Living, Doing Business, and Banking in Thailand

The Castle on the hill

What’s warm, politically stable, has very low if not zero taxes, and a business-friendly environment? Yep, you guessed it. Cayman Islands.

What’s warm, politically unstable, has onerous taxes, and so much red-tape that it would make even an Italian bureaucrat jealous? Sawadee! Welcome to Thailand, the topic of today’s casual inspection.

Let’s kick things off with the basics.

Thailand

You don’t come to STREBER Weekly for history lessons, but suffice to say that while Thailand has existed in numerous incarnations throughout the centuries and millenniums, what we today call Thailand is quite young.

If we go right ahead to modern times, Thailand emerges as the sole nation in the region to have maintained independence. While it was under strong British influence, it avoided both the French and British colonialism that took over most of the so-called Indochina region.

In World War 1, Thailand (Siam, as it was called then) aligned with the British and French, declaring war on Germany and Austria-Hungary in 1917. Siamese troops were deployed among in Europe, shortly before the war ended.

The absolute monarchy that had been prevalent in Siam and Thailand in various shapes and forms for centuries came to an abrupt end in the 1932 Siamese revolution. The revolutionaries changed Siam to a constitutional monarchy. This lasted for barely a year and in 1933, the country fell into civil war. The end-product of the war was a rise of a fascist regime, led by a man Plaek Phibunsongkhram, who looked up to Mussolini and Hitler. It was at this time, the name of the country changed from Siam to Thailand.

Thailand declared itself neutral in World War 2 until it was occupied by Japan. Grim atrocities were committed by the Japanese forces as well as by the complacent and sometimes supportive Thai leaders.

As the war came to an end, Thailand was freed by Allied forces and received significant US support, which saw Thailand as a staunchly anti-communist country. A free election was held in 1946, the country’s first ever.

However, by the 1950s, military rule was back. I’m going to gloss over the next couple of decades simply because so much happened due to the Vietnam war and other changes in the region. Briefly speaking, Thailand remained a military dictatorship until the 1970s, when between 1973 and 1976 a democratic government ruled until the military took over again.

There has been back and forth between various incarnations of dictatorship, moments of democracy, and severe political instability. This continues to this day. I plan to publish this article in the middle of April 2017. Come back in one year, and the rule of government may be entirely different in Thailand.

Through it all, Thailand has managed to become a significant economic power in the region, with a PPP GDP comparable to that of Australia, albeit with three times the population, and twice that of Vietnam with 2/3 the population. Thailand holds tremendous financial reserves and is by, most economic measurements, is fiscally healthy. To give you an idea, in many economic performance indices of the region, it’s only beaten by Singapore (not all such indices separate Hong Kong from China and may not include Taiwan, though).

Official unemployment figures are low, often below 1%. Most (upwards of 90%) are employed in unskilled or low-skilled jobs, many or most which may become obsolete with automation. The government is investing heavily in education to reduce the impact of this over the coming decades.

The economy is fairly diverse with no over-reliance on any one industry or sector. In broad terms, agriculture, manufacturing/production, and tourism are the largest sectors.

There is a large divide between rich and poor. The literacy rate stands at around 95%, with youth literacy being close to 99%; an indicator that investments in education are successful.

English name: Kingdom of Thailand
Official name: ราชอาณาจักรไทย (Ratcha-anachak Thai)
Population: 68 million
Area: 512,210 km2
Region: South-East Asia
Official language(s): Thai
Other major languages: Isan, Kam Mueang, Pak Tai
GDP (PPP): 1.15 trillion USD
GDP (PPP) per capita: 16,000 USD
Currency: Baht (THB)
Government: Monarchy / Military junta
Indepence: Multiple
Legal system:  Civil law with common law influences
Tax system: Worldwide
FATCA: IGA Model 1
CRS/AEOI: Probably by 2022
OECD Rating: Unreviewed
TIEA: 0
DTC: 48
FATF 40+9: Mostly Compliant
FATF AML Deficient: No
Corruption Ranking: 101 (of 176)
Narcotics Majors List: No
Fragile States Index: Elevated Warning (78.8)
Basel Index: 49 (of 149)
Financial Secrey Index: N/A

 

Living

What started out as tourism turned into expats staying longer and longer, with many eventually settling down.

Costs of living are low in Thailand, compared to high-income countries. A modestly-sized wealth lasts a lot longer in Thailand than in Finland.

Where

At some 513,000km2, Thailand is a large country. It has enough variation to satisfy most tastes: stunning beaches, one huge city, deep jungles, small villages, and medium-sized cities.

Most expats settle down in Bangkok or somewhere along the coast.

