Choice of Legal Entity Structure in Thailand

Private limited company

By far the most prevalent form of entity that is used in Thailand is the private limited company. A private limited company is simply a company that has at least 3 shareholders (all of which can be US nationals and/or corporations once the Treaty privileges are invoked) and at least 1 director who is resident (domiciled) in Thailand (who may also be a US national).

The liability of the shareholders is limited to the amount of the private limited company’s share capital. The shareholders appoint director(s), who act according to a registered set of articles and memorandum of association, both of which remain under the control of the shareholders.

The business activities of a Thai private limited company are set out in its memorandum. The activities are usually drafted in very wide terms and provided the memorandum does not allow any of the 6 restricted business activities under the Treaty, a private limited company would usually be able to undertake virtually any kind of activity that a US corporation would require of it to undertake in Thailand. But whilst a private limited company is the most widely known and most common form of doing business in Thailand, it may not be the most advantageous structure for tax.

As the activities of a private limited company are revenue-generating activities, it is therefore liable to all the corporate and transaction taxes payable by taxable entities in Thailand, the two main ones being corporate income tax, which is payable at the rate of 30% of the net income earned by the entity plus profits remittance tax at the rate of 10% of net profits remitted out of Thailand (equating to 37% income tax on net income), and VAT at the current rate of 7% on all sales of goods or provision of services by the Thai private limited company.

Representative office

In terms of its legal attributes, a representative office entity is the same as a branch office, i.e. an arm of the US corporation that forms it. But whereas a branch office conducts activities for commercial gain (i.e. for revenue-generating purposes), a representative office conducts its activities for its head office only – not for any consumer, i.e. a representative office conducts non revenue-earning activities. And as the activities are non revenue-earning, the Thai Revenue Department has prescribed that provided a representative office complies with the rules and conditions for representative offices, it shall not be subject to either income tax in Thailand or VAT in Thailand.

A representative office entity in Thailand is the right tax-effective and cost-effective choice for a US corporation carrying out any non revenue- earning activities in Thailand, such as:

  • Sourcing goods and services in Thailand for the US corporation.
  • Checking and controlling goods purchased or goods manufactured in Thailand for the US corporation.
  • Providing information and advice in relation to goods sold or services provided by the US corporation to consumers in Thailand.
  • Propagation of information concerning new goods or services of the head office; and/or
  • Reporting on matters in Thailand to the US corporation.

The above activities are those listed in the Thai Commerce Ministry guidance for representative offices, and in the case of a US corporation’s activities in Thailand not exactly fitting into the guidance, but are nevertheless, non revenue- generating activities (such as, for example, a US corporation is required to research/gather information in Thailand and report back to the US head office only), it would be a worthwhile exercise to seriously consider a representative office entity for the activity in Thailand.

Branch office

Similarly to a private limited company entity, a Thai branch office of a US corporation would usually be able to undertake virtually any kind of activity that a US corporation would require it to undertake in Thailand (except for, of course, the six restricted business activities under the Treaty).

But unlike a private limited company, a branch office is the exact same legal entity as the US corporation that forms it, and therefore, a US corporation forming a branch office assumes all liability for the operations of the branch office in Thailand.

That being said, however, if it is the case that the business activities in Thailand requires the US corporation’s guarantee of performance of the activities in Thailand and/or the activities in Thailand will be conducted for a finite period of time after which time the activities in Thailand would cease (for example, business activities involving a particular project to be carried out for a period of time in Thailand) then a branch office entity could be a bit more favorable.

A branch office in Thailand pays the same 30% rate of corporate income tax as a private limited company plus the same 10% profits remittance tax (making the total income tax payable equal to 37%) and the same rate of VAT (current rate of 7%) on all sales of goods and provision of services by the branch office.

But whilst there are no major Thai tax payable differences between a branch office and a Thai private limited company, an exit from a branch office entity in Thailand is far less cumbersome, far less time consuming and therefore far less than an exit from a Thai private limited company entity, which is required to comply with all the legal dissolution and liquidation procedures prescribed in the Thailand Civil and Commercial Code.

Regional office

Unlike for a branch office and the similarly for a representative office, the Thailand Revenue Department has prescribed that regional office entities in Thailand are not subject to corporate income tax or VAT in Thailand.

And similarly as for representative offices, the Thailand Ministry of Commerce has prescribed that regional office entities shall not undertake activities in Thailand for commercial gain, but shall undertake non revenue-earning activities for the head office company only.

