Branch Office in Thailand

Branch Office Setup for a Business in Thailand

It is common that some multinational companies that plan to do business in Thailand do not want to undertake a Limited Company registration. A valid alternative to this option is to run their business through a branch office in Thailand. The Foreign Business Act governs the branch office under the provisions of the Thai law. This means that if the branch office falls into a category stipulated under the FBA, it will require an FBL to operate legally.

Foreign businesses that wish to establish a trading branch office must meet requirements specified in the FBA. Therefore, a company that intends to register a branch office must first determine where they fall within business activities according to the laws and regulations of Thailand. Some business activities are restricted for foreigners according to the FBA, but there are also certain activities that a foreign national or a foreign company can freely engage in.

Consideration must also be made regarding corporate income tax liability. Corporate Income Tax is levied on a partnership or other juristic body that is conducting business in Thailand or deriving specific kinds of income from Thailand. Corporate income tax is levied on net profits as stipulated in the Revenue Code of Thailand.

A branch office structure is often quite similar to that of a limited company. Both limited companies and branch offices can earn income in Thailand. There is, however, one decided difference between how a limited company and a branch office operate in Thailand. With a branch office in Thailand, there are no directors or shareholders; instead, there will be the head office that will run the company , even if such head office is overseas.

While a Regional Office and a Representative Office are limited to "non-trading" activities, branch offices are not limited in this way under the Thai law; moreover, they are entitled to earn income according to the Thai laws. Branch office liabilities are not limited to business in Thailand but will extend to any overseas head office. For example, when the Thailand branch office of a multinational company contracts with a company in Thailand but then breaches that agreement, the Thai company will sue the head office of the multinational company either jointly with the main offender or directly.
It should also be considered that setting up a satellite office in Bangkok or elsewhere in Thailand involves high establishment costs and is quite time-consuming. Foreign companies also require an FBL before they can commence business operations.

Each application submitted by a foreign company is reviewed on its own merits. When attempting to register a branch office in Thailand, the parent company will need to explain how this branch office will benefit Thailand in terms of development and financial gains. A specific process through which a parent company can obtain FBL for a branch office in Thailand is stipulated in the Foreign Business Act.

• There are two parts to an FBL application:
• • An officer in the Ministry of Commerce accepts the application for review by the Foreign Business Committee; and
  • The application is reviewed by the Board.

• The Foreign Business License approval stipulates:
• • capitalization is calculated from 25% or more of estimated expenses for initial three years (not less than THB three million).
  • Should the company meet all the stipulated requirements and be allowed to open a branch office, it will be allowed to operate for a period of not more than five years.
  • If the required amount of capital was bought in by the foreign company, an extension of the Foreign Business License might be granted when the said five years expire.

Restricted or Prohibited Activities to Operate Businesses in Thailand

There are approximately 50 types of businesses that are restricted to foreign companies. Such restricted business activities have been grouped into three lists as follows:

• List One
• • Land trading, animal farming, newspaper business, and other activities.
  • No approval is available for a foreign entity under this list for "special reasons".

• List Two
• • Divided into three groups:
  • Business operations related to national security, air transportation (including domestic airlines), waterway, and domestic land.
  • Approval can be granted by the Minister of Commerce and the Cabinet, but such approval is difficult to obtain.

• List Three
• • The reason for this list is stipulated as "Thai nationals are not yet ready to compete with foreigners" in these industries.
  • The Director-General of the Commercial Registration of the Department of Business Development and Foreign Business Committee can grant permission for these corporate activities.
  • This list consists of business providing services that are not described by the ministerial regulations.

It is essential for a foreign head office of a multinational company to understand how an established branch office operates in Thailand with regard to the FBA, and any foreign businesses seeking approval to establish a local branch must know whether they fall within one of these restricted categories.

Foreign Business Administration should Remember:

• A branch office is not a separate legal entity from its parent company or foreign head office, as a representative office of a foreign corporation might be.
• There is a minimum capital that the business activities must bring in.
• A Foreign company interested in opening a branch of business in Thailand must first conduct market research to establish whether a new business will be as lucrative as is necessary to maintain the required business income transactions as per their Commercial Registration certificate requirements stipulated by the Department of Business Development.
• Extension of a license can only be granted if the foreign company successfully brought in the required amount of revenue, whether in the foreign currency or local currency.
• The entire process for the main company to establish a local company branch with local staff that provides services in Thailand fall under a particularly time-consuming process.
• For every Thai national (or juristic person) that the registered company employs, personal withholding tax needs to be filed.
• There are certain documents that must be contained in an application for FBL with the Ministry of Commerce, such as the particulars of the juristic person in whose name the branch is established, registered capital, the name of a local shareholder (if applicable), a business category within the Thai market, for example, domestic sale business, etc.
• Although there are specific requirements that must be met, a foreign branch is treated as a permanent establishment or permanent unit by the Thai government.
• Shorter periods can be negotiated if the office only needs to conduct business in Thailand for a particular project.
• Registering a branch is not the same as registering a Thai Limited Company and does not require Thai representatives or a juristic person in Thailand who will represent the company.
• Contact Juslaws & Consult today for a free consultation if you have additional questions or if you need assistance with any other area of the law, including smaller matters such as an application for a temporary visa.