Bangkok is a huge city with over 8 million people living in the city and 15 million in the metropolitan area. The second largest city in Thailand is Nonthaburi, with a population of a bit under 300,000. A thick skin is required to live in Bangkok. The city is an unpolished pearl in many ways. Intense traffic, busy people, loud noises, oppressive heat, high humidity, and no shortage of decadence. It’s also incredibly beautiful and serene in some parts.

If you want your money (and health) to last longer, you’ll find large expat communities throughout the cities and villages on the coast and out on the islands. You will also run into thousands of tourists in most places but there is no shortage of quiet villages.

Integration and Assimilation

Most readers of STREBER Weekly come from Europe, North America, and Australia (i.e. wealth western nations) as are most expats I know of who have moved to Thailand, so this is going to be written from that perspective. Your reality may differ.

Depending on where you settle down in Thailand, you may either be dime a dozen (i.e. in Bangkok), just another westerner (in some community with tourists/expats), or stick out like a sore thumb. However, no matter where you settle down, one thing seems to be in common: you will be well-received. There is no significant hostility towards expats, as long as you make an effort to fit in. I’m told it’s very similar to Costa Rica in this regard.

Pick up the local language. It’s very difficult to fully master but learning the basics should be on your to-do list.

Health and Safety

Understand that much of Thailand is jungle and the wildlife isn’t always cute and friendly. Take precautions. Stay up to date on your inoculations and vaccinations as required depending on the area you are in (or just get them all!).

Crime is generally low throughout the country, including in Bangkok. Take normal precautions and be vigilant, as you would anywhere else, and you’ll be fine. You would be wise to ensure you have a good private health insurance before you step out in the streets of Bangkok (or anywhere else) because accidents are quite common.

It’s quite common to rent or buy motorbikes in Thailand. Wear a helmet and as much protective gear as you are comfortable with in the heat (relative to how much you treasure your own life). Accidents are common, whether with other motorists, due to poor roads, or accidents involving wildlife.

Hospitals are quite good but you’ll thank yourself if your health insurance covers being taken to for example Singapore or South Korea, where the quality is much higher. (I plan to write an article at some point in the future on international private health insurances.)

Liberty

Freedoms of speech, of press, and of religion are not strong in Thailand. Personal liberty is not comparable to the west in these regards.

As an expat keeping a low profile, this is unlikely to ever affect you, though.

As hard as it may be to believe after a night out in Bangkok, Thailand is tough on criminals and especially on drugs.

Keep a few hundred baht around for paying bribes to police. There isn’t much subtlety here so you’ll know when it’s time to pay the bribe, unlike in many other countries where bribing is much more of a delicate art.

Taxation

Tax residence follows an 180-day rule, whereby you become tax resident in Thailand if you stay in the country for 180 or more days in a year.

Personal income tax varies from 0% to 35%.

Foreign-sourced income, which includes capital gains, is exempt from tax if they are remitted into Thailand the year after they were earned. If you move to Thailand in 2017 and have enough savings to live on for a year, you can start bringing in foreign-sourced income earned in 2017 and pay no tax.

There is also a special flat 15% tax rate for expats holding special professions. This is similar to Highly Qualified Persons scheme in Malta but with a much broader availability.

Visas and Permits

I have dreaded writing this part since it’s the piece I’m least familiar with. The expats I know in Thailand have settled down under convoluted usages (and in some cases abuses) of visas. Only some have managed (or have bothered) to secure actual immigration visas. Many are content keeping a low profile, coming and going as they please and paying no tax.

There are a number of different visas and many can be extended in Thailand or by leaving the country for a day and coming back. Under such schemes, you often stay in Thailand for blocks of 30, 60, or 90 days before you have to renew or do a visa run. During that time, you can’t take up local work but there is very little stopping you from running a foreign business.

Doing Business

So what’s it like to run a business from Thailand?

Incorporation in Thailand

Compared to other developing countries, it’s not terribly difficult to set up a company in Thailand and things continue to get better. It’s far behind regional powerhouses like Hong Kong and Singapore as well as many European countries and the US. Expect the whole process to take about a month. Get yourself a solid accounting or law firm to help you out.

Costs are rather humble. It’s entirely possible to set up a company for well under 50,000 THB (as of writing, about 1,400 EUR/USD) including all forms and fees and services such as registered office address.

If you are forming the company prior to arriving in Thailand and you want to set up a business in Thailand to get residence visa and work permit, expect the total costs to double. If this is the case, the minimum capital requirement of the company should be at least two million THB (as of writing, about 55,000 EUR/USD). Otherwise, there is no minimum.

Foreign vs. Local Company

If you’re not hiring people locally or run a local business that sells to customers in Thailand, most expats don’t actually form a local company. Many keep whatever company they had prior to coming to Thailand or set up new entities in usually Hong Kong or Singapore.

