How to Set Up a Joint Venture in Thailand

Did you know that a Joint Venture can be an efficient means of entering specific sectors of the Thai market by collaborating with another company? However, forming a joint venture in Thailand requires careful planning, adherence to legal requirements, and a clear agreement between you and your partner. This comprehensive guide outlines the pros and cons of a joint venture and the key steps and requirements involved. 

Understanding Joint Ventures in Vietnam

What is a Joint Venture?

A joint venture in Thailand involves two or more parties collaborating to achieve a common objective while sharing risks, resources, and profits. This partnership often includes a Thai company and foreign investors and is more common in sectors like manufacturing, services, and marketing. The parties establish a written agreement that outlines the terms of collaboration, including management responsibilities and profit-sharing arrangements.

Joint ventures in Thailand fall into two main categories:

• Incorporated Joint Venture – a separate legal entity typically in the form of a private limited company. If a joint venture has more than 49% foreign ownership, it must comply with the Foreign Business Act (FBA), which may require additional permits and adherence to Thailand’s Negative Investment List.
• Unincorporated Joint Venture – Operates based on contractual agreements without forming a new legal entity. Partners in a joint venture retain individual liability for the venture’s obligations, meaning your assets may be at risk.

Incorporated Joint Ventures are generally more suitable for a formal structure with limited liability and clearer governance frameworks. They are common for long-term investments and larger projects. On the other hand, Unincorporated Joint Ventures may be preferable if you are looking for flexibility and lower initial setup costs, but they will come with higher personal risk and less regulatory support.

Regulatory Framework for Foreign Ownership

The Foreign Business Act (FBA) in Thailand regulates foreign investment and business operations within the country. It defines a foreign business as any company where foreign ownership exceeds 49%, requiring such entities to obtain a Foreign Business License (FBL) before commencing operations. 

The Act categorizes businesses into three lists based on the level of restrictions: 

Foreign Ownership	Details	Sector
Prohibited	Activities that are completely prohibited for foreigners.	– Media – Agriculture – Natural resources – Antiques and historical objects
Conditional	Businesses that require special permission and licenses. Requires 40% Thai ownership or requires special permission from the Cabinet.	– National security – Thai art and handicrafts – Activities that may affect natural resources
Competitive	Generally, open to foreign investment but requires a Foreign Business License (FBL)	– Agricultural processing – Services (accounting, legal, architecture, engineering, etc.) – Construction – Hospitality – Food services – Advertising and Media

Pros and Cons of Starting a Joint Venture in Thailand

A joint venture (JV) in Thailand can offer plenty of advantages for companies who want to expand to the market or gain access to local resources. However, establishing a JV in the country can also come with potential downsides due to the limited control afforded through the partnership:

Pros

Cons

– Market entry and expansion to the country allowing you to gain market knowledge and existing networks from your local partner.  – Shared financial risks and investment costs. Together with your partner, you can pool financial resources and share knowledge to undertake larger and more complex projects that would’ve been difficult to execute individually.  – The Thai Board of Investment (BOI) offers incentives for certain types of joint ventures, particularly in strategic industries that promote innovation and industry in Thailand.  – Help navigate legal restrictions on foreign ownership in certain sectors.

– Possible conflicts of interest between partners in management and decision-making processes due to cultural differences, management styles, or imbalance of shared responsibilities between shareholders.  – Partners may need to share proprietary information or trade secrets, which poses risks if the partnership dissolves or if one partner goes against agreed terms. – Dissolution can be complicated and contentious, especially if the partnership agreement does not clearly outline exit strategies or terms for asset division.

Establishment Process for a Joint Venture Company in Thailand

Under the Civil and Commercial Code in Thailand, you must register your Joint Venture company with the Department of Business Development (DBD). The registration process typically takes about 5-7 weeks depending on the size and complexity of your joint venture. Below you’ll find the key steps for legally registering a Joint Venture in Thailand: 

1. Conduct market research – define your objectives for the joint venture by identifying gaps that your local partner could fill. Conduct due diligence on your partner’s credibility, financial stability, and reputation within the industry. 
2. Prepare necessary documentation – after building rapport with your local partner, you need to prepare all the necessary documents such as:
   1. Memorandum of Intent – outlines the preliminary agreement between you and your local partner, including the purpose of the joint venture, capital contributions, profit-sharing arrangements, and project timelines.
   2.  Joint Venture Agreement – a formal contract detailing the rights and obligations of each party, management structure, decision-making processes, and dispute resolution mechanisms. This agreement is crucial for clarifying expectations and minimizing conflicts.
   3. Company registration documents: 
      1. Application for Company Registration 
      2. Articles of Association
      3. Shareholder information and identification
      4. Registered business address in Thailand
3. Register your company with the DBD – submit all the required documents to the DBD. Once approved, you will be issued a Certificate of Incorporation which will be used for acquiring specific licenses, tax registration, and opening a local corporate account. 
4. Corporate tax registration – Once a joint venture is established, it must apply for a taxpayer identification number (TIN) from the Revenue Department of Thailand. Both types of joint ventures must apply for a taxpayer identification card and, if applicable, register for Value Added Tax (VAT) if revenue exceeds THB 1.8 million annually.
5. Open a local bank account – To open a corporate bank account in Thailand for a joint venture company, at least one director must be physically present during this process. If they are a foreigner, a work permit must be required. 

Emerhub can help you register your joint venture company in Thailand by providing comprehensive end-to-end service. This includes legal entity setup and acquiring necessary requirements. We can help you with your company’s tax and accounting compliance, allowing you to focus on growing your business without the hassle of administrative burdens.

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