Academics in Thailand are hoping to establish a fund to help finance small and medium-sized enterprises (SME) in Thailand to the tune of 1 billion baht. The proposed fund is intended to help local companies secure investment in time for the opening of the Asean Economic Community (AEC), which will take place next year.
The fund would like;y be supported by a combined effort of government and the private sector. It is thought that it would help Thai manufacturers to expand their operations internationally.
The call for the new fund was made by the University of the Thai Chamber of Commerce’s Center for International Trade Studies, which recently completed a study to determine the readiness of Thailand’s SMEs to integrate with the AEC. Out of the more than half a million SMEs surveyed, 63 percent said they may not be ready for the start of the AEC on December 31, 2015. According to the center’s director, Mr. Aat Pisanwanich, “These operators need more time, about two and a half more years or by the end of 2016, for AEC integration.”
While larger companies mostly believed that they will b ready in time, many SMEs lacked information on how the AEC would affect their business operations. The lack of preparation—due to the failure of the government to properly educate SMEs on the full impact that AEC is expected to have—could force some to go out of business soon after the changes come into effect. Notably, many SMEs are involved in labor-intensive areas such as textiles, auto parts manufacturing, and various agricultural endeavors, which could be strongly affected by a shift in the manual labor market.
Thailand and Malaysia are a pair of emerging Asian “Tiger Cub” economies that each have their own system for encouraging foreign investment. To attract foreigners to set up businesses in each country, we have the Thailand Board of Investment (BOI) promotion one one side and the Malaysia Labuan Company on the other. Each of these types of company setup has it’s own specific advantages, so if you’re thinking about moving to Southeast Asia and starting up a company, it’s good to compare these two setups—along with the other advantages and disadvantages of living and working in each country.
First off—the basics. What exactly is a Thailand BOI promoted company and a Malaysia Lauban Company?
Thailand BOI Promoted Company
The Thailand BOI has authority to promote companies that it deems will be beneficial to the country by allowing special privileges and tax benefits that normal Thai companies don’t get. These include a Corporate Tax holiday for up to 8 years, elimination of VAT duties on import of machinery, and giving exceptions to restrictions on foreign ownership. The BOI is promoting heavily in the manufacturing and high tech sectors, especially where there can be displayed a transfer of technology to Thai people and employment of Thai workers in these areas. The new chairman of the BOI has also indicated that projects applying for BOI promotion should be green and not damaging to the environment.
Getting a BOI company set up requires going through several steps that could take between 2-6 months. You’ll need to have a minimum of three company shareholders with a minimum capitalization of one million baht. However, only 25 percent of this needs to paid initially, with the rest required to be shown within the first three years of operation. You will also most likely need to apply for and obtain a Foreign Business License particularly if a foreigner is a majority shareholder. The benefits are you’ll be able to obtain visas and work permits for foreign employees and shareholders, and the BOI has authority to grant exceptions to the 4:1 Thai to foreigner employee ratio that is required for obtaining work permits in regular Thai companies.
With a Thai BOI promoted company, you can enjoy operating tax free during the crucial startup phase of your company while based in a country with relatively low overhead and payroll costs. For example, you can find local software developers straight out of university for under $500 per month, and even those with 5+ years of experience are available to hire for $1000 per month. Rent for office space will be much less than it would be in the US or other developed countries. Also, you can extend your runway greatly by paying yourself a much smaller salary than you’d need to live on in a western country. Most people could live quite comfortably on $1000 a month in a city like Chiang Mai while still enjoying a good life—eating fresh tropical fruit everyday, going out to enjoy movies, having drinks with friends, getting massages, great coffee, trips to the beach using cheap local flights, etc.
