Seven requirements: Thai Representative Office
Quick and easy market entry with a pitfall
From an international perspective, a representative office (vulgo “RepOffice”) typically has the role of a „small company“ and is an entry opportunity for foreign investments. However, under Thai regulations, its application area is strictly limited. While the scope of business of a Thai corporation (Company Limited) is generally unlimited, the Representative Office renders its service to the head office or an affiliated company or a group company only.
The restricted scope of activities of a representative office
Under Thai regulations, its scope of activities is restricted to five categories only. These are
- to report the business movements in Thailand to the head office or affiliated company or the group company;
- to advise on various aspects on the goods distributed by the head office or affiliated company or the group company to the distributors or the users in Thailand;
- to seek for the supply source of products or services in Thailand for the head office or affiliated company or the group company;
- to inspect and control the quality and quantity of the goods that the head office or affiliated company or the group company purchased or hired to manufacture in Thailand;
- to disseminate the information about the new goods or services of the head office or affiliated company or the group company.
As a consequence, any activities which are not covered by these five permitted activities, could not be done by the representative office. Among others it may not conduct the following activities in Thailand:
- Purchase, order or pay goods on behalf of the head office or affiliated companies or any activities related to this.
- Receive purchase orders from any individual or juristic person.
- Provide after-sale-services concerning installation and maintenance.
- Provide advice concerning goods not produced or sold by the head office or affiliated companies.
- Sales offer for any natural or juristic person.
- Coordination of sales and purchases on behalf of the head office or affiliated companies.
- Provide information concerning goods that have already been sold in Thailand.
- Carry out activities as middleman or agent between a customer in Thailand and the head office or affiliated companies.
- Plan and coordinate with any organization on behalf of the head office or affiliated companies.
- Representation of head office or affiliated companies regarding any contract negotiations or activities.
- Report information to any company that is not the head office or an affiliated company.
If the representative office engages in other activities for which permission is not granted, such as buying or selling goods on behalf of the head office, it will be regarded as doing business in Thailand and may be subject to Thai taxation on all income received from Thailand.
Seven regulatory requirements (strictly speaking, just six)
1. No Foreign Business License: As a non-business organization, the five allowed activities as mentioned above do not qualify as “other services” in the meaning of the Foreign Business Act. Therefore, there is no legal requirement to apply for a Foreign Business License to set-up a representative office in Thailand. This legal viewpoint has been confirmed by a ministerial regulation of the Ministry of Commerce, effective from June 9, 2017.
2. Capital requirements: Certain capital amounts have to be remitted from the head office into Thailand. This is a sensitive task which needs special know-how to do it most efficient.
3. DBD registration: The Representative Office has to be properly registered at the Ministry of Commerce (Department of Business Development), obtains a 13-digit registration number and has the same reporting requirements as a corporation. The registrar requires
- information and documents regarding the head office and its shareholders,
- office address, employment details, etc.,
- business plan, financial forecast, and similar information, as well as
- additional data and documents to be coordinated with the authorities on a case-by-case basis.
4. Representative officer: There are certain requirements for the appointed representative officer of the head office in Thailand regarding
- residence in Thailand, and
- employment arrangements.
Apart from the official documents, a tax structuring might require additional private arrangements, a second employment contract, and other supporting documents. The arrangement of these tasks requires special know-how and expertise.
5. Work permit: Foreigners working in Thailand require a valid work permit which is issued on a yearly basis. Deviating from the 4:1 quota for a Co., Ltd., the ratio is one Thai employee per one foreigner. The total number of possible work permits per representative office depends on the individual case and is subject to negotiation with the labor office. The typical work permit requirements have to be fulfilled in a slightly modified form.
Thailand’s work permit regime has been recently relaxed and there are some arguments and government statements that the (one) responsible officer does not need a work permit because he is exempted under Section 4 (8) of the Foreigners’ Working Management Emergency Decree Number 2, published on March 27, 2018. Due to the latest statements, such special exemption is not applicable to the representative office.
6. Tax registration: Even though they are not subject to taxation in Thailand, all representative offices are still required to obtain a tax registration and to submit tax returns to the Revenue Department.
Cross-border tax planning is an underestimated but often the paramount aspect of the structuring of a representative office in Thailand.
7. Accounting and audit: The representative office requires monthly accounting. The synchronization with the bookkeeping, financing, and other complex issues at the head office makes this task challenging.
The financial statements have to be audited by a qualified and licensed Thai auditor on a yearly basis.
Certain types of Representative Office require additional licenses or permission such as finance, security, and credit financier offices and foreign bank offices.
Comprehensive professional services for the establishment and maintenance of a representative office in Bangkok
PUGNATORIUS Ltd. is a Bangkok-based specialist provider of bespoke transactional legal and tax advice in the corporate and property legal and taxation industry sectors. The law firm has a broad scope of experiences to set-up a representative office, to advise on tax issues and, as the case may be, to close down this type of dependent foreign legal entity in Thailand.
Corporate and investment structures are one of the law firm’s areas of competence, long-standing experience, and unique market reputation. Typical assignments cover these seven areas:
- Advice on corporate structuring
- Company formation services
- Special business licensing
- Company acquisitions and disinvestments
- Corporate due diligence examination
- Corporate restructuring
- Legal opinions and professional statements
The terms for assigning PUGNATORIUS Ltd. are described at “Legal advice and assistance on corporate and investment laws.”