A foreign-owned company may opt to let its presence in Thailand without the need for it to fully operate as it is, without earning a profit. If it wants to test the business climate in the Kingdom without the need for it to comply with the requirements set for foreign companies doing business in Thailand, it can also choose to set up its reputation in the country through a representative office.
What is a Representative Office?
From the keyword itself, a representative office is an entity of a foreign-owned firm headquartered inside of Thailand.
Albeit having a limited scope of operations, when correctly set up with clear corporate objectives, a representative office can be an effective tool in finding business partners, sources of raw materials or service providers that are uniquely found or is abundant in Thailand.
Permitted Activities of a Representative Office
As previously mentioned, the operational activities of a representative office should not be income-generating thus it is limited to:
- Sourcing of goods and services in Thailand for its headquarters abroad.
- Act as the primary quality and quantity of these goods and services of its headquarters.
- It can also act as a consulting office for its goods distributors.
- Act as the primary promotions entity in Thailand for its headquarters.
- Study Thailands’s business climate and furnish this to its headquarters.
In particular, a representative office is not allowed to engage in the following activities:
- Engage in trade or purchasing on behalf of the head office or its affiliated company or any similar activity;
- accept purchase orders on behalf of the head office or its affiliated companies;
- coordination of any sale or purchase of goods on behalf of the head office or affiliated companies;
- provide after-sale service of the company goods and other goods that are not produced or sold by the company or its affiliated company;
- provide advice on goods that are not produced by the company or its affiliated company;
- conduct quantity and quality control checks of goods that is not the company or its affiliate company;
- making business reports to any company that is not the head office or its affiliated company;
- ship or export any goods ordered by the head office or affiliated companies;
- disseminating of information concerning goods or services that were sold in Thailand prior to the beginning operations of the Representative Office;
- enter into business contracts on behalf of the head office or its affiliated company;
- acting as “middleman” or “agent” on behalf of the head office or its affiliated company;
- planning or coordinating with any business organization on behalf of the company or its affiliated company;
Opening a representative office in Thailand may be complex and tedious for a foreign company. It may be a bit confusing too as, setting aside the language barrier, the foreign company still needs to be registered with the Ministry of Commerce and all the requirements and process it entails may be a lot different compared to those in their home countries. Nonetheless, obtaining a foreign business license in order to operate in the country is no longer required for representative offices since June 9, 2017.
Even if a company’s representative office does not earn income in Thailand, the corporate expenditures of a representative office, such as registration fees and facility rentals, should be financially backed by its foreign headquarters to address these and other attached corporate fiscal obligations.
However, if the Representative Office offers service outside of its defined scope, the Revenue Department is empowered to subject the Representative Office to the regular Thai corporate income tax on all of its generated income.
A representative office is also required to register and submit regular tax returns to the Thai Revenue Office though no tax payments are required as a corporate entity. However, the same treatment with its employees’ salary is not possible as it has to pay for withholding tax.
Monthly auditing activities done by a registered Thai auditor must be conducted apart from its annual audit on its financial statements.
To fully ensure compliance with the procedures, requirements, and guidelines, foreign companies are advised to engage reputable law and auditing firms. Many Thailand-based law firms have Thai and English-speaking lawyers thereby ensuring good communication and understanding between the clients and the legal advisers.