Bangkok is the financial center of Thailand. Thailand is an upper middle class country with a well-developed commercial, industrial, and service sector. Thailand has the second largest economy in Southeast Asia after Indonesia and second largest in external trade volume after Singapore. Bangkok is one of the major economic hubs of Asia. There are many multinational companies who have set up representative offices in Bangkok to establish their presence.
What is a Representative Office?
A Representative Office allows a foreign entity to establish an office in Thailand to engage in non-revenue generating international trading activities. A foreign entity and the Representative Office are considered a single legal entity. The foreign entity must provide a Letter of Appointment signed by the director of the foreign entity appointing the local manager. The foreign entity is liable for the actions of the Representative Office within the scope of the granted authority.
A Representative Office must not receive any remuneration for providing services. It cannot receive purchase orders or negotiation business with any other party. And the office’s expenses must be paid entirely by the foreign head office. The Representative Office can engaged in activities such as:
- Sourcing of goods or services for head office
- Checking and controlling the quality and quantity of goods purchased or hired to manufacture in Thailand by the head office
- Giving advice concerning goods of the head office sold to agents or consumers in Thailand
- Dissemination of information concerning new goods or services of the head office
- Reporting on business trends in Thailand to the head office.
Since the above business activities are covered under category 3 of the Foreign Business Act, a Representative Office will have to apply for a Foreign Business License. Even though a Representative Office is not allowed to earn income, they are required to obtain a Corporate Tax ID, submit tax returns, and audited financial statements to the Revenue Department and the Department of Business Development.
A benefit for a Representative Office is the ability to obtain work permits for foreign nationals with only a 1 foreigner per 1 Thai employee instead of the normal 1 to 4 ration. Up to five work permits can be granted depending on job duties. Two work permits can be granted for employees who disseminate information about the company and advise the head office. Five work permits are allowed for employees who source goods and services in Thailand for the home office.
What is required from the Representative Office?
The Thai government imposes the following requirements on Representative Offices. Addition items may be required for certain types of activities.
- There must be a minimum capitalization of at least 3 million baht prior to the commencement of business operations of Representative Office.
- The liabilities of the Representative Office must not be more than seven times the amount remitted to fund the business operation.
- At least one person living in Thailand must be responsible for the business operation.
- An account and financial statement must be submitted to the Department of Business Development.
- Documents or evidence of the permitted business operation must be available to government officials when requested.
Forming a juristic entity in Thailand is a complex bureaucratic process. This is further complicated for foreign nationals because of the language hurdles. Applications submitted to the Thai government must be completed in Thai. In addition, foreign documents must be translated into Thai, notarized, and then certified prior to submission to the Department of Business Development. It is well advised to seek the assistance of an experienced Thai business attorney prior to beginning the process of forming a Representative Office.