Starry
Research | Foreign Investment Regulation Series, Issue 4: Representative
Offices and Regional Offices
In
our previous articles, we provided a detailed introduction to foreign
investment access and the foreign business licensing system under Thailand's
Foreign Business Act (FBA), as well as the licensing exemptions applicable to
certain service sector activities. For foreign enterprises seeking to do
business in Thailand, applying for a Foreign Business License (FBL) involves
both time and financial costs. However, in certain circumstances, foreign
enterprises are not required to establish a private limited company or obtain
an FBL as a prerequisite for conducting business in Thailand.
In
this issue, we will introduce two types of business entities available in
Thailand: the "Representative Office" and the "Regional
Office." Under certain circumstances, establishing a Representative Office
or a Regional Office can serve the purpose of allowing foreign enterprises to
carry out specific activities in Thailand while also avoiding the cost and
process of applying for an FBL.
A
Representative Office is an entity that multinational companies engaged in
international trade may register and establish in Thailand. It is a business
entity recognized under Thai law; however, a Representative Office does not
constitute an independent legal person.
A
Representative Office may be regarded as an extension of a multinational
company in Thailand, established for the purpose of providing service support
to the head office in connection with international trade activities. Pursuant
to the Notification Regarding Service Businesses That Foreigners Are Permitted
to Engage in Without Requiring a License (3rd Edition) (B.E. 2560 / A.D. 2017),
Representative Offices established by foreign companies engaged in
international trade and providing the relevant service activities are exempt
from the requirement to obtain a Foreign Business License.
The
general characteristics of a Representative Office include:
•
It may not earn income through the provision of services;
•
It may not accept orders, conduct sales, or engage in commercial
negotiations with individuals or legal entities in the country where it is
located;
•
It may only receive funding from the head office to cover operating
expenses;
•
It is not required by law to pay corporate income tax; however, if there
is interest income generated from the surplus of funds remitted by the head
office, such income shall be included in the calculation of corporate income
tax;
•
It is generally required to designate one person as the head of the
Representative Office.
In
Thailand, the purpose of establishing a Representative Office is limited to
providing support to the head office in connection with its international trade
activities. Specifically, the service activities that a Representative Office
may provide to the head office are restricted to:
1. Sourcing procurement channels
for goods or services for the head office in Thailand;
2. Inspecting and controlling the
quality and quantity of goods procured or contracted for production in Thailand
by the head office;
3. Providing various forms of
advice and consultation to distributors or customers relating to the head
office's goods;
4. Disseminating information and
materials regarding the head office's new products or services;
5. Reporting on business trends
in Thailand to the head office.
It
should be noted that a Representative Office may not engage in the following
business activities that fall outside the scope permitted by law:
•
Procuring goods or making payments on behalf of the head office or
affiliated companies, or handling any transactions related to procurement;
•
Exporting goods on behalf of the head office or affiliated companies;
•
Inspecting and controlling the quality and quantity of goods for
entities other than the head office or affiliated companies;
•
Providing after-sales services, such as installation, repair, and
maintenance;
•
Providing advice or consultation in respect of goods not produced or
sold by the head office or affiliated companies;
•
Accepting orders for goods or services on behalf of the head office or
affiliated companies;
•
Coordinating commercial transactions on behalf of the head office or
affiliated companies;
•
Promoting goods or services that have already been sold in Thailand;
•
Acting as an intermediary or distributor in transactions between Thai
customers and the head office or affiliated companies;
•
Conducting business planning or coordinating with other organizations on
behalf of the head office or affiliated companies;
•
Signing contracts or handling any transactions as an agent of the head
office or affiliated companies;
•
Reporting information to enterprises other than the head office or
affiliated companies.
Generally,
the minimum invested capital for a Representative Office is THB 3,000,000, or
25% of the estimated expenses for the first three years of operation, whichever
is higher. Twenty-five percent (25%) of the invested capital shall be remitted
within the first 3 months of commencement of operations; 25% shall be remitted
within the first year of operations; 25% shall be remitted within the second
year of operations; and the remaining balance shall be remitted within the
third year of operations.
