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 operate 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
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 saving 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 Ministerial
Regulation Prescribing Service Businesses Which Do Not Require a Foreign
Business License (No. 3) B.E. 2560 (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:
• Sourcing procurement channels for goods or services in
Thailand for the head office ;
• Inspecting and controlling the quality and quantity of goods
procured or contracted for production in Thailand by the head office;
• Providing advice on various aspects relating to goods or
services of the head office distributed to distributors or consumers;
• Disseminating information and materials regarding the head
office's new products or services;
• 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 regarding
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;
•
Disseminating information regarding
goods or services that have already been sold in Thailand;
•
Acting as an agent, broker or intermediary 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;
•
Entering into contracts or handling
any transactions as an agent of the head office or affiliated companies;
•
Reporting information to third
parties 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 after commencement of
operations; the second 25% shall be remitted
within the first year of operations; the third 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:
•
The establishment process is fast
and straightforward;
•
Pursuant to the Ministerial
Regulation Prescribing Service Businesses Which Do Not Require a Foreign
Business License (No. 3) B.E. 2560 (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 Regulation of the Office of the Prime Minister on the Establishment
of the Visa and Work Permit Service Center (No. 3), 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 Ministerial
Regulation Prescribing Service Businesses Which Do Not Require a Foreign
Business License (No. 3) B.E. 2560 (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;
•
Providing marketing 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 after commencement of
operations; the second 25% shall be remitted
within the first year of operations; the third 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 Ministerial
Regulation Prescribing Service Businesses Which Do Not Require a Foreign
Business License (No. 3) B.E. 2560 (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.
