Doing Business in Thailand

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Doing Business in Thailand Double ImpactShanker
Iyer Co24 May 2006
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AGENDA

• Overview of Thai political / economic situation
• Funding and foreign exchange
• Licences and government approvals
• Immigration issues for expatriates
• Singapore tax planning considerations
• Structures for investing in Thailand
• Reporting obligations
• Remitting profits

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Overview of Thai Political and Economic Situation
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REASONS FOR THE SNAP ELECTION

• Caused by Massive Street Protests
• Why the Opposition did not follow the
• advice of the Economist and Contest

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THE OVERALL RESULT

• NUMBER
• THAKSINS PARTY THAI LOVE THAI
• OTHER SMALL PARTIES
  ___________
• TOTAL SUPPORTERS 15,725
  54.2
• VOTERS WHO ABSTAINED THE NO VOTE
  9,559 33.0
• SPOILT BALLOTT PAPERS
  3,723 12.8
• ___________
• TOTAL OPPOSING THE PRIME MINISTER
  13,282 45.8
• ANALYSIS BASED ON THE PARTY LIST VOTE

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A PHENOMENAL RESULT

• Huge Support for Thaksin
• - despite him being certain to win
• A Massive No Vote
• - despite this being such a pointless
• thing to do

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WHERE THE PRO THAKSIN AND ANTI THAKSIN VOTE IS
DERIVED IN THE COUNTRY
THE SUPPORT
More than 60 Support
More than 50 Support
THE OPPOSITION
Less than 50 Support
Less than 30 Support
Bangkok
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SUMMARY OF SUPPORT BY REGION
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WHY DID HE TEMPORARILY STEP DOWN?

• Technically Parliament cannot convene
• without full result
• Difficulty Governing when the Middle Class
• hate you
• Election Tainted by Improper Practices
• The Monarchy had some influence?

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THAKSIN THAILAND COMPARED TO SINGAPORE
MALAYSIA MODEL

• Ruling party owned by one businessman
• No coherent political or economic philosophy
• No fears that bind people behind the ruling
  party
• Thaksin does not hide the business - political
• connection
• Democracy already well entrenched in some areas

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THAKSIN SUCCESSES

• Acquire the Media - Successful
• Brought in other Politicians - Successful
• Appoint supporters to the Independent Agencies
  Partially Successful

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Complete Success
The Senate Electoral Commission Anti Money
Laundering Organization
Partial Success
The Military The Police The Constitutional
Court The Auditor General
No Success So Far
The Supreme Court and Judicial System Generally
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THAKSIN SUCCESSES CONTD

• Acquire the Media - Successful
• Brought in other Politicians - Successful
• Appoint supporters to the Independent Agencies
  Partially Successful

• Voter Loyalty Acquisition Very
• Successful

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VOTER LOYALTY ACQUISITION THE SUCCESSES

• Centralised Schemes funding large MP
• expenditure budgets
• Village Funds
• Debt Relief
• Sue all who criticise (for SD 5 mn upwards)
• Favour areas that vote the right way
• Some great policies and marketing e.g. 30 Baht
  Health
• Scheme

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RECENT DEVELOPMENTS

• The Kings encouragement for the Courts
• to take an active role
• Election has been nullified
• Election Commissioners will likely be
• compelled to resign

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WHAT HAPPENS NEXT ?

• Thaksin wins the election and becomes Prime
  Minister
• Thaksins Party win the election without him
• Opposition Coalition wins the election
• Thaksins party is disqualified and many smaller
  parties
• win seats No overall Control
• Military make a move in Alliance with some other
  Groups
• e.g. to support the Courts
• Yes Anything can happen

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THE ECONOMIC POSITIVES FROM 5 YEARS OF THAKSIN

• Economy turned around faster

• but the risks of collapse are higher
  

• Decisions are being taken much more quickly

• but they have to be his decisions

Perception does not perhaps accord with Reality.
It is worth noting

• Stockmarket has not performed in 5 years

• Privatisation of State Enterprises has failed

• Spending on Important Infrastructure is not
  happening
• Not a funding priority

• Competitiveness Index World Ranking Down from
  27 to 32

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THE POLITICAL POSITIVES FROM THAKSIN

• Political Accountability Two Party
• Politics
• Communication of Policies to Voters

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ECONOMIC PERSPECTIVE FOR THAILAND

• No noticeable result on the Economy from the
• Political Impasse. Why?

