If you are a managing director of a private limited company in Thailand you may have decided to leave the task of dealing with your company’s legal, tax and accounting formalities to your firm’s in house lawyer and accountant or to outsource it to a law firm and an accounting office.

However, every director should be well aware that he personally has certain duties and liabilities to and on behalf of the company for which the law does not allow delegation. Note, a director is not the company’s owner—the owners are the shareholders. The director is merely the company’s agent who acts for and on behalf of the company. Therefore, the director has certain responsibilities to the company. Such responsibilities result in personal liability and the director may be held civilly liable if:

1) a director acts outside the scope of his authority granted from the company to the director. Company directors must only act for the company in the course of implementing and aiding the company’s objectives and must exercise due skill and care in doing so. The Civil and Commercial Code of Thailand (“CCC”) requires a company director to act as a reasonably and normally skilled businessperson would in acting for the company; and

2) the CCC also requires that a director may not put his interests ahead of the company’s. The interest of the company must always take precedence over the director’s other interests, including a director’s personal interests and other business interests (if any). Thus, for example, a director may not enter into an agreement such as a lease or a loan agreement on behalf of the company and himself personally without the consent from shareholders.

If the director violates any of these example duties, which result in damage to the company, then the director may be held civilly liable for such monetary damage by the company/shareholders.

However, it does not end there. In Thailand, unlike many other jurisdictions, a company director cannot only be held civilly liable for his actions as a director but also may be held criminally liable for such. At DUENSING KIPPEN’s most recent count, there are over 90 different laws providing for a director’s personal criminal liability for acts or omissions on behalf of the company. And many of these laws provide for multiple counts of such criminal liabilities.

For example, under the Determining Offenses Relating to the Registered Partnership, Limited Partnership, Limited Company, Association, and Foundation Act a director may face even higher fines than the company as well as time in prison for such acts. These acts include failures on the part of company to comply with the requirements of the CCC, for example:

1) the CCC requires a company to keep a register of shareholders at the company’s registered office. If the company does not have and properly maintain such a register, the company’s director is liable for a fine of up to THB 50,000; and

2) the director may also be liable for a fine of THB 50,000 if the company moves to a new address without giving proper notice to the Ministry of Commerce; and

3) the same liability is also applicable if the company did not hold its requisite annual general shareholders’ meeting; and

4) if the director failed to issue the legally required notice; and

5) if the company’s shares are not properly and actually paid up, its directors may be held liable for a fine of up to THB 50,000; it is therefore not enough to simply register the company as, for example, a THB 2 M company so that director can obtain a work permit and then leave the matter unattended; and

6) a director is obliged to:

a) submit a proper annual audit to the Ministry of Commerce; and

b) keep all minutes and resolutions of the director’s board and shareholders’ meetings in at the company’s registered office address; and

a director may be not only fined but also imprisoned for up to seven years if the director is found to have entered any false statement or made any material omission from in 6(a);(b) above.

In this article we have pointed out that a director of a Thai company has personal liability for his acts or omissions under several different relevant laws. Please note, the examples of this which we give above are only a very few of the most general legal liabilities applicable to all directors—there are a multitude of others. Furthermore, there are many other such liabilities, which may be applicable to a director depending on the type of activity in which the director’s company engages. Thus, it highly advisable that a director be aware on all of legal liabilities applicable to them so that he may exercise proper caution to avoid incurring any such personal liability.

___________________________________________________________________________________________________

DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and over 100 affiliated offices in more than 50 other countries. Visit them at: duensingkippen.com

Do you think that you can make decision in your company without other shareholders?  First of all it is important to note that the Thai Civil and Commercial Code (“CCC”) Section 1237(4) requires every private Thai limited to maintain at least 3 shareholders or risk court ordered dissolution of the company.

Perhaps in your case, however, you structured your company in a way that you have the majority of the voting rights in your company. Therefore, you ensured that the other shareholders cannot outvote you in shareholders’ meetings. You might now believe that you are able to take any decision in your company without the necessity to consult other shareholders. However, in order for the shareholders to vote the CCC requires that they meet. Thus, what are the requirements for a shareholders’ meeting?

In order to hold a legally proper shareholders’ meeting an invitation to all shareholders must be sent by registered post at least seven days before the meeting and also by publishing the invitation in a local newspaper at least seven days before the meeting.  The invitation must include a description of the subject matter(s) of the meeting e.g. resolution(s) to be considered and voted on unless the meeting is to consider a “special resolution” in which case the invitation must be sent and published at least fourteen days before the meeting. Special resolutions concern matters which generally require a higher majority vote to pass and are matters defined by Thai law and in some case also the “articles of association”  the internal rules of the company itself.

