Natasha: When must an entity register to do business in your jurisdiction? Are there alternative forms of registration (such as a representative office)?
Andrew: A license under the Foreign Business Act, 1999 (“FBA”) is required whenever business of almost any kind is to be done in Thailand by an entity established under foreign law or 50% or more foreign-owned. For certain very limited types of business activity, e.g. information gathering (which is regarded as a service to the head office abroad), a so-called “representative office” registration is possible, and where this type of registration suffices then it is somewhat easier in practice to obtain than a registration covering broader types of business activity. The licensing process and documentation required is however essentially the same, whether for a representative office or for a “full” registration.
Natasha: Are there any treaties that govern foreign entities doing business in your jurisdiction? Are there exemptions for educational activities under those treaties?
Andrew: The United States is in a unique position in Thailand in that its nationals and companies are largely exempted by a Treaty of Amity and Economic Relations (“Amity Treaty”) of 1966 from restrictions and the licensing requirement under the FBA, by virtue of being accorded “national treatment” in Thailand. Thailand’s entry into the Amity Treaty however occurred at a time of autocratic government in Thailand and in consequence has never to this day received any Thai parliamentary approval or legislative underpinning, and most Thai jurists maintain that in consequence the Amity Treaty cannot create an exception to any duly enacted Thai legislation unless the law in question specifically allows for this. The FBA does allow for exception to its restrictions to arise where there is an international agreement so stipulating, and it is thus clear that the Amity Treaty does create (subject to a few exceptions mentioned in it, none of which appears likely to apply to an educational institution) relief from FBA restriction.
Operation of a teaching establishment in Thailand for higher education is additionally subject to various other laws, and notably the Private Higher Education Institutions Act, 2003 (“PHEI”). Through the PHEI a private higher education institute may be established by individual or entity who possesses certain prescribed qualifications, who will hold the license under the PHEI for the institution, and who must transfer to the institution a prescribed area of land to serve as the campus. The PHEI does not allow for exceptions to its requirements to arise on the basis of an international agreement, and the Amity Treaty will thus create no exception to the PHEI requirements for a US investor. Also, land in Thailand can (with no exceptions that are relevant here) be owned only by Thai individuals or entities that are 51% or more Thai-owned. Although Thailand’s Land Code does allow for the possibility of exceptions to arise on the basis of international agreements, there are today no international agreements between Thailand and any other country in relation to land ownership. Again, therefore, a US investor would by definition be unable to satisfy the need to transfer land to the private higher education institution. The PHEI then imposes numerous other requirements and restrictions, one of which is that a private higher education institution is to be governed by a Council, comprising individuals having various qualifications and being nominated by various sources, and it is required that at least half the members of the Council be persons of Thai nationality.
Natasha: What is the test for when a foreign entity is subject to local taxes?
Andrew: An entity is subject to tax in Thailand when it is, or is deemed to be, in receipt of income paid from or in Thailand, including where the entity has an employee, a representative or a go-between in Thailand who receives such income.
Natasha: Are there any tax treaties that provide exemptions? In general, what type of exemptions are available?
Andrew: There is a Thai-U.S. double tax agreement (“DTA”) containing numerous helpful features, notable among which are that:
- a U.S.-resident entity will not be regarded as subject to tax in Thailand if in receipt of actual or deemed income, even by an employee, representative or go-between, unless its presence in Thailand falls within the meaning of “permanent establishment” as defined in the DTA
- services rendered from outside Thailand by a U.S.-resident entity, to a recipient in Thailand, may be paid for from Thailand without any Thai tax withholding.
Natasha: Are there special rules for foreign institutions of higher education?
Andrew: The DTA also contains special rules for taxation of teachers and students in Thailand, but no special rules for foreign institutions of higher education. In summary:
(a) Teachers are exempted from tax in Thailand on income from teaching or research, for up to two years, if resident in the US immediately prior to the work assignment in Thailand. This exemption applies to research income only to the extent that it is undertaken in the public interest and not primarily for private benefit.
(b) US-resident students are exempt for up to five years from tax in Thailand on gifts or grants from abroad for the maintenance, education, study, research or training, on up to US$3,000 per annum income from personal services performed in Thailand, if
- studying at university or other recognized educational institution in Thailand
- securing training in Thailand required for qualification to practice a profession or professional specialty; or
- studying or doing research in Thailand as a recipient of grant, allowance or award from a government or from a religious, charitable, scientific, literary or educational organization.
There are other small exemptions for U.S.-resident individuals temporarily present in Thailand for acquiring technical, professional or business experience other than as mentioned above, studying at an educational institution other than as mentioned above, or participating in a government-sponsored program for the primary purpose of training, research or study.
Natasha: What it the test for an independent contractor vs. an employee in your jurisdiction?
Andrew: In determining independent contractor vs. employee status Thailand in general follows the standard approach of (i) looking at the degree of independence enjoyed by the individual in manner of discharge of duties and (ii) asking whether the individual is engaged to achieve a specific outcome or to work generally in the business of the employer. In the sphere of labor protection regulation it is however possible for circumstances to arise where employees of a contractor or a sub-contractor are deemed to be employees of the employer, for purpose of certain statutory benefits.
Natasha: When is a work permit required?
Andrew: A work permit is required whenever a foreign national performs any work (exertion of energy for a commercial purpose) in Thailand, no matter how briefly. The requirement thus applies to, among others, all business visitors – though insofar as it does so the requirement is inconvenient and widely ignored. The work permit rules are also written in such a way as to make compliance by business visitors impossible under certain circumstances, and in practice enforcement of the rules is lax and open to abuse, i.e. investigation is most commonly launched as a response to a complaint from third party with an axe to grind.
Natasha: Is there anything else you think a potential client should know about doing business in your jurisdiction?
Andrew: In Thailand most things are forbidden and almost everything is possible education: registration, taxation, visas/work permits, use of independent contractors, etc.