3.3    Other Forms of Corporate Presence

3.3.1    Branches of Foreign Companies

Foreign companies may carry out certain business in Thailand through a branch office. Branch offices are required to maintain accounts only relating to the branch in Thailand.

Having a branch office in Thailand, the foreign corporation could be exposed to civil, criminal and tax liability if the branch office violates any law in Thailand. The foreign head office must appoint at least one branch office manager to be in charge of operations in Thailand.

There is no special requirement for foreign companies to register their branches in order to do business in Thailand. However, most business activities fall within the scope of one or more laws or regulations that require special registration (e.g., VAT registration, taxpayer identification card, Commercial Registration Certificate, Foreign Business License, etc.), either before or after the commencement of activities. Therefore, foreign business establishment must follow generally accepted procedures.

It should be borne in mind that the branch is part of the parent company and therefore the parent retains legal liability for contracts, and for tortious acts done. For tax purposes, a branch is subject to Thai corporate income tax at the regular 30% rate on income derived from its business operations in Thailand. It is important to clarify beforehand what constitutes income that is subject to Thai tax because the Revenue Department may consider revenue directly earned by the foreign head office from sources within Thailand to be subject to Thai tax. Therefore, for tax purposes, a branch office is required to apply for a taxpayer identification card and VAT certificate (if applicable) and to file annual corporate income tax returns with the Revenue Department.

A branch office of a foreign entity cannot carry out any reserved business without a Foreign Business License. It must apply for a Foreign Business License with the MOC first, and can operate in a reserved business only after the License has been issued. If the desired business is unique, does not compete with Thai businesses, or involves dealings among members of an affiliated company, the chance of approval is more probable.  Conditions, such as minimum capital, transfer of technology and reporting requirements, may be attached to Foreign Business License. The minimum investment capital must be greater than 25% of the estimated average annual operating expenses of the operation calculated over 3 years, but not less than 3 million baht.

Conditions to be Complied with by the Branch Office after Obtaining a Permission for Operation

A Branch Office that is permitted to operate the business must comply with the following conditions:

1.    There must be the minimum capital to be remitted to Thailand for the commencement of business operation as stipulated by law. Details of remitting the minimum capital are as follows:
(1) First 25% of minimum investment within first 3 months;
(2) Another 25% of minimum investment within first 1 year;
(3) Another 25% of minimum investment within 2nd year; and
(4) Last 25% of minimum investment within 3rd year.

2.    The total of loans utilized in the permitted business operation must not exceed seven times the inward remitted funds for the permitted business operation;
-    (Loans mean the total liabilities of the business, notwithstanding the liabilities incurred by any form of transaction but excluding trade liabilities occurred from the ordinary course of business, such as, trade creditors, accrued expenses).

3.    At least one person of the responsible persons for operating the business in Thailand must have a domicile in Thailand;
-    (Domicile means the contactable residence in Thailand which can be the place of business, excluding temporary residence such as hotels).

4.    The document or evidence relating to the permitted business operation must be submitted when the official sent the summons or inquiry.

5.    There must be the preparation of account and financial statements to be submitted to the Department of Business Development.

Fees for Branch Office

Application fee (non-refundable) is 2,000 baht. If the application is approved, the government fee will be set at the rate of 5 baht for every 1,000 baht or fraction thereof of the registered capital of the parent company, with a minimum of 20,000 baht and a maximum of 250,000 baht. A fraction of 1,000 baht in capital is regarded as 1,000 baht.

3.3.2    Representative Offices of Foreign Companies

The operation of Representative Office in Thailand in order to render the service to its head office or the affiliated company or the group company in foreign country is the operation of business under the business listed in List 3(21) attached to the Foreign Business Act B.E.2542 i.e. Other Service Businesses. If the foreigner wishes to operate such business, the permission by the Director-General, Business Development Department with the approval of the Foreign Business Committee is required.

The minimum investment capital must not be less than 25% of the estimated average annual operating expenses of the operation calculated over 3 years, but not less than 3 million baht (same as branch office).

