Representative offices manage service businesses for their head office or affiliated companies in different countries. They can perform non-revenue-generating activities such as reporting back information to their head office and shipping products to the company’s affiliates or headquarters.
A representative office offers foreign companies a cost-effective and easy way to explore the Thai market. But it’s important to know the legal requirements and restrictions of this type of business.
Legal Requirements
A Representative Office is an excellent choice for companies that wish to explore the Thai market without the risk and expense of establishing a full-scale branch or subsidiary. However, this type of office cannot engage in any revenue-generating activities, and it must be managed by a director with a broad power of attorney who is domiciled in Thailand. It is also essential that the company has a clear business strategy and plans for the future before pursuing this option.
The office must register with the Department of Business Development (DBD) and submit monthly accounting records and annual financial statements. The DBD will also provide a registration number and a list of permitted activities. It is important to keep in mind that if the office exceeds these boundaries, it could face serious penalties and even have its foreign business license revoked.
Moreover, the office must maintain a minimum capital of 3 million baht from its parent company once it is granted permission to operate in Thailand. This amount must be remitted in stages—25 percent within the first three months of operations, 50 percent by the end of the first year, and the remaining 25 percent by the end of the third year. In addition, the office must comply with all local employment and tax regulations. This can be complicated for foreigners, which is why companies often seek the assistance of professional services like Plizz.
Forming a Juristic Entity
Setting up a foreign branch office can be a complicated and lengthy process, especially for companies with limited resources or little experience in the region. Moreover, the language barrier and bureaucratic practices can further complicate matters. Therefore, it is highly recommended to seek the services of a firm that has experience in this field.
The process of forming a juristic entity to set up a representative office in Thailand includes submitting documents to the Ministry of Commerce and registering with other government agencies. In addition, the company must open a bank account and find office space. It is also required to provide a letter stating that the manager of the representative office has power of attorney to run its business. In case the manager is a Thai national, copies of his/her national ID and household registration should be submitted.
Typically, a representative office acts as an extension of a foreign parent company in the country. As such, it cannot enter into contracts or conduct legal proceedings on its own. Furthermore, a representative office is not an individual legal entity and thus does not pay taxes in the country.
Despite these limitations, setting up a representative office can still be a valuable and cost-effective way to explore the Thai market. It can be used for a variety of purposes, including conducting research and promoting the company’s products. It can also act as a liaison between the parent company and local businesses or government agencies.
Obtaining a Foreign Business License
A foreign company must obtain a foreign business license to set up a representative office in Thailand. The process is lengthy, complicated, and time-consuming. It is recommended that companies consult with a Thai law firm for assistance.
To apply for a foreign business license, the representative office must submit an application form and supporting documents to the Department of Commerce. These documents include the company’s constitutive documents, details of a local contact person, and identification documents for staff members. The application also requires an affidavit and a report on chartered capital.
Rep offices are only allowed to perform a limited number of services. If the company exceeds its capacity, it may be deemed to be doing business in Thailand and will lose its foreign business license. The office must also file a report on its expenses and the impact of its activities on the local economy.
Unlike a limited company registration, the rep office is not required to follow the rule of hiring four Thai citizens for every foreign employee. It is not subject to corporate income tax since it is not generating revenue. However, it must still submit reports to the Department of Revenue. Rep offices are a good option for companies that want to explore the Thai market or ensure quality control on products sourced from the country.
Employment Requirements
A foreign company that wishes to establish a representative office in Thailand must hire a local manager and comply with employment requirements. It must also establish a bank account and submit reports to the government. In addition, the foreign parent company must provide a list of expected Thai employees and confirm that the office will have enough space to conduct its permitted activities.
A representative office is a business entity that manages service businesses on behalf of the head office or affiliated companies. It can render services such as product shipment, acquiring purchase orders, making payments, and reporting back to the head office. In contrast, it cannot directly engage in profit-generating activities and is therefore exempt from paying corporate tax.
To set up a representative office in Thailand, the director of the main company must create a Letter of Appointment that nominates the local manager for the Office. The chosen manager must be a Thai citizen who has the necessary work permits and whose credentials have been verified. A declaration confirming that the applicant, directors, managers, and appointed representatives are in compliance with section 16 of the Foreign Business Act must also be submitted.
A representative office must have a minimum of 3 million baht in capitalization, or 25% of the estimated expenses for the first three years, whichever is higher. The capital funds must be annually transferred into the company’s bank account and proof of the transfer must be provided.