A Representative Office in Thailand is an ideal business entity for conducting market research and finding new partners. It can be 100% foreign owned, but it must hire at least one Thai employee.
It can perform inspections on goods sent from the head office, and it can source products and services to send to the head office. It is exempt from income tax, but it must pay withholding tax on employees’ wages.
Legal Requirements
There are several legal requirements that need to be fulfilled before a foreign company can set up a representative office in Thailand. These include:
The requirements and procedures vary depending on the business type and industry, and there are often changes in the regulations. Therefore, it is advisable to consult with professionals who specialize in Thai company registration and setting up businesses in this country.
Generally, representative offices are exempt from paying taxes, since they do not generate income. However, they are required to comply with withholding tax obligations.
The representatives office must also report back to the head office about their movements in the country, so that the head office can make decisions regarding business development. The documents that need to be submitted include: a letter of appointment signed by the director; an investment plan for the first three years; financial statements; the address; and details of the directors, including their names, nationalities and the number of shares held.
Feasibility Study
A foreign company that wants to expand into the Thai market needs to conduct a feasibility study. This should cover the market potential, competition, and legal and regulatory requirements for setting up a representative office in Thailand. The research should also cover the costs and benefits of setting up this entity.
A representative office is a non-trading entity that carries out certain non-income-generating activities for the Foreign company. It can perform market research, source goods, inspect and control products, and offer advice regarding products sold to distributors or customers. However, it cannot conduct trading activities or generate income in Thailand. It also cannot accept purchase orders or make offers to sell goods to any natural or juristic person.
Moreover, a representative office can hire a maximum of two foreign employees to comply with labor laws in the country. In addition, it does not need to meet the quota of four Thai employees for one foreign employee that is required for a limited company.
Obtaining a License
The representative office manages service businesses in Thailand on behalf of the foreign head office or an affiliated company. It does not generate income in the Kingdom and is required to remit funds into Thailand for its operating expenditure.
It cannot accept orders or offers to buy and sell goods or services to natural persons or juristic persons in the country, nor can it negotiate business with any such persons. It can, however, conduct market research and find partners in the country.
To obtain a license for a representative office, the following documents are needed: the certificate of incorporation of the parent company and its financial statements; a letter of recommendation from the parent company; and a business plan outlining the intended activities of the representative office. Additionally, the manager of the representative office needs to submit a copy of his/her passport along with a non-immigrant visa and a power of attorney signed by the applicant (usually an outside lawyer). The license is issued within a week after submission of all the required documents.
Setting Up the Office
Setting up the office is a significant process and requires some investment, especially for foreign companies. It is recommended to consult with a professional business or legal advisor. Documents required include a certificate of incorporation from the head office and financial statements, letter of recommendation, the reason for establishing the Representative Office in Thailand, business plan for the first three years, budget for the office, machinery and equipment, and an affidavit that the Representative Office will be managed by an authorized signatory of the juristic person applicant with power of attorney to run the representative office.
It is important to note that a Representative Office cannot accept purchase orders or make offers for sale, nor negotiate business with natural or juridical persons in the Kingdom of Thailand. Nevertheless, it can perform other non-revenue-generating activities. A Representative Office is a popular choice for companies who wish to explore the market or allow their headquarters elsewhere to liaise with existing business interests in Thailand.