After having performed in accordance with the above mentioned regulations, however,  what happens if on the day of the scheduled meeting, no other shareholder shows up; only you, with your voting majority rights, attends the shareholders’ meeting. Obviously you hold the majority of the voting rights, but is that enough to constitute conduct a legal shareholder’s meeting?

The first hurdle is the quorum requirement. Under CCC Section 1178, at least 25% of the CAPITAL has to be represented to form such quorum.  Let’s assume that you actually own more than this 25%.  Can you then hold that shareholders’ meeting by yourself? Remember, in our hypothetical, you own more than 25% of the capital of the company and you also have the majority of the voting rights. Interestingly, in 1965 the Council of State has issued a legal opinion on this very issue. It discussed the term “meeting” and its meaning.  The Council of State argued:

“Regarding the word “meeting”, its definition under general understanding means an assembly or conference of persons to discuss certain issues. With reference to  Thai Dictionary of The Royal Institute, it provides the meaning of the word that “comes together, assembly of persons, discussing together, and gathering”. Therefore, it is deemed that a meeting for any matters whatsoever means gathering of two persons or more to discuss. If there is only one person, it is not the meeting.”

The Council of State further argues that the actual purpose of a shareholders’ meeting is to have a discussion between the shareholders. Only a meeting between at least two individuals would enable such discussion. Therefore, according to the Council of State at least two individuals are required to constitute a meeting in accordance with the “spirit of the law”. Whether a Thai court would concur with this legal opinion is not entirely clear.  In any event, in light of such opinion, if you wish to be certain that your shareholders’ meeting is lawful, it would be advisable to be sure to have at least two shareholders’ in attendance at any formal meeting.

___________________________________________________________________________________________________DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and over 100 affiliated offices in more than 50 other countries. Visit them at: duensingkippen.com

The Foreign Business Act (1999) of Thailand (the “Act“) generally restricts foreigners from engaging in most business activities in Thailand, without special permission as provided by the Act. Serious violations of the Act by a foreigner or facilitated by a Thai carry significant criminal penalties. In the case of a Thai limited company, Section 4 of the Act provides that if fifty percent or more of its share capital is owned by a non-Thai, then that company is a “foreigner” for purposes of the Act. This means that if a foreigner wishes to conduct business in Thailand in compliance with the Act, the foreigner generally must find a Thai willing to actually invest in and own more than half of the company. This can be a significant impediment to a foreigner wishing to conduct lawful business in Thailand.

However, Section 10 of the Act does provide for a significant exception to its restrictions on business by foreigners in Thailand. Such exception is for foreigners whose country is a party to a treaty that outlines that each party’s citizens may operate businesses in each other party’s country under the same conditions as their own citizens. Currently, Thailand has such a bilateral treaty only with the United States. Under the Treaty of Amity and Economic Relations between the United States and Thailand (1968)(the “Treaty“) citizens of the United States and of Thailand are granted reciprocal national treatment with regard to, among other things, ownership of businesses in the other’s country. Thus, a Thai company of which fifty percent or more of the share capital is majority American owned, a majority of the directors are also American and which further obtains formal permission pursuant to the Treaty (herein after referred to as an “Amity Company“) is permitted, without any Thai ownership or management, to engage in virtually any business activity in Thailand in which a Thai majority owned company is permitted to engage.

In order a Thai limited company to qualify as an Amity Company it must meet the following conditions:

(1) more than half of company’s capital is held by an American(s);

(2) more than half of the company’s shareholders are Americans or American and Thai;

(3) more than half of the authorized directors of the company are American(s) or Thai(s); and if

(4) the authorized director is from a third country, he must be required to jointly act for the company with another authorized director who is either American or Thai.

_______________________________________________________________________________________________

DUENSING KIPPEN is a multi-service law firm specializing in all Thailand inbound investment and outbound divestment transactional matters, as well as, dispute resolution by litigation proceedings and international arbitration. As a member of the International Alliance of Law Firms, with 63 member firms and 100 offices in 45 countries, DUENSING KIPPEN is able to provide its clients with high quality cost effective legal services worldwide. DUENSING KIPPEN can be reached at: contact@duensingkippen.com or for more information visit them at: duensingkippen.com

Since 1971, the EU’s Generalized System of Preferences (GSP) allows developing countries easier market access to the European Union through tariff reductions. It is a unilateral measure by the EU and there is no expectation or requirement that this access is reciprocated by the countries concerned.

