ensure that your business complies with employment laws for both Thai and foreign employees. You should also be aware of the “Social Security Act” and the Workers’ Compensation Fund. Non-compliance can result in heavy penalties, fines, or even the shutdown of your business.
5. Neglecting Tax Planning
Tax planning is often an afterthought for new business owners in Thailand, but it is crucial to avoid unnecessary penalties. Foreign-owned companies are subject to “Corporate Income Tax (CIT) at 20%” of net profits. In addition, certain transactions may be subject to “withholding tax.”. If your annual revenue exceeds 1.8 million THB, you are required to register for VAT (Value Added Tax). Failing to do so can result in fines and backdated taxes.
Tip: Engage with a certified accountant early in the process to ensure proper tax compliance and planning. For expatriates, consider your “Personal Income Tax (PIT)” obligations and explore the benefits of international tax treaties to avoid double taxation. Proactively managing your tax responsibilities will help you avoid unexpected fines and ensure that your business remains in good standing with Thai tax authorities.
Start Your Business in Thailand the Right Way
Starting a business in Thailand can be a rewarding venture, but it requires careful planning and a solid understanding of the local legal environment. By avoiding these common legal pitfalls and working with a qualified legal team, you can set your business up for success and growth.
Our expert legal team is here to guide you through each step of the process, from compliance with the Foreign Business Act to tax planning and labor law compliance. We help you avoid costly mistakes so you can focus on growing your business.
Contact us today for a consultation and let our experienced business law attorneys assist you with your company setup in Thailand!