Thailand has recently made the set-up process of such an office more investor friendly. Previously, prior to operating, the Representative Office was required to obtain a “Foreign Business License” because, under the Foreign Business Act (1999) (the “FBA”), its permitted activities were considered a “service” reserved to for Thais and prohibited to foreigners without such exemption.
This requirement has been abolished.
Under Ministerial Regulation No. 3 “Prescribing Service Businesses Which Do Not Require a Foreign Business License” (2017) of the FBA the operation of a Representative Office is no longer considered such a service.
Thus, a Representative Office is now permitted to provide its specified services without the need to apply for a Foreign Business License. This is good news for foreign investors who would like to open a Representative Office because the exclusion will now allow for an expedited and more efficient set-up procedure.
The purpose of a Representative Office is to provide services solely to its foreign head office, affiliates, or companies in the same group. The services it can provide are limited For example: a Representative Office is not allowed to accept purchase orders; make sales offers; or engage in business negotiations with any person. And it is not allowed to generate any profit. The limited business activities the Representative Office is allowed to operate are as follows:
1. Procurement of supply sources for goods and services in Thailand for the head office or affiliated company;
2. Inspection and control of the quality and volume of goods by the head office or affiliated company or that was hired by the head office or affiliated company for production in Thailand;
3. Consultation on various aspects pertaining to goods distributed by the head office or affiliated company to a distributing agent;
4. Dissemination of information pertaining to new goods or services offered by the head office or affiliated company; and
5. Reporting on business movements in Thailand to the head office or affiliated company.
Furthermore, a Representative Office cannot engage in the:
1. Purchase goods on behalf of the head office or its affiliated company or any activity concerning such a purchase;
2. Shipment of goods of the head office or its affiliated company that were purchased prior to the Representative Office beginning operations;
3. Checking and control of the quality and quantity of goods for any company that is not the head office or its affiliate company;
4. Giving of after sale service concerning the installation and maintenance of goods;
5. Giving of advice concerning goods that are not produced or sold by the head office or its affiliated company;
6. Receiving of any purchase order or service on behalf of the head office or its affiliated company;
7. Coordination of any purchase or sale on behalf of the head office or its affiliated company;
8. Propagation of information concerning goods or services that were sold in Thailand prior to the Representative Office beginning operations;
9. Carrying out of activities as a “middleman” or “agent” between customers in Thailand and the head office or its affiliated company;
10. Planning or coordination with any organization of business on behalf of the head office or its affiliated company;
11. Acting on behalf of the head office or its affiliated company; or
12. Reporting of information to any company that is not the head office or its affiliated company.
It should also be noted that since a Representative Office is not allowed to generate any income, the operation of the Representative Office must be completely financed by the foreign head office.
However, financing of the operation received by the head office is not considered to be taxable income.
Nevertheless, a Representative Office is still required to apply for a tax ID and submit annul tax returns.
DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in over 50 other countries. Visit them at: duensingkippen.com