There are multinational companies who want to extend their reach into Thailand without creating a separate legal entity. In this scenario, the multinational company will have two options for entering the Thai market. They can form a branch office or a representative office. Both are governed by the Foreign Business Act but they serve two different functions.
The primary function of a representative office is to provide information and assistance to their foreign head offices. Representative offices in Thailand are not allowed to engage in profit seeking activities or act on behalf of third parties. Because of this fact, representative offices are exempt from Thai corporate income taxes or registering for the VAT.
The scope of their activities are limited to non-trading activities such as:
- Search and procuring information for the overseas headquarters
- Ensuing the quality and quantity of the product ordered by the headquarters
- Advise the head office on products offered by the head office to local distributors or consumers
- Disseminate news or updates regarding new products or services offered by the head office
- Reporting the economic or political situation in Thailand to the headquarters.
Representative offices are meant to only provide support to the head office and engage local customers. Exceeding the scope of activities can result in the income of the parent or affiliated companies being considered to be earned in Thailand and be subject to Thai taxation.
As a foreign business, a representative office will have to obtain a Foreign Business License. Representative Offices can also support a work permit for a foreign national.
Branch offices can operate in a broader range of activities than representative offices. The Foreign Business Act treats a branch office as a mere extension of the head office. They are considered as part of the same legal entity as its head office and can engage in any and all activities within the head office’s scope of business.
A branch offices is not a separate legal entity but will have to obtain a foreign business license to legally operate and earn profit in Thailand. Branch offices have to obtain a taxpayer ID and register for VAT. In addition, the liabilities of the branch office is not limited to the branch office but also extends to the head office. Branch offices are treated the same as a limited company in the application of work permits for foreign employees.
The decision of whether the foreign multinational company opens a representative office or a branch office should be made after careful consultation with an experienced professional.