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Thailand Business Registration: The Representative Office

Transcript of the above video:

In this video today, we are going to be discussing specifically the representative office structure which is, I won’t say often utilized here in the Kingdom, but it’s something that can be a benefit in a rather narrow subset of circumstances of companies doing business here in the Kingdom.

I should first note I am not a Thai attorney; we have Thai attorneys here at the firm to deal with these matters, much more in depth than I ever would or could, but that being said, I am an American trained attorney on certain matters like the US - Thai Treaty of Amity, I do deal with certain aspects of that and over the years I ‘ve had many discussions with the Thai staff regarding not only corporations specifically, I should say but this type of structure and based on some of our discussions here recently, we went ahead and decided to make this video to provide a little bit of insight to foreigners with respect to the rep office. I should note that the Amity Treaty is something that we deal with rather frequently since I am an American attorney and the treaty provides certain benefits to corporations that are American and to American individuals wishing to do business over here.  It should be noted that this representative office video does not necessarily, this can be any foreign company, could be utilizing the rep office structure. 

Some things just generally to keep in mind with respect to the rep office is most notably, one of the features of the rep office is it does not require the level of legal presence in the Kingdom so it’s not a legally structured Thai company.  It is not a juristic person under Thai law; it’s the representative of a juristic person in another jurisdiction. I think that the way to look at it or the representative of a corporation in another jurisdiction.  An analogy I often like to use is sort of like an Embassy or a Consulate where Governments send representatives to a foreign nation and that representative does certain things to represent their home country. Their function as a representative in a foreign country is not the same as the function of government employees within the home country. It’s a totally different thing. In many ways, it’s much more limited although in some ways it’s much more of a representational capacity, to not be redundant, but that’s what effectively doing in that context. And to a certain extent, that’s kind of what the rep office structure, in my opinion at least, was sort of designed to look like. It was to allow companies, I think especially companies that were looking to buy especially large quantities of manufactured goods, or services here in Thailand to basically be able to have a representative on hand to oversee those kinds of things or in those circumstances where certain companies were distributing a large number of products but they didn’t necessarily wish to have a locally incorporated entity in this jurisdiction. So that’s what it’s for. Another thing to keep in mind is one of the benefits associated with rep office structure is there’s not the same level of tax liability associated with representative offices. But you take sort of the good with the bad because they do create a significant administrative onus, for lack of a better term, resulting, in my opinion, from the lack of tax oversight but also from the lack of, frankly, Government direct control of the entity.  Again it’s this representative, sort of amorphous thing, so basically they want to make certain that that rep office is strictly operating within a narrow sort of bandwidth of activity so that it could not be construed that that office itself was doing business in Thailand.

Some things to keep in mind with respect to rep offices: they basically need to adhere to a narrow scope of activity which can basically be summed up as follows.  (These are just some notes I made) They can make reports regarding business matters in Thailand. These reports must be made to another, presumably superior, for lack of a better term, entity outside Thailand closely affiliated with the rep office here. So what are we talking about? Most people like to think of it as a Head Office structure, but that being said, in the sort of era of multi-national corporations in which we’re operating now, you could have 3 different entities in between the rep office here and the home office, for lack of a better term. So the better way I think to look at this is “affiliated entity”, subsidiaries or companies that may be a joint venture with the final head office where it’s deeply involved.  There are various corporate structures I can think of where you’re not, this rep office isn’t necessarily reporting all the way up the chain within that corporation, but they’re reporting to some entity that’s closely affiliated with the overall group infrastructure.

The rep officer can provide sort of things like consultation or reports, intelligence and guidance to the entity abroad so to be clear, again, very much like an Embassy, they’re making intelligence reports. “how is our distributed product doing in the market?”, “we did an analysis of how well it’s selling among these demographics”,  what are we looking at as far as cost of this product to buy from this market next year?”, “we’re doing reports on those to send those back”. Kind of like I said, almost an intelligence gathering sort of function. They can seek procurement of goods and services in Thailand specifically for the company abroad. They can‘t seek it for themselves. Rep offices could be construed as doing business here under those circumstances. They need to be seeking these things for the entity abroad.

They can do things like inspections and quality control initiatives on things that are manufactured in Thailand on behalf of the overseas entity. So, this sort of a situation where you’re looking at, like a company or factory here in Thailand has been outsourced to make a textile product, for example let’s say a shirt, you know, a line of shirts, and the rep office is simply here to go in and double check that they are being made to the standard that, for a lack of a better term, the home office wants essentially.  That’s a function that one of these offices can undertake.  They need to circulate sort of general communications regarding new goods being produced by the overseas entity. So let’s say for example the product that the overseas entity is using a local distributor here to distribute, their upgrading said product, the rep office can make that information known to the local distributor for example. That “Hey, we’ve got widget 2.0 coming out next year just so you know. Here’s a report on it.” The rep office can do that.

So, things that are undertaken outside the scope of what I’ve just gone through could result in a lot of different things. It could result in basically problems for that rep office because things that would fall outside the scope could presumptively be deemed to be doing business in the Kingdom and as a result, that structure could fall into conflict with provisions of say the Foreign Business Act, they may fall into conflict with the Foreign Business Act, but as a result of being deemed to be doing business here, they may now be subject to tax liability in the Kingdom.  So things like VAT and withholding tax possibility Corporate Income Tax or things like agency taxes affiliated with individuals doing business on behalf of an outside entity abroad could be assessed against various individuals or various activities associated with what the rep office did outside the scope of their rep office activities. This is important; you could have some serious tax liability and some serious legal liability, especially like I said, under the Foreign Business Act here if it’s deemed that the rep office’s activity fall outside the scope of what it’s supposed to be doing.

