Wife Working in a Thai Ltd Co with husband as a director - Rules and interpretation

[SteveB2]

Background:-

I have run a SME 'Thai Ltd Co.' in Thailand for nearly 20 years - My wife has worked in this business for the last 7 years as an employee. It is a normal commercial business, real employees, accounting, Pays tax, NI contributions. Not involved in the tourist sector. Regularly audited by all the usual Thai official departments.

Recent events:-

During one of our recent tax/NI payment runs, our normally quiet company accountant/CPA came back from a National Insurance regional office in a distressed state:-

"The new head official states that we have been breaking the law by permitting your wife to work in the company, and pay National Insurance payments. That is not allowed; she must be given 30days notice to leave the company immediately..."

and..."your children would will not be allowed to work in the company either"

Within a few days we were visited by regional NI staff to audit the company’s activities, accounting, tax & NI records, etc. It was all quite a stressful time for everyone involved.

Thoughts:-

There must be many Ltd Co in Thailand that have a foreign director who has either his wife or children working in the same (family) business - surely the regional NI office's decision can't be correct?

The problem is going to be - how to prove this.

NI Review Process:-

I hired a decent Bangkok lawyer to investigate the issue with Thai National Insurance HQ (NIHQ) at the Cheang Wattana Central Government Office in Bangkok, and to request a clarification statement from them.

After only a few days - an official written clarification statement was issued by NIHQ:-

'A foreign director’s wife is permitted to work at the same company as the director'

So...

back to the original regional NI office to inform them of the NIHQ(Bangkok) statement, and to request them to reverse their earlier verbal decision, or put it in writing, so that their decision(which was now contrary to the Thai NIHQ statement) could be challenged in the labor court.

Final regional NI decision – given in writing as an official notice.

The original 'wife not permitted to work' statement was revoked - which was great news.

Interestingly, the regional NI office explained their decision making process.

It is this:-

They have a local policy to not permit 'wife as an employee' of a Limited Co unless it can be proved on a case by case basis that the wife is indeed a true employee of a limited company, which a true separate physical entity from the director husband.

Thus evidence must be made available to the NI office to prove all the above facts, in this instance, my wife’s daily clocking in card, application for a day’s holiday forms, doctors certificates for a day off work, bank transfer payments of monthly salary into bank account was all taken into consideration and (together with the NIHQ decision...) was now considered sufficient. The official could request additional evidence if thought necessary, as per all case-by-case instances.

Conclusions:-

I don't think it would be an issue for a wife of a director working for a company with a thousand employees - however an Isaan wife working for a Farang director of an SME in Pattaya... There's definitely going to be some issues convincing the regional NI office boss that the missus really is a true employee of the limited company and everything is kosher.

Notes:- Legal representation including document preparation and NIHQ liasion visits and all other legal costs - approx THB20,000.

Edited September 1, 2014 by SteveB2

[fletchsmile]

I think it was just badly worded and communicated first time round, and as you say circumstances might have aroused suspicion

Your wife is perfectly entitled to work in the company - provided she is a bona fide employee, and actually does work there and you can prove so if challenged.

What they may crack down on is people who put their wife and/or kids on the books and the family members don't actually work there, but are book entries to reduce tax or fudge compliance with regulations on number of employees. If they suspect that then yes there could be a problem.

Cheers

Fletch

[Paul888]

I think that somebody somewhere inadvertently upset somebody or encountered them on a bad day and it just blew out of proportion.

It is not unreasonable for somebody to employ their Thai wife as their eyes and ears in a company and providing you comply with all the real laws and pay the appropriate taxes (which you seem to be doing) you can employ whatever Thai person you want in whatever made up capacity you want.

Glad you got it resolved, just a shame that you had to waste money on legal fees to do it.

[SteveB2]

I think it was just badly worded and communicated first time round, and as you say circumstances might have aroused suspicion

Your wife is perfectly entitled to work in the company - provided she is a bona fide employee, and actually does work there and you can prove so if challenged.

What they may crack down on is people who put their wife and/or kids on the books and the family members don't actually work there, but are book entries to reduce tax or fudge compliance with regulations on number of employees. If they suspect that then yes there could be a problem.

Cheers

Fletch

Hi Fletch,

Understood - the issue here, is that the regional offices practice is to initially reject all cases of a directors wife working for the Thai limited company, and then to only approve the wife's working status on a case by case basis.

(i.e. a presumed guilty until proven innocent system. Nice.

It is an interesting observation that in Thailand, each regional/Changwat office can make up its own rules, custom and practice and lay it on top of Bangkok's formal requirements. Then only when challenged, and with significant time and legal clout can their additional rules be revoked.

I read on ThaiVisa about another rule concerning the minimum number of Thai employees a company must have when employing a foreigner. The normal rule is that for an unmarried foreigner employed, the company must have 4 Thai employees, but if the foreigner is married to a Thai, then the company only needs 2 employees (I am not aware of the full details...). I wonder if anyone has challenged this regional policy yet? - (I believe this to be the case in Chonburi, for example)

Edited September 2, 2014 by SteveB2

[SteveB2]

I think that somebody somewhere inadvertently upset somebody or encountered them on a bad day and it just blew out of proportion.

It is not unreasonable for somebody to employ their Thai wife as their eyes and ears in a company and providing you comply with all the real laws and pay the appropriate taxes (which you seem to be doing) you can employ whatever Thai person you want in whatever made up capacity you want.

Glad you got it resolved, just a shame that you had to waste money on legal fees to do it.

Yes Paul - it was a new head of the regional National Insurance. Just arrived on the job - no doubt having a bad day and wanting to clean out all them nasty foreigners on her patch, that were up to no good, abusing the rules to their own evil ends.

My accountant is as quiet as a mouse and wouldn't say 'boo' to a goose

[fletchsmile]

Yes personalities and all sorts of other weird things, bad-hair day, prejudice, don't like foreigners, annoyed someone, opportunity to squeeze some cash, collusion, make a point, don't know what they're doing and don't want to admit, show how important they are... etc etc can come into play.

I was CFO for a company out here a few years back. Not long after starting we were visited by the tax inspectors. Turned out the previous Head of Finance was the mia noi of a senior inspector and as she wasn't happy at being (deservedly) "let go" so she had asked her "sponsor" to instigate a tax audit. That lasted well over a year. Interesting experience...

Cheers

Fletch