Taxation

Corporate taxation in Thailand is a tricky beast on paper and a very different one in reality.

The corporate tax is 20% on worldwide-sourced profits. Various exemptions and incentives exist to lower this for companies with share capitals under 5 million BHT and gross income under 30 million THB: a full exemption on the first 300,000 THB profit and a reduced 15% rate on profits from 300,000 to 3 million THB.

What about tax residence for companies in Thailand? Is a company incorporated in a territorial or zero taxation jurisdiction, operated from Thailand is exempt from taxation? Can you run a Hong Kong company in Thailand at zero tax?

Things get messy here but the gist of it is that Thailand effectively has a mix of a territorial and a remittance taxation system for foreign companies.

If an entity is not incorporated in Thailand, it usually only owes tax on income that derives from local activities. What constitutes local activities is less clear. It’s generally tolerated but not necessarily fully compliant with the law for foreign companies (especially owned by foreign nationals) that engage in digital services, investment/holding activities (passive or semi-passive incomes), or don’t sell to Thai customers to not pay any corporate tax in Thailand.

However, income remitted into Thailand may be considered taxable. It’s extremely rare for these companies to bank in Thailand, though, so this hardly ever becomes relevant.

Banking

Banks

Walking around in Bangkok or elsewhere in Thailand, you might be surprised by how few familiar bank names you might see in Thailand. While Citibank, HSBC, and Standard Chartered are here, they are relatively small.

The banking sector is dominated by local banks, although there is significant ownership by foreign banks such as Bank of Ayudha, which is 76% owned by Japanese bank BTMU (whose own operation in Thailand is a fraction), and Thanachart Bank which is 49% owned by the Canadian bank Scotiabank.

Foreign currency accounts are fairly commonplace and have minimum deposits of around 500 to 5,000 USD/EUR. An impressive range of currencies is usually available; major Asian and European currencies are often on the menu.
Fees are usually quite low. Nearly all banks offer online banking in English and pretty good customer service in English.

Banking Secrecy in Thailand

As of writing, Thailand is in the process of signing up for the Commons Reporting Standard (CRS) and is expected to implement AEOI in the next coming years. It has already signed up for FATCA.

As is common in developing countries, banking secrecy is not particularly strong in Thailand (or has historically only been strong due to a lack of implementation of international standards; not intentionally). However, not being entirely up to date with the latest standards of customer due diligence means Thai banks and financial service providers often aren’t as inquisitive as in other jurisdiction. This is the root cause of most jurisdictions’ compliance problems. They don’t know to question who’s behind a trust or a company. This can be, and routinely is, exploited to open bank accounts without disclosing the UBO.

When it comes to UBO secrecy, I prefer the lawful methods I touch on in my AEOI Mitigation article.

Personal Resident Bank Account

Although you might not need one if you earn your income from outside Thailand, having a local personal account can be very convenient as it lets you access the local debit card networks and ATMs at much more attractive fees.

Armed with a passport and work permit or some other form of immigration visa, you’ll walk out with a bank account, online banking, and debit card quickly.

Personal Non-Resident Bank Account

Opening a bank account for non-residents is still a fairly uncommon request in Thailand. There are really no clear policies and you will find different responses at different branches even with the same bank.

You will often be asked to produce work permit or some other form of visa that proves you have the right to stay in Thailand. Showing a tourist visa and hoping for the best usually won’t work, at least not on its own. Expect to have to explain your reason for opening a bank account clearly.

If possible, make arrangements in advance and schedule an appointment at a specific branch with a specific person.

The following banks are known to open bank accounts for non-resident persons:

  • Bangkok Bank
  • CIMB
  • Kasikorn
  • SCB (Siam Commercial Bank)
  • UOB

Local Company Bank Account

It’s worth noting that banks often require that a local company have a majority of its directors be resident in Thailand.

Foreign Company Bank Account

Practically never opened other than if the foreign company has a local branch in Thailand and does business in Thailand. This isn’t a huge loss since corporate banking in Thailand isn’t up to par with for example Hong Kong and Singapore, both of which are a short flight away.

Conclusion

I have not spent any long periods of time in Thailand but I have enjoyed every visit, whether it’s been to Bangkok or elsewhere in the country. Those expats who make it work for themselves tend to stick around for a long time. Some, however, can’t take it and move away.

Doing business in Thailand doesn’t have any significant advantages, unless you are making use of the large workforce, low costs, and strong infrastructure for exporting. If you’re a typical digital nomad type of person earning a good salary from a foreign company outside of the country,  Thailand can be a fantastic place to live.

For the perpetual traveler, establishing a tax residence in Thailand can be a moderately attractive prospect.

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