Want to be a successful startup? Settle in Thailand, but register your company elsewhere

Thailand’s startup ecosystem is accelerating fast and is prepared to kick start the tech scene onto the next level. We have startups like Ookbee, now evaluated at US$70 million, Builk, which represents Thailand at 500 Startups, and many others growing the tech scene to make the country proud.

But even though quite a few startups were born and raised in the kingdom, many choose to register their companies outside of the country. Some successful startups in Thailand even recommend newbies to head over to Singapore or other nearby countries to register their company instead of doing it in the homeland. If you check out the list of startups in Thailand that received funding or made an exit on Thaistartup.net, nearly all of them in the past few years have taken this path.

Why is that?

1. Thai ownership requirement

Most venture investors remain foreign-based and they refuse to invest in a Thai-registered company, according to David Shelters. Shelters works as an MD of Karon Business Consulting, a company that provides investment banking, business brokerage, and financial advisement services to startups. He also wrote Start-Up Guide for the Technopreneur, and is a curator at Finance for Geeks. He says the Thai ownership requirement is the problem here. According to Thai laws, foreigners can’t hold more than 49 percent of the company’s stock. That’s quite a restriction for a startup raising bigger rounds of funding from international investors or trying to exit.

You also need to hire at least four Thai people on your team, regardless of whether your company needs them or not.

2. Tax rate

A Thai company generally pays 30 percent of its net profit in taxes, while Singapore only takes 17 percent. That’s 13 percent more profit founders can put back into their companies. ‘Nuff said.

(See: Tech company expanding to Singapore? 3 things you may not know about the city (Startup Asia preview)

3. Restrictions on repatriation of funds

Shelters mentioned one of the trickiest obstacles for a foreigner to run a business in Thailand is the restriction on repatriation of funds. The maximum amount of money a business can transfer to another country without paying both withholding (10 percent for dividends) and income taxes is US$20,000 per year.

The Bank of Thailand’s website notes:

Foreign currencies can be transferred or brought into Thailand without limit. Any person receiving foreign currencies from abroad is required to repatriate such funds immediately and sell to an authorized bank or deposit them in a foreign currency account with an authorized bank within 360 days of receipt […] Any person bringing in or taking out of Thailand foreign currency bank notes in an aggregate amount exceeding US$20,000 or its equivalent must declare it with a customs officer.

Because of the aforementioned obstacles, promising startups are lured away at the Series A stage. They do not have the opportunity to grow as a Thai entity to a Series B funding round. Consequently the deal pipeline for Thai-based private equity companies has dried up. This is bad because private equity firms provide the last funding round before companies contemplate a public listing. This results in a smaller pool of companies for listing, and no tech startup has gone public in Thailand up to this point.

Shelters concludes:

In sum there is little hope for a successful exit of a startup in Thailand (Indeed no successful exit – IPO or M&A – has occurred yet in Thailand) so it is hard to justify investing in a Thai-registered business and endure through all the prohibitive monthly business filings, draconian repatriation of funds requirements, high taxes (income, VAT, etc.), foreign ownership limitations, etc only to ultimately have to register the company at a later stage (when it is much more complicated and costly) to execute a successful exit.

(See: Thailand is ready for tech acceleration despite the lack of government (Startup Asia preview))

In conclusion, If you are a Thai startup and need to raise funds from a foreign investor, registering in Thailand could make raising funds trickier. If you’re a foreign entrepreneur who aspires to have a business in Thailand, you might have to consider paying a fortune to legally work here and hire at least four Thai employees.This is the unfortunate reality.

Startups are pushing through the bureaucracy, though. As I’ve mentioned earlier, there are a few star startups from Thailand that shine on a global level. Showing that entrepreneurs from Thailand can make it big might be enough to persuade foreigners to invest or branch out here, regardless of the less-than-friendly investment laws.

(Image credit: Flickr user bayerberg)

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