Malaysia Lauban Company
The island of Lauban is a federal territory just 8 km off the shore of Borneo in Eastern Malaysia. Under the Labuan Companies Act of 1990, residents and non-residents of Malaysia alike are permitted to establish Labuan companies. These companies are intended to bring in foreign capital and turn Labuan into a major offshore financial center in the region. One of the key features of a Labuan company is that they must conduct business a currency other than Malaysian Ringgit. One of the main benefits of a Lauban company is a low Corporate Tax on net profits of either 3 percent with an annual audit or a flat RM20,000 annually with no required audit. A Lauban company is also quick to set up and requires virtually no capitalization. A single individual can act as both the director and single shareholder, and there is a minimum of just one share required, with no restriction on share price. This means that a Labuan company can be established with just $1 of paid up capital. There is also a minimum registration fee of RM1500 that needs to be paid, but the registration process is relatively simple and can be completed in about a week.
A Lauban company is not required to maintain a physical office, which makes it an ideal company setup for e-commerce and consulting businesses. This company setup is also well-suited for import and export businesses, for which no trade licenses are required. Labuan companies are exempt from VAT and Sales and Service Tax, and there is no Withholding Tax for interest and dividends. Those with a Labuan company are able to apply for a 2-year, renewable business visa that allows them to reside in Labuan or anywhere else in Malaysia.
Comparison of Thai BOI and Labuan Companies
|Thailand BOI Company||Malaysia Labuan Company|
|Capitalization||1 million baht minimum, with 25% initially paid up||1$ minimum|
|Ownership||Up to 100% foreign ownership possible with approval from BOI||100% foreign owned allowed|
|Shareholders and Director||Minimum of 3 shareholders and 1 Director who can also be one of the shareholders||Minimum 1 shareholder and 1 Director, can be the same individual|
|Invoice Currency||Any||Any except for Malaysian Ringgit|
|Business Visa||Shareholders and employees eligible for renewable 1-year visa||Renewable 2-year visa for up to 5 foreign employees|
|Company Setup Time||2-6 months for company set up and BOI approval||1-2 weeks|
The Labuan company is quicker to get set up and requires minimal paid capitalization, while the Thailand BOI company has the advantages of a 0% Corporate Tax rate and the possibility of hiring a larger number of Foreign employees. One also has to consider the potential advantages and disadvantages of basing yourself and your business in either Thailand or Malaysia. Thailand has an advantage in overall lower overhead costs, employee salaries, and cost of living expenses. Malaysia has slightly better infrastructure and a larger portion of the population with good English ability.
If you work to live and not live to work, then you may enjoy being in Thailand more. It would be hard to disagree that it is the more fun-loving and laid back of the two countries. Thailand is one of the biggest international tourist destinations for good reason. It has excellent beaches, fantastic food, charming people, and an interesting Buddhist culture. Malaysia is predominantly Muslim, so alcohol is heavily taxed and the local people don’t party as hard as the Thais do. While it is true that Malaysia also has some beautiful beaches of its own, you may find the number of tourists wearing burkas outnumber those in bikinis. One thing Malaysia does have is plenty of great Indian food thanks to the sizable minority of the population of South Indian descent.
If community and finding a crowd of like-minded people is important to you, then this could also influence where you decide to establish a new business from. Both Kuala Lumpur and Bangkok have large expat communities, but you’ll probably find a larger number of western entrepreneurs calling Thailand their home.
The first meeting of Thailand’s new Board of Investment (BOI) was held on Wednesday, June 18. After taking over control of the country in a military coup, Gen. Prayuth Chan-ocha assumed chairmanship of the new 18-member board. The old BOI had accumulated a backlog of projects awaiting approval. Mirroring the quick action it has taken in other areas of governance since coming to power, the military jumpstarted administration of the new BOI by approving new projects worth 120 billion baht, or approximately US$3.7 billion.
This comes after the junta successfully distributed—in a matter of weeks—nearly 90 billion baht in overdue payments to about a million rice farmers who had failed to receive any compensation for many months from the previous government when the funds from a controversial rice-pledging scheme were mismanaged and mysteriously dried up.
