Homepage‎ > ‎Business Services‎ > ‎

Forming a Joint Venture

A joint venture may be described in accordance with general practice as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together. It has not yet been recognized as a legal entity under the Civil and Commercial Code. 

However, income from the joint venture is subject to corporate taxation under the Revenue Code, which classifies it as a single entity.

Come & visit us for a free consultation to discuss your specific requirements.

Call our Hotline: 096 165 1936

Types of Joint Ventures

Incorporated Joint Ventures

A Thai private limited company that is owned by two or more companies or groups of shareholders is often referred to as a joint venture (although there is no language governing incorporated joint ventures in Thailand’s legal code). There are no specific restrictions on joint ventures, except that companies which are majority foreign-owned are treated as “foreign”. Joint ventures which receive promotional incentives from the Board of Investment (BOI) can be exempted from restrictions that would be imposed on a “foreign” venture.

Unincorporated Joint Ventures

In a contracted project, which cannot be carried out by a single company, it is common for a company to join with others in the form of a joint venture. Although the joint venture may engage in business, it cannot be registered. The Revenue Department, however, treats a joint venture as a juristic company for purposes of tax liability. The joint venture must, therefore, apply for a taxpayer identification card. Moreover, Value Added Tax registration is required if a joint venture is qualified under the requirements of the Revenue Code.

This Code requires that at least one of the joint venture partners be a juristic entity, and the Revenue Department further stipulates that the joint venture must have two elements:

• A joint investment in the joint venture and a sharing of profit or loss under the joint venture agreement; and
• The partners have joint liability to third parties dealing with the joint venture.

A foreign company which participates in an unincorporated joint venture is required to obtain an Alien Business Permit and create a branch office in Thailand to engage in business as a partner of the joint venture. Such foreign partners do not need to register for their own taxpayer identification card, because merely acting as a partner is not considered “doing business.” However, the joint venture itself must register. The registration process for the permit of the foreign partner and the taxpayer identification card of the joint venture takes about 5-7 weeks to complete. The government fee, collected upon issuance of the business permit to the foreign partner, will be five Baht per 1,000Baht of the registered capital of the foreign partner, with 10,000 Baht as the maximum fee.

Joint Venture Partners General guidelines

Joint ventures between Thai and foreign companies are increasingly common in manufacturing, marketing/distribution and services. As in other countries, joint venture partners are usually companies or individuals operating in the same or related manufacturing activities or markets, with similar business objectives and growth strategies. General guidelines for Thai joint venture partner selection by foreign partners are:

• Interest in a joint venture relationship with a foreign partner
• Compatible corporate vision/strategies
• Compatible management styles
• Compatible size
• Effective two-way communications
• Complementary products, markets and services.
• Financial strength and stability

Joint venture with family-owned groups

Most Thai companies started up as family-run enterprises, and several of Thailand’s largest business groups are still family-controlled. Thus, family members are logical prospects as joint venture partners.

Joint venture with the Crown Property Bureau

The Crown Property Bureau, a Thai government agency that manages Royal properties, takes equity positions in public and private companies as a passive investor. Association with the Crown Property Bureau confers legitimacy and prestige on a joint venture.

Joint venture with a commercial bank

Commercial banks are permitted under Thai law to invest up to 10 percent of their assets in companies. Most banks have investment arms, which can commit such investments. Banks are desirable JV partners because of their prestige, connections and capital resources.

Joint venture agreements

Joint venture collaboration is usually governed by legal agreements, which follow standard legal forms, used in other countries, e.g., Memoranda of Understanding, Confidentiality Agreements, Joint Venture Partner Agreements, etc. In addition to standard legal provisions in JV agreements, negotiating points, which usually require special attention, are:

• Ownership split
• Management control
• Specifics of contributions by each JV partner
• Protection of intellectual property rights
• Technology transfer and methods of transfer
• Dispute resolution
• Termination provisions

Identification of joint venture partners

Foreign firms can identify attractive collaborative partners from a number of sources, including:

• The Board of Investment
• Law firms
• Auditing and accounting firms
• Consulting firms
• Commercial banks
• Merchant banks
• Securities firms
• Federation of Thai Industries (FTI)
• Thai Chamber of Commerce (TCC)
• Foreign chambers of commerce
• Thai/foreign business councils
• Commercial offices of foreign embassies

BOI joint venture criteria

For investment projects in agriculture, animal husbandry, fisheries, mineral exploration and mining, or service sectors, Thai nationals must hold no less than 51 percent of the registered capital. However, for projects with investment of over one billion Baht, foreigners may initially hold the majority or all of the shares, but Thai nationals must acquire at least 51 percent of the shares within five years of operation.

For manufacturing activities, majority or total foreign ownership of projects is permitted, and there is no foreign export requirement for any project. Existing projects that were subjected to export requirements as a result of previous joint venture criteria may request the removal of the export requirement from their investment promotion certificate.