Primer to Legal Underpinnings of Courts and Thai Business Organizations

By John Formichella

john@fosrlaw.com

Thailand’s body of law is based on civil law principles and systems, although aspects of common law are incorporated by custom. For example, although judicial precedent does not apply as it does in common law countries, in practice Supreme Court decisions are considered highly persuasive and followed by the lower courts. 

Thailand’s civil and criminal court system is based around the Court of Justice, and incorporates the Supreme Court, the Courts of First Instance (which are located in all Provinces, and include the Specialized Courts in Bangkok), and the Court of Appeal. Regional Courts of Appeal hear cases from across Thailand and either endorse or revise the decisions of the lower courts. The Administrative Courts, meanwhile, settle disputes between the private sector, Government, and State agencies.

Alternative dispute resolution practices are a key component of the country’s legal system. After the 1987 Arbitration Law was amended in 2002, the Thai Arbitration Institute (“TAI”) became the Kingdom’s central arbitration body. Thailand was among the first to adopt the 1958 New York Convention on the Uniform Enforcement of Arbitral Awards. As a signatory, awards made in other signatories’ jurisdictions may be enforced in Thailand; foreign judicial judgments, however, may not be enforced as Thailand is not a party to a treaty to implement such enforcement, and a separate action will need to be initiated in this regard. However, not all is lost with a foreign judgement as foreign judgments may be used as evidence in Thai courts.

Business Organizations

There are several types of business organization in Thailand, with varying governance rules, and tax applications. Below is a brief description of the main types:

Public & Private Limited Companies

A Public Limited Company is formed in order to offer shares to the general public and is taxed as an individual juristic entity. Individual shareholders pay tax on their earnings, while foreign corporate shareholders pay tax on all dividends. Public limited companies must have a minimum of 15 persons.

A Private Limited Company, meanwhile, must have a minimum of 3 persons. Taxed as a juristic entity, capital is divided into equal par value shares.

Registered & Unregistered Ordinary Partnerships

In a Registered Ordinary Partnership, all particulars must be submitted to the Thai Ministry of Commerce, e.g. company objectives, partnership contracts, etc. Profits are subject to two levels of taxation, as individual profits are also deemed to be taxable.

In an Unregistered Ordinary Partnership, 2 or more persons conduct a business without being formally registered. Such partners are taxed as natural persons, but each needs to file their own personal tax return.

Branch & Representative Offices

A Branch Office conducts business on behalf of a parent company based abroad. Such company must remit a minimum of THB 3 million of working capital in Thailand. A Branch Office is considered a juristic person for tax purposes.

A Representative Office differs from a Branch Office in that it doesn’t engage in revenue-earning activities in Thailand; thus, no taxes are due, except in certain cases.

Joint Ventures & Sole Proprietorships

A Joint Venture is not considered a legal entity under Thailand’s Civil and Commercial Code. Any agreement between parties is valid only so long as it adheres to Thai law. Normally Joint Ventures are implemented via a Private Limited Company vehicle, and therefore income is subject to corporate tax.

Sole proprietors, meanwhile, can participate in any type of business activity, except those regulated by the Thai government. Taxation is calculated on a progressive personal tax rate.

Consideration under the Foreign Business Act

The Foreign Business Act (“FBA”) is a key law in the regulation of foreign business operations in Thailand. Indeed, for all foreign direct investment in Thailand, the FBA is a starting point of consideration. It imposes shareholding restrictions on a number of different types of business, which can be divided as follows:

• Businesses not permitted for foreigners to operate, e.g. certain types of media business (running a TV station, radio broadcasting), trading land, extracting Thai herbs, etc.;

• Businesses involving national security (including firearms maintenance and sales), businesses affecting natural resources or the environment, or arts and culture, and domestic land waterway or air transportation (including domestic airline businesses); and

• Businesses in which Thai nationals are not yet ready to compete, such as legal or accounting services, retailing where the total minimum capital is less than THB 100 million or where the minimum capital of each shop is less than THB 20 million, and wholesaling where the minimum capital of each shop is less than THB 100 million. Other types of business under this category include rice milling and flour production from rice and farm produce.

The last two types of business mentioned above are permitted for foreigners to operate on a case-by-case basis by the Ministry of Commerce.

According to the FBA, majority foreign ownership of a company means that non-Thai juristic persons and/or non-Thai nationals are the registered owners of more than 50% of a company’s share capital. Foreign ownership under the FBA is thus determined not by voting or dividend rights, but by share ownership.

Should foreign investors find the FBA an impediment to investing in Thailand, there are some exceptions to the FBA such as Thailand's Board of Investment, a Foreign Business License, or status under the Treaty of Amity and Economic Relations between Thailand and the United States. For more information on the Treaty of Amity, see the following:

http://johnformichellalegalbits.blogspot.com/2016/02/u.html

This article contains information in summary form and shall be understood as general information only. It is not to be understood as and is not to be relied upon as legal advice.

© 2015 John P. Formichella. All rights reserved.