The biggest winner in the announcement from the BOI was Toyota Motor Corp, which is planning to spend 51.5 billion baht to expand its production of pickup trucks and parts.
The projects winning approval were mostly industrial in nature. Some of the other projects receiving approval included:
- A tire production plant in Rayong by LLIT receiving 9 billion baht of investment
- A glass bottle production plant in Saraburi worth 1.9 billion baht
- A plant for producing laminated steel plates in Rayong receiving investments of 10 billion baht.
- A ceramics plant in Saraburi with an investment of 1.7 billion baht
- Cold storage projects by CPF in Nakhon Ratchasima, Chachoengsao and Samut Sakhon totalling around 2.7 billion baht.
- A new auto plant built as a joint venture of China’s SAIC Motor and Thailand’s CP Group worth 9.2 billion baht
- A data center by Luxemburg’s Supernap International for a 6.9 billion baht investment
The project approvals are a welcome shot in the arm to the Thai economy after approval for BOI projects had reached a backlog under the previous government of former Prime Minister Yingluck Shinawatra.
The good news for investors is that this is just the beginning for the newly revamped Thailand BOI, which plans to continue to support both domestic and foreign investment in the country.
General Prayuth listed four principals that he thinks investors should be mindful of:
- Research work by Thais and a transfer of technology to Thai people should be encouraged.
- Thailand’s raw materials should be used more for adding value to products for both domestic consumption and export.
- Projects applying for BOI investment support need to have made some effort to reduce their energy consumption, including making use of alternative energy sources.
- The manufacturing processes used in the proposed projects must not be destructive to the environment, and any large-scale projects need to have a full environmental impact study pass evaluation.
The announcement of the newly approved projects is encouraging for the future of investment in Thailand. Applications for BOI projects had dropped by 42% during the first five months of 2014 while the political deadlock brought uncertainty and slowed progress down to a halt. But with the military government keen to get the economy moving again, we can expect to see more action being taken by the BOI in the coming months.
In Thailand’s western neighbor Myanmar, only 10 percent of the population currently owns a mobile phone. Nevertheless, Qatar based telecom Ooredoo sees this not as an obstacle but rather as an area ripe for incredible growth in the coming years. In order to fulfill this vision, it is launching the Ideabox Startup Incubation Program through Ooredoo Myanmar.
The goal of the incubator program is to identify startup companies in Myanmar that will be able to benefit and take advantage of the new 3G network that Ooredoo is introducing to this Southeast Asian nation. The incubation and acceleration program will offer a 4-6 month period of mentoring and guidance, along with office space and much needed startup capital. The amount of capital available for companies is $100,000, which will help a handful of young entrepreneurs in Myanmar focus all their energy into delivering the best product or service they can, instead of spending all their time chasing funding.
The companies to be chosen will need to be ambitious, since IdeaBox is interested in those who plan to scale quickly using increased mobile penetration—with a goal of $100 million valuations in sight.
Ooredoo is currently evaluating the applicants and the winning companies will be announced on June 27.
In the 2004 letter to the shareholders of Berkshire Hathaway, Warren Buffet made the comment that we should strive to “be fearful when others are greedy and greedy only when others are fearful.” If that advice resenates with you, it might be a good time to start a company in Thailand.
Thailand has recently had another coup d’état and according to an article from Reuters, investment is down 42%.
The total value of investment applications fell 42 percent to 308 billion baht ($9.5 billion) in the first five months of this year from a year earlier, Udom Wongviwatchai, the BOI’s secretary-general, said in a statement.
A new BOI board is in development and, as of yet, no one knows if things will become easier or more difficult in the future. But an unnamed sourced has told us the new BOI will no longer approve projects by zone. This means BOI approved companies will receive similar benefits regardless of physical office location. Before different districts would get different tax breaks or other incintives.
If you are interested in how the Thailand Board of Investment works, check out our page explaining the details, and then get in touch.