Are you considering creating a new entity for your business in Thailand? There are several options available to you. Even if the most popular business structure is the limited liability company, two other very interesting options are available to you: representative offices or branches.
In this article we will take a look at the differences between both of these structures.
1. What is a Representative Office in Thailand?
A representative office is a popular choice of business organization in Thailand, as it makes it easier for foreign companies to import and export goods without having to apply for a foreign trade license.
A foreign company usually establishes a representative office in Thailand so that it can be responsible for certain non-expense related activities of the foreign company. This Thai office cannot generate income for the foreign company in Thailand.
A representative office is often easier to establish than a branch office.
The head office must handle all expenses incurred by the office since representative offices cannot create income in Thailand. Therefore, except for funds paid by the head office, according to the tax code, the representative office is not subject to corporate income tax.
The most important point to note is that representative offices may only engage in “non-income generating activities” permitted under Thai law. A representative office is not allowed to earn income in Thailand and can only engage in the following permitted activities:
● Marketing planning and sales promotion control.
● Product development.
● Research and development.
● Training and development.
● Technical assistance.
● Financial management.
Creating a Representative Office in Thailand requires a minimum investment of 2 Million Baht. This investment must be made within the first 3 years of operations.
The principal may be paid in one lump sum or with 4 minimum payments such as:
● 25% within the first 3 months of registration
● 25% within the first year
● 25% within the second year
● 25% within the third year.
What are the benefits of Representative Offices?
- It’s fully owned by a company in a foreign country.
- No corporate tax is applicable to a representative office in Thailand.
- There is no government tax on the establishment of representative offices.
Setting up a representative office in Thailand is the easiest way to establish a local presence in Thailand. Such advantages include, 100% foreign-ownership and not being subject to income tax.
2. What is a Branch Office in Thailand?
Foreign companies may conduct certain activities in Thailand through a branch office.
The branch office is required to maintain accounts only relating to the branch office in Thailand. Because of its branch in Thailand, the foreign company could be liable for criminal and tax prosecution if the branch violates any law in Thailand. The head office must appoint at least one branch manager in charge of operations in Thailand.
The most interesting point is that a branch office can perform any “income-related activity” in Thailand on behalf of its head office.
Creating a Branch Office in Thailand requires a minimum investment of 3 million Thai Baht for restricted businesses and 2 million Thai Baht for non-restricted businesses.
A Foreign Business License must be obtained from the Ministry of Commerce if the business is considered as ‘restricted business’. If the business is not considered a restricted business, a Foreign Business License is not required, but a Commercial Registration Certificate from the Ministry of Commerce would be needed.
It is also important to know that the rules for the activities of a branch office are the same as for a foreign-owned limited liability company.
On the negative side, the registration process for a branch office can be much longer than for a foreign limited liability company.
To better understand the differences between a representative office and a branch office, please see the table below:
|Representative Office||Branch office|
|Legal status||Must be a legal entity registered under the law of a foreign country, and is considered to be the same legal entity as its head office.||Must be a legal entity established under the law of a foreign country, and is considered to be the same legal entity as its head office.|
|Capital requirement||At least 2 million baht is required according to the Foreign Business Act, 2542 B.E.||At least 3 million baht is required if the business is a restricted business.At least 2 million baht is required if the business is not restricted under the Foreign Business Act, 2542 B.E.|
|Licence||A foreign business licence is not requiredA legal entity number is required from the Ministry of Commerce.||If it’s a restricted business under the Foreign Business Act, 2542 B.E., a foreign business licence must be obtained from the Ministry of Commerce.If it’s not, a commercial registration certificate must be obtained from the Ministry of Commerce.|
|Liability||No separate liability from the head office||No separate liability from the head office|
|Thai to foreign employee ratio||1:1||1:1|
|Corporate income tax rate||No corporate income tax||20%|
|Business Restrictions||Can conduct only 5 activities without generating any income.||Able to conduct various activities regardless of whether or not they generate any income.|
|Reporting and audits||Annual accounting audits||Annual accounting audits|
|Timeline||1 week||Unrestricted business – 1 WeekRestricted business – 4 to 6 months|
To summarize, the main difference between these two structures is the ability of the company to generate revenue. A branch office can generate income in Thailand and a representative office cannot.
On the other hand, representative offices don’t need foreign business license or a commercial registration certificate to operate., while branches need these two requirements.
If you are looking for more specific services like bookkeeping services or withholding tax information, please do not hesitate to contact us.