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Learn more about the Representative office in Thailand
In Thailand, a representative office for a foreign corporation aims to enhance brand awareness and pave the way for future commercial opportunities. However, such an entity is prohibited from directly engaging in profit-generating activities on Thai soil. Careful observation from such a tentative outpost could provide valuable insights into the business climate and help strategize the most efficacious entry approach, whether a gradual seasoning period or immediate expansion is ultimately favored.
Table of Contents
◊ What is a Representative Office ?
A representative office in Thailand directly establishes an exporting company that ensures a permanent or temporary presence in foreign markets. This type of office is used in the initial realization phase. Moreover, it is used for market research or communication activities. Representative offices are subject to the operating regulations listed in Schedule 3(21) attached to Act.BE 2542. If a foreigner wishes to operate such a business, he must first apply for a license from the Ministry of Business Development Director. He must also obtain approval from the Foreign Affairs Commission. This procedure takes about one week.
◊ What are the regulations for representative offices in Thailand ?
There are eight significant regulations to comprehend for an agent office in Thailand :
- A representative office allows international corporations to cautiously launch constrained endeavors supporting parent company activities abroad revenue generation is banned.
- Offices mandate one year operation and credible histories, though some industries impose extra criteria.
- Permitted non-earning activities encompass market exploration, product ads, sourcing, quality oversight, and post-sales care.
- Explicitly barred undertakings involve commercial exchanges, pacts, or profits within Thailand precluding invoices, contracts, or import/export dealings.
- Initial one-year registration periodically renews up to possible five-year expansions albeit consulting specialists regarding the most current decrees is advised given susceptibilities to change.
- Eligibility necessitates a Ministry of Commerce application comprising incorporation documents, money statements, and a recommendation from the parent business.
- Offices may employ a capped number of local and overseas staff overseen discretionarily.
- Annual reviews filed with the Department of Business Development detail functions and finances although representative places usually evade corporate taxes as income is forbidden, withholding tax for payments to workers or vendors may apply.
◊ What law applies ?
The Foreign Business Act of 1999 delineates the main provisions regulating representative offices in Thailand. This landmark legislation establishes the conditions, limitations, and mandates for overseas corporations doing business within Thai borders. Beyond setting the standards for foreign involvement in commercial ventures nationwide, it also determines the permitted scope and scale of representative office activities.
Complementing the FBA are additional statutes and rules applying to offices depending on their line of work or market sector :
- The Civil and Commercial Code underpins all commerce with its framework for contracts, dealings, and obligations in both civil and corporate legal matters.
- Tax issues are addressed via the Revenue Code managing income tax reporting and withholding necessities.
- Employees must abide by labor protections set forth in the Labor Protection Act covering the particulars of work agreements, occupational health and safety protocols, pay scales, and related employee rights.
- Onsite foreign staff further must obtain the correct visas and work authorizations as stipulated by immigration regulations.
- Representative offices are also beholden to corporate registration and periodic disclosure obligations established by Thailand’s Ministry of Commerce and Department of Business Development ministries.
◊ Why is it necessary to set up a representative office ?
First and foremost, the representative office’s powers are limited. It can only perform the following transactions:
- Purchase products and other services for the head office in the Thai market.
- Review and control the quality and quantity of products purchased and services the head office provides.
- Advise Thai customers or agents on products and services offered by the head office in Thailand.
- Introduce potential to customers new products or services offered by the country office.
- Prepare reports on Thai markets and business sectors.
Secondly, there are other restrictions. On the one hand, the representative office cannot earn any income. On the other hand, the office can only issue two work permits to foreigners within a certain period.
The representative office can also be responsible for other non-fee-related activities such as:
- Collect information on goods or services in Thailand for the benefit of the head office.
- Goods’ quality and quantity inspection and control purchased for the benefit of the head office manufacturer in Thailand or their use.
- Advice and assistance to the head office for customers, sales agents, or partners concerning goods.
- Information report on goods to the head office.
- Reporting trends to the head office in Thailand. The registration fee for a representative office is 2,000 baht. However, this is subject to change.
◊ What are the representative office’s characteristics ?
Significantly, the office should have the following characteristics:
- It must be a legal entity established under foreign law, and importantly it must have an office in Thailand that provides services only to the head office or to a subsidiary or group company abroad.
- The office must also provide services to the head office and group companies without receiving any income in return. Transactions for payment of expenses incurred by the representative office and received from the head office are only allowed.
- Finally, the representative office is not authorized to accept purchase orders or to make offers, sales, or negotiations with natural or legal persons.
