Thailand’s decision to de-criminalize cannabis in June 2022 prompted a new wave of foreign investment into the kingdom, as entrepreneurs from around the world sought to get in on the action while the getting was good. The past fifteen months or so since then has seen a free-for-all of market activity, resulting in thousands of new business formations for cannabis dispensaries alone. Though heavily politicized heavily during the recent national elections, doors into the market remain open (at least for the time being) for speculators interested in growing, processing, or distributing cannabis on a commercial basis in Thailand. Various types of business structures are available to foreign investors for such purposes.
Because public companies in Thailand are subject to strict oversight and compliance requirements imposed by the Securities and Exchange Commission, most investors opt to instead form one of four alternative types of business structures: either a limited company, a branch office, a representative office, or a regional office. These structures all vary in terms of capital requirements, allowable business activities, liability exposure, and tax treatment. Your individual needs will ultimately drive this decision, so it’s important to consider them carefully and/or consult with a local advisor.
A limited company is a stand-alone entity and the most utilized legal structure used by businesses in Thailand. Generally speaking, limited companies are free to engage in any lawful commercial activities, or to otherwise conduct business in Thailand and are subject to normal tax rules. Shareholders’ liability for the company’s damages is limited to the extent of their investment and there must be a minimum of three shareholders, at least one of which must be a Thai national. Limited companies also require at least one director who will have designated authority to sign on behalf of the company and remain on record with the Ministry of Commerce. Capitalization requirements will vary depending on whether the majority of the shareholders are Thai nationals (in which case no minimum amount is specified) or foreigners (in which case capitalization will be either 2 or 3 million Thai baht, depending on the nature of the company’s activities). Most foreigners entering the cannabis industry in Thailand have opted for this form of business structure.
A branch office is an alternative option for investors who seek a legal presence in Thailand, but not necessarily a separate legal entity. Branch offices can also conduct business or otherwise earn income, and like a limited company will be subject to normal tax rules resulting from such activity. However, branch offices are not considered to be separate legal entities but are instead treated for all intents and purposes as an extension of its overseas head office. Branch offices are therefore not subject to any number of minimum shareholder requirements but they must typically be capitalized for a minimum investment of 3 million baht. This option may be a preferred option for multinational companies already operating in the cannabis industry elsewhere in the world.
Neither a representative office nor a regional office is allowed to earn any income in Thailand. Like branch offices, these types of entities are considered Thai extensions of their overseas headquarters and may only perform specifically enumerated functions. A representative office, for example, may source goods or services in Thailand on behalf of its head office, report on local business trends and developments, and acquire information for its head office. Because representative offices do not earn income in Thailand, their only tax liability may be on interest earned locally from funds received by its head office. Regional offices may also engage only in certain enumerated functions, including among other things personnel training and development, financial management, marketing and sales planning, and product development. Minimum capitalization requirements for both representative and regional offices are 2 million baht. As with branch offices, these legal structures are typically utilized by overseas investors who are already actively engaged in the cannabis industry in their own countries.
Foreign investors seeking to develop businesses in Thailand, whether in the cannabis industry or any other field of activity, are best advised to confer with locally-based professionals who can provide further guidance and assistance in accordance to their needs.
(c) 2023 Frank Rittman