The prescribed non revenue-earning activities for regional office entities are as follows:

  • Coordination or supervision of operations;
  • Consultation or management services;
  • Personnel training or development;
  • Financial management;
  • Marketing & sales promotion management;
  • Product development; and
  • Research and development services.
  • Regional operating headquarters

Finally, for a US corporation that is carrying out the types of business activities listed above for regional offices, but those activities are being conducted for commercial gain, i.e. a charge is made by the regional office to the branches or affiliated companies in SE Asia for the services rendered to them by the regional office, the US corporation would be wise to consider a type of legal entity in Thailand known as a Regional Operating Headquarters (ROH).

An ROH entity in Thailand has the same legal attributes as a private limited company, but it is additionally registered as an ROH entity under the Thai Revenue Code, which provides ROH entities the following exceptional tax privileges:

  • 0% income tax on income generated from branches/affiliates outside Thailand; and
  • 10% income tax on income generated from branches/affiliates in Thailand.

should note that whilst the Treaty of Amity may override the Thai FBA in relation to ownership, it does not however override the Thai FBA in relation to the minimum capital requirements of foreign entities in Thailand.

Thus, for any of the legal entities of company, branch office, representative office or regional office, a minimum amount of Bt 3 million (or about $100,000) is required for establishment of the entity in Thailand. This minimum amount of Bt 3 million forms the “capital” of the entity (similar, if you like, to share capital), it shall be actually remitted into a Thai Baht bank account (you cannot hold this sum in a USD account in Thailand) and it is required to stay in Thailand under the termination of the entity in Thailand, but of course, it can be used for the purposes of the entity.

For an ROH in Thailand, the minimum amount of capital is increased to Bt 10 million (or about $330,000).

Minimum capital requirements for each non-Thai (foreign national) employee in Thailand

You need to note however, that in addition to the minimum capital requirements under the Thai FBA, Thailand’s Foreign Employment Act prescribes that for work permit and immigration purposes, the employer entity in Thailand shall have paid-up capital of at least Bt 2 million (or around $67,000) per foreign national employee (including US national employee) in Thailand.

Thus, in addition to meeting the required capital amount of a minimum of Bt 3 million stipulated under Thailand’s Foreign Business Act, if a US corporation will be seconding foreign nationals (including US nationals) to work as employees of the entity in Thailand, the entity in Thailand will be additionally required to meet the Foreign Employment Act requirement and have at least Bt 2 million of paid-up “capital” in Thailand for each foreign national employee.

Prepaid Legal MLM Business – Opportunity Or Scam?

Prepaid Legal Services has become one of the largest and most successful network marketing companies ever. They offer a variety of identity theft and legal-protection services, as well as an income opportunity is someone wanted to become an associate and re-sell those services.

There are, however, some very real concerns and issues about starting or participating in a Prepaid Legal business. In this article, I will provide and unbiased review of the pros and cons of developing a Prepaid Legal business, and see if we can find out whether Prepaid Legal is a great opportunity – or a great scam.

Prepaid Legal – The Good

Pre-Paid Legal Services began in 1969 when CEO and founder Harland C. Stonecipher was involved in a vehicle accident which left him with legal bills. He began researching the industry of European legal expense plans. In August 1972, Harland Stonecipher created Pre-Paid Legal’s predecessor, The Sportsman’s Motor Club, offering legal expense reimbursement services as a motor service club. Pre-Paid Legal started selling plans through network marketing in 1983. Pre-Paid Legal went public on the NASDAQ National Market System in 1984, and two years later moved to the American Stock Exchange.

With over 1.5 million members, they are one of the largest network marketing companies in existence today. Their legal plans are sold by independent associates and can be purchased either by a one-on-one basis or in a group setting as the plans may be provided as an employee benefit. These plans provide preventive legal services, which include telephone consultation on unlimited personal legal issues, document and contract review, and will preparation.

The best thing that Prepaid Legal offers is peace of mind. Knowing that you are legally represented, that you have no danger of having your identity stolen or misused, is a very secure state of mind.

Prepaid Legal – The Bad

Prepaid Legal is a network marketing company, which means that distributor of their services can build a downline and earn income off their distribution channel.

