Rules and guidelines on how a foreign company may set up its own Representative Office in Thailand
Previously, we discussed the main characteristics and features of the Representative Office according to Thai law, including its main purpose and the activities in which it is allowed to conduct. In this article, we will address the rules and guidelines regarding how a foreign company may set up its own Representative Office in Thailand. Generally speaking, the Representative Office is established based on the issuance by the government of a “Foreign Business License” under Section 17 of the Foreign Business Act. However, a government committee is required to evaluate any social and economic effects before allowing a foreign company to be granted such a license. Therefore, Thai law makes the application for a Foreign Business License (and hence the establishment of a Representative Office) rather complicated and a great degree of preparation is required.
In the present case, the guidelines that must be considered depends on the specific activities of the Representative Office. In our previous article, it was mentioned that the Representative Office may only engage in any or all of the following activities: (1) Reporting on business movement in Thailand (2) Providing advice related to products that are being sold to distributors or customers (3) Sourcing goods and services in Thailand (4) Inspecting and controlling the quality and quantity of goods purchased or ordered to be manufactured in Thailand and (5) Introducing information regarding new products or services.
(1) Reporting on Business Movement
When considering a Representative Office which is to report on business movement in Thailand, the Foreign Business Committee (which is responsible for issuing the Foreign Business License) will mainly consider whether the Representative Office has been tasked with gathering information in order for the head office to consider making a certain business decision which will be economically beneficial towards Thailand. For example, if a foreign company sets up a Representative Office in order to investigate whether the establishment of a factory in Thailand would be feasible, this would likely be deemed beneficial and the Foreign Business License would be granted.
(2) Providing Advice Related to Products
The determining factor in this case is the technical complexity of the product. In order for a Foreign Business License to be granted, the applicant must demonstrate that the head office or an affiliated company has already distributed a product in Thailand which requires technical expertise and guidance in order for the end-user to operate the product correctly. Therefore, the two essential requirements in this category are that (1) the product has already been distributed and (2) it requires technical expertise to operate correctly.
(3) Sourcing Goods and Services
This is also a fairly straightforward category and requires a foreign company to demonstrate that it has already or is currently in the process of ordering goods or services from Thailand and that such goods and services is related to the business of the foreign company. For example, a foreign company which engages in the trading of food products may set up a Representative Office in order for it to purchase raw food which is produced in Thailand. The duty of the Representative Office in this regards is for it to gather information from various sources for the head office or an affiliated company to consider ordering any necessary goods and services in order to conduct its business overseas.
(4) Quality and Quantity Control
The consideration which the Foreign Business Committee applies to this category is similar as for the previous category of “Sourcing Goods and Services”; however, in this case, the duties of the Representative Office are different. For this category, the Representative Office is tasked with ensuring that the design, quality and manufacturing process of any products ordered to be produced in Thailand are according to the standard set by the head office or an affiliated company. In this category, the foreign company must demonstrate that is has already ordered or is the process of ordering products or services from Thailand.
(5) Introducing Information Regarding New Products or Services
The most important consideration for this category is that the new product or service must be considered “new” in the sense that is has never before been available in Thailand or if it already has been distributed in Thailand, then it must a new model which has improvements over the previous model. Therefore, the applicant must demonstrate the difference between a previous product and the new product or the improvements from a previous model. The most obvious examples that would fit this category are company that produce electronics.
See also setting up a Representative Office in Thailand.
Category: Business in Thailand, Company Law, Company Registration
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