Accounting and other issues to be considered in the establishment of manufacturing facilities in Thailand.
By Suzanne Mitchell
Accountant KW DT Ltd
11th February 2011
Prepared for the Board of Directors – KW DT Ltd
TABLE OF CONTENTS
Glossary of Terms 4
Executive Summary 5
Background 6 Purpose 6 Scope and Limitations 7
Thailand 8 An Overview 8
Setting up a Business in Thailand 10 Requirements for Registering a Business in Thailand 10 Accounting Requirements 11 Tax Issues 12
Foreign Exchange Risk, Foreign Currency Translation & Hedging 13
Table 1: Exchange Rates for THB and AUD – 30 Days 14 Translation 14
Other Major Issues to Consider 16
Intellectual Property 16
Cultural Issues and Business Etiquette 16
Figure 1: Costs of Starting and Operating a Business 21
Figure 2: Tax Rates and Double Taxation Agreements 22
Figure 3: Withholding Tax Rates from Bank Deposits & VAT 23
GLOSSARY OF TERMS
AFTA ASEAN Free Trade Area
APEC Asia-Pacific Economic Cooperation
ASEAN Association of Southeast Asian Nations
AUD Australian Dollar
BOI The Board of Investment of Thailand
DTA Double Taxation Agreement
FBA Foreign Business Act 1999
FTA Free Trade Agreement
GAAP Generally Accepted Accounting Principals
GAAT General Agreement on Tariffs and Trade
HDD Hard disk drive
IAS International Accounting Standards
IC Integrated Circuit
IEAT Industrial Estate Authority of Thailand
IFRS International Financial Reporting Standards
MOC Ministry of Commerce
MOF Ministry of Finance
PCB Printed circuit board
PCT Patent Cooperation Treaty
RBF Ready-built factory
TAS Thai Accounting Standards
TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights
TFRS Thai Financial Reporting Standards
UN United Nation
VAT Value Added Tax
WTO World Trade Organisation
Thailand is truly a global economy. It is a member nation of UN, WTO, APEC and ASEAN and a party to Intellectual Property protection TRIPS. Whilst its accounting systems have been based in the past on United States GAAP, they have now introduced Thai Accounting Standards aligned with IAS. The alignment with IAS means it will reduce accounting related problems.
Foreign currency risks can be overcome to a certain extent by hedging, and accounting standards lay down the requirements for accounting for and reporting of foreign currency transactions.
The Thai economy relies heavily on its exports and is currently promoting growth in its electric and electronics industry. To this end they are offering tax emptions and other incentives to encourage investment in these industries, particularly in regional industrial estates that have been purpose built.
Thai business relationships are often rated more highly than the business itself. Great care should be taken to ensure an understanding of Thai business etiquette prior to commencing any form of transaction with business people or officials, as to ‘get it wrong’ could lead to many complications in doing business in Thailand.
KW DT Ltd has been successfully exporting digital technology products to numerous overseas clients for several years. In response to increased demand and with a view to lowering manufacturing costs, the board are considering the establishment of an off-shore manufacturing facility in Thailand.
This report was requested by the Board to provide an overview to the many factors that must be considered in establishing and maintaining operations in a foreign country.
Factors such as;
What accounting issues will need to be considered when deciding whether or not to establish manufacturing operations in Thailand; (in no particular order)
Set up requirements and costs
Foreign exchange risk