How Overseas Startups Can Enter Thailand and Get Government Support

Julian Leitner, founder and former CEO of Zalora Thailand, a Rocket Internet company, recently started legal advisory firm Stein focusing on obtaining investment promotions for innovative startups.

Thailand is one of Southeast Asia’s fastest developing and most promising internet markets. Currently, about 25 million Thais are online, and this figure is expected to reach 40 million to 50 million by 2015. Not only that, Thailand is addicted to social media: Bangkok is considered the world capital of Facebook when measured by the number of users in 2012. The e-commerce market, currently only about one percent of the total B2C retail market worth $95 billion, is expected to jump to three percent until 2015.

However, Thailand is not an easy playground for non-Thai companies. Strict investment regulations and the Thai language itself are just a few of the considerable number of barriers to entry. Many companies operating in Thailand, especially Western startups, struggle with issues unknown in their home markets: payments, logistics, supportive infrastructure, and corruption. In short, companies from other Southeast Asian countries might be much better equipped to enter the Thai market than large international players. Plus, once the barriers to entry are overcome – this already sizable and extremely fast growing market is easier to defend than most other internet markets.

(See: Sharing Session: An Introduction to Thailand’s Startup Ecosystem)For non-Thai nationals, doing business in Thailand is difficult. Thai nationals are required to hold a majority stake in companies, foreigners are subject to strict immigration and labor laws, and the flow of capital is heavily regulated.

Get Thai government on your side

The government, however, recognizes that certain areas should be promoted in order to attract more foreign business, capital, and knowledge. Luckily for us entrepreneurs, internet companies mostly fall into one of these promoted areas. The responsible government agency is the Board of Investment (BOI), Thailand’s official investment promotion agency.

For startups, primarily two chapters of the investment promotion regulations are of relevance: section 5.8 software development and section 5.9 for e-commerce. Both promotion categories allow for full foreign ownership, ease restrictions on the flow of capital, allow for much easier employment of non-Thai nationals, including some import duty exemptions on specialized equipment, and adds a guarantee from the Thai government of not being nationalized. In addition, chapter 5.8 grants the promoted company corporate income tax exemptions for up to eight years.

Unfortunately, also following the pressure from established local retail companies, the BOI decided to eliminate the investment promotion for e-commerce entirely and cut back the incentives for software development considerably. This will inevitably have negative effects on the newly emerging startup eco-system in Thailand. Especially external fund-raising is set to become even more challenging. However, startups wanting to enter the Thai market can still apply for an investment promotion under the old promotion regime before it expires. Regulations allow them to remain inactive up to 2.5 years after the investment promotion has been granted. Plenty of time in this fast evolving market.

Feel free to ask questions in the comments.

(Image credit: Flickr user Sigree Ibn Mamak)