The
advantages of a Representative Office include:
•
Pursuant to the Notification Regarding Service Businesses That
Foreigners Are Permitted to Engage in Without Requiring a License (3rd Edition)
(B.E. 2560 / A.D. 2017), Representative Offices established by foreign
companies engaged in international trade and providing the relevant service
activities are exempt from the requirement to obtain a Foreign Business
License;
•
As it is not permitted to generate revenue, a Representative Office is
generally not required to pay corporate income tax;
•
It may be wholly controlled by a foreign company;
•
When hiring foreign employees and processing work permits on their
behalf, the Representative Office is not subject to the requirement of
simultaneously employing four Thai employees; the ratio is 1:1. However, the
number of work permits that may ordinarily be processed is relatively small,
generally not exceeding five, and each work permit requires an investment of
THB 3,000,000 in the Representative Office.
Pursuant
to Thailand's Notification Regarding the Establishment of Academic Service
Centers and Work Permits (3rd Edition), issued in 2001, a "Regional
Office" refers to an office established by a multinational company in a
country other than the country in which its registered head office is located,
without being required to register as a legal entity under the laws of the
country of establishment. Its purpose is to provide coordination, liaison,
operational supervision, and other services to the head office's branch offices
or affiliated companies in the same region, on behalf of the head office.
Similar
to a Representative Office, a Regional Office also serves as an extension of
the head office's operations in Thailand and is likewise prohibited from
engaging in revenue-generating business activities. The distinction is that a
Regional Office may additionally serve the head office as well as its branch
offices and affiliated companies within the same region, giving it a broader
scope of activities than a Representative Office.
Pursuant
to the Notification Regarding Service Businesses That Foreigners Are Permitted
to Engage in Without Requiring a License (3rd Edition) (B.E. 2560 / A.D. 2017),
Regional Offices established by foreign companies engaged in international
trade and providing the relevant service activities are likewise exempt from
the requirement to obtain a Foreign Business License.
The
general characteristics of a Regional Office include:
•
The head office must have branch offices or affiliated companies in the
Asian region;
•
It may not earn income through the provision of services;
•
It may not accept orders, conduct sales, or engage in commercial
negotiations with individuals or legal entities in the country where it is
located;
•
It may only receive funding from the head office to cover operating
expenses;
•
It is not required by law to pay corporate income tax; however, if there
is interest income generated from the surplus of funds remitted by the head
office, such income shall be included in the calculation of corporate income
tax.
A
Regional Office may only provide the following service activities to its head
office and the branch offices and affiliated companies of the head office
located in the same region:
•
Liaising with, coordinating, and supervising the operations of branch
offices and/or affiliated companies located in the same region on behalf of the
head office;
•
Providing advisory and management services;
•
Conducting staff training and human resources development;
•
Conducting financial management;
•
Overseeing market control and sales promotion planning;
•
Developing products;
•
Providing research and development services.
Generally,
the minimum invested capital for a Regional Office is THB 3,000,000, or 25% of
the estimated expenses for the first three years of operation, whichever is
higher. Twenty-five percent (25%) of the invested capital shall be remitted
within the first 3 months of commencement of operations; 25% shall be remitted
within the first year of operations; 25% shall be remitted within the second
year of operations; and the remaining balance shall be remitted within the
third year of operations.
The
advantages of a Regional Office include:
•
It is not required to be registered as a legal entity (such as a limited
company);
•
Pursuant to the Notification Regarding Service Businesses That
Foreigners Are Permitted to Engage in Without Requiring a License (3rd Edition)
(B.E. 2560 / A.D. 2017), Regional Offices established by foreign companies
engaged in international trade and providing the relevant service activities
are exempt from the requirement to obtain a Foreign Business License;
•
As it is not permitted to generate revenue, a Regional Office is
generally not required to pay corporate income tax;
•
It may be wholly controlled by a foreign company;
•
When hiring foreign employees and processing work permits on their
behalf, the Regional Office is not subject to the requirement of simultaneously
employing four Thai employees; the ratio is 1:1.
