Setting up a Representative Office in Thailand is an attractive option for foreign companies who want to evaluate the market without having to establish a subsidiary. However, it is important to understand the requirements involved before deciding to establish one.
A Representative Office is not allowed to earn revenue and cannot enter into purchase orders or negotiate business with individuals or juristic persons in Thailand.
Legal Requirements
A Representative Office manages a service business in Thailand on behalf of a head office or affiliated company in foreign countries. They can perform strictly non-revenue-generating activities, however they are not allowed to accept purchase orders, make offers or negotiate business with persons or juristic entities in Thailand. Because it doesn’t generate income in Thailand, the expenses and outgoings of a Representative Office must be covered by its head office. It is also not subject to corporate income tax except for deposit interest of remitted funds from its head office.
In order to set up a Representative Office, the parent foreign company needs to submit the following documents to the Department of Business Development (DBD). Once approved, the DBD will issue a document for the Representative Office, which can be used to start its operations. The process of establishing a Representative Office is relatively easy and fast compared to other company forms. It also allows companies to evaluate potential market opportunities without the need for a Foreign Business License.
License Requirements
A representative office is the simplest way for a foreign company to establish a presence in Thailand. It cannot earn revenue but can perform important marketing and business support activities in the country.
The office can conduct market research to find new partners, and can provide information about products to potential customers. It can also perform quality and quantity control inspections on goods that the head office manufactures or buys from Thailand, thereby saving money on expenses for the main headquarters.
However, the representative office must report on the results of its operations to the head office. The office can only engage in the five activities outlined above. If it carries out services outside this scope, it will lose its license to operate. The representative office must also submit financial statements and an audited report to the Ministry of Commerce. It must remit a minimum amount of capital to its head office abroad after being granted permission to operate.
Tax Requirements
If a foreign company decides to set up a Representative Office in Thailand, it is only permitted to perform non-revenue-generating activities. However, the company will still have to report back information on business trends in the country to its head office.
In addition, a Representative Office will have to bring in a minimum capital of 3 million baht or 25% of its estimated expenses for the first three years of operations. The capital is to be transferred into the country according to a predetermined schedule, with the first 25% to be paid within the first three months of operations, the next 25% to be paid within the first year of operation, and the last 25% to be paid by the end of the second year of operation.
The Director of the foreign entity will have to sign a Letter of Appointment to appoint a local manager for the Representative Office. The local manager will need to certify the accuracy of all documents before submitting them for approval.
Financing
A representative office is a non-profit entity that can perform market research, find business partners and other forms of information gathering. It can also source products and services in Thailand to send back to the company’s headquarters. It can also report on the movement of business in Thailand to the head office. Unlike a branch or regional office, a representative office does not have to pay corporate income tax.
The mother company establishing the representative office must transfer a minimum amount of capital to the Thai office. This capital influx is typically 25% of the estimated expenses of the representative office for its first three years of operations.
Setting up a Representative Office in Thailand can be a lengthy process. It is important to ensure all necessary paperwork is completed correctly and filed on time. The best way to navigate the Thai business landscape is to work with a professional like Plizz. We can help you establish a hassle-free representative office and avoid any legal complications down the road.
