If you are exploring expanding into Thailand, you can start by either establishing a legal entity or employing your staff via an employer of record, depending on how far you are in the process of your expansion.
This article compares both methods to help you decide which step suits your business best.
Key takeaways
- There are two ways to start your business expansion into Thailand: partnering with an employer of record or registering a local business entity. The main types of business entities in Thailand are representative offices, private limited companies or branch offices
- It is important to determine the right reason for hiring employees abroad (among them: market exploration, customers/supplies support and immediate trading start) in order to select the right expansion option
- Among other important factors to consider prior to international business expansion are familiarity with the rules and regulations of the targeted location, the scale of business expansion and the economic state of the targeted country
Incorporating a business in Thailand
Incorporation is the process of establishing a fixed offshore firm that conducts business with a legal and physical presence in a foreign country. The process typically involves registering the firm with the local government and setting up a branch office or subsidiary company within the host country.
Business entities in Thailand
Thailand offers a variety of business entities for every need. A private limited company is the most commonly used entity in Thailand to conduct business. Below we provide a summary of the main types of entities that can be registered in Thailand and their major characteristics:
Representative office
A representative office is ideal for foreign companies seeking to study the Thai market for research and business development.
Hiring employees
The representative office can hire local staff under contracts while hiring foreign employees requires a ratio of 1 Thai employee per foreign employee hired in order to support a work permit.
Minimum registered capital
The minimum registered capital is 2 million THB invested over three years. The funds are transferred into the country at specified intervals and must subsequently remain in Thailand. This capital is intended to be used for operational expenses such as rent and wages. The full requirements are as follows:
- Initial transfer is 25% when set up
- Transfer at least 50% within the first year
- In 2nd and 3rd year must transfer at least 25% of the capital each year
- Within 3 years the transfer of capital must be fully completed.
Setup time
The process of setting up a representative office estimates to one month.
Private limited company
Private limited company is ideal for most businesses. It takes the shortest time to register and isn’t restricted in activities. The Thai limited company will require at least 51% Thai partner however, there is an option to apply Thai limited company under the Board of Investment (BOI) and earn special incentives such as 100% foreign ownership, or free corporate tax for up to five years, or free import tariff. However, BOI is promoted in some specific activities only.
The Thai company can also be 100% foreign own under Amity Treaty or by obtaining a Foreign Business License (FBL). Although, if the activities of the business are not on the prohibited list of the Foreign Business Act of Thailand, it can be foreign ownership without obtaining FBL, such as 100% export company.
Hiring employees
The limited company can hire local staff under contracts while hiring foreign employees requires a ratio of four Thai employees per foreign employee hired in order to support a work permit.
Minimum registered capital
To support an expat’s work permit there is 2 million THB per foreigner (the company under BOI/Amity/FBL will be 3 million THB)
Setup time
The process of setting up estimates to two weeks for a normal Thai Limited company (not BOI/Amity/FBL)
Branch office
Branch office is ideal for established companies wishing to expand their branch office to Thailand.
Hiring employees
The branch office can hire local staff under contracts while hiring foreign employees requires a ratio of four Thai employees per foreign employee hired in order to support a work permit.
Minimum registered capital
Mostly, the branch office will be required to obtain a Foreign Business License that a registered capital of 3 million THB or more. Only in case the activities of the business are not related to the prohibited list of the Foreign Business Act of Thailand, then the Foreign Business License is not required.
These funds are transferred into the country at specified intervals and must subsequently remain in Thailand. It is intended that this capital be used for operational expenses such as rent and wages.
- Initial transfer is 25% when set up
- Transfer at least 50% within the first year
- In 2nd and 3rd year must transfer at least 25% of the capital each year
- Within 3 years the transfer of capital must be fully completed.
Set up time
The process of setting up is longer than Thai limited company or representative office and takes approximately three to five months, depending on the activities of the business.
Choosing the right business entity
A foreign investor must take the following factors into account before determining the right business entity:
- Foreign ownership restrictions within different sectors, under various policies and laws so Foreign Business License is a must to maintain foreign ownership
- A BOI promotion under the Investment Promotion Act is granted only to companies that are registered in Thailand, and to some specific activities listed in BOI regulations only
- A foreign business is not liable for the activities performed by its Thai subsidiary but is liable for the activities performed by its branch office
- It is typically easier for a Thai company or some licenses would be required an entity to have the majority of Thai shareholders and directors to obtain business operation licenses such as FDA or TAT licenses. And for a branch office its documents often require notarisation by a Thai embassy abroad
- Thailand has double taxation treaties with over 60 foreign countries, some of which offer a more favourable treatment of remittances than others
Using employer of record service in Thailand
An employer of record (EoR) acts as a third-party organisation that enables a client firm to recruit new talent without establishing an entity in a foreign country.
The EoR has a physical entity in place and will be listed as the legal employer on official documents while all decisions related to hiring, decisions relating to the employee’s role and dismissal will be handled by the client firm.
