Starting A Business In Thailand (2): The Restaurant

0
27

If you want to start a restaurant in Thailand the first question you will have to ask yourself is: May a foreign investor legally open a restaurant in Thailand? The answer is No, Restaurant and Bar business are services activities under the Foreign Business Act List 3 which activities may be exercised by foreign investors only upon applying and receiving a Foreign Business License. The only exceptions are US Citizens who benefit of the US Amity Treaty and may operate a restaurant under a 100% US form.

The Foreign Free Trade Agreements Override
Now Thailand has executed over the past years and is currently negotiating Free Trade Agreements with several countries. Among the Foreign Free Trade Agreement already enforceable are the Australian Thailand Free Trade Agreement and the Japanese Thailand free trade agreement which are supposedly granting advantages to the citizens of both countries.

Now if you look at the website of the Australian Government Department of Foreign Trade they proudly announce you that Thailand will permit majority Australian ownership of major restaurants or hotels (up to 60%). The previous limit was 49.9%.

Any Australian citizen reading this might think that he is lucky and got himself a major advantage over nationals of other countries. Looks good isn’t it? Now the truth is that the privilege is submitted to the following conditions.

The restaurant must provide full restaurant services (food and beverage preparation and serving services with or without entertainment and the facility must have a minimum area of 450 square meters and the provider must have a minimum paid-up registered capital of 50 million Baht.

But the truth is that this privilege is empty. Assuming that there is out there a Australian citizen that wants to invest into a 50,000,000 THB restaurant the privilege does not allow him to do it by himself. Because at the end of the day Australian citizens are only allowed 60% ownership of the restaurant entity. In other words an Australian citizen that would want to open a 450 SQM and 50,000,000 THB restaurant may only own 60% of the shares worth 30,000,000 THB and will still have to find a Thai citizen ready to invest 20,000,000 THB with him for 40% of the investment. That will be easy isnt it?

Options Available to Non Thai or Non US Citizens
As to the rest of the world you will have two options:

i. You apply for a Foreign Business License. It will take you between 6 to 12 months or more to go through the process and your chances of actually obtaining it are nil because there are no know how in the restaurant business. Maybe if you have a recipe for “3G” “nano” technology pizzas you may have a chance otherwise just forget about the Foreign Business License for this particular activity you have as much chance to obtain it as to obtain US citizenship.

ii. You invest together with a Thai partner into a joint venture to open a restaurant. Your Thai partner will hold minimum 51% of the shares and you will own maximum 49%. Of course your Thai partner will have to contribute 51% of the investment otherwise he/she may be deemed a nominee. Now as a newly arrived foreign investor in Thailand you have as much chance to find a Thai partner than the Nasa to find life on Mars. Because why in hell would a Thai invest money with a foreign investor into a restaurant that the Thai could open by himself ?

He/She-Who-Must-Not-Be-Named
If opening a restaurant in Thailand seems to be such a legal challenge how comes that there are so many foreign investors that are running or owning restaurants in Thailand. I mean not all of them are US citizens?

Starting a Business in Thailand (2): The Restaurant

Because out of desperation and due to the impossibility to start their business the right way in fine (i) or (ii) above many foreign investors have made allegiance to “You-Know-Who” “He/She-Who-Must-Not-Be-Named” that is to say the Thai Wife, Boyfriend or nominee.

That is the sad truth of doing business in Thailand. There is supposedly a legal way to do it but the road that could bring you to it is actually dead end or a “cul de sac” as we say in French.

Now that you have made your allegiance to “He/She-Who-Must-Not-Be-Named” the hard part is to come, actually opening your restaurant.

Other Legal Issues
For this you will need a company, alcohol license, food license, and if you are selling cigarettes you will also need cigarettes licenses (they are two foreign and locals). If you will play music into your restaurant you should also apply for a license to do so. Incorporating a company and obtaining the licenses are quite easy by comparison to many countries. In Thailand there is no maximum number of Alcohol licenses per area. Of course you will only need to apply for all those before the opening of your restaurant.

Of course you will also have to obtain a work permit. But you will not be able to do so for as long as you don’t actually have four Thai employees, which you will not have for the period of implementation of the project. In other words and due to the broad definition of work in Thailand you will be during the period of implementation of your project working illegaly.

The Location
But before to open your restaurant you will have to find the right location, which location will depend of the style of restaurant you will open and of your budget as well. Best place to open a restaurant will be into a commercial center in the area were all restaurants are located such as the basement of Siam Paragon.

Unfortunately, those areas are full and there is a waiting list. Note, commercial centers are not all working as well as Siam Paragon or MBK. A few of them are empties. Then they are other good area like Silom, Saladeng, Convent, Langsuan Sukhumvit from soi 1 to 39.

The Lease Agreement
Once you have selected your location the next important step will be to negotiate the lease with the owner of the premises. Do not accept a lease with a term of less than 3 years and try to obtain a promise of renewal for another 3 years or better two back to back 3 years lease.

Have a lawyer review the clause of renewal because if it is not properly drafted it is not worth the paper on which it is written.

Be sure to rent out from the owner of the premise or from a person with a valid power of attorney.

For a restaurant of around 100 to 200 SQM you will not find a rent of less than 100,000 THB per month in the areas I mentioned above. You should budget between at least 100,000 to 180,000 THB for your monthly rent (or more).

Note, that you will have to pay between two to six months deposit depending of the owner and that the owner may request you to make checks in advance for a period of at least 12 months.

You may or may not have to pay a key money. Owners rarely grant you a grace period for the construction. Meaning that in most of the case you will have to pay the rent during the construction period that may takes between 1 to 3 months depending of your contractor (I have seen restaurant taking more than 6 months to be completed). If your contractor tell you it will takes 1 or 2 month add one month because there will be delay.

Other Issues
Your better have a good concept especially if you open a French restaurant. French food as no appeal value in Thailand, and there are very few French restaurants that do better than survive.

In term of budget depending of the kind of restaurant you will open and the location it may be anything between 2,000,000 THB up to 40,000,000 THB. Average will be around 5,000,000 THB.

Warning

Do not open a restaurant if you are not a professional or if you don’t have a professional in your team as you will fail otherwise. To be a professional does not always mean success. The only 40,000,000 THB restaurant I have seen opened closed after 3 months and it was professionally managed. I have seen a few good restaurants, with a good concept, the right location, excellent food failing without having any clue as to what went wrong.

The point I want to make is that restaurant business is a good business in Thailand providing that you know what you are doing and that you also have some luck.

Because, if you have neither you will lose your investment. If I added all the money I have seen invested in restaurants that fail I would say I have seen investors losing all together more than 100,000,000 THB (without taking into account the 40,000,000 THB one).

LEAVE A REPLY

Please enter your comment!
Please enter your name here