Top 5 Challenges of Doing Business in Thailand for Foreign Investors

Thailand’s ever-growing economy and strategic location in Southeast Asia make it an attractive destination for foreign investors. However, like any international venture, setting up and running a business in this country comes with its own set of challenges. Today, we will explore the primary challenges of doing business in Thailand that foreign entrepreneurs and companies may face when entering the market.

1. Company Ownership Restrictions

One of the most significant challenges of doing business in Thailand is the ownership restrictions imposed by the Foreign Business Act (FBA). Foreign investors generally are limited to 49% ownership of a Thai company, requiring a Thai national to hold the majority 51% stake. Additionally, certain business activities are reserved exclusively for Thai nationals. It is essential to note that using Thai nominee shareholders to circumvent these restrictions is illegal and can result in hefty fines or imprisonment.

However, there are ways to navigate these restrictions. Foreign investors can obtain a Foreign Business License (FBL) from the Department of Business Development or apply for promotion from the Board of Investment (BOI), which can allow 100% foreign ownership in certain sectors. For U.S. citizens, the U.S.-Thailand Treaty of Amity provides special rights for American companies, offering another avenue for full ownership.

2. Complex Regulatory Environment

The regulatory landscape in Thailand can be complex and challenging for foreign businesses to navigate. Thailand’s company formation involves multiple steps and can take months to complete. Additionally, accounting and tax filing systems are complex, especially for BOI-promoted companies.

To overcome these challenges, it is advisable to seek assistance from experts or a reputable law firm in Thailand to guide you through the regulatory process. For example, when choosing a bank, consider one with branches near your business location for convenience or one offering business-specific benefits. Hiring local accounting professionals familiar with Thai tax laws and regulations can also be beneficial in navigating the financial aspects of your business.

3. Work Permits and Visa Issues

Obtaining the necessary work permits and visas is another crucial challenge of doing business in Thailand. Foreigners must secure a valid work permit before engaging in any business activities.Foreigners need to obtain a valid work permit before starting any business activities. These permits are location and company-specific, requiring new applications for any changes. Visa regulations can be complex, requiring many documents, and subject to change, adding another layer of complexity for foreign business owners and employees.

To address these issues, consider applying for a SMART Visa, which allows for a longer stay (up to 4 years) and does not require a separate work permit. It is crucial to ensure compliance with all regulations to avoid penalties or deportation. Staying informed about changes in visa and work permit regulations is also essential for maintaining legal status in Thailand.

4. Language and Cultural Barriers

As with any other country, the language barrier presents a significant business challenge for Thailand. Thai is the official language, and most government documents are written in Thai. English proficiency varies, especially outside major urban centers. On the same note, cultural differences can also impact business negotiations and relationships, potentially leading to missed opportunities or other risks of doing business in Thailand. 

To address these issues, consider hiring bilingual staff or using professional translation services for important documents and communications. Another recommendation is to invest time in learning the basic Thai phrases and cultural norms. This can go a long way in building relationships and navigating day-to-day business operations. Cultural training for foreign staff in your company can also improve cross-cultural communication and reduce the chances of creating potential conflicts.

5. Labor and Hiring Restrictions

Foreign businesses may face challenges related to labor and hiring practices in Thailand. There are restrictions on hiring foreign workers, with quotas based on the number of Thai employees. Skilled, multilingual workers often command higher salaries compared to other Southeast Asian countries. Additionally, labor laws and regulations can be complex and differ significantly from those in Western countries.
To manage these business challenges, it is suggested to familiarize yourself with Thai labor laws and regulations. Consider using a Professional Employer Organization (PEO) service to handle HR and payroll matters, especially in the early stages of your business. Investing in training and development programs for local staff can help build a skilled workforce and reduce reliance on expensive expatriate employees.

Additional Business Considerations

While not universal, you should also be aware of potential challenges:

• Infrastructure limitations, particularly in rural areas. 
• The cost of doing business in Thailand can be higher than expected, especially in terms of skilled labor and office space in prime locations.
• Potential intellectual property protection issues and the importance of building strong local relationships and networks are also factors to consider when entering the Thai market.

While the challenges of doing business in Thailand may seem daunting at first, they are not insurmountable. With proper planning, local expertise, and a willingness to adapt, foreign investors can successfully navigate these obstacles and tap into the numerous opportunities the Thai market offers. By understanding and preparing for these challenges, foreign businesses can position themselves for success in Thailand’s dynamic economy.

Start Your Business in Thailand with Herrera & Partners

At Herrera & Partners, we understand the intricacies of establishing a company in Thailand. Our team of experienced lawyers and business specialists offers tailored solutions and guidance through every step, including:

• Reservation and registration of company name
• Draft of Memorandum of Association (MOA) and statutory meeting
• Obtain the company certificate
• Registration of VAT and Social Security
• Open company bank account
• Assistance on non-B visas and work permits for foreigners
• Accounting, tax, and payroll support.

We ensure your business starts on the right foot, maximizing your chances of success in the Thai market.

For professional consultation with a Thai Tax Lawyer, contact us at:
Email: [email protected]
Telephone: +66 22545600
Office in Bangkok: Herrera and Partners Co., Ltd. 142 Two Pacific Place, 17th Floor, Sukhumvit Road, Klongtoey, Klongtoey, Bangkok 10110