Setting Up Representative and Branches Offices in Thailand: What You Need to Know

Establishing a business presence in Thailand can be a strategic move for foreign companies aiming to tap into the Southeast Asian market. Two common methods for doing so are setting up a representative office or a branch office. Each has its advantages and specific legal requirements, which are essential to understand before making a decision.

Representative Offices

A Representative Office is a non-revenue-generating entity that carries out specific activities on behalf of its foreign head office. It focuses on supporting and facilitating business operations without engaging in direct commercial transactions. A Representative Office is permitted for only 5 business activities as follows:

1. Providing information concerning new goods or services of the head office
2. Checking and controlling the quality and quantity of goods purchased
3. Giving advice concerning goods of the head office sold to agents or consumers
4. Sourcing of goods or services in Thailand for the head office
5. Reporting on business trends in Thailand to the head office.

Advantages

• Market Exploration: Representative offices are ideal for companies that want to explore the Thai market without engaging in direct business activities. They can conduct market research, promote the parent company’s products, and liaise with local partners.
• Simplified Compliance: Setting up a representative office is generally easier and faster than other business structures. They are not subject to corporate taxes as they do not generate income locally. Additionally, there are no requirements for maintaining a ratio of Thai to foreign employees, which is a significant advantage over other business types.
• Cost Efficiency: With fewer regulatory burdens and no need for substantial initial capital, representative offices can be a cost-effective way to establish a presence in Thailand. They require minimal capital, usually around 2 to 3 million baht, depending on the planned activities​.

Legal Requirements

• Non-Revenue Generating Activities: Representative offices can only engage in non-revenue-generating activities such as market research, sourcing goods and services for the head office, and acting as a liaison. They cannot accept purchase orders, make sales, or negotiate business deals.
• Capitalization: The minimum required capitalization is typically 3 million baht or 25% of the estimated expenses for the first three years, whichever is greater. This capital must be brought into Thailand according to a specified schedule.
• Documentation: The establishment process involves submitting several documents to the Department of Business Development (DBD), including an application to establish the office, details about the parent company, and a letter of appointment for the local manager. All documents must be notarized and certified.
• Timeframe: The approval process can take 2 to 4 weeks from the submission of complete documentation​.

Branch Offices

A Branch Office acts as an extension of the foreign parent company and can engage in revenue-generating activities. It does not have different shareholders or bylaws from the Head Office. Its activities may differ from those of the foreign Head Office. Branch offices are generally located in remote geographical locations and connected to the Head Office by Wide Area Network.

Advantages

• Revenue Generation: Unlike representative offices, branch offices can engage in revenue-generating activities. This includes conducting business transactions, making sales, and providing services directly to customers in Thailand.
• Control and Ownership: Branch offices allow the parent company to maintain full control over operations without needing to establish a separate legal entity. This structure ensures that the branch operates under the same management as the head office.
• Tax and Employment Benefits: Branch offices can hire both foreign and local employees. They are subject to corporate income tax on their profits, similar to other local businesses, but benefit from a lower foreign worker ratio requirement compared to limited companies.

Legal Requirements

• Foreign Business License (FBL): To operate, branch offices must obtain a Foreign Business License if their activities fall under the restricted categories defined by the Foreign Business Act (FBA). This includes trading activities and service provision.
• Documentation: The setup process requires detailed documentation, including the parent company’s financial statements, an affidavit of the manager, and the company’s articles of association. These documents must be submitted to the Ministry of Commerce​.
• Capital Requirements: Branch offices must show evidence of capital remittance, similar to representative offices. The required capital typically aligns with the business’s operational scale and planned activities.
• Compliance and Reporting: Branch offices must comply with Thai corporate regulations, including tax obligations and annual financial reporting. They are subject to corporate income tax on their profits and must adhere to local employment laws​.

Conclusion

Choosing between a representative office and a branch office in Thailand depends on the company’s strategic goals and operational needs. Representative offices offer a low-risk, cost-effective way to explore the market and establish initial contacts without the burden of generating revenue or paying corporate taxes. In contrast, branch offices provide a more robust presence with the ability to conduct business transactions and generate income, albeit with greater regulatory requirements and tax obligations.

Both structures present unique advantages and challenges. Therefore, it is crucial for foreign businesses to carefully evaluate their long-term goals and consult with local legal experts to ensure compliance with Thai laws and regulations. With the right approach, establishing a representative or branch office in Thailand can be a strategic step towards successful market entry and expansion in Southeast Asia.