Information about the representative office.
- 100% foreign ownership is possible.
- The minimum authorized share capital is 25% of the average annual operating cost of the business calculated over three years, but not less than 3 million baht.
- No taxation is required as there is no income in the Kingdom.
- It can only obtain a license for a foreign company after applying for registration recognition.
- The company cannot earn income and is limited to establishing a representative office.
- Registration takes approximately one week.
◊ How to set up a representative office ?
As with any set-up structure, it must follow the following steps to ensure the representative office is set up correctly.
First of all, you must submit all the necessary documents. Therefore, foreign legal entities must submit the following to the Business Development Department and the Ministry of Commerce to open a representative office:
- Representative Office Establishment Form, signed by the representative.
- The incorporation declaration’s copy shows the company name, registered capital, purpose, directors, and agent of the registered office, which must be notarized or certified.
- Power of attorney of the representative.
- A copy of the representative’s passport, which includes:
- A signed and notarized copy of the Non-Immigrant Visa B, if the representative has signed it before entering Thailand.
- If signed in Thailand, a copy of the entry stamp page and signature card.
- Submit a letter of authorization from the applicant. This is usually a foreign lawyer, and this document must also be signed and notarized.
It must translate all of the above documents into Thai. Please note that it is not necessary to use an authorized translation.
Secondly, once all documents have been submitted, the Business Development Department will issue a certificate or registration number. Only upon receipt of this number can the representative office begin operations, and the whole procedure is free of charge.
The third and final step is establishing a representative office in Thailand and hiring staff for your regular office.
◊ What are the steps to set up a representative office ?
To set up a representative office in Thailand, there are nine essential steps to consider. Establishing a presence abroad necessitates careful planning and adherence to local regulations. With diligence and assistance from experienced advisors, the registration process can be successfully navigated.
- First, conduct a comprehensive feasibility study to evaluate commercial viability and ROI potential. Consider market conditions, competitive landscape, applicable statutes, and projected costs. Only proceed if favorable.
- Confirm the parent company satisfies eligibility criteria like one year of continuous operations and a sound business history. Representing an organization abroad requires legitimacy and proven track record.
- Engage a reputable law or consulting practice with deep expertise in Thai business registration. Experts can shepherd documentation preparation, regulatory filings, and statutory conformity and alleviating compliance burdens.
- Select an appropriate location for your representative office in Thailand. Consider factors such as accessibility, proximity to target markets, necessary infrastructure availability, and office space cost.
- Assemble documents the authorities demand, like articles of incorporation, financial statements, letter of introduction, and operations outline signed by parent leadership. Representation mandates authorized figures.
- Submit the application package and incorporated materials to the Department of Business Development under the Ministry of Commerce. With due diligence, approval shall arrive to lawfully establish your presence.
- Lease accommodations and equip workstations upon receiving licensing confirmation. Real operations commence once infrastructure supports staff duties.
- Hire requisite Thai and foreign personnel adhering to employment law. Sponsor visas and work permits for outside hires to legally contribute. Representation requires on-the-ground human capital.
- Familiarize with annual reporting, taxation, and other compliance obligations. Ongoing conformity maintains legitimacy and avoids penalties – critical for long-term viability. Consult experts for rule interpretation.
More Information about Representative Office in Thailand
A minimum of 3 million baths in the capital is required to establish a representative office effectively. Two different situations must be considered, one where the representative office is expected to operate for less than three years and the other where it is expected to operate for more than three years.
Firstly, if the representative office is to be established for less than three years, it must provide all capital within six months of obtaining a registration number.
Secondly, if the representative office has been in operation for more than three years, the capital must be transferred as follows:
- If the first transfer of 500,000 baht or more is made within three months to obtain a registration number.
- At the end of the first year, more than 500,000 baht.
- At the end of the second year, more than 500,000 baht.
- Balance at the third year’s end.
Funds may be used for travel, salaries, rent, and other operating expenses.
While representative offices in Thailand are exempt from taxation on profits since they do not earn income, they must remit withholding taxes deducted from staff salaries to the authorities. To maintain this status, such workplaces must adhere to certain stipulations. At the inception of local endeavors, a comprehensive accounting of anticipated finances is expected. Then within half a year of the fiscal year’s close, vetted statements must be conveyed to the Ministry of Enterprise Development.
In recapitulation, levies are only levied on the wages of those employed at the office, not on any revenues brought in. The representative place of business itself is not subjected to corporate income taxes.
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