Bangkok-skyline-Thailand

As a tourist hot spot and sub-regional economic hub, Thailand is increasingly attractive to entrepreneurs and international businesses expanding into southeast Asia.

However, many parts of southeast Asia’s second-largest economy remain restricted from foreign control, so how can foreign businesses sell their products and services in Thailand?

Direct investment and the Foreign Business Act

The Foreign Business Act is a 1999 law that governs what businesses foreigners may establish and operate in Thailand. The Act restricts certain business sectors to being majority-owned by Thai nationals or by Thai-registered companies with majority Thai ownership. As a result, a Thai partner is often required to conduct commercial activities from within Thailand.

Foreigners can obtain special dispensation from Thailand’s Board of Investment in some circumstances and gain a licence to carry out a restricted business without the participation of Thai nationals.

Once a foreign business is legally established in Thailand, its profits are taxed at a rate of 20%. This rate applies to worldwide income for a company registered in Thailand, and only to Thailand-derived income for a branch registered in Thailand. Dividend payments to individuals or companies resident outside of Thailand are subject to an additional 10% withholding tax, as are branch profits remitted to the parent company.

Selling into Thailand from abroad

For businesses that want access to the Thai market without establishing local operations or a local company, it is possible to make cross-border sales to Thai customers without restriction. For example, an international web services provider may take Thai customers, or a foreign manufacturer can sell to Thai customers either directly or through a Thai wholesaler.

Thai withholding tax rules means that the cost of these cross-border transactions depends on the type of product or service being provided. Foreign consulting businesses will incur a withholding tax of 15% on technical services involving knowledge transfer. Royalties incur withholding tax at 10% and other sales are not subject to Thai tax at all.

Consequently, for many businesses able to take income from Thailand without the need to establish a real presence in the country, it is both simpler and more tax efficient to carry on operations from abroad. This means that your business can test the market and build profits before taking the time, effort and expense to enter Thailand more fully.

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