Thailand’s Thriving Hotel Sector
Thailand’s hotel sector is a key player in its economy, thanks to the country’s strong appeal as a tourist destination. This appeal isn’t just international; domestic tourism also contributes significantly. The sector’s growth and stability are attracting increasing attention from foreign investors looking to capitalize on Thailand’s tourism market.
Key Regulations: Understanding Legal Requirements for Hotels in Thailand
Setting up and running a hotel in Thailand means dealing with many important laws. The main one is the Hotel Act, but there are others like the Building Control Act, Town Planning Act, and Environmental Act. For foreign investors, the Foreign Business Act is particularly crucial, and migration laws are also a key consideration. Local governments, including the Bangkok Metropolitan Administration, oversee these laws. They handle things like health and safety clearances. Just like any other business in Thailand, hotels need to follow labor laws too.
Foreign Investment in Thailand’s Hotel Industry: Key Legal Considerations
Foreign Business Act Considerations
Operating a hotel business in Thailand, apart from hotel management services, necessitates obtaining a foreign business license as per the Foreign Business Act.
Board of Investment (BOI) Criteria for Hotel Projects
The Board of Investment (BOI) offers promotional incentives for hotel businesses. As a governmental body, the BOI encourages investment in Thailand by offering tax and non-tax incentives to eligible businesses. These incentives include exemptions from import duties on machinery, corporate income tax exemptions for up to 8 years, and exemptions on dividends for promoted companies.
Key criteria for BOI hotel projects
Key criteria for BOI hotel projects are:
1. Investment Requirements:
- Hotels with 100 or more rooms: Require a minimum investment of 2 million baht per room, excluding land and working capital.
- Hotels with fewer than 100 rooms: Need a total investment of at least 500 million baht, not counting land and working capital.
2. For Small and Medium Enterprises (SMEs):
- Hotels with 20 to 99 rooms must invest a minimum of 1 million baht per room, excluding land and working capital.
- Additional criteria include a minimum project investment of THB 500,000, excluding land and working capital, at least 51% Thai shareholding, a debt-to-equity ratio not exceeding 4:1, and total revenue from BOI-promoted and non-promoted activities not exceeding THB 500 million annually for the first three years.
3. Standardization and Approval:
- All projects must comply with standardization criteria and receive BOI approval.
4. Incentives and Eligibility
BOI specifies eligible regions for incentives. Projects located in Krabi, Bangkok, Kanchanaburi, Khon Kaen, Chachoengsao, Chon Buri, Chiang Mai, Nakhon Pathom, Nakhon Ratchasima, Nonthaburi, Pathum Thani, Prachuab Khiri Khan, Phra Nakhon Si Ayuthaya, Phang-nga, Phetchanuri, Phuket, Rayong, Songkla, Samut Prakan, Samut Sakhon, Saraburi, and Surat Thani are not eligible for import duty exemptions on machinery.
Establishing a Thai Company: The Mainstream Approach for Hotel Business
Obtaining a license in Thailand can be complex, and accessing benefits through the BOI may not be suitable for all foreign entrepreneurs interested in the hotel business. Therefore, the mainstream approach for those looking to enter the Thai hotel industry is to establish a Thai company.
Here’s how it works:
1. Create a Thai company where the majority of shareholders are Thai nationals. As a foreign investor, your ownership stake should not exceed 49% in the company.
2. This structure eliminates the need for a foreign business license, as the company is considered Thai.
3. To operate a hotel, you will need to appoint a Thai director who can assist with the hotel license application process.
For US persons, the Treaty of Amity provides an option to operate a hotel business in Thailand without the requirement of Thai partners. However, please note that this treaty does not grant land ownership rights.
Hotel Definition
The term ‘Hotel’, as defined in the Hotel Act, means an accommodation established for business purposes to provide temporary accommodation services for travelers or any other person in exchange for compensation (Hotel Act Section 4).
There are certain exemptions, including:
(1) Accommodations with up to 8 rooms accommodating no more than 30 guests are not regarded as hotels under the Hotel Act, and thus, do not require a hotel license. This is an increase from the previous threshold of no more than 4 rooms and 20 guests.
(2) Accommodations operated by a government agency, state enterprise, public organization, or other state agency, or those established for charitable or educational purposes, which do not operate on a profit or income-sharing basis;
(3) Accommodations intended for rentals longer than a month;
(4) Any other type of accommodation as specified in the Ministerial Regulation
Registration for non-hotel establishments
Exempted establishments must register with the local authorities and the Official Registrar, with this registration needing renewal every three years. Regular inspections by the authorities will ensure these establishments meet safety standards. Registration for non-hotel establishments can be done online.
Hotel Classification in Thailand
There are four hotel types:
Type 1: Hotels with up to 50 guest rooms only.
Type 2: Hotels with more than 50 guest rooms, or hotels with (1) guest rooms and (2) a dining room, restaurant, or kitchen.
Type 3: Hotels with (1) guest rooms, (2) a dining room, restaurant, or kitchen, and (3) an entertainment venue under the law governing entertainment venues or a conference room.
Type 4: Hotels with (1) guest rooms, (2) a dining room, restaurant, or kitchen, (3) an entertainment venue under the law governing entertainment venues, and (4) a conference room.
Hotel license
To obtain a hotel license in Thailand, there are several steps and requirements that need to be followed. Here is a summary of the process:
- Get Construction License: Apply at the district office where your hotel will be located. The construction license confirms that the building can be used as a hotel as per the Building Control Act.
- Submit to Provincial Office: After getting the construction license, apply to the provincial office.
- Inspection by Authorities: Your application is reviewed and the hotel is inspected by health, environmental, and construction authorities. This process can take up to 90 working days.
- License Issuance: If everything is satisfactory, the license is issued within 15 to 30 working days. The entire process may take around six months.
- Renew Every Five Years: The hotel license must be renewed every five years.
Additional Requirements and Clarifications:
- A Thai director must sign the application and related documents.
- The hotel must employ a manager with the necessary education or experience to manage the hotel affairs.
- If acquiring an existing hotel, the license must be transferred to the new owner.
Required Documents: The documents needed for a hotel license application include a construction permit, interior map, landlord documents (if any), location map, company documents, and in some cases Environment Impact Assessment.
No Hotel Business in Condominiums
On November 6, 2023, Thailand’s Department of Lands declared that condominium units cannot be used for hotel businesses. This was detailed in Circular Letter No. Mor Tor 0517.3/Wor 23302 sent to all provincial governors. The letter states that while some commercial activities are allowed in condominiums as per the Condominium Act (No. 4) B.E. 2551 (2008), this does not include hotel operations.
The letter refers to the Council of State’s Opinion No. 710/2550. It clarifies that only those commercial activities that serve condominium residents, like convenience stores or restaurants, are permitted. These businesses must also have separate entrances and exits to avoid disturbing residents.
Therefore, using condominiums for hotel business is not allowed, regardless of any agreement from other condo owners or changes in the building’s designated use. If a building owner wants to operate a hotel in a former condominium, they must first deregister it as a condominium under the Condominium Act. After deregistration, the building can be used for hotel operations, but it must comply with hotel laws and other relevant regulations.
For further inquiries about the hotel business, feel free to contact me directly or use the form below.