Prepaid Legal is one of the oldest and most established network marketing companies. Being over 50 years old, the first flag that we noticed is they are using marketing techniques that worked better 50 years ago. They encourage people to use their “warm market”, i.e. friends, family, work colleagues, to grow your business.

Prepaid Legal also teaches their distributors to use the “3 foot rule”. This is where you are supposed to talk to anyone 3 feet around you about the Prepaid Legal services and opportunity. That type of thing might have worked back in 1960, but in this day and age, it simply positions the distributors as a desperate salesman looking to make a quick buck.

Prepaid Legal – The Ugly

The fact is, someone could absolutely make tons of money marketing legal service products – if they know how to market effectively. Trying to build a six-figure income on the backs of friends, family, and work associates is more than just a tough sell – it can be downright frustrating, not to mention ineffective. Trying to “sell” and convince people on the legitimacy of your product and opportunity is much less fun and much less lucrative than talking to people that have already expressed a direct interest in what you offer.

In closing, I would say that starting and developing a Prepaid Legal business is lucrative if someone knows how to market effectively. It is not a scam, but like any business, success will be determined by the skill-set of the marketer. Prepaid Legal is definitely not a lottery ticket or a stock option – meaning, you do not just buy in and wait for a payout.

If someone does not have the first clue on how to market effectively, then I would suggest they either learn how to be an effective marketer, or else just use the products and leave it at that.

Legal Disputes of the Future

Who owns food? Who pays for this accident? Who owns my face? Who owns the Arctic? Who owns the Pacific Ocean? Who owns the sky? These sound like some ridiculous questions at first glance but let’s take a second look at the future through the Great Karnak’s trusty crystal ball.

Who owns food?

Let’s start with this one, since it has, more or less, already taken place. A small landowner in Nebraska named Bill parks his tractor in the shed after a long day of work in the fields. He wipes sixteen hours worth of sweat off his brow while he opens his mail. All bills. Two men in dark suits approach him at the front door and hand him a subpoena. The farmer opens the subpoena, quite surprised to learn he’s being sued by a major U.S. corporation for copyright infringement. It’s a huge settlement they’re after – in the millions. He doesn’t have one tenth of what they’re asking in damages. Since he sits on a tractor most days, he hasn’t got the faintest notion how he could be named in a suit for copyright infringement. He’s certain they’ve got a case of mistaken identity and places the document at the bottom of a pile of correspondence, making a mental note to consult his lawyer about what to do with the nuisance suit.

Rest assured, it’s no mistake. The large U.S. corporation spent millions in developing a strand of DNA for corn that is resistant to a pesticide they also own. When you buy their corn seeds and use their pesticide for your crops, you’ll get excellent results. They copyright the strand of corn DNA they worked to develop. To protect the investment in DNA research they hire over seventy-five corporate lawyers to aggressively prosecute copyright ‘thieves’. They have to establish a legal precedent that attracts a lot of publicity; they intend to branch out into other food stuffs, such as eggs that last longer on the shelf, wheat that produces heavier grain, chickens that add weight quickly, beef that responds to their brand of steroids in cattle foods. The list is endless, and it’s all going to be done by protecting copyrighted DNA strands.

Bill consults his country lawyer about the suit, explaining that he has stolen nothing in his life from anyone. The lawyer does a bit of researching and discovers he’s opposed on the brief by some of the best legal minds in history, paid for by a Dow Jones multinational. He first explains to the multinational that his client doesn’t know how the patented corn seed got into his fields. Possibly the seed cleaning company that strips seeds off Bill’s corn for next year’s crop has intermingled patented seeds with his. He tries to offer a settlement but this is not what the corporation wants. They want a trial. They wish to establish for the record that they’re prepared to sue if anyone grows their corn without paying them for the seeds.

Bill and the country lawyer lose the case which costs him more than he can pay in damages and legal costs. He appeals. The appeal also loses right up to the Supreme Court since copyright law is sacrosanct in the U.S. Intellectual property, in this case a section of DNA, is property protected by the highest court in the land. Bill’s house, farm and equipment are sold at auction to the highest bidder, and the proceeds given to a multinational worth more than a quarter trillion in market cap. The proceeds don’t cover the cost of one of the lawyers for one year, but they’ve earned an important victory – they own food.

Who pays for this accident?

