Setting up a Representative Office in Thailand is a low-cost and low-maintenance way to explore a new market. But it’s still important to play by the rules.
Representative offices manage service businesses on behalf of a foreign parent company or affiliated companies. They’re allowed to conduct five permitted activities but cannot generate revenue or receive money from invoices.
Regulatory Requirements
Representative offices are a useful tool for multinational corporations looking to establish a presence in Thailand, gather business intelligence, and build relationships without engaging in revenue-generating activities. They can conduct market research, gather business trends, and report this information back to their head office or affiliated company.
The representative office must hire a manager to handle day-to-day operations, and this must be done via a letter of appointment signed by the director of the foreign entity. Additionally, a declaration that the applicant, directors, managers, or staff of the Representative Office satisfy all requirements and do not possess any forbidden characteristics set out in Section 16 of the Foreign Business Act is required.
A company affidavit that details the head office’s name, capital stock, objectives, location, and directors must be submitted. The office must also provide a power of attorney for the representative, a detailed description of intended activities, and a copy of the manager’s passport.
Once these documents have been approved, the Representative Office can begin operations. However, it must be noted that the office can only carry out five permitted functions and is prohibited from earning any income in Thailand or entering into sales, purchase, or service contracts with Thai entities. If the representative office does anything outside of these parameters, it could risk losing its license.
Legal Requirements
A representative office is a great option for foreign companies that want to explore the Thai market without engaging in full-fledged commercial activities. It can conduct liaison work, market research, procure goods, and perform quality control. However, it is not allowed to generate income in Thailand and must be refunded for all operating expenses by its parent company.
A minimum of three million baht must be remitted into the country, with 25% transferred within the first year and the rest within the next three years. Additionally, a company affidavit that details the parent company’s objectives, capital, and directors must be submitted along with a passport copy of the representative who will manage the office.
Rep offices are required to file monthly accounting reports and annual financial statements with the government. Although they are not subject to corporate income tax, they must register for value added taxes and withholding taxes on employee wages.
During their time in Thailand, representative offices are expected to monitor local business trends and report them back to their headquarters. They may also provide advisory support to affiliates, distributors, or partners in the country on behalf of their parent companies but cannot make direct sales to customers or clients. Other permitted activities include providing information on new products or services to customers and promoting them to potential clients or partners.
Taxes
If a foreign company wants to gain insight into the Thai market without engaging in commercial operations, a representative office offers an efficient liaison solution. The process to set up a representative office in Thailand is relatively straightforward and can be completed within 60 days.
As a non-revenue-generating entity, the office is not subject to corporate tax in Thailand. However, a representative office must still pay payroll and withholding taxes for its employees. Furthermore, the office must report its financial statements to the government annually.
A representative office must have at least 2 million baht in working capital to be allowed to operate in Thailand. This capital is intended to cover the operational expenses of the office. The office is not permitted to enter into any sales or purchase contracts on its own and must limit itself to specific “service” functions, such as sourcing products, providing quality and quantity control services, distributing information to local distributors and consumers, reporting business trends back to headquarters, and supporting affiliates on behalf of the head office.
The office must have a designated manager who is a foreign national with the appropriate visa and work permit. Additionally, the office must hire at least one locally hired employee to support administrative and research functions. Local staff members can be a cost-effective way to reduce labor costs and overcome language and cultural barriers.
Staffing
Although not required to employ employees, a representative office may appoint foreign staff with work permits to support its research and marketing functions. However, it cannot generate revenue in Thailand and must not engage in any commercial transactions or accept purchase orders from Thai entities. It must also report back to the headquarters about market movements, competitor activities, industry news, and regulatory changes in the country.
In addition, the representative office must report to its headquarters on business trends in the country and provide information about products that the head office sells to distributors or customers in Thailand. It can also gather and share product information with other local businesses and organizations to help grow the company’s brand locally. The office can even perform inspections and quality and quantity control for goods the headquarters manufactures or purchases from Thailand, which helps the company ensure that it is getting high-quality merchandise and manage inventory more efficiently.
Setting up a representative office is a simple and cost-efficient way for a company to monitor the Thai market without investing in a full subsidiary. However, companies need to be aware of the requirements before starting operations to ensure compliance. Working with a firm that specializes in these services like Plizz can help make the process easy and smooth. The main requirements include a completed application form, a signed copy of the company affidavit, the company’s address, objectives, and capital, and a letter of appointment naming the chief representative (who may be a foreigner with a work permit). The representative office must also submit a list of projected expenses for the next three years.