Setting Up a Representative Office in Thailand is one of the most common solutions for companies who are looking to expand into the country without having to acquire a foreign business license. However, the process can be quite complicated if you don’t know where to start.
The Representative Office can report back to the head office on business trends in Thailand but cannot engage in any revenue-generating activities. It must also submit a declaration that the directors, applicants, managers, or appointed representatives satisfy certain qualifications.
No Corporate Taxes
While a representative office can facilitate trade of the parent company and can be used for marketing research in Thailand, it is not allowed to receive purchase orders or make sales. The representative office also cannot generate income and is only subject to corporate tax on interest remitted to the head office.
Typically, a representative office must be established with a minimum capital influx of either 3 million baht or 25% of its estimated expenses for the first three years. The first 25% is to be paid in within the first three months of business operations, while the rest must be finalized by the end of the third year.
Additionally, the representative office must submit an annual audit and report on its business movements to the head office. It must also submit a declaration that the director of the foreign entity and its directors, managers, or staff meet the requirements under Section 16 of the Foreign Business Act.
No Government Fees
As a representative office is not considered a legal entity in Thailand and the company does not generate income, it is not required to pay any government fees. It is however required to submit an annual report to the Ministry of Commerce detailing its activities.
A representative office in Thailand may hire foreign employees but it is not permitted to generate income through sales or offer services. Rather, the office is only allowed to advise its foreign parent company about the Thai market trend and facilitate imports and exports.
The director of the foreign company must submit an application to set up a representative office, along with a letter of appointment and a statement that the applicant, directors, managers or appointed manager satisfy the requirements laid out in Section 16 of the Foreign Business Act. Law firms in Thailand can assist with preparing these documents which must also be notarized and certified by the local Thai consulate or embassy.
No Work Permit Ratio
Setting up a Representative Office is the easiest way for foreign companies to establish a presence in Thailand. However, the process still entails a lot of time and paperwork that can be difficult for a foreign company without experience in Thai business practices.
Representative offices are permitted to conduct non-revenue-generating activities, such as reporting to the headquarters on movements of goods in Thailand, and arranging for inspections of quality and quantity of products purchased by the head office in the country. Representative offices are not allowed to accept purchase orders or offer sales, nor can they negotiate on business dealings with persons or juristic persons in the country.
To open a Representative Office, the foreign parent company must submit a letter of intent with the following documents:
- Incorporation documents: The foreign parent company needs to provide certified copies of its incorporation documents, including the certificate of incorporation, articles of association, and memorandum of association. These documents should be notarized and legalized by the relevant authorities in the home country.
- Financial statements: The company should submit audited financial statements for the past three years, demonstrating its financial stability and capability to support the operations of the representative office in Thailand. The financial statements should be prepared in accordance with international accounting standards.
- Letter of guarantee: A letter of guarantee issued by the foreign parent company’s bank is required, ensuring that the parent company will provide necessary financial support to the representative office in Thailand during its operation.
- Business plan: A comprehensive business plan outlining the activities and objectives of the representative office in Thailand should be submitted. The plan should include details about the nature of the business, target market, marketing strategies, and expected financial projections.
- Power of attorney: The foreign parent company must provide a power of attorney authorizing a representative or manager to act on behalf of the company during the registration process and subsequent operations of the representative office in Thailand.
- Office lease agreement: A copy of the lease agreement for the office premises in Thailand should be submitted. The lease agreement must have a duration of at least one year and comply with local regulations.
- Organizational structure: The foreign parent company should provide an organizational chart that outlines the hierarchical structure of the representative office, including details of the proposed manager and other staff members.
- Resume/CV of the proposed manager: A detailed resume or curriculum vitae of the proposed manager of the representative office should be included, highlighting their qualifications, relevant experience, and educational background.
- Company profile: A company profile of the foreign parent company, describing its business activities, history, and any other relevant information, should be submitted.
- Passport copies: Passport copies of the proposed manager and other key personnel who will be working at the representative office should be provided.
No Income Generation
Representative Offices are allowed to perform only non-revenue-generating activities such as market research, finding new partnerships and other forms of information gathering. This is a common business structure for foreign companies who are exploring the Thai market without having to worry about earning income in Thailand. As a result, all expenditures and other expenses incurred by the Representative Office must be borne by its head office and it is not subject to corporate income tax except for deposit interest on remitted funds from the head office.
This makes setting up a Rep Office in Thailand a more cost-effective option for those who are looking to establish a presence in the country but do not intend on conducting profit-generating activities. In addition, the process to set up a Rep Office in Thailand is considerably quicker and easier than registering a Branch Office or a Company Limited by Foreign Shareholders. This is why this business entity remains a popular solution for many foreign investors who are looking to expand into the Thai market.