By: Dezan Shira & Associates
Editor: Anais Robin
In part two of this series, ASEAN Briefing examines how to set up a Representative Office in Thailand. Part One, covering Private Limited Companies, can be read here.
A representative office is defined as an office in Thailand of a foreign company engaged in the business of international trading.
A representative office is limited to five business activities and, like in many of Thailand’s neighbors, cannot engage directly in revenue generating activity. The five activities are:
- Search for a source of goods or services in Thailand for a headquarters overseas;
- Check the quantity and quality of the product ordered by the headquarters overseas;
- Advise the headquarters about what goods to order;
- Supply Thai customers with information about the headquarters’ products; and
- Report economic changes in Thailand to the headquarters.
In such a configuration, all commercial contracts should be concluded in the name of the overseas parent company. Indeed, the representative office can’t be representative in making any contract or activities on behalf of the head office or its affiliated companies.
Following this principle, a representative office is not permitted to plan and coordinate with any organization in term of business, to purchase, order, or pay for goods or to coordinate in purchasing or service on behalf of the head office or its affiliated companies.
Concerning the goods that are not produced or sold by the head office or its affiliated companies, the representative office is not authorized to give after sale service or advice about these goods to the end consumer.
Representative offices can only perform quality control and report on the quality and quantity of goods from suppliers to their head office overseas or affiliated intra-group companies.
How to set up a representative office in Thailand
In order to establish an RO in Thailand, the company would need an Alien Business License, which is available for validity periods of five years. Additionally, the foreign company must lodge with the Ministry of Commerce copies of its certificate of incorporation, memorandum and articles of association.
The company must also give a report on the chartered capital and to file an affidavit giving information regarding the company, the directors and the shareholders.
The power of attorney given to the legal representative in Thailand must be broad enough to allow the manager to interact with the Thai government on behalf of the company.
The company must also submit information concerning the office’s address, projects, and objectives in Thailand, as well as an overview of the impact of the business activities on the Thai economy and society.
It’s also necessary to furnish the estimate expenses for the next three years and the last three year’s annual financial report of the head office. Finally a list of expected staff must be provided to the Thai authorities.
Application fee is 2,000 baht. If the application is approved, the government fee will be set at the rate of 5 baht for every 1,000 baht or a fraction of the registered capital of parent company, with a minimum of 20,000 baht and a maximum of 250,000 baht.
A company with a representative office can have two work permits to foreign citizens for ROs which act in an advisory capacity in Thailand. Five work permits to foreign citizens are also available for those who engage in the sourcing goods or are responsible for quality control in Thailand.
Benefits and Weaknesses
The representative office is one of the quickest and easiest ways to gain a foothold in Thailand because the process is generally quick and easy. Foreign companies realize numerous benefits by opening representative offices in Thailand.
The office is not subject to Thai Corporate Income Tax. They may not generate revenue so they are not taxed.
One of the key benefits of setting up a Representative Office in Thailand is that obtaining a work permit for a foreigner is not restricted to the standard ratio of one foreigner per every four Thai workers.
However, a representative office in Thailand is very limited in its business activities, and thus is not suitable for foreign businesses wish to derive revenue directly from their Thai operations.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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