Guiding foreigners through Thailand’s legal jungle
Meet the lawyer with more than 20 years’ experience in solving the kind of problems foreign investors often face when conducting a business here
SINCE Somphob Kongwan opened his law practice in 1993 the firm has helped resolve business-related matters for thousands of foreign clients, both individuals and companies. Services provided by Somphob Tax and Law Office include setting up a company, litigation, obtaining work permits and giving legal counsel on investment, tax, property and intellectual property issues.
The firm also handles urgent cases in which foreigners must deal directly with Thai government agencies, such as when they are suspects in criminal investigations and prosecutions and when they may be at fault in car or motorcycle accidents that result in serious injury or death.
We met with Mr Somphob at Silom Complex Building on Silom Road, where he’s located his offices since 2000, to tap into his unique perspective on the Thai legal system as it applies to expats and visitors to the Kingdom.
“When I formed the company in 1993, business was very good – a lot of investment was coming in. Many foreign companies that wanted to set up shop here sought us out, as did individuals wishing to work, reside or purchase property in Thailand,” said Mr Somphob, who has the title of senior partner in the firm.
“However, at the end of 1997 the financial crisis struck and a lot of businesses went bankrupt. Many of our clients were affected. For example, they couldn’t pay their loans. We helped by talking to the lenders, handling bankruptcy cases and reorganizing businesses. As a result, many of our clients were able to survive and move on.
“In fact, the financial crisis created immense opportunities for lawyers. My company was overwhelmed by requests for help, and I think we did help many people.”
Asked why his clients are mostly foreigners, Mr Somphob replied: “Some of them knew me when I was with the international law firm of Baker & McKenzie. When I opened my firm they came along because they trusted me to provide good services. In addition, I approached several foreign chambers of commerce to establish relations with their members.
“In the past we focused mostly on Western entrepreneurs and companies from the United States, Canada, European countries, Australia and New Zealand. Later we started to attract more clients from Asian countries like Singapore, Hong Kong, Malaysia, Japan, Korea and more recently China.
“One thing that makes us different from other Thai law firms is that we actively engage with Chinese citizens and companies, sometimes through collaborations with Chinese law firms. We have Chinese staff speaking Mandarin, and we are active in a number of provinces and major cities in China like Beijing, Shanghai, Shenzhen, Wuhan and Kunming. At the same time we are expanding through collaborations with firms from other Asian Economic Community (AEC) member-countries.”
Mr Somphob said the firm places a lot of emphasis on research and development. “Anyone involved with business law should build their expertise through training, education and reading reports, newsletters and other materials. We make it a point to be up to date on new legal developments, like new laws, amendments to laws and so on. Every month we conduct in-house training for our staff.”
“Politicians usually study law, so a law degree puts me on an equal footing
dealing with them.”
Having known Mr Somphob for over 20 years, I can say that I have always found him to be both a remarkably humble person and a remarkably astute lawyer. His perfect command of English and deep knowledge of the Thai legal code and system – not only pertaining to business law – are qualities that make clients comfortable and inspire confidence.
Mr Somphob was born in Bangkok in 1962 and raised in Nakhon Pathom province. His early years and family background were fairly average. While in high school he was undecided on a career path, but after reflecting on the many injustices at the hands of government officials that he had witnessed against farmers, including his own family, he decided to become a lawyer. “I wanted to defend farmers against abuse,” Mr Somphob said.
“Also, I learned that politicians usually study law, so I reasoned that a law degree would put me on an equal footing if I had to deal with them.”
After Mr Somphob finished his studies at Thammasat University’s Faculty of Law in 1987, he practiced briefly with a local firm before joining Baker & McKenzie in 1990. “While I was working for Baker & McKenzie, I was also planning the move to open my own legal firm. In 1993 business was booming and I felt it was the right time.
“Currently we have 25 staff members that includes 15 lawyers and ten other staff. We have five partners, including myself, in charge of five departments: corporate and commercial, taxation, real estate, litigation and IP. We have been in business for 23 years have hundreds of loyal clients.
“From the start it was my intention to set up the firm for long-term success. This means discouraging talented staff from moving on after they get valuable experience, and the way we do that is to promote senior staff to the level of partner. For example, after the head of our immigration department had been with us for a number of years she was made a partner. This is also the case for the heads of our tax, commercial and litigation departments. The partners are like shareholders, we all share in the profits. This kind of arrangement is beneficial for all departments, which each have their own lawyers and other staff.”
Assistance with IP issues, from trademarks and copyrights to patents and e-commerce
“During the past ten years many new firms have opened up, creating a lot of competition. Therefore I started thinking about more specialized areas for the firm to branch out. The result is that we have moved away from general law practice to an Intellectual Property practice. We cover all areas of IP – trademarks, copyrights, patents, design, technology, franchising, and e-commerce. We launched our website for registration of trademarks (www.tmpg-thailand.com) about ten years ago and created a new digital platform (www.tmthonline.com). We actively recruit lawyers who specialize in IP matters.