Late June, 2016. A new electric car with one occupant is proceeding along a Florida highway within the speed limit. Up ahead, a tractor trailer crossing the pavement at an intersection blocks the way. The driver, who has the vehicle on ‘auto-pilot’ is reading work-related files and doesn’t see the upcoming collision; he trusts his car will react properly and put on the brakes, as advertized. The software or hardware on the car malfunctions, the result is that the car smashes at full speed into the trailer blocking the road, disintegrating the car and killing its occupant.

Within hours of learning of the crash, the vehicle manufacturer issues a statement: ‘Neither the auto-pilot nor the driver saw the tractor trailer in the blinding sun’, trying to diminish responsibility by including the driver’s inattention to the road. A sharp lawyer advises the family of the deceased to sue, since, by definition, he was not the driver; the car company’s software was driving. The driver of the tractor trailer is found blameless because it was possible to avoid the accident, just as every other vehicle did in this situation.

The impending lawsuit sends shivers down the corporate world’s spine. Will they be forced to halt production of their cars? Offer compensation in the billions as GM or Ford experienced? Will it affect future car sales? Will there be expensive recalls? Their very survival hangs in the balance on the outcome of this legal battle. The car company uses as its indemnity the disclaimer every software user accepts before they can switch on the ‘auto-pilot’. Use at your own risk, they say, just like all software. If a calculator gives you the wrong answer, is the calculator manufacturer to blame if you make a wrong bid on a billion dollar tower construction and lose your shirt because of it? No, it’s the user’s responsibility to check all calculations.

Not so fast, says the family’s lawyer. I present to you as evidence sales material from the car company showing people in these cars on ‘auto-pilot’ busily reading files related to work, texting on their phones, eating sandwiches and coffee, streaming movies. The company has promoted the auto-pilot as reliable, in fact more reliable than humans. The manufacturer, in order to sell the product, has accepted the responsibility for the safety of its passengers, or users, by heavily implying that users can relax while the software guides them safely to their destinations. It’s the car company that killed their client, no one else, by encouraging the car buyers to trust the software to the extent that they don’t have to pay attention to the road ahead. Why else would you buy it?

Insurance companies are prepared to fund the legal challenge to a successful outcome. They want a clear definition of who’s at fault before they begin underwriting any more policies. Driverless car manufacturers are rushing headlong into the intersection of Lawyer and Technology Streets with their eyes closed. Keep watching this space, you’ll never see a bigger smash-up.

Who owns my face?

Brad Pratt is a famous movie star. His wife Angie Groaner is too. They’re fed up to the teeth with being filmed by paparazzi. Brad is filmed in public toilets. Angie is filmed at the doctor’s office. What gets them most upset is they’re captured on film with their kids. They don’t have a moment to themselves, not even after they move from the U.S. to the outskirts of London, England. Every time they walk past a newsstand they look the other way so they don’t have to read headlines about themselves in stories they didn’t sanction. Angie especially deplores the stories depicting her children as alien babies. Paparazzi invade their lives every waking, sometimes not waking, moment.

That’s the price of fame say the news organizations. Bullpoop, says Brad, and I’m going to come up with a way to stop it. Unbeknownst to the so-called ‘news’ media, Brad and Angie consult with the best legal minds and come up with a solution: trademark their faces.

A trademark is the copyright of an image related to the conduct of business, and since Brad and Angie’s faces are their business (worth millions), they’re well within their rights to trademark their mugs. They take a 360° view of their faces and deposit them with all the necessary paperwork at every major trademark registration office throughout the world.

They can’t wait for their first lawsuit to prove the concept. Soon, a tabloid prints the story, ‘Brad and Angie Have Alien Twins’. The photographer and Celebrity Ogler are served with an invitation to attend court in every country in which they publish.

The photog is a nobody with a camera. He’s paid up to a quarter of a million dollars for candid shots depicting Brad on the toilet or Angie in a dress shop changing room. He explains that Celebrity Ogler paid him to take these pictures on a spec basis. The more revealing and damaging the photo, the more they get paid, so anything goes, regardless of the rules of common courtesy or decency.

The publisher, Celebrity Ogler, claims that the two famous people made their millions by being in the public eye, and if it weren’t for news and tabloids, the couple would be living in anonymity. They benefited from free publicity for their rise to stardom and now it’s simply inconvenient to them. They also argue in most countries, it’s their constitutional right to publish news stories related to anyone, regardless of their position in society. What if they were guilty of murder, could we be prevented from displaying their pictures on newspapers?