• Confidence that Thailand will solve its
• problems
• Government still functioning well but in a
• more apolitical way seems to be a benefit
• The Foreign Business Community is very
• large and seen as a Guarantor of Stability
  
  

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THAILANDS ADVANTAGES AS AN OPERATIONAL HUB FOR
ASIA

• Communication Links to South East Asia and Asia
  Excellent
• Relatively low cost living Foreigners enjoy
  living there but
• you will probably need some of them in your
  business
• A 70 mn market on your doorstep you need to be
  there
• anyway 13th largest market (Nos of
  Consumers) and
• largest of economically active people in
  the World
• Relatively low cost of Establishment
• Excellent Manufacturing Support Industries
• Creativity in Marketing and Advertising

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THAILAND COMPLEMENTS SINGAPORE

• THAILAND IS WEAK WHERE SINGAPORE IS STRONG
• Foreign Exchange Control Presents Unnecessary
• Difficulty
• Tax System not designed for a regional role
• Poor Quality of English (Still) and Education
  Generally
• Concern about enforcing Intellectual Property
  Rights
• Unclear legal structures

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OUTLOOK FOR THE ECONOMY

• Medium Term Economic Growth Rate likely to be
• 5-6 - Best in Asean
• Thailand as the Best location for the Second
  Place
• to Manufacture in Asia after China
• Phenomenal Success of the Motor Industry
• Success in Manufacturing Industry and Support
• Operations generally. Thai companies are
  one
• of the best in the world in terms of
  understanding
• customer satisfaction

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Funding issues and foreign exchange
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INWARD REMITTANCE

• Unlimited amounts
• 7 days conversion to Thai Baht
• Authorised banks and authorised companies in
  Thailand
• No thin capitalisation rules
• Impact on work permits for foreigners

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OUTWARD REMITTANCE

• Without permission of the Exchange Control Office
• Up to THB 500,000 (S20,000) per trip into
  countries bordering Thailand
• Up to THB 50,000 per trip into other countries
• Banks are authorised to approve certain foreign
  exchange transactions

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Licences and government approvals
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ALIEN BUSINESS LAW

• Restriction on foreigners on paper severe
• Class A Completely closed Professions and
  farming
• Class B Closed unless BOI approval and include
  retailing and transport
• Class C Closed except with special permission
• In practice BOI approvals very prevalent.
  Shareholder structures usually do the trick

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Immigration issues for expatriates
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COMPANYS CAPITAL REQUIREMENT FOR EVERY WORK
PERMIT

• For Thai entity - THB 2 million (S80,000)
  paid-up capital
• 4 to 1 Thai / Foreigner ratio
• Board of Investment (BOI) and Regional Operating
  Headquarters (ROH) can however give unlimited
  work permits

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Structures for investing in Thailand
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TYPES OF BUSINESS

• Thai company
• Branch Office of a foreign company
• Representative and Regional Office limited to
  liaison and preparatory activities

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Taxes and reporting obligations
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THAI COMPANY TAX

• General Rate 30 on net profits
• Special Rates for SMEs (ltpaid up share capital of
  5 million Baht / S200,000)
• 15 lt 1 million Baht / S40,000
• 25 gt1 - 3 million Baht / S120,000
• 30 gt 3 million Baht

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HELP TO FOREIGNERS DOING BUSINESS IN THAILAND

• Tax breaks / tax incentives
• BOI
• VAT
• Corporate
• ROH

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ACTIVITIES ELIGIBLE FOR BOI

• Agriculture and Agricultural Products
• Mining, Ceramics and Basic Metals
• Light Industry
• Metal Products, Machinery and Transport Equipment
• Electronic Industry and Electronic Appliances
• Chemicals, Paper and Plastics
• Services and Public Utilities

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IMPORT DUTY PRIVILEGES
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BASIC ZONE CORPORATE INCOME TAX EXEMPTIONS
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ROH INCENTIVE

