Setting Up a Representative Office in Thailand

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Setting Up a Representative Office in Thailand

Multinational companies that wish to have their business operations in Thailand may not wish to form a Limited Company. They might instead wish to operate their business with the help of an Asian representative branch office in Thailand. Under Thai law, the representative office is governed by the Foreign Business Act B.E. 2542.

Business owners who have their own business setup in their home country, could form a representative branch in Asia preferably in Thailand, which would give them distinctive advantage to access the fast growing South East Asian market. A Representative Office is not required to pay tax in Thailand, except for the withholding tax for the employees’ salaries. If for example the business deals in import and export of goods, the Representative Office could monitor the quality, quantity and timely movement of the goods, and also suggest alternative sourcing, etc., to the overseas head office.

A representative office is an office in Thailand of a foreign company which is engaged in the business of international trading activity. The role of the representative office would be for supporting the activities of its parent company and its affiliates or subsidiaries in Thailand or overseas.

Characteristics of a Representative Office in Thailand

Activities are related to non-revenue nature.
No authority for accepting purchasing orders or for making an offer to sell or negotiate to carry out any business with juristic persons or persons in Thailand.
All the expenditures which are incurred by the representative office should be borne by its head off.
The representative office is not required to pay corporate income tax in accordance with the revenue code except for the deposit interest of the remitted funds from the H.O has to pay tax.

Scope of Activities of a Representative Office in Thailand

A representative office usually considered a small company and is an opportunity for foreign investment. But, as per the Thai regulations, the application area is regulated very strictly. Representative Office offers its service to its head office or its affiliated company or the group companies only.

The scope of activities of the representative office is restricted. The fundamental premise is that a representative office can’t earn any income as the business enterprise in the country, purchase or sell any goods on behalf of its head office, or provide services to any juristic person or any person in Thailand.

Under the Thai regulations, the scope of activities of a representative office is limited to 5 categories only as follows:

For reporting the business movements in Thailand to its head office or the group company or the affiliated company
For providing advice on several aspects relating to the goods or services distributed by its head office or the group company or affiliated company to the users or distributors in Thailand
For seeking for the source of supply for goods or services in Thailand for the H.O or the group company or affiliated company
For inspecting and controlling the quantity and quality of the goods which its head office or the group company or affiliated company hired or purchased for manufacturing in Thailand
For disseminating the information with respect to new goods or services of the H.O or the group company or affiliated company.

Activities which are out of scope for a Representative Office

Purchasing or making payments or any other related business transactions on behalf of H.O or its affiliated companies.
Exporting any products which are ordered by its H.O or its affiliated companies.
Performing quality and quantity control for any unaffiliated company in Thailand.
Providing after-sale services like maintenance or installation.
Providing advice with respect to products that are produced by unaffiliated companies.
Accepting the purchase orders on behalf of the H.O or the affiliated companies.
Promulgation of products or services that are already available in the country.
Acting as the distributor or agent between the H.O or affiliated companies.
Executing any coordination or planning with other organizations on behalf of H.O or its affiliated companies.
Acting as an agent of its H.O or its affiliated companies with respect to contracts or other business transactions.

Applying for a Representative Office

Representative Offices are controlled activity and it requires Foreign Business license to be obtained by the foreign applicant. While the process is cumbrous and requires a lot of time, in general, it is easier for obtaining a foreign business license in case of a Representative Office as compared to a normal company.

The process is now streamlined with the announcement by the Foreign Business Committee on new guidelines and rules for services businesses in 5 categories which includes Representative Offices. However, it is to be noted that the newer guidelines don’t address the issue related to limitations on the activities of the Representative Offices.

Conditions to be met for applying for Representative Office:

For obtaining the Representative Office Foreign Business License the parent company should oblige to transfer a minimum of 5 million baht into Thailand in terms of working capital for their Representative Office.

At least 2 million baht should be remitted in the initial (1st) year of operation, and hereinafter a minimum of 1 million baht per year should be remitted into Thailand by the H.O.

