Setting Up of Regional Office
Regional offices are different from branch offices in terms of their structure. These offices for foreign corporations are established under the rules of the Office of the Prime Minister prescribing regional office activities for multinational or international corporations. Regional offices, are not separate legal entities and perform their businesses in Thailand on behalf of its head office abroad. They only serve as an extension of their head office overseas similar to that of the branch and representative offices. Likewise, they are limited to performing only 7 specific activities. These activities fall under List Three of Foreign Business Act 1999 (FBA).
The regional office is established by a transnational corporation in a country other than the country where it is registered as the head office, without having to be registered as a juristic person under the law of the country of establishment. Transnational Corporation refers to a legal entity set up under foreign law to do business in another country. Normally, a transnational corporation is an enterprise that is involved with the international production of goods or services, foreign investments or income and asset management in more than one country.
A regional office can carry out only seven (7) business activities:
- Communicating, coordinating and directing, on behalf of the head office, the operation of branches and affiliates that are located in the region
- Providing services in consulting and management
- Training and personnel development
- Financial management
- Marketing control and sales promotion planning
- Product development
- Services in research and development
General characteristics of the Regional Office
- Must already have at least one established branch office or affiliate in the Asia region.
- Non-revenue-generating activities.
- No authority to accept purchasing order or to make an offer for selling or to negotiate for carrying out of business with a person or juristic person in the country in which it is established.
- All expenditures incurred by the regional office must be borne by the head office.
- It is not subject to corporate income tax, in accordance with revenue code except deposit interest of remitted funds from the head office has to pay tax.
Regional offices are likewise required to apply for a Foreign Business License. Before beginning their activities in Thailand, foreign companies must have at least one active branch office or affiliate in Asia. Moreover, regional offices are also restricted from earning income, purchasing, selling, and negotiating.
Capitalization rules under the FBA also apply to Regional Offices. It must be at least 25 percent of the average estimated expenses for the first 3 years but not less than THB 3,000,000. Thai law also specifies a schedule as to when the capital must be remitted into Thailand by the head office. At least 25% of the total minimum capital must be remitted within the first three months of operation and an additional 25% within its first year of operation. A minimum of 25% must be remitted in the second year and the remaining 25% within the third year.
One of the main benefits of establishing a regional office in Thailand is the fact it is not obliged to be registered or incorporated as a juristic person and thus does not have to submit any financial statements to the government (the Department of Commercial Registration). Furthermore, the department will provide support to companies transferring their foreign staff to Thailand and also help with securing necessary visas and work permits.
Provided a Regional Office carries out the permitted regional activities only on a non-commercial basis without any commercial services being entered into, the tax treatment is as follows:
|Corporate Income Tax||–||Exempt|
|Profit Remittance Tax||–||Exempt|
|Specific Business Tax||–||Exempt|
|Value Added Tax||–||Exempt|
However, a Regional Office is a payer of assessable income and a person liable to stamp duty tax, it is required to comply with the obligations under the Revenue Code as follows:
|Domestic Withholding Tax||Withholding tax on payments of income to recipients in Thailand|
|International Withholding Tax||Withholding tax on payments of income to recipients in foreign countries|
|Personal Withholding Tax||Personal withholding tax on payment of income to employees of the regional office|
|Stamp Duty Tax||Stam duty tax on instruments|
If a Regional Office fails to comply with the conditions set for its activities, the same will be subject to all the usual taxes for corporate entities in Thailand plus payment of penalties and surcharges.
Please feel free to contact us for a professional legal consultation and get more information about setting up your regional office in Thailand.