Thailand is one of the beneficiaries of the GSP.

With the latest reform of the GSP being applicable from January 1, 2014, out of the 172 counties previously eligible for the GSP, the following will not continue to be the recipient of GSP benefits:

• 33 overseas countries and territories of the EU Member States,

• 20 high and upper middle income countries as classified by the World Bank during three consecutive years, based on Gross National Income (GNI) per capita, and

• 34 countries with a preferential trade agreement (FTAs –with two years of transition to allow for adjustment to the new regime) or a special autonomous trade regime.

Thailand is still on the list of countries receiving the GSP benefits for the year 2014. Beginning January 1, 2015, however, China, Ecuador, Maldives and Thailand will be excluded from GSP benefits, as they have been classified by the World Bank as upper-middle-income countries. Their exports will then enter the EU with a normal tariff applicable to all other developed countries.

It was expected that at the time of removal of the GSP benefits for Thailand, the EU and Thailand would already have concluded a Free Trade Agreement (FTA). Taking the current political struggle into consideration, it seems to be a goal that will not be achieved on time. The impact of that failure on Thai businesses can not be underestimated.

New personal income tax provisions for 2013

2012 saw the beginning of a significant reduction of the corporate income tax in Thailand. The long established 30% rate was reduced to 23% in the year 2012 and further 20% in the year 2013. Now, for 2013, did the Thai government decide to also reduce the personal income tax for Thai tax residents.

 The old rates applicable for the year 2012 are:

The new system creates more tax brackets and further reduces the tax rates for certain tax brackets. The new rates for 2013 are as follows:

In addition to the implementation of the abovementined new tax rates, the government was forced to apply a ruling of the constitutional court. Previously it was required for married couples to combine the income of husband and wife for personal income tax purposes. Such regulation was considered unconstitutional. It was ruled that husband and wife should be able to file their taxes separately.

 For income sourced from employment the married couple can now choose to file their tax return jointly or separately. Please note that in case of a separate tax filing both remain liable for unpaid taxes of the other spouse.

Under the Revenue Code of Thailand (“RC”) the corporate income tax rate (“CITR”) on profit for Thai companies is 30%. However, pursuant to Title I, Section 3(1) of the RC, this rate may be reduced for some or all such companies if the Prime Minister’s Cabinet issues a Royal Decree (“RD”) to such effect.

On 14 December 2011 the Cabinet issued RD 530. As a result, the CITR for “small to medium enterprise companies (“SMEs”, currently defined as any company with a capitalization of not more than THB 5,000,000 on the final day of the tax year and which company does not have income exceeding THB 30,000,000 in that same tax year) is now as follows:

(1) exempted on net profit up to THB 150,000 for all of the following tax years which begin on or after 1 January 2012;

(2) 15% on net profit from THB 150,001 up to THB 1,000,000 for all of the following tax years, which begin on or after 1 January 2012;

(3) 23% on net profit of THB 1,000,0001 or more for the tax year, which begins on or after 1 January 2012; and

(4) 20% on net profit of THB 1,000,0001 or more for all of the following tax years, which begin on or after 1 January 2013.

It should also be noted that a further CITR reduction by way of exempting net profits up to THB 300,000 was later provide by RD 564 and applies to all tax years, which begin on or after 1 January 2013.

RD 530 also provided that the CITR for all companies–including those that are listed on the Stock Exchange of Thailand (“SET”) (*but not including those which are listed on the SET’s Market for Alternative Investment (“MAI”)) for the three consecutive accounting periods would be:

(1) 23% on net profit for the tax year which begins on or after 1 January 2012; and

(2) 20% on net profit for the following two tax years, which begin on or after 1 January 2013.

*the CITR for the companies that are listed on the MAI on the SET remains 20% per the prior RD 467.

These CITR reductions are clearly welcomed by those investing and doing business in Thailand. However, it should be noted that although the CITR reductions for SMEs are “permanent”, they are not so for all other (non-MAI listed) companies. It is unclear, if it is “planned” to extend or even increase these reductions after the expiration of the reductions when they expire after fiscal tax-year 2014.

If a non-Thai person wants to to live and work in Thailand he must obtain a work permit. Thailand regulates work permits through the Working of Aliens Act (“Act”). The definition of “working” under the Act is very broad. It is defined as “engaging in work by exerting energy or using knowledge whether or not in consideration of wages or other benefit”.

In order to obtain a work permit, the applicant must at least:

(1) “have a place of residence in Thailand or have been permitted entry into Thailand for temporary stay under the law on immigration but not as tourist or in transit; [and] (2) not be disqualified or prohibited under the conditions prescribed by the Minister as published in the Government Gazette.”