One of the main reasons why companies choose to partner with an EoR is the ability to launch their business in another country within a very short period of time – firms can start operating as soon as they have made a hire in a said country.
Other benefits of working with EoR provider include the following:
- Avoiding the potential risks of being non-compliant with the labour laws and regulations of a host country
- Minimising the risks involved in expanding to new markets due to not having an established subsidiary
- Allowing businesses to expand into multiple countries simultaneously
- Efficient staff recruitment within your new market
- Local HR experts run and keep track of employee payroll on a business’s behalf
- Low setup cost and recurring costs compared to traditional company formation service
- Limited liability – Acclime will become the legal employer of your employee taking away all the liability from your end
- Support with exit strategy with company dissolution, EoR is also a good alternative allowing you to maintain staff even after closing your entity
Incorporation vs EoR in Thailand: Which one to choose for your business
If you are a business looking to expand to Thailand, do you need to hire staff as a first step? If so, you have the following options, depending on the reason for hiring:
Reason #1: Explore the market
Many businesses expanding to a new market wish to have key business development staff on the ground in order to fully explore the market potential, grow contacts and plan for a successful market entry. Hiring staff and having them legally registered in Thailand to undertake this kind of work is possible prior to incorporation. Here are some options:
Representative office
- Must employ staff
- Can support work permits for foreigners
- Must rent an office
- Cannot trade (i.e. raise invoices or accept payments)
- Must close and form a limited company or branch if the office needs to trade in the future
PEO providing EoR service
- Legally employ staff
- Low overheads
Reason #2: Support existing customers/suppliers
If the need is to have staff to support your company’s Thai customers, conduct marketing activities or work with suppliers on export from Thailand, there are options to become an employer without setting up a company. These options assume that your company will be conducting invoicing/payments from outside Thailand.
Representative office
- Must employ staff
- Can support work permits for foreigners
- Must rent an office
- Cannot trade (i.e. raise invoices or accept payment)
- Must close and form a limited company or branch it the office needs to trade in the future
PEO providing EoR service
- Legally employ staff
- Low overheads
Reason #3: Start trading immediately
If your Thailand expansion project has an immediate need for your business to start invoicing and making payments within Thailand, you have to incorporate. The options are:
Private limited company (Co. Ltd.)
- Unless the business is manufacturing or export-only, it cannot be 100% foreign-owned without securing BOI certification, foreign business licence or Amity certificate
Branch office
- 100% owned by foreign company
- Business activities must match those or parent company
- Parent company will have liability
- Takes time to set up
Of course, with either of these options, you may decide to outsource the employer of registration duty and HR requirements to a PEO to reduce administration.
Other important factors to consider
Familiarity with the rules and regulations of Thailand
When it comes to the regulations regarding international incorporation, one should never assume that everything will operate in the same way as it does in their home country. The laws and regulations might differ greatly from one nation to another and breaking them can result in hefty fines.
Working with a local PEO can help reduce that risk while allowing you to concentrate on other aspects of the business expansion.
The scale of your business expansion
It is important to establish how much you are willing to invest in a new market. Determine if this is only an experimental move, or if you strongly believe that this market has great growth potential for your business and is worth your investment.
Keep in mind that you can always start out by working with an EoR provider to estimate the possible risks and benefits, and if everything goes well for your business, you can proceed with incorporation.
The economic state of Thailand
While there may be many rewards to reap within a new market, many risks are also involved. Emerging economies offer such opportunities as first-mover advantages or high GDP growth rates, but they can be easily weighed down by political unrest or income inequality.
It’s also important to consider long-term changes in cultural and social beliefs. What may be a popular product or career path today may not resonate with the demographic in the years to come.
Remember, changes in the socioeconomic climate can disrupt even the most well-laid-out business plans. Doing a deep dive into the economic climate and assessing what you may be up against can help protect yourself and your business from potential disruptions.
How Acclime can help with your expansion into Thailand
Establishing a legal entity involves registering a subsidiary in Thailand. This provides more control and autonomy but also requires more resources and ongoing costs. An EoR (employee of record) is a simpler and more flexible model where you hire a local employee to legally represent your business.
While an EoR is easier to set up, a subsidiary offers greater legitimacy and credibility with local partners and customers. It also provides more legal protection and facilitates processes like importing/exporting goods.
There are pros and cons to each approach, so evaluate your priorities, resources, and growth strategy. A subsidiary may be preferable if you aim to make a long-term commitment to Thailand. An EoR could work well for testing new markets or launching pilot projects.
In summary, whether to establish a legal entity or employ an EoR in Thailand depends on company’s global expansion strategy, the number of new hires, and if the firm is recruiting in multiple countries. This decision will shape how you structure and scale your business internationally for years to come.
Regardless of your choice, here at Acclime, our goal is to provide guidance at every stage of your journey in Thailand. So, whether you decide to partner with a PEO or are seek out support for establishing a new legal entity, our corporate services & market entry solution can be customised to suit your evolving business needs perfectly.
