A joint venture in Thailand is an agreement between two or more parties, which are companies, come together for the same business purpose. The partnership may be formed by two companies merging or by two companies coordinating the business activities in a joint manner.
Joint ventures between Thai and foreign companies are common in certain business fields, such as services, production or marketing. They offer good advantages to all of the involved parties, by combining skills and expertise.
One of our Thai company formation agents can help foreign investors form a joint venture with a Thai company or with another foreign company. Entrepreneurs who are looking for more detailed information than the ones presented herein can reach out to our agents for complete assistance and business advice.
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Joint venture characteristics in Thailand
The joint venture can be an equity one when two companies that have been working independently up to the point when they agree to set up the joint venture. Another possible situation in which the new agreement will also be treated as an equity joint venture is when one partner company invests in the other. The third option is for companies to have a contractual joint venture when they will coordinate their business activities.
Clearly defining the business activities and purposes are important regardless of the manner in which the joint venture comes into existence. Below, our Thailand company formation agents describe the issues that are commonly included in a joint venture agreement:
- Identification: the joint company will have a legal form, a name and a registered office in Thailand;
- Purpose: the purpose of the joint venture, the mutual interests and the start and end of the business are defined.
- Shareholding: the relationship between the business partners are their shareholding in the joint venture.
- Special clauses: included herein are noncompetition clauses or confidentiality clauses that need to be observed by the parties.
- Management: the rules for capital increases, the manner in which directors are nominated and other provisions or restrictions are included.
- Administration: issues such as the start of the fiscal year and the designated location for the shareholder’s meeting.
- Conflict and termination: the grounds for termination or for the manner in which conflicts between the parties will be handled during the agreement.
According to the Thai legislation, it is permitted to set up a joint venture in Thailand. Our specialists in company registration in Thailand present below the two types of joint ventures available in the country:
1. A joint venture under the form of a partnership agreed by contract between one business and another one, or juristic partnership or individuals which is formed only for a specific project. Despite the fact that it does not have the status of a regularly registered legal entity, an “unincorporated joint venture” is considered as a juristic business by the Revenue Department for tax liability purposes. Thus, the joint venture has to apply for a taxpayer identification card and value-added tax certificate if it does a business which is subject to VAT and is predicted to earn an income greater than THB 1.8 million in a fiscal year.
2. A joint venture can be registered as a legal company, under the form of a limited company in which the joint venture partners own shares in an agreed percentage.
Registration procedure of joint ventures in Thailand
The registration of a joint venture is necessary for equity ones, while the contractual joint venture is treated like a non-legally formed joint venture. Foreign companies that wish to enter into this type of agreement with another company will need to obtain a permit for this purpose and, in most cases, to open a branch in Thailand.
The registration procedure and fees for setting up a company in Thailand as a joint venture are the same as those of the formation of ordinary limited businesses. Our company formation advisors can provide you more information on the company registration procedure in Thailand.
Management of joint ventures in Thailand
Commonly, there are no requirements on the nationality or residency status for directors when setting up a joint venture in Thailand. Exempt to this rule are businesses looking permission to do business listed under List 2 of the FBA (Foreign Business Act), in which case at least two-fifths of the entire number of directors have to be Thai nationals. The restriction on nationality could also be applied under certain laws like the Insurance Act, the Air Navigation Act, Thai Vessel Act, Business Act, and others. When setting up a joint venture in Thailand under Thai-US Treaty protection, a majority of its directors have to be American and/or Thai citizens. For an unincorporated joint venture, which is considered as a partnership, if the managing partner is a foreign citizen, the partnership would be considered an alien and is subject to foreign ownership restrictions under FBA.
Some of the special considerations that need to be addressed when forming a joint venture include the intellectual property rights of the parties. The treatment of the commercial secrets can be treated in the initial joint venture agreement, specifically the treatment of such information once the joint venture ceases to exist.
Before entering into a joint venture, investors are advised to perform due diligence when selecting their business partners. Cross-verification can be performed with the Thai Chamber of Commerce, the Board of Investment and others.
For those setting up a joint venture in Thailand, meeting the current accounting rules and principles will be an important aspect to consider. Our Thai accountants offer complete services, tailored to the needs of our clients. The areas we cover include financial statement preparation (in accordance with the governing principles), financial reporting, bill payment, payroll management, and more.
Investments in Thailand
Some of the laws that apply in case of joint ventures in Thailand are the following:
– The Contract Law;
– The Civil Code and the Commercial Code;
– The Foreign Business Act;
– The Revenue Code.
According to the data on foreign investments in Thailand, there foreign direct investment value amounted to approximately 70100.40 THB in April 2019. Most of the established companies are in retail trade followed by manufacturing, accommodation, food and beverage services. According to a recent Business and Industrial Census in Thailand, there were approximately 57,389 companies in retail trade, 22,345 companies in the accommodation, food and beverage services sector and 863 in the information and communication sector. Company registration in Thailand may demand sector-specific licenses, this is why we recommend that investors get in touch with our agents.
An important advantage of the Thai joint venture is that the parties can have access to more financial resources. Moreover, they share the economic risk, the knowledge, and expertise of their joint employees and exports. A joint venture can improve the chances of companies to expand their client base or expand to a new market and gain access to important new business opportunities.
Investors who wish to know more about joint ventures in Thailand can contact our company formation advisors in Thailand. We can provide complete details about the equity joint venture and the contractual type as well as offer complete assistance for their setup. They can also assist you if you want to open a bank account in Thailand.