Establishing a Representative Office in Thailand

Thailand is one of Southeast Asia’s most dynamic economies, attracting foreign businesses seeking to expand into the region. With its strategic location, growing consumer market, modern infrastructure, and membership in the Association of Southeast Asian Nations (ASEAN), Thailand serves as a natural gateway for international trade and investment.

For many foreign companies, however, diving headfirst into full business operations in Thailand may be premature or too costly. Instead, a more cautious entry strategy is often preferred—one that allows companies to explore the Thai market, build relationships, and coordinate activities without engaging in direct revenue-generating transactions. This is where the Representative Office (RO) becomes invaluable.

What Is a Representative Office in Thailand?

A Representative Office is a type of foreign business presence in Thailand that allows a foreign company to establish a limited, non-revenue-generating office. Unlike a Thai Limited Company or Branch Office, an RO cannot conduct profit-making activities or issue invoices. Its role is supportive, focusing on research, promotion, and coordination.

The governing law is the Foreign Business Act B.E. 2542 (1999), which regulates foreign business activities. Since an RO involves a foreign entity carrying out business in Thailand, approval from the Department of Business Development (DBD) under the Ministry of Commerce is required.

Permitted Activities of a Representative Office

The law strictly limits the scope of activities an RO may undertake. An RO can only perform the following five functions:

1. Sourcing Goods or Services
   The RO may collect and verify information about goods or services in Thailand for its head office abroad.
2. Quality and Quantity Control
   The RO may check and report on the quality and quantity of goods purchased in Thailand by its head office.
3. Advisory Services
   The RO may give advice to the head office about goods or services to be purchased in Thailand.
4. Promotion of Head Office Products or Services
   The RO may promote the sale of products or services that the head office provides overseas.
5. Market Information Reporting
   The RO may report on economic and business trends in Thailand to the head office.

⚠️ Importantly, an RO cannot engage in sales, revenue collection, or commercial negotiations. It must rely entirely on its parent company for funding.

Advantages of Establishing a Representative Office

While limited in scope, a Representative Office offers several advantages for foreign companies:

• Low-risk market entry: Companies can test the waters without committing to a full subsidiary or branch.
• Direct presence in Thailand: Enables face-to-face communication, networking, and coordination with Thai clients, suppliers, or government agencies.
• Market intelligence: Provides on-the-ground research about customer behavior, competitors, and industry trends.
• Brand visibility: Promotes the company’s products or services without engaging in sales.
• Stepping stone to expansion: An RO can serve as the first stage before upgrading to a full subsidiary, branch, or joint venture.

Key Requirements for Establishing a Representative Office

Setting up a Representative Office in Thailand involves compliance with legal and administrative requirements. These include:

1. Foreign Business License (FBL)
   • Since an RO involves foreign participation, it must obtain approval under the Foreign Business Act.
   • The parent company applies to the DBD for permission to establish the office.
2. Capitalization Requirement
   • A Representative Office must have at least THB 3 million in registered capital, remitted from the head office abroad.
   • The capital can be remitted in installments but must follow DBD’s schedule (e.g., 25% within the first three months, another 25% within the first year, and the rest within three years).
3. Staffing
   • An RO may employ both Thai and foreign staff.
   • If hiring foreign employees, the RO must comply with Thai work permit regulations. Typically, at least one Thai employee must be hired for every foreign employee.
4. Head Office Relationship
   • The RO must be wholly owned and funded by the parent company abroad.
   • It cannot generate income locally or charge fees.
5. Office Address
   • A physical office address in Thailand is required for registration. Virtual offices are generally not accepted.

Application Process

The process of establishing an RO in Thailand typically involves the following steps:

1. Preparation of Documents
   • Corporate documents of the parent company (certificate of incorporation, articles of association, audited financial statements, etc.).
   • Details of the intended RO activities.
   • Power of attorney authorizing a local representative.
   • Lease agreement for the office in Thailand.
2. Submission to the Department of Business Development (DBD)
   • The application is submitted with supporting documents, which may need to be notarized and legalized if issued abroad.
3. Review and Approval
   • The DBD reviews the application to ensure compliance with the Foreign Business Act.
   • If approved, the RO is granted permission to operate.
4. Post-Approval Compliance
   • The RO must register with the Revenue Department for tax identification purposes (even though it is not taxable on profits).
   • Registration with the Social Security Office is required if the RO employs staff.
   • Work permits and visas must be arranged for foreign employees.

Tax and Accounting Obligations

Although a Representative Office does not generate income, it is still subject to certain tax and accounting duties:

• Corporate Income Tax (CIT): ROs are generally exempt from corporate income tax because they cannot earn revenue. However, they must file annual reports to confirm this.
• Withholding Tax: ROs must withhold tax when paying salaries to staff or service fees to Thai entities.
• Value-Added Tax (VAT): ROs may need to register for VAT if they provide services to the head office abroad and such services are considered under Thai VAT law.
• Accounting: The RO must keep proper accounts and file annual financial statements with the DBD and Revenue Department.

Challenges and Limitations

Despite its advantages, a Representative Office has clear limitations that businesses must carefully consider:

• No revenue generation: The RO cannot issue invoices, sign sales contracts, or collect payment in Thailand.
• Limited scope of activities: Restricted to the five functions under the law.
• Costs: The THB 3 million capital requirement, office rental, staffing, and compliance costs may be burdensome for small companies.
• Approval process: The application can be time-consuming, requiring legalization of foreign documents.
• Not a long-term solution: Many companies eventually upgrade to a Thai Limited Company or Branch Office to engage in commercial activity.

Representative Office vs. Other Structures

To decide whether an RO is suitable, businesses often compare it with other forms of establishment:

• Thai Limited Company: Allows full business operations, profit-making, and local invoicing, but requires compliance with Thai company law and possible restrictions under the Foreign Business Act.
• Branch Office: Can conduct revenue-generating activities on behalf of the parent company but must pay Thai corporate income tax.
• Regional Office (now abolished): Previously allowed for overseeing multiple countries in the region, but the structure was phased out and merged into the Representative Office framework.

Conclusion

Establishing a Representative Office in Thailand offers foreign companies a valuable entry point into the Thai market. While it cannot directly engage in sales or profit-making, it provides an essential platform for market research, promotion, and coordination with local suppliers and customers.

The process requires careful planning, adherence to the Foreign Business Act, and compliance with regulatory obligations. Companies must be prepared for the capital requirements, limitations on activities, and administrative responsibilities that come with operating an RO.

For foreign businesses seeking to test the market, build relationships, or prepare for larger investments, a Representative Office can serve as an effective first step. With Thailand’s central role in ASEAN and its growing economy, establishing an RO is often the beginning of a long-term and profitable business journey in the region.