• Corporate income tax rate 10
• Qualified services
• Royalties paid
• Interest on loans to ROH branches or associated
  enterprises
• Tax exemption for dividends from ROH branches /
  associated enterprises
• 15 tax for expats for 2 years

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ROH CRITERIA

• May be majority / wholly foreign owned
• Paid up capital THB10 million / S400,000
• managerial, technical, administrative, or
  prescribed support services
• Services to at least 3 countries

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Remittance of profits and practical issues
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WITHHOLDING TAX ON REMITTANCES
Management 0
Royalty - 15
Interest 15
Dividends - 10
Commission 0
Director fees 15
Domestic rates are lower than maximum WHT rates
provided for under the Singapore / Thailand
DTA Net benefit due to Thai corporate tax rate of
30
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TAX TREATIES WITH THAILAND

• Currently, 50 countries
• Armenia, Australia, Austria, Bangladesh,
  Bahrain, Belgium, Bulgaria, Canada, China P.R.,
  Cyprus, Czech Republic, Denmark, Finland, France,
  Germany, Hong Kong, Hungary, India, Indonesia,
  Israel, Italy, Japan, Korea, Laos, Luxembourg,
  Malaysia, Mauritius, Nepal, the Netherlands, New
  Zealand, Norway, Oman, Pakistan, the Philippines,
  Poland, Romania, Singapore, Slovenia, South
  Africa, Spain, Sri Lanka, Sweden, Switzerland,
  Turkey, Ukraine, United Arab Emirates, United
  Kingdom of Great Britain and Northern Ireland,
  United States of America, Uzbekistan and Vietnam.

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WHY DEALING WITH THE THAI REVENUE DEPARTMENT CAN
BE TOUGH?

• Lack of clarity in the
• Revenue Code
• Quality of Tax Administration varies greatly from
  area to area

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WHY DEALING WITH THE THAI REVENUE DEPARTMENT CAN
BE TOUGH?

• Revenue Department is over suspicious of loss
  making companies

• Many requests from the tax department are
  actually threats with no legal basis

• Company even asked to change loss into profit

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SPECIFIC PREPARATION IDEAS TO AVOID TAX PROBLEMS

• Prepare good documentation in advance
• Ensure you get a receipt for all the documents
  sent to the Revenue Department

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SPECIFIC PREPARATION IDEAS TO AVOID TAX PROBLEMS

• Avoid refund situations, if possible
• Onshore / Offshore Structuring is very important

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PARTICULAR ISSUES TO WATCH OUT FOR

• Be aware of surprise withholding tax on contracts

• Be more specific about your management fees

• Paper companies offshore sham transactions

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PARTICULAR ISSUES TO WATCH OUT FOR

• Half year income tax payment

• Officially no capital gains tax but gains are
  actually taxed

• Regulations on foreign exchange control

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Singapore tax planning considerations
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THAI TAX TREATIESSINGAPORE AND MAURITIUS COMPARED
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SINGAPOREADVANTAGES OF DIRECT OWNERSHIP

• Dividend income
• Foreign income exemption
• Double tax relief with tax sparing
• Avoids costs of forming / running intermediate
  holding company
• Currently no difference on WHT rates for
  interest, royalties and dividends

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SINGAPOREDISADVANTAGES OF DIRECT OWNERSHIP

• Capital gains - may be taxed as income if lt 50
  shares owned
• Services
• Taxable as trade income
• Uncertainties on the DTA
• Interest royalties taxed on remittance
• Limitation of relief article in tax treaty

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ADVANTAGES OF INTERPOSING MAURITIUS

• Most favoured nation clause in DTA for
  interest, royalties and dividends
• Tax sparing on dividends
• Foreign income pooled
• Maximum effective rate of 3
• Capital gains not taxed by law
• Dividends should qualify for foreign income
  exemption
• Services safe harbour limit

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Questions?
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CONTACT US

• For a further discussion on any of the topics
  covered in
• Doing Business in Thailand, please contact
  Shanker Iyer or
• Richard Ellard at
• Email shanker_at_iyerpractice.com
• Email richard.ellard_at_iyerpractice.com
• Phone [phone]
• Fax [phone]
• To keep yourself updated on new developments in
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