Pratt and Groaner’s legal team argues that their trademark, central to their business of making films, has been used without their permission and that both the photographer and the publisher have profited using someone else’s copyrighted image. These magazines are not reporting ‘news’; they rely on sales of their tabloids based on the already established popularity of their subjects. Now that they have trademarked their faces, the defendants have profited off someone else’s popularity and their image.

The court rules in favor of the plaintiffs. They’re awarded damages and any further use of their trademarked images can only be done by permission. It will be a very long time before Pratt and Groaner give permission for strangers to take their picture. A new business for trade-marking faces is spawned.

Who owns the Arctic?

In the 1850’s a British expedition to find the Northwest Passage through the Arctic Ocean goes missing for over a hundred years. Fast forward one hundred and fifty years. Due to global warming the ice pack has melted and it is now possible to sail year round through the Arctic Ocean.

Oil is discovered outside the new economic exclusion zone and Canada protests the invasion of oil drilling wells from the U.S., taking the case to the World Trade Organization and the United Nations. Canada claims sovereignty of the Artic to the North Pole. The U.S. says, ‘See you in court. No one can own an international waterway.’

Who owns the Pacific Ocean?

In a mirror image incident in the Pacific Ocean in international waters off China, barges filled with earth drop millions of tons of rocks and slurry to create a small land mass. The Chinese fill enough of the ocean to create a tiny island in the Pacific large enough to plant their flag. They then declare an economic exclusion zone of two hundred miles in all directions and begin drilling for oil.

The American navy sails through the disputed waters. Certain of the rightness of their cause, China begins sending belligerent diplomatic notes of protest to the United States and the United Nations. The U.S. does not recognize their sovereignty in an international waterway by the artificial creation of a land mass. The Chinese are ready to start a war and take pot shots at the U.S. navy in what used to be international waters. Tensions come to a boil before the case can be heard in international courts. The Chinese threaten to begin a war with the U.S. over the issue.

The U.S. responds by entering trade agreements with India and setting up manufacturing facilities for a wide range of consumer items, directly competing with cheap Chinese labor. Twenty years after the shift to India, the U.S. and its allies block all further Chinese imports.

Who owns the sky?

Fred and Harriet are having dinner in their isolated country home. They’re having Fred’s favorite recipe – Mulligatawny soup. An object crashes through the roof and kills the couple outright. Upon investigation, the object belongs to Grooble, a technology firm developing driverless cars. One of their satellites, while repositioning itself to a new orbit, received an incorrect set of coordinates from the controller and crashed back to earth, landing on hapless Fred and Harriet, and the soup tureen. The pieces of wreckage found clearly indicate the ownership of the fallen satellite. Fred and Harriet’s heirs file suit.

The ownership of a piece of land includes the space above and below it, with no defined limit. If you wish to build above the land five hundred stories high there can be no legal objection to it. The plaintiffs argue that their property rights are infringed at any altitude and Grooble was encroaching on the couple’s right to ownership of their property, even though the satellite might have been hovering six thousand miles above them. Since the satellite owners accept the premise that the hardware might malfunction for any number of reasons and come crashing back to earth, they knowingly encroached on property they do not own.

The Grooble Corporation argues that international agreements have determined space (defined as 62.5 miles altitude) to be outside the purview of local property laws. The heirs of the property owners claim that once the satellite re-entered the atmosphere, it was no longer subject to the laws that govern space and are therefore seeking damages afforded them by local property rights, the same as they would if an airplane dropped on their house.

Looking back we find it hard to believe some of the cases that were heard to defend people’s rights and property. The Scopes trial of the Twenties comes to mind, which defended an educator’s right to discuss evolution. A divisive question for its time, a mere ninety years later, it’s almost irrelevant, replaced by the new issues that arise with the advent of technological discovery. The conflicts these new challenges create will burn brightly in their time, setting one against the other in tumult and violent upheaval until, just like all issues, the unveiling of new eras and new civilizations will make them pass into irrelevance. But is mankind now changing too quickly to adapt to new situations? For instance, will we pollute and kill all marine life in the oceans before we can develop legal frameworks to stop it? Will a country poison the atmosphere for the rest of the world? Will nations figure out a solution to global warming before it’s too late? Will DNA continue to be copyrighted preventing food from being grown by private citizens in times of starvation? Will space be cluttered with so much debris as to make it unusable? Legal disputes of the future are extremely difficult to predict but their outcomes greatly impact our societies.