The representative office’s manager should promise to develop the annual report on the activities commenced and file the report with the Ministry of Commerce. In case they fail to do this, the office might not be allowed for carrying on its activities.

Some of the Representative Offices would need to obtain additional permits or licenses such as:

Security, Finance, and credit financier offices
International business offices
Foreign bank offices

Documentation required for a Representative Office in Thailand:

For setting up a representative office in Thailand, the foreign applicant firstly is required for applying for a Foreign Business license. After obtaining the Foreign Business license, it is needed to provide several documents from the parent company:

Foreign Business license;
Parent company’s affidavit which includes:
– Name of the company;
– Registration number;
– Date of registration;
– Address of the company;
– The jurisdiction in which the company is registered.
Memorandum of Association or Articles of Incorporation;
Name, nationality, age, race, and address of every director and the number of shares each owned by each of them;
Total number of shareholders, their nationalities and the number of shares owned by each of the national group;
A report containing the information with respect to the company’s total capital, the amount of capital stock and a number of shares.
Reasons as to why the representative office is required.
Impacts on the Thai society and Thailand Market economy – both positive and negative due to their presence
Last 3 year’s annual financial report of the H.O translated in Thai by the accredited Thai translator
Details pertaining to the technology transfer to the Thai staff.
Names of staff along with the salaries.
Any well-known clients/ projects/ products or past track record
Business plan or forecast and a number of expenses for the next 3 years.
Number, type, and value of the machinery or office equipment which is to be used for business.
A Power of attorney for the manager in Thailand which gives him the power to register the representative office with Thai authorities.
All the documents mentioned above should be notarized and certified by a local Thai embassy or consulate and they should not be more than 6 months old during the time of addressing to Commercial Registrar. For preparing your documents and completing all the legal processes of registering the representative office in Thailand and applying for a Foreign Business license, you would require the help of the consulting firms in Thailand.

Work Permit for Foreigners

A work permit is allowed up to 2 foreigners in case the business involves disseminating information or advising about the company’s products or services or providing reports about the Thai market to the home offices. And up to 5 foreigners in case the business is involved in the sourcing of goods and services in Thailand for a foreign company or who is responsible for quality control for such goods and services.

Taxation

Representative Office is exempt from income-tax but they are required to register themselves for other tax purposes such as withholding tax on the employee’s salaries, etc. Moreover, all the employees living in Thailand are required to pay the income tax in Thailand.

Benefits of a Representative Office in Thailand

One of the key benefits is that the Representative Offices are not subjected with respect to the work permit ratio of 1 foreign employee for 4 Thai Employees. Depending on the case, Representative Offices might support from two to five work permits. Representative Office’s sourcing or inspecting well might support up to five work permits and the Representative Office sourcing more than 100,000,000 THB goods the country in the previous year might even exceed the limit.

Once the approval is granted, the conditions mentioned below apply:

The total financing of the Representative Office should not exceed 7 times the share capital of its parent company. The total capital for the operations of the Representative Office should be remitted from the foreign country into Thailand and the amount must be at least 3 Million THB, 25 percent of which should be paid up at the time when the Foreign Business License for the Representative Office is issued. Totally 50 percent should be paid up in the 1st year of its operation. Subsequently, 25 percent is required to be paid every year until the whole amount has been paid in full. The minimum of 1 person responsible for the representation office should live in Thailand.

The approval would be granted for a span of time that is as per the discretion of the Ministry of Commerce. Afterward, the extension for this period could be granted, provided that proper documentation proves that business is successful.

Generally, it takes a minimum of 3 months to complete the registration of a Representative Office from the submission of the required documents. Nevertheless, based on the workload and questions which the officer in charge might have, it can also take more time than expected.

To establish a Thailand representative office the best option is to hire a startup consulting services company that specializes in all the legal and operational aspects of establishing a business in Thailand.

Contact Startup in Thailand for a detailed discussion on the possible options for starting a business in Thailand.

Also check out the FAQ page for a quick overview of the critical factors to consider before starting a new business in Thailand.

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Setting Up a Representative Office in Thailand