This means that the applicant must have an immigration visa in order to apply for and receive a work permit. This visa must not be a tourist visa. The common visa used to support a work permit in Thailand is a “non-immigrant B (i.e. “Business”) visa”. Application for such a visa must be made to and received from a Thai embassy or consulate–obviously, outside of Thailand.

The Act prohibits non-Thais from engaging in — what are currently thirty-nine — specific occupations. Permission to do such work will not be granted. Other occupations are open to non-Thais; however, the work performed by any non-Thai must be strictly limited to the activities and conditions to conduct such activities, including the specific work location (although an additional location(s) may be included or later added on a showing of good cause).

*Please note that the upcoming economic integration of the Association of South East Asian Nations (ASEAN) Economic Community will not change the requirement for obtaining a work permit in Thailand. However, it is expected that, in order to enable the “free flow of skilled labour” (a primary goal of this integration), the requirements and process to apply for a work permit (and any renewals thereof) in Thailand. And that, as a result, Thailand may well become more non-Thai worker friendly for ASEAN workers if not all non-Thai workers.

Thailand created the Board of Investment (“BOI”) to support foreign investment into Thailand. The Investment Promotion Act (“IPA”) regulates the promotions provided for certain businesses in Thailand. They consist of tax and non-tax incentives, depending on the category of investment.

Non-tax incentives include:

• permission for foreign nationals to enter Thailand for the purpose of studying investment opportunities;

• permission to bring into bring skilled workers and experts to Thailand to work in investment promoted activities;

• permission to own land; and

• permission to send money from Thailand in foreign currency.

Tax incentives include:

• exemptions from or reductions of import duties on machinery;

• reduction of import duties for raw or essential materials;

• exemptions from corporate income tax and dividends;

• a fifty percent reduction of corporate income tax;

• double deductions for transportation, electricity and water supply expenses;

• an additional twenty-five percent deduction for installation or construction of facilities expenses; and

• exemptions from import duties on raw or essential materials for use in production of exports.

These incentives are also generally subject to certain conditions, such as: minimum capitalization of the investor company and the company maintaining a 3:1 debt to equity ratio, as well as, the investment activity providing desirable training and knowledge transfer to Thai nationals.

_______________________________________________________________________________________________

DUENSING KIPPEN is a multi-service law firm specializing in all Thailand inbound investment and outbound divestment transactional matters, as well as, dispute resolution by litigation proceedings and international arbitration. DUENISING KIPPEN is the only firm in Thailand whose attorneys include three MCIArb internationally certified arbitrators. And, as a member of the International Alliance of Law Firms, with 63 member firms and 100 offices in 45 countries, DUENSING KIPPEN is able to provide its clients with high quality cost effective legal services worldwide. DUENSING KIPPEN can be reached at: contact@duensingkippen.com or for more information visit them at: duensingkippen.com

In 1999 Thailand enacted the Foreign Business Act (“FBA”), which regulates business by foreigners in Thailand. [It should be noted that certain business activities, for example banking, insurance and telecommunication are regulated–and generally more stringently–by legislation specific to them.] Three “negative lists” annexed to the FBA group businesses restricted to foreigners:

Annex one lists “businesses not permitted to be operated by aliens for special reasons”. Foreigners are strictly prohibited from majority ownership of businesses engaging in these activities.

Annex two lists business activities that relate to “national safety or security, or affecting arts, culture, tradition, local handicrafts or natural resources and environment.” These may be majority owned by a foreigner, but require approval of the Prime Minister’s Cabinet. As far as we are aware, no such approval has ever been granted.

Annex three, lists “businesses in which Thai nationals are not yet ready to compete with aliens.” Foreigners may own and operate these businesses if they obtain a license or certification to do so from the Ministry of Commerce. Annex three is quite extensive and includes most common business activities.

In sum, there are very few business activities that are not covered by the FBA, manufacturing and exporting being two of the notable very rare exceptions.

The FBA defines a non-Thai as:

“(1) a foreigner natural person;
(2) a juristic person not registered in Thailand;
(3) a juristic person registered in Thailand and having the following characteristics:
(a) a juristic person at least one-half of whose share capital is held by persons under (1) or (2), or a juristic person at least one-half of whose total amount of capital is invested by persons under (1) or (2);
(b) a limited partnership or a registered ordinary partnership whose managing partner or manager is a person under (1).
(4) A juristic person registered in Thailand at least one-half of whose share capital is held by persons under (1), (2) or (3), or a juristic person at least one-half of whose total amount of capital is invested by persons under (1), (2) or (3).
For the purpose of this definition, shares of a private limited company that has bearer certificates shall be regarded as shares of aliens, unless otherwise provided by ministerial regulations.”

