As a gateway to Southern Thailand, Phuket also plays a vital role in regional trade and tourism. Government initiatives to elevate Phuket’s infrastructure and integrate it with broader economic goals enhance its appeal as a strategic investment hub in Southeast Asia.
Starting a business in Phuket offers access to a dynamic and fast-growing market in a popular tourist hub. However, the company registration process for foreign investors involves distinct steps and requirements. This article aims to provide an overview of the key procedures for establishing a business in Phuket.
LEGAL CONSIDERATIONS FOR FOREIGN OWNERSHIP
Foreign investors considering business opportunities in Phuket should be aware that Thailand has strict regulations regarding foreign ownership. Thailand’s regulations on foreign investment are governed by the Foreign Business Act (FBA) of 1999, which outlines restrictions on foreign ownership across various industries to protect local businesses and preserve national economic interests.
The FBA divides business activities into three lists, each with different degrees of restriction on foreign ownership:
- List 1 prohibits foreign participation entirely in sectors deemed essential to Thai identity and security, such as agriculture, media, and cultural heritage. Foreign ownership in these areas is not permitted.
- List 2 generally requires at least 40% Thai ownership for foreign investment in sectors critical to national security and cultural preservation, including natural resource management and specific manufacturing industries. However, in special cases, the Ministry of Commerce, with Cabinet approval, may reduce the Thai ownership requirement to 25%, provided that at least two-fifths (2/5) of the company’s directors are Thai nationals.
- List 3 restricts foreign ownership in industries where Thai nationals can compete effectively, such as retail, real estate and certain service sectors. Foreigners can operate in these areas but must obtain a Foreign Business License (FBL) from the Department of Business Development (DBD) and comply with Thai ownership requirements.
Foreign investors in List 3 sectors must obtain a Foreign Business License (FBL) to exceed the 49% ownership limit. The application process requires a detailed business plan, financial forecasts, and an outline of the business’s economic benefits to Thailand. Key considerations for approval include:
- Economic Contribution: The business impact on local job creation, technology transfer, and infrastructure.
- Local Competition: Whether the business will directly compete with or disrupt Thai companies.
- Industry-Specific Compliance: Certain sectors may require additional environmental or health assessments.
COMMON BUSINESS STRUCTURES IN THAILAND
Selecting the right business structure is essential for foreign investors entering Thailand, as each option has specific regulatory, ownership and operational requirements:
- Limited Liability Company (LLC): This is the most popular choice for foreign investors, offering limited liability protection. LLCs typically require three shareholders and cap foreign ownership at 49% unless permitted by a foreign business license (FBL) or BOI promotion.
- Representative Office: This type of office is suitable for non-revenue-generating activities such as market research or local support. Although representative offices cannot conduct sales, they provide a low-risk entry point for exploratory business phases.
- Branch Office: This allows foreign companies to conduct revenue-generating activities but is not a separate legal entity, with liabilities borne by the parent company. Branch Offices need a foreign business license in restricted sectors and are generally used for specific projects.
- Joint Venture (JV): Often used to navigate foreign ownership limits by partnering with Thai entities. JVs can be contractual arrangements or joint LLCs and may sometimes qualify for BOI promotion.
- Public Limited Company (PLC): Ideal for larger businesses looking to raise capital through public share offerings. PLCs are subject to stricter compliance and reporting and are suited for capital-intensive projects and long-term growth.
REQUIREMENTS FOR COMPANY REGISTRATION
Registering a company in Phuket requires careful planning to ensure compliance with Thai regulations. Foreign investors have two main pathways to establishing a business within the requirements of Thai laws:
- 100% Foreign Ownership: Companies seeking full foreign ownership must first apply for a Foreign Business License (FBL) or Board of Investment (BOI) promotion before setting up their business. These options allow foreign investors to operate in restricted sectors with specific conditions, such as tax incentives or ownership waivers granted by the BOI.
- Limited Liability Company (LLC): Alternatively, investors can set up an LLC with Thai partners, adhering to the standard 51-49% ownership structure. This process involves reserving a company name through the Department of Business Development (DBD), preparing a Memorandum of Association (MOA) with essential company details, and holding a statutory meeting to formalise governance by adopting the MOA and Articles of Association (AOA), appointing directors, and finalising the share structure. The completed registration must then be submitted to the DBD within three months.
VAT registration is mandatory only for companies with annual revenue exceeding B1.8 million or those operating in sectors subject to VAT, excluding exempt activities like selling fertilisers or books. Employers hiring staff must also register with the Social Security Office (SSO) within 30 days of their first hire to ensure compliance with labour laws and provide employee benefits.
Certain businesses may require additional permits based on their activities, such as food licences for restaurants or hotel permits for hospitality operations. Maintaining compliance involves accurate record-keeping, annual financial statements, and adherence to corporate governance standards.
BOI PROMOTION AND INCENTIVES
For foreign investors in Phuket, Thailand’s Board of Investment (BOI) offers an attractive pathway to establish and grow businesses with incentives tailored to Thailand’s economic goals. Phuket’s strong tourism and commercial hub appeal makes it ideal for investments in critical sectors such as hospitality, real estate, technology and healthcare.
BOI incentives enhance cost efficiency and operational flexibility. They include up to eight years of corporate income tax exemptions, import duty waivers on essential materials, and total foreign ownership in specific sectors, bypassing the usual 49% limit. These incentives and streamlined visa and work permit processes make it easier for foreign investors to bring in skilled international talent, especially in luxury hospitality, real estate and healthcare.
The BOI promotes activities in agriculture, biotechnology, and digital industries. The minimum investment requirement is B1mn, excluding land and working capital costs. Projects must also meet environmental and safety standards; some may require Thai shareholding in sensitive areas.
Phuket’s economy aligns well with BOI’s priority sectors, supporting opportunities in:
- Tourism and Hospitality: Incentives for luxury resorts, branded residences, and sustainable tourism.
- Healthcare: Support for high-quality healthcare facilities and wellness centers.
- Real Estate: BOI benefits for high-end, sustainable developments.
- Technology: Promotion of tech innovations in property management, hospitality, and renewable energy.
BOI applications are submitted via the e-Investment platform and reviewed based on the business’s economic impact, technology transfer, and job creation. Approval times are 40 to 90 working days. Compliance is required through regular reporting and adherence to BOI conditions to maintain these incentives.
Investing in Phuket comes with specific complexities that foreign investors must navigate carefully. Understanding Thailand’s foreign ownership and other business regulations is essential. Conducting comprehensive due diligence helps ensure that business permits and operational requirements are met and that all legal documents are in order.
Moreover, having Thai-speaking legal experts who understand local laws is invaluable throughout the formation process, as they can assist with navigating local regulations, managing language barriers, and ensuring that all necessary documents are prepared accurately.
By Andrey Makov
Disclaimer: Silk Legal provides professional services in company formation, including BOI and EEC concessions. This article is for informational purposes only and should not be construed as legal advice and/or facts. Always consult a qualified legal professional before engaging in commercial activities or investing in Thailand. For more information email info@silklegal.com.