Thailand representative office.

Depending on the reason of why you come to Thailand, a representative office might be a solution for you. A representative office is a non-trading entity, meaning that it cannot generate any income. It is in fact a sort of non-profit organisation that is financially supported by the head office in another country.

Main characteristics

A representative office operates a service business in Thailand for its head office, an affiliated company or a group company in another country (hereinafter referred to as ‘foreign company’). It renders these services without any income except for the remuneration of expenses, and has no legal form in the sense that the representative office cannot receive any purchase order, cannot sign sale and purchase agreements nor negotiate business (not on its own account nor on behalf of the parent company). A representative office can only sign those contracts that are essential for its own operations, e.g. lease of the premises. For what concerns for example a loan from a financial institution which is incidental to the business, the loaned amount may not exceed seven times the capital. 

A representative office renders non-revenue-raising services to a foreign-domiciled head office through engaging in a limited range of activities such as:

  • Sourcing of local goods or services in Thailand
  • Inspecting and controlling quality and volume of goods which the head office purchases in Thailand
  • Disseminating information about new products and services of the head office
  • Reporting to the head office on local business development and activities, and/or
  • Providing advice in various fields relating to goods distributed by the head office to the distributors or consumers

A representative office is always considered to be foreign. This has as its main consequence that the representative of the representative office or a director of the foreign company will have to apply for a foreign business license before the start of the operations. 

Apart from a license, a foreign director or representative shall in some cases be obliged to have his/her domiciliation of have his/her residence in Thailand:

  • The licensee is a juristic person registered in Thailand and the foreign director can bind the company: at least one foreign director has to be domiciled or have its residence in Thailand
  • The licensee is a juristic person not registered in Thailand and the representative in charge of the operations in Thailand is foreign: at least one such person has to be domiciled or have residence in Thailand

The combined effect of these restrictions can be a little stifling in terms of undertaking meaningful commercial activity, bearing in mind the cost of establishing and maintaining a presence. The situation varies however from one company to the next, and this is where potential investors need to utilise the knowledge of experienced advisors such as Interactive Thailand prior to committing themselves to a particular course of action.

Registration

The following documents should be provided to the Department of Business Development (Bangkok) or the Provincial Office of Business Development (all the other provinces):

  • For what concerns the foreign head office: an official document showing the name, capital, objects, place of business, list of directors and authorised signatories, as well as the financial statements of the past three years
  • The total amount of shareholders, as well as an overview of their nationalities and the amount of shares that they hold

Office address in Thailand and map thereof, including proof of ownership or possession of the office space of the representative office (e.g. lease agreement)
Number, names and salaries of the employees
Reason why the representative office is necessary (e.g. to support well known projects or clients in Thailand…)
Detailed explanation of the envisaged activities, including:

  • A business forecast for the following three years
  • The type, size and intended period of the business
  • The stages of operations
  • The used machinery and/or office equipment
  • The impact on the Thai economy
  • An estimation of the spending on fixed assets and operational expenses in Thailand for the first three years, as well as an estimation of the benefits to the Thai economy
  • A plan for the import and transfer of foreign technology, and for research and development (if any)

Declaration that the applicant, directors, managers or appointed representative satisfy the qualifications and do not possess a prohibited characteristic under section 16 of the Foreign Business Act
With regard to the representative that has to be appointed by the authorised signatory in charge of the business operations in Thailand: proof of his/her appointment, copy of the appointed representative’s passport and proof of his/her address in Thailand (or evidence of permission to enter the Kingdom)
If applicable, a power of attorney to the person representing the applicant during the process (incl. a copy of his/her passport). If this power of attorney was signed outside of Thailand, it should be notarised or certified by the embassy

Do note, the documents should be submitted in Thai and the correctness should be certified by the applicant (and translator).

