Thai Representative Office
Setting Up of Representative Office in Thailand
Multinational companies aim to establish their presence in different economic jurisdiction for expansion and market growth. Certain conditions apply to those Thai representative offices which require a Foreign Business License. To expand into the Thailand market, these companies may opt to establish a branch, regional or representative offices to effect their presence in Thailand. It is important to clarify beforehand what constitutes income and subject to Thai taxes.
The Representative Office in Thailand is not allowed to operate any trading activity or earn any income by billing or invoicing clients and must depend entirely on the head office for its capitalization. Basically, the representative office will study business information in Thailand and report this information to its head office overseas. Normally, the information is relative to the economy, related investments, marketing, manufacturing, distribution, and demand for products on various industries and services offered and provided in Thailand.
Activities of a Representative Office are service businesses under List Three (21) of the Foreign Business Act B.E. 2542 (A.D. 1999). In the past, the definition of the representative office, in accordance with the Regulations of the Office of the Prime Minister governing the application for the Establishment of Representative Office of foreign juristic person respecting international trading business B.E. 2529. At present, the definition of the representative office is in accordance with the Regulation of the Office of the Prime Minister in Establishment of Work Permit and Visa Center (No. 3) B.E. 2544 (A.D. 2001).
Under the above regulation, the business activities which a representative office can carry out are limited to five (5) business activities, basically non-trading activities:
- Sourcing of goods and services in Thailand for the head office;
- Checking and controlling the quality and quantity of goods purchased or hired to manufacture in Thailand by the head office;
- Giving advice concerning goods of the head office sold to agents or consumers;
- Propagation of information concerning new goods or services of the head office; and
- Report on business trends in Thailand to the head office.
General Characteristics of the Representative Office
A Representative Office operates a service business in Thailand for its head office, an affiliated company or a group company in another country. It is only allowed to perform non-revenue-generating activities. It also has 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. Since a Representative Office is not generating income in Thailand, all expenditures incurred by it must be borne by its head office. Thus, it is not subject to corporate income tax, in accordance with the Revenue Code except for deposit interest of remitted funds from the head office.
The following activities are considered out of scope for a Representative Office to engage:
- Purchasing order or payment of goods on behalf of the head office or its affiliated companies or any activities concerning the purchasing.
- Shipment of the goods of the head office or its affiliated companies already purchased.
- Checking and controlling the quality and quantity of goods for any companies that are not the head office or its affiliated companies.
- Giving after-sale service concerning installation and maintenance.
- Giving advice concerning goods that are not produced or sold by the head office or its affiliated companies.
- Receiving purchasing order or service on behalf of the head office or its affiliated companies.
- Coordinating in purchasing and selling on behalf of the head office or its affiliated companies.
- Propagation of information concerning previous goods or services that are already sold in Thailand.
- Carrying out activities as a middleman or agent between customer in Thailand and head office or its affiliated companies.
- Planning and coordinating with any organization in terms of business on behalf of the head office or its affiliated companies.
- Being representative in making any contract or activities on behalf of the head office or its affiliated companies.
- Report information to any companies that are not the head office or its affiliated companies.
For the Representative Office, there will need to be a Letter of Appointment signed by the Director of the foreign entity appointing a local manager. The manager of the Representative Office will then be the only person required to sign to certify the correctness of all the documents before submission of the application. A declaration that the applicant, directors, managers or appointed representative satisfy the qualifications and do not possess a prohibited characteristic under Section 16 of the Foreign Business Act. Once the application has been granted a Foreign Business Certificate to operate in Thailand, the local manager appointed by the head office shall have the authority to manage and oversee the operations of such entity.
Timeframe for Application
Once the application is filed, the officer can take up to 2 weeks to 1 month to approve an application. Approval will be dependent on Ministerial discretion. The application shall be reviewed thoroughly by an officer if the applicant has met the standard requirements of a representative office.
Generally speaking, a Representative Office requires a minimum capitalization of either 3,000,000 baht/business activity or 25% of its estimated expenses for the first three years, whichever is greater. This capitalization is to be brought/transferred into Thailand pursuant to a predetermined schedule being, the first 25% of the required registered capital is to be paid up within the first 3 months of operation, the second 25% to be paid within the first year of operation, the third 25% to be paid up within the second year of operation and the remainder is to be paid up within the third year of operation.
To fully understand the conditions which pertain to a Representative Office in Thailand, contact any of our Thai lawyers or any of our foreign lawyers to provide you with guidance when considering to open a representative office in Thailand.