So just sort of as, again, this is not exhaustive, but things that could be deemed to fall outside the scope of activity generally allowed by rep offices could include but are definitely not necessarily limited to, things like procurement or payment for goods and services bound for the entity abroad. By procurement, we said procurement earlier. I think more to the point is payment. The rep office here, I think the big one is “Can’t be paying local entities behalf of the entity abroad?”  No, the company abroad needs to deal with that kind of stuff directly but as far as representing the company abroad with respect to “Hey, do you sell XYZ?”  “Yes, we sell XYZ.” Okay, somebody from our home office is going to get in contact with you shortly. That’s the circumstance where they’re sort of representing an interest in procurement, without actually undertaking procurement directly.  I think that’s the way to look at that. Things like accepting purchase orders from individuals or entities in Thailand, on behalf of the overseas entity, that’s no good. That could be deemed to be doing business here.  Things like follow up services, support services. You sort of think in terms of like maintaining physical plant and things that are sold by the home office, providing maintenance services on that stuff, that’s going to be problematic. Installing things that were provided by the home office, that’s going to be problematic.  I can even see circumstances where it’s like trouble shooting, like a tech industry, “oh, my phone is malfunctioning. I need somebody to fix it!” “oh, we send a guy form our rep office.”  No, you won’t!!  That could be deemed to be doing business in the Kingdom and could result in serious problems.

This one seems a little bit silly but basically, they don’t want a rep office to be just sort of a den of people that are sort of immune from tax liabilities but in fact are representing multiple entities overseas. A rep office has to only represent specifically the entity it specifically is sort of attached to, its affiliated entity that it is specifically representing. It can’t act as sort of consortium representing a consortium of operators abroad and unrelated to the overseas business core activities, I think is a good way of looking at that as well.  Direct sales can be problematic and this is where it gets a little bit, okay, where’s the line? Because actively selling things, again taking a purchase order I think is a very good example. By taking a purchase order, I’ve taken in payment that’s clear. That’s bright line but what constitutes direct sales in Thailand as opposed to simply providing information about what the head office is doing?  That’s a little hard to parse out but it’s an issue you need to look at. Things like providing local logistical services, for lack of a better term.  Let’s say you have got a rep office for a company that has product coming into Thailand that goes through a local distributor and then the rep office says “Oh, we’ll buy trucks for the rep office and use trucks to transport all this stuff around for you, local distributor.” “No”. That’s like logistics. That’s doing business in Thailand. If you’re a rep office that’s operating on behalf of a company and it is bringing in products for disbursement or distribution here in Thailand, you can enquire as to things like, to provide intelligence reports and things but you can’t actively engage into disseminating those products because that would be viewed as doing business.  Again, acting as sort of an agent on behalf of the overseas entity when making deals, again facilitating in contract negotiation etc. basically, documents pertaining to sales getting signed, purchase orders getting obtained, things like this, locally, acting directly as an agent, that can be construed as doing business in the Kingdom and for that reason, you can run into problems being considered a rep office under those circumstances.  Directly operating as a representative in like contract negotiation, litigation, things like that here in Thailand again, that’s stepping too far over the line. That’s actively doing business. And then, providing information based on the rep office’s operations in the Kingdom to a non-affiliated entity. That’s another big problem, the circumstances which are fairly rare but might come up. It could happen. Again, they don’t want that rep office operating as a consortium.  They want a rep office to be a representative of one specific company, they don’t want the rep office to be ‘every shoe supplier that distributes shoes to Thailand, from abroad, they don’t want one rep office to act as like an intelligence gathering apparatus for a consortium of different entities. That’s not what they‘re really looking for. 

So to sum this sort of up, it’s very narrow. I don’t like its narrowness, from sort of the perspective; I shouldn’t say I don’t like it. Let me take that back. I think the narrowness can be problematic for various operations, especially those that are looking to, for lack of a better term, hit the ground running with respect to the local market here and selling things in the local market because I think rep office restrictions can really hamstring a given company with respect to sending in someone, especially foreigners who don’t sometimes necessarily totally understand how business runs in Thailand. I think it pretty easy, to pretty quickly fall outside of the bailiwick of these restrictions.

The final thing to sum up is due to the tax liability or the mitigation of tax liability associated with rep offices, I kind of look at it like the administrative function of all the reports and administrative documentation that has to be submitted to the Government with respect to maintaining these type of structures. It’s pretty cumbersome and I think it’s cumbersome for 2 reasons because the authorities in question want to make sure that that thing is not being used to do actual business in the Kingdom and they also want to make sure, and part and parcel with that, they’re doing that because if it’s doing it limited rep office, if it’s fulfilling its limited rep office function then it doesn’t have tax liability and there’s a good reason for that in certain sets of narrow circumstances where providing reports back to the home office about how a ‘widget’ is selling here in the Kingdom is not the same as actively selling here in the Kingdom. I think that the powers that be wanted to create a specifically exempted structure to allow that kind of activity without creating too much of an onus. They want to encourage business to come to Thailand and this is something they’ve undertaken in order to encourage that but that being said, if it’s deemed that that rep office is sort of ,for lack of a better term sort of “acting in bad faith” and falling outside of its narrow scope, then there should be tax liability attached. From the policy standpoint, I think that the thinking and for that reason, there’s quite an administrative burden associated with maintaining the filings associated with the underlying rep office as well as, in order to maintain compliance with respect to keeping tax mitigation operational.