Application for the Foreign Business License

In order to obtain the representative office, Foreign Business License the parent company must commit to the staged transfer at least 3M THB into Thailand for use as working capital. These funds are transferred into the country at specified intervals, and must subsequently remain in Thailand: a minimum of 2M THB must be remitted during the first year of operation, and, thereafter, at least 1M THB per year must be transferred into Thailand. It is intended that this capital be used for operational expenses such as rent and wages. 

The Committee will consider the specific aspects depending on the business activity that will be conducted by the representative office:

1. Reporting the business movements in Thailand to the Head Office, affiliated company or group company (hereinafter referred to as the ‘foreign company’)

The representative office will study and compile business information in Thailand and report this information to the foreign company. It concerns information regarding the economy, possible investments, marketing, manufacturing, distribution and the demand on goods in the automobile, electronics (incl. electrical appliances) and food products industry. The purpose of this study is to gather information that is necessary for the foreign company to invest in Thailand. For clarity sake: this does not mean that the foreign company has to invest in Thailand, even if the information shows that it is interesting to have the specific product manufactured in Thailand. 

The following items or documents have to be reported or provided when applying for the Foreign Business License:

  • A business plan which clearly specifies the scope and subject of the information that will be reported, and the reason why such information is passed on to the foreign company
  • The reported information has to be of relevance to the foreign company (and thus more or less concern the same business operation)
  • There has to be an advantage for Thailand in the sense that the information should in principle be used to make investments in Thailand or at least make it possible
  • A copy of a document proving the existence of legal identity of the foreign company, as well as the company’s objectives (e.g. articles of association)
  • A structure chart showing the relationship between both the foreign company and the representative office
  • Information regarding the foreign company: list of the names, the core business, country of registration, overview of the shareholding, and a copy of the financial statements or annual report (if any)

2. Give advice on various aspects pertaining to the goods distributed by the foreign company to Thai distributors or users

In this scenario, the foreign company produces the goods and sells them in Thailand. The representative office will be responsible for understanding the applied technique and providing a solution to problems that occur from the use of the goods. 

The following items have to be reported, and documents have to be provided, when applying for the Foreign Business License:

  • A specification of the category or characteristics of the goods, as well as their qualification
  • The concerned goods have to be complicated or require a special technique, which makes the knowledge and information necessary in order to appropriately and beneficially use the goods
  • Proof that the product is sold or used in Thailand (e.g. list of buyers in Thailand, invoices, sale agreement or distributor appointment letter);
  • A copy of a document proving the existence of legal identity of the foreign company, as well as the company’s objectives (e.g. article of association)
  • A structure chart showing the relationship between both the foreign company and the representative office
  • Information regarding the head office, affiliated company or group company: list of the names, the core business, country of registration, overview of the shareholding, and a copy of the financial statements or annual report (if any), and
  • Document showing detailed information regarding the product (e.g. brochure)

3. Seek the supply source of goods or services for the foreign company

The representative office has as its main goal to gather information concerning the way goods are manufactured or supplied in Thailand (mainly food, agricultural products, electrical appliances, electronic parts, spare-parts and equipment). 

The application should contain the following information or comply with:

  • A specification of the category or characteristics of the goods or services, as well as their qualification
  • A specification of the category or characteristics of the goods or services, as well as their qualification
  • The reported information has to be of relevance to the foreign company (and thus more or less concern the same business operation)
  • Show that a purchase order of goods or services has been or will be made
  • A copy of a document proving the existence of legal identity of the foreign company, as well as the company’s objectives (e.g. article of association)
  • A structure chart showing the relationship between both the foreign company and the representative office
  • Information regarding the foreign company: list of the names, the core business, country of registration, overview of the shareholding, and a copy of the financial statements or annual report (if any), and
  • Proof that the goods were ordered from Thailand, if any (e.g. an invoice)

4. Inspect and control the quality and quantity of the goods that the foreign company purchased or hired to manufacture in Thailand

The representative office will inspect the characteristics, form and quality of the manufacturing process and evaluate whether the product that is bought by the foreign company in Thailand is in line with the standards. 