The Foreign Business Operation Committee has determined the guidelines for approval as follows:

Characteristic of Representative Office

The Representative Office must have all 3 characteristics as follows:-
1)     To be the juristic person established in accordance with the foreign law and established an office in Thailand in order to operate the service business to the head office or the affiliated company or the group company in foreign country only;
2)     The Representative Office renders the service to the head office or the affiliated company or the group company without income from service, except for the supporting fund for expense of the Representative Office received from the head office;
3)     The Representative Office has no authority to receive purchase orders or to offer for sale or to negotiate on business with any person or juristic person.

Scope of Service of the Representative Office

In operation of business as the Representative Office, the scope of service is permitted to be rendered in any of all 5 categories, depending upon the objectives and business characteristics of the Representative Office, as follows:
•    To report the business movements in Thailand to the head office or affiliated company or the group company;
•    To give advice on various aspects pertaining to the goods distributed by the head office or affiliated company or the group company to the distributors or the users in Thailand;
•    To seek for the supply source of goods or services in Thailand for the head office or affiliated company or the group company;
•    To inspect and control the quality and quantity of the goods that the head office or affiliated company or the group company purchased or hired to manufacture in Thailand;
•    To disseminate the information in relation to the new goods or services of the head office or affiliated company or the group company.

If the representative office engages in other activities for which permission is not granted, such as buying or selling goods on behalf of the head office, it will be regarded as doing business in Thailand and may be subject to Thai taxation on all income received from Thailand. Also, the representative office may not act on behalf of third persons. Any such business or income-earning activities could amount to a violation of the conditions of the license to establish and operate a representative office, which in turn could result in revocation of that license.

A representative office that undertakes one or more of the approved activities in Thailand without rendering any service to any other person, and which refrains from prohibited activities, is not subject to Thai taxation. Such a representative office is understood to be receiving a subsidy from the head office to meet its expenses in Thailand. Gross receipts or revenues received by a representative office from the head office are not characterized as revenue to be included in the computation of juristic person income tax.

Even though they are not subject to taxation in Thailand, all representative offices are still required to obtain a Corporate Tax Identification number and submit income tax returns and audited financial statements to the Revenue Department. They are also required to submit the same to the Department of Business Development.

Conditions to be Complied with by the Representative Office after Granted Permission to Operate

A Representative Office that is permitted to operate the business must comply with the following conditions:
•    There must be the minimum capital to be remitted to Thailand for the commencement of business operation as stipulated by law. Details of remitting the minimum capital are as following:
        (1) First 25% of minimum investment within first 3 months;
        (2) Another 25% of minimum investment within first 1 year;
        (3) Another 25% of minimum investment within 2nd year; and
        (4) Last 25% of minimum investment within 3rd year.
•    The total of loans utilized in the permitted business operation must not exceed seven times the inward remitted funds for the permitted business operation;
-    (Loans mean the total liabilities of the business, notwithstanding the liabilities incurred by any form of transaction but excluding trade liabilities occurred from the ordinary course of business, such as, trade creditors, and accrued expenses).
•    At least one person of the responsible persons for operating the business in Thailand must have a domicile in Thailand;
-    (Domicile means the contactable residence in Thailand which can be the place of business, excluding temporary residence such as hotels).
•    The document or evidence relating to the permitted business operation must be submitted when the official sent the summons or inquiry.
•    There must be the preparation of account and financial statements to be submitted to the Department of Business Development.

Fees for Representative Office

Application fee (non-refundable) is 2,000 baht. If the application is approved, the government fee will be set at the rate of 5 baht for every 1,000 baht or a fraction thereof of the registered capital of parent company, with a minimum of 20,000 baht and a maximum of 250,000 baht. A fraction of 1,000 baht in capital is regarded as 1,000 baht.

Tax Position of Representative Office

The representative office is required to obtain a corporate tax identification number and submit income tax returns and balance sheets, even if nil.

Individual aliens and all local staff are required to obtain taxpayer cards and pay personal income tax.

Updated 27 September 2011

Data Verified by Seri Manop & Doyle Ltd.