Introduction
Thailand, known for its vibrant Buddhist architecture such as Wat Phra Kaew (the Emerald Temple) and its renowned cuisine including Tom Yum Kung, one of the world's three great soups, is Southeast Asia's largest and the world's sixth-largest tourist destination, popular among Japanese traveler as well.
On the other hand, known as the "Detroit of Asia," Thailand boasts a wide-ranging supply chain in the automotive industry. Major Japanese automakers such as Toyota and Honda have led Japan's industrial presence by establishing assembly plants in the region. Until relinquishing its position to China in the fiscal year 2019, Japan had long held the top spot in FDI (foreign direct investment), indicating deep ties with Japanese industries.
Thailand is considered a relatively mature economy within ASEAN. According to a survey conducted by JETRO in 2018, among Japanese companies already established in Thailand, 52% plan to expand their operations, 45% plan to maintain the status quo, and only 3% expressed intentions to downsize or withdraw. Hence, it is expected that Japanese companies will continue to maintain a significant position as a cornerstone of Southeast Asian operations.
This document provides an overview of the market situation in Thailand, covering recent developments and information on foreign investment regulations.
Basic Information
Capital: Bangkok
Currency: Thai Baht (1 Baht is approximately 3.5 yen)
Population: 68.98 million (2020)
Average Age: 39 years old (2020)
End of Population Bonus Year: 2031
Political System: Constitutional Monarchy
Major Religion: Buddhism (94%)
Since the military coup led by General Prayut in 2014, Thailand has been under military dictatorship, with recent activism in favor of democratization. Additionally, Thailand has one of the fastest aging populations among major emerging Asian countries, with the proportion of people aged 65 and over expected to exceed 20% by the 2030s, a significant increase from the current approximately 10%. According to the United Nations, a society is considered "aging" when the proportion of people aged 65 and over exceeds 7%, a threshold that Thailand surpassed in 2002.
Macro Information
Gross Domestic Product (GDP) (2018, nominal): Approximately 54 trillion yen
GDP Growth Rate (2018, real): 4.1%
Trade Balance (2019): Approximately 1 trillion yen
Current Account Balance (2018): Approximately 1.8 trillion yen
Market Capitalization of the Stock Market (March 2020): Approximately 40 trillion yen
2-Year Government Bond Yield (March 2020): 0.81%
10-Year Government Bond Yield (March 2020): 1.40%
Minimum Wage: Approximately 1,000 yen/day
Average Wage of Non-Manufacturing Managers: Approximately 200,000 yen/month
Real Wage Growth Rate (2018): 1.6%
Percentage of College Graduates (2018): 25.3%
Smartphone Penetration Rate (2018): 71%
Number of Japanese Companies Established (2018): 3,925
Thailand has consistently ranked as a medium-term promising investment destination in surveys such as the "Overseas Direct Investment Survey" conducted by the International Cooperation Bank over the past decade. The number of Japanese companies entering Thailand is the largest in Southeast Asia and the fourth largest in the world after China, the United States, and India. With the growth of the economy, the proportion of college graduates has exceeded 25%, and the salary levels for white-collar workers have been raised, indicating that investments are driven not merely by cheap labor but also by factors such as industrial clustering, high-skilled local talent, and attractiveness as a consumer market.
Furthermore, Thailand's per capita nominal GDP in 2018 was $6,992, making it the third-highest in the Southeast Asian region after Singapore ($64,041) and Malaysia ($11,080), positioning it as a middle-income country (defined as $5,000 or more). Compared to Indonesia and Vietnam, which have attracted attention for their recent economic growth, with per capita GDPs of $3,971 and $2,590 respectively, Thailand's status as a mature economy is evident.
Investment Environment
1. Foreign Investment Regulations
Thailand has regulations on foreign investment under the Foreign Business Act, which restricts foreign ownership in specific industries. For certain restricted industries, foreign ownership is not allowed, while most other industries have extensive restrictions. Companies with foreign ownership exceeding 50% (or 49% in specific industries) are classified as foreign companies, and their entry into regulated industries is prohibited. Therefore, entering such industries may involve exemptions through investment incentives from the BOI (Thailand Board of Investment) or joint ventures with local partners.
Additionally, regulations on land ownership are governed separately by the Land Act. Ownership of land by corporations with foreign ownership exceeding 49% (rather than 50%) is generally not permitted, and if foreign shareholders constitute the majority of shareholders, the company is considered a foreign entity. It's important to note that these criteria for capital control differ from those for ownership percentages.
Furthermore, the minimum capital requirement for foreign companies is at least 2 million Baht. However, for industries requiring special approval under the Foreign Business Act, the minimum capital is generally set at 3 million Baht or more.
2. Corporate Law
Shareholders Meeting
Ordinary resolutions are passed with the majority of votes from attending shareholders. On the other hand, special resolutions on certain important matters require approval by "three-fourths or more" of the total voting rights of attending shareholders. It's important to note differences such as this from Japanese company law, where special resolution requirements are "two-thirds or more." Additionally, it's necessary to pay attention to differences in convening notices, as newspaper announcements are mandatory in addition to individual notices.
Moreover, certain features of the capital system, such as third-party allocation of new shares, are not permitted.
At least three shareholders are required.
Board of Directors
The resolution requirement is generally a simple majority. The term of office is a maximum of three years, with the retirement of one-third (or the closest number to one-third) of directors being required at regular shareholders' meetings for each term.
3. Accounting Standards
In Thailand, external audits are mandatory for all companies regardless of size or industry, and all companies are required to appoint auditors.
Public Companies (Listed Companies.)
Companies must prepare financial statements in accordance with the Thai Financial Reporting Standards (TFRS) established by the Thai Federation of Accounting Professions, which comply with IFRS. Since 2011, convergence with IFRS has been gradually progressing, but differences still exist.
Non-Public Companies
These companies follow Thailand's own simplified accounting standards, which differ in various respects from IFRS. For example, the application of deferred tax accounting is optional, and the calculation of retirement benefit obligations does not require actuarial calculations.
4. Taxation
Corporate Income Tax (Nominal Tax Rate): 20%
Tax on Dividend Remittances to Japan (Maximum Tax Rate): 10%
Tax on Interest Remittances to Japan (Maximum Tax Rate): 15%
Tax on Royalty Remittances to Japan (Maximum Tax Rate): 15%
Value-Added Tax (Standard Tax Rate): 7%
Thank you for reading until the end. Have you gained a deeper understanding of the investment
environment in Thailand? Please note that this document primarily aims to provide an overall understanding. For individual consultations, please contact us separately.
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