It is also very important to note that it is illegal under the FBA for both the Thai and foreigner benefiting therefrom, for any Thai to be “nominee” (in other words, in name only and not actual) shareholder. Section 36 of the FBA states:

“A Thai national or a juristic person who is not an alien under this Act who assists, supports or jointly engages in a business prescribed in the Annexes belonging to an alien and in which business the alien is not permitted to engage, or jointly engages in the business of an alien by showing that the person is the sole owner of the business, or holds shares on behalf of an alien in any partnership or private limited company or any juristic person so that the alien can evade or violate the provisions prescribed in this Act, including an alien who allows a Thai national or a juristic person which is not an alien under this Act to conduct such acts, shall be punished by imprisonment for not more than three years or a fine from Baht one hundred thousand to Baht one million or both, and the Court shall order the termination of the assistance or support, or the termination of the joint business operation, or the termination of the holding of shares or being a partner in the partnership, as the case may be. If the alien violates the Court’s order, the alien shall be liable to a fine from Baht ten thousand to Baht fifty thousand per day throughout the violation period.”

But there are several exceptions of this stringent rule. For example, specific countries–such as the United States, Australia and Japan–are allowed certain exceptions to FBA under treaties with Thailand. Furthermore, there are also exceptions to these foreign ownership restrictions available to all nationalities under investment promotion legislation in Thailand.

_______________________________________________________________________________________________

DUENSING KIPPEN is a multi-service law firm specializing in all Thailand inbound investment and outbound divestment transactional matters, as well as, dispute resolution by litigation proceedings and international arbitration. As a member of the International Alliance of Law Firms, with 63 member firms and 100 offices in 45 countries, DUENSING KIPPEN is able to provide its clients with high quality cost effective legal services worldwide. DUENSING KIPPEN can be reached at: contact@duensingkippen.com or for more information visit them at: duensingkippen.com

A “private company limited” is a “juristic person”, which means it is a fictional “person” in the send that the law assigns to it most of the rights and obligations that a natural person has (the exceptions being those which the law considers only a natural person can have).  It is the most common way for foreigners do business and invest in Thailand.

A minimum of three natural persons is required to “promote and form” a private company limited. These “promoters” will then become the first shareholders of the company. And a private company limited is required to maintain at least a minimum of three shareholders at all times. Each share must represent at least a minimum investment of five Thai Baht. Thus, the minimum theoretical share capital of a private company limited is fifteen Thai Baht.

The law requires that a private company limited be managed by on or more “directors”. The directors are not required to be a shareholder of the company but, unlike many jurisdictions, Thai law requires that all directors be natural persons.  Unless otherwise prohibited by laws regulating some businesses, the director may be a non-Thai and is not required to reside in Thailand.

There are several reasons why this so but perhaps the main reason is the same reason that such an business entity is so popular worldwide–the limitation of investor liability to the amount of capital contributed to the company. This is where the word “limited” (abbreviated to “LTD”) in the name originates.

A private company limited is subject to corporate income tax. A private company limited is also required to collect “value added tax” on the goods or services it provides (if its initial annual income from the business exceeds Thai Baht 1,800,000). In some instance the company may be required to collect a “specific business tax” rather than the value added tax. And the company is required to withhold tax various percentages of tax and remit them on behalf of certain services the company pays for.

As a general rule, non-Thais may own up to 49% of the share capital of the company and may have a majority of non-Thai shareholders. However, there are certain business activities, which require a lower non-Thai shareholding percentage as well as an equal or majority of Thai shareholders. On the other hand, there are notable exceptions to this which all allow for 100% foreign shareholding of a private company limited.

_______________________________________________________________________________________________

DUENSING KIPPEN is a multi-service law firm specializing in all Thailand inbound investment and outbound divestment transactional matters, as well as, dispute resolution by litigation proceedings and international arbitration. DUENISING KIPPEN is the only firm in Thailand whose attorneys include three MCIArb internationally certified arbitrators. And, as a member of the International Alliance of Law Firms, with 63 member firms and 100 offices in 45 countries, DUENSING KIPPEN is able to provide its clients with high quality cost effective legal services worldwide. DUENSING KIPPEN can be reached at: contact@duensingkippen.com or for more information visit them at: duensingkippen.com