Register a company now, or stay a sole trader for a while: the signs it's time to switch

Once your shop starts selling well, the advice that tends to follow is: “Register a company! You’ll pay less tax, and it looks more professional too.” It makes you want to rush off and register, right? But plenty of people register and only then discover that every year they have to pay for bookkeeping and an audit, plus a whole list of documents that suddenly have to be filed on time.

We are not here to say one option is better. We will lay out real numbers to show which size of shop suits which setup, and the signs that tell you it is time to switch.

Note: This article is general information, not personal tax advice. The example figures are simplified. Before deciding, have an accountant work it out from your shop’s real numbers, or ask the Revenue Department (call 1161) and the Department of Business Development (call 1570).

What is the difference between a sole trader and a company?

Quick Answer: As an individual, you pay tax on income minus expenses at progressive rates of 5 to 35%. A company pays tax on net profit, and an SME gets the first 300,000 baht exempt, in exchange for bookkeeping and an audit every year.

Topic	Individual (sole trader)	Limited company / registered partnership (SME)
Income tax	Progressive 5 to 35% of net income (first 150,000 baht exempt)	Profit up to 300,000 baht exempt, 300,001 to 3 million baht 15%, over 3 million baht 20%
Deducting expenses	For selling goods, choose a flat 60% or actual expenses	Actual expenses only, with evidence
Bookkeeping	A cash income and expense record, which you can do yourself	Must have a bookkeeper with the qualifications required by law
Audit	Not required	A company must have a Certified Public Accountant (CPA) every year
Money in the shop	It is simply your money	It is the company’s money, taken out as salary or dividends
Liability	Unlimited	A limited company’s shareholders are liable only up to any unpaid amount on their shares

The SME rates apply to companies or registered partnerships with paid-up capital of no more than 5 million baht and revenue from selling goods and services of no more than 30 million baht per accounting period. If you do not meet these conditions, you pay the standard rate of 20% on all profit.

Comparing the numbers: how much does a small shop vs a mid-size shop pay?

Quick Answer: A shop with sales in the hundreds of thousands barely benefits from registering a company. But for a shop with profit of several hundred thousand baht a year, total tax could drop by tens of thousands of baht, if that is worth the yearly accounting costs.

Let’s assume a single mom whose only income is the shop, using just the 60,000 baht personal allowance (in real life there are other allowances too, such as for children and social security).

Example A: sales of 600,000 baht a year, real costs about 50%

• As an individual, with the flat 60% deduction you are left with 240,000, minus the 60,000 allowance leaves net income of 180,000 baht. Tax is about 1,500 baht
• As a company, profit is about 300,000 baht, right inside the exempt band, but you have to pay for bookkeeping and an audit every year, which usually costs many times more than 1,500 baht

A shop this size is better off as a sole trader, no need to even think about it.

Example B: sales of 3,000,000 baht a year, real costs 75%, profit 750,000 baht

As an individual (deducting actual expenses, because costs are over 60%)

Step	Baht
Income after actual expenses	750,000
Personal allowance	60,000
Net income	690,000
Tax (0 + 7,500 + 20,000 + 28,500)	About 56,000

As a company, assuming you pay yourself a salary of 30,000 baht a month (360,000 baht a year, which the company can deduct as an expense)

Step	Baht
Company profit after salary	390,000
Company tax (first 300,000 exempt, 15% on the rest)	13,500
Tax on your salary (100,000 expense deduction, 60,000 allowance, leaves 200,000)	About 2,500
Total tax	About 16,000

It looks like a saving of about 40,000 baht, but hold on. There are several more things to take off:

• Monthly bookkeeping fees and the yearly audit fee (market prices vary a lot, so get quotes from 2 or 3 firms)
• Profit left in the company is not your money yet. If you pay it out as dividends, 10% withholding tax is deducted
• If the company employs you, there may be extra monthly social security and withholding tax to handle
• Sales of 3 million are over the VAT threshold, so you have to register for VAT either way

A shop this size is exactly the one where it is time to sit down properly with an accountant.

Once you register a company, what extra duties come every year?

Quick Answer: You need a bookkeeper, year-end accounts, an auditor’s sign-off, a shareholders’ meeting, financial statements filed with the Department of Business Development, and corporate income tax returns twice a year, even in a year when you make a loss.

According to the DBD guide for new juristic persons and the Revenue Department’s SME tax guide, the work looks roughly like this:

• Appoint a bookkeeper with the qualifications required by law
• Have an auditor examine and certify the financial statements every year. A limited company must use a CPA, while a registered partnership with capital of no more than 5 million, total assets of no more than 30 million and total revenue of no more than 30 million can use a Tax Auditor (TA)
• Hold the first shareholders’ meeting within 6 months of registration, and an annual general meeting every year
• Submit financial statements through the DBD e-Filing system on time, and submit the list of shareholders within 14 days after the annual general meeting
• File PND 51 (half-year return, ภ.ง.ด.51) within 2 months after the end of the first 6 months, and PND 50 (full-year return, ภ.ง.ด.50) within 150 days from the end of the accounting period
• Keep company money and personal money strictly separate. You can no longer dip into the business money for personal use the way you used to

That last point is the one many sellers say is hardest to adjust to.

What do you need to register a company, and what does it cost?

Quick Answer: You need at least 2 promoters. The fee is 500 baht to register the memorandum of association and 5,000 baht to set up the company, plus stamp duty. You can register online through DBD Biz Regist.

• 2 or more promoters (for example you and your husband, or siblings)
• A company name that has been reserved and approved
• Registered capital (most small shops do not need to register a high amount. If paid-up capital is no more than 5 million baht, you still get the SME rates)
• Fees according to the DBD manual: memorandum of association 500 baht, limited company registration 5,000 baht, stamp duty on the memorandum of association 200 baht

The registration fee is paid once and that’s it. What you really need to factor in is the yearly costs that follow for the entire life of the company.

Signs that it’s time to switch

Quick Answer: Start thinking seriously when at least 2 of the signs below apply to you, especially if profit is high enough that your personal income tax has moved into the 15 to 20% brackets.

• Yearly net profit of several hundred thousand baht or more, and real costs above 60%, so the flat deduction no longer works in your favor
• Corporate customers or department stores that want a contract with a juristic person, or need a tax invoice from a company
• You want to separate risk, for example ordering big lots of stock, renting a warehouse, hiring staff
• You have a serious partner who should have a clear shareholding
• You want a business loan or investors, which usually require audited financial statements
• You are ready to pay an accountant and ready to strictly separate household money from shop money

If none of these apply yet, that is completely fine. Run properly as a sole trader: file your taxes in full, get your commercial registration, keep good income and expense records, and you can be just as professional a business.

What to prepare in the meantime

Quick Answer: Get your shop’s numbers clear while you are still a sole trader, because on the day you have to decide, an accountant will ask for your real sales, costs and profit going back at least 1 year.

1. Get your commercial registration done. Read the steps in Do online sellers need commercial registration?
2. File your personal income tax in full, both PND 94 (ภ.ง.ด.94) and PND 90 (ภ.ง.ด.90). See the overview in Do online sellers have to pay tax?
3. Start recording income and expenses and keeping receipts, using the method in Do your online shop’s bookkeeping yourself, without the headache
4. If your sales are getting close to 1.8 million baht, also read When do you need to register for VAT?, because VAT always comes up before the company question

There is no need to rush into becoming a company just to feel like a real business. A small shop with clear numbers and taxes filed in full is already very strong.