The application should contain the following information or comply with:

  • A clear specification of the type of the goods or/and services that will be inspected, as well as the quality and quantity that is controlled
  • Proof that the goods and/or services were purchase or will be purchased in Thailand by the foreign company (e.g. an invoice)
  • A copy of a document proving the existence of legal identity of the foreign company, as well as the company’s objectives (e.g. article of association)
  • A structure chart showing the relationship between both the foreign company and the representative office
  • Information regarding the head office, affiliated company or group company: list of the names, the core business, country of registration, overview of the shareholding, and a copy of the financial statements or annual report (if any)

5. Disseminate the information concerning new goods and/or services in Thailand

The representative office will check goods and services that never have been sold in Thailand, or that have been developed differently. The goods mainly concern electrical appliances and electrical equipment. 

The following items or documents have to be reported or provided in order to obtain a Foreign Business License:

  • A clear specification of the type of the goods or/and services that will be inspected, as well as the quality and quantity that is controlled
  • The differences of the characteristics or qualification between the previous goods or services and the new goods or services. If the products have been sold in Thailand before, one should provide information regarding the development of the goods or services
  • A structure chart showing the relationship between both the foreign company and the representative office
  • A copy of a document proving the existence of legal identity of the foreign company, as well as the company’s objectives (e.g. article of association)
  • Information regarding the head office, affiliated company or group company: list of the names, the core business, country of registration, overview of the shareholding, and a copy of the financial statements or annual report (if any)
  • Document showing detailed information regarding the product (e.g. brochure)

If the application (Tor 2 application form) is accepted, a fee of 2,000 THB will have to be paid. Then the Foreign Business Committee will look into the application and, if approved, the Director-General will issue the license. Upon payment of the fees, the applicant shall receive the license. This process takes about two and a half months. It has to be mentioned that, even after receipt of the Foreign Business License, the representative office has to keep complying with certain conditions. It concerns for example requirements regarding the minimum capital (3,000,000 THB), the ratio between the loans and inward remitted funds (maximum 7 to 1) and the need to have at least one person domiciled in Thailand.  As a condition of ongoing operation, each representative office must submit an annual report to the Ministry of Commerce detailing those activities that have been undertaken. representative offices are not subject to corporate income tax as they do not generate income. They must still, however, submit regular financial statements to the Department of Business Development.

Certain types of representative office require additional licenses or approvals and these include for example:

  • Finance, security, and credit financier offices
  • Foreign bank offices
  • International business offices

Fee

The application fee is 2,000 THB and is not refundable. Once the application is approved, the government fee of 5 THB for every 1,000 THB of the registered capital (with a minimum of 20,000 THB and a maximum of 250,000 THB) will become due. In case of a physical person, the fee amounts to 20,000 THB. An application to inspect or make copies of documents costs 200 THB per application, and an application for a certification of the contents deposited by the registrar 100 THB.

Advantages

One of the key benefits of maintaining a representative office is that it is not subject to the standard work permit ratio of one foreign employee for each four Thai employees. Depending on the nature and scale of activities being undertaken, representative offices may support from two to five work permits. A representative office that has sourced more than 100,000,000 THB goods from Thailand during the preceding year may be eligible for even more work permits. A foreign company seeking to establish a representative offices must first apply for a Foreign Business License (for further information, please see the article thereon). The good news is that it is generally easier to obtain a license to operate a representative office than it is to operate a private limited company. Additionally, the process has been streamlined with the recent publication of revised guidelines for service businesses. Special provision has been made within Thai law for a foreign company (being a company not formed under Thai law and/or without majority Thai ownership) to establish what is known as a “representative office”. This is often the quickest and easiest way for a foreign company to establish a physical presence in Thailand. As well as creating a ‘beachhead’, the creation of a representative office has the added benefit of facilitating the lodgement of applications for business visas and work permits for foreign directors or staff.

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