Setting up a Representative Office in Thailand is the fastest and easiest way for a foreign company to establish a business presence in Thailand. This type of entity doesn’t require a Foreign Business License.
However, it does have some restrictions like not being allowed to invoice in Thailand. It also has to pay tax on remitted funds according to the revenue code.
Regulatory Requirements
While a Representative Office is permitted to conduct non-revenue-generating activities, it’s also subject to regulations. For instance, it must report on business trends and product advice to its parent company. It is also required to have a manager who has power of attorney and must reside in the country. In addition, it must submit monthly accounting records and annual financial statements. Additionally, it must register with the Thai Revenue Department. It must also abide by labor protections, including the minimum wage and work permit requirements for foreign employees.
A Representative Office can perform a variety of activities, including collecting market information and negotiating contracts. However, it cannot earn income or make sales on behalf of its parent company in Thailand. This makes it an attractive option for companies who want to test the market without making a commitment.
In addition, a Representative Office must remit at least 3 million baht in working capital to Thailand. This capital must be transferred in stages: 25% within the first three months, 50% within the first year, and the remainder within three years. Moreover, it must avoid obtaining loans from local banks to cover operational costs, as this will violate the conditions of its license. Lastly, a Representative Office must file taxes in accordance with the Revenue Code. This includes submitting corporate income tax documents and paying withholding taxes for its staff.
Tax Benefits
As a non-revenue-generating entity, Representative Offices are exempt from corporate income tax in Thailand. This makes them a popular choice for foreign companies exploring the Thai market, as well as for those seeking to conduct market research in Thailand.
However, it is important to understand the limitations of a Representative Office before setting one up. The office is only allowed to perform a limited number of permitted activities, and must report back to its head office on any relevant business trends. It is also prohibited from engaging in sales or negotiations with natural or legal persons in Thailand.
Additionally, Representative Offices must maintain sufficient capital funds to cover operational expenses. In most cases, this is achieved by annually transferring a specified amount of funds from the parent company into a local bank account. The office must also maintain a physical office space in Thailand, and must employ at least one Thai employee who is registered for social security contributions.
The establishment of a Representative Office in Thailand can take as little as a week, but it is crucial to follow the proper procedures to ensure that the office is approved by the Department of Business Development. This includes assembling the required documents, including a letter of appointment signed by the director of the main business and an outline of intended operations.
Legal Requirements
As the name implies, a Representative Office manages service businesses on behalf of its head office or affiliated company in other countries. It is an ideal structure for companies exploring the Thai market, as it does not require a foreign business license and can operate with limited scope of activities, including conducting research or market exploration. However, there are a number of legal requirements that must be met to set up a Representative Office in Thailand.
First, the parent company must file an affidavit detailing important information about the company, its shareholders, and directors, and submit the corresponding documents to the authorities. The company must also submit its financial records for the last three years and provide a list of expected staff members.
The company must also remit a minimum of 3 million baht as initial capital. It must transfer this capital into its corporate bank account annually and show proof of funds remitted. Furthermore, the representative office must not engage in profit-making activities, and any loans that it receives must not exceed seven times the amount of capital remitted. In addition, a legal representative must be appointed to manage the Representative Office and submit a copy of his or her passport and household registration. This manager must have a broad power of attorney that allows him or her to perform the outlined functions.
Cost
As a foreign entity, setting up a representative office in Thailand isn’t cheap. The cost largely depends on the number of employees hired. In general, the rep office can only be employed by a maximum of three staff members (two Thai and one foreign).
In addition to the required influx of capital, the representative office is responsible for paying government fees. Registration fees are based on the company’s registered capital, so a larger registered capital leads to higher registration fees. Representative offices are also required to pay taxes on remitted funds from the headquarters, which can vary depending on the type of fund and amount of money remitted.
Other costs include a lease for an office space, equipment, and any other expenses related to the running of the office. Additionally, the representative office must pay for any staff employed by it who require work permits and visas. These are separate costs that can add up quickly, but they are necessary to maintain the legality of the office in the eyes of the Thai authorities.
Overall, the advantages of a Representative Office in Thailand are numerous and far-reaching. They can be a useful tool for a foreign company that wants to explore the Thai market without making an expensive investment. They can promote products, provide information to local distributors and customers, report trends back to the headquarters and affiliate companies, and more.