“The Trademark Protection Group of Thailand was created under my supervision. In the coming years we will place even more emphasis on IP Ecosystem. We are involved in creating institutions to train professionals in IP matters, with support from the government and private sector. Thailand badly needs more IP professionals,” said Mr Somphob.
“In North America and Europe, IP work has been an important part of the practice of law for a long time, but in Asia we are just getting started. We want to be the leader of this field in Thailand and we have expanded to cover not only other parts of Asia, but also North America, Europe, and Africa. In fact, anyone who wants to register a trademark, copyright, patent, industrial design or geographical indication in any country around the world can come to us. If you need registration services, we will be happy to do it from here,” Mr Somphob said.
“Moreover, we can help our clients in disputes that occur in other countries, and this saves them a lot of time and money. It is very expensive to travel abroad and pay high fees for lawyers, for example in the United States. That’s why I am travelling to many countries to meet with law firms we are associated with, or sister firms. We can also go with clients to any country where they have a problem and coordinate action with a sister firm.
“Despite our determined expansion into IP law, we are still keeping the old practices like corporate, taxation, immigration, litigation and property. We will also focus also on building our client base with small and medium-sized enterprises (SME) in Thailand and elsewhere, and develop a global digital platform for IP law issues.”
Mr Somphob also revealed an ambitious project to expand into the Chinese market.
“I plan to create a new Chinese legal practice group department within the firm to take advantage of strategic initiatives recently declared by Chinese President Xi Jinping,” he said.
Advice to foreign investors
“We welcome every foreigner who wants to talk about business plans or problems. It’s free of charge the first visit. Before starting a business in Thailand, foreign investors should be shown the bigger picture and know the intricacies of setting up a company. They should know about the tax structure and how to comply with tax matters, and if they come to work here or plan on employing foreigners they should know the requirements and conditions imposed by the government before a work permit is granted.
“For example, they should know that the registered capital of a new company must be at least two million baht, fully paid up, and that a business is required to employ at least four Thai staff for every foreign employee.
“Foreign investors need to understand clearly the rules on foreign ownership of businesses in Thailand. The government allows foreigners to invest 100 percent in some businesses, mostly in the manufacturing sector, but in the service sector foreigners are required to invest jointly with a Thai partner.
“Foreign investors should be aware of the dangers of trying to skirt this requirement by creating a ‘nominee.’ It has been common practice in the past for foreigners who don’t have an actual Thai partner to allocate shares of a company to a Thai person simply for the appearance of complying with the law.
“In such a case the Thai is called a nominee, and this is strictly illegal and can even lead to criminal prosecution. The government is much stricter on this point than in the past,” Mr Somphob warned.
“Therefore, when a foreign investor comes here to do business they must check clearly whether or not they are allowed have a controlling interest in that type of business. If not, at least 51 percent must be controlled – genuinely and not just on paper – by a Thai partner or partners.
“It is also extremely important for foreign investors to understand the regulations on taxation in Thailand. If you do business here and make a profit then you have to pay corporate income tax, which is now about 23 percent. There is also a ten percent dividend tax.
“When the company is formed it must register with the government to arrange for collecting the value added tax [VAT], which is now seven percent. This is a tax on all products sold or services provided. The VAT must be paid monthly to the government, within 15 days of the first day of the following month,” said Mr Somphob, adding that foreigners in Thailand mainly invest in service oriented businesses like e-commerce and digital marketing or distribution and manufacture of healthcare products and devices.
“We see a lot of cases involving disputes among shareholders. The amount of time it takes to resolve a dispute depends on how complicated the case is. Company business disputes are normally not so complex and can be amicably solved among the shareholders.
“Sometimes disputes are between a foreigner and his Thai spouse. I call these family disputes and I have handled many such cases. Usually they can be resolved fairly easily, but they can sometimes be difficult. When children are involved I urge both parties to think about what is best for them.
“Of course, we also see disputes between foreigners and Thai partners who are not family members. Again, these cases are not usually difficult to resolve. Both sides generally understand that it will be expensive and time consuming to resolve the issue through the legal system, so they are willing to let their lawyers negotiate to solve the problem. ”
Mr Somphob said that that the number of law graduates from Thai universities has climbed steadily in recent years, but he cautioned that many graduates are not qualified to do the job. “Many universities in Bangkok and the provinces have set up law schools, but graduates of these schools generally aren’t able to practice in reputable law firms like ours.
“A major problem lies in ability to communicate, especially in English. This is important for anyone wishing to be competitive in today’s global market, and it will only become more relevant in the future. There is also a need to develop expertise in areas like international economic law, and this takes some mentoring.
“Unfortunately, in Thailand there aren’t enough people with the background and expertise to properly train new graduates. What’s more, we don’t have an organization that can connect new law graduates with the business community. If the new graduates want to start their own law practice it is very difficult to gain clients’ trust.
“Not many big firms are hiring because the market for lawyers is saturated. There are so many firms around, big and small. Therefore, most new graduates are going into completely different lines of work, like opening a restaurant or other business.”
Note: This article is published with written permission from Big Chilli Magazine
Credits to Author: MAXMILIAN WECHSLER