Setting up a branch office in Thailand allows foreign companies to operate under the parent company’s name, typically to engage in revenue-generating activities. Unlike representative offices, branch offices are permitted to conduct business, earn income, and enter into contracts on behalf of the parent company. However, they remain subject to Thai laws, including taxation, foreign ownership regulations, and industry-specific licensing requirements.
1. What is a Branch Office?
A branch office is an extension of a foreign company that is established in Thailand to conduct business activities. Unlike a subsidiary, a branch office is not a separate legal entity; instead, it is fully dependent on the parent company. The branch office can engage in income-generating operations, sign contracts, and run business activities similar to the parent company.
The foreign parent company remains liable for all liabilities and obligations of the branch office, which means any legal issues, debts, or disputes arising from the branch’s operations fall directly under the responsibility of the parent company.
2. Legal Framework for Branch Office Setup
Setting up a branch office requires navigating various Thai laws and regulations, including the Foreign Business Act (FBA), tax laws, and industry-specific rules. Since a branch office is considered a foreign entity, it falls under the FBA, which regulates foreign participation in various sectors. The branch office must comply with the following key legal considerations:
a) Foreign Business License (FBL)
The Foreign Business Act restricts certain activities for foreign-owned companies. If the branch office plans to engage in business activities listed in List 2 or 3 of the FBA, it must first obtain a Foreign Business License (FBL). Without this license, the branch office cannot legally operate in restricted sectors, such as construction, services, trading, or manufacturing.
b) Minimum Capital Requirement
Branch offices are required to meet a minimum capital investment of at least THB 3 million (approximately USD 90,000). This capital must be remitted into Thailand to demonstrate financial commitment to the branch office’s operations.
c) Taxation
A branch office is taxed in Thailand on all income earned within the country. The corporate income tax rate in Thailand is 20%, and branch offices are required to submit annual financial statements and tax returns to the Revenue Department. Additionally, branch offices must comply with VAT (Value Added Tax) registration if their revenues exceed THB 1.8 million annually.
3. Activities Allowed for Branch Offices
A branch office is legally permitted to engage in the same activities as the foreign parent company, including:
- Commercial Trading
- Service Provision
- Manufacturing
- Entering Contracts
- Generating Revenue
Branch offices can engage in all types of commercial activities, provided they fall within the scope of the parent company’s operations and comply with local laws.
4. Process of Setting Up a Branch Office
Setting up a branch office in Thailand involves several steps and regulatory approvals. Key steps include:
a) Registration with the Ministry of Commerce
The branch office must be registered with the Department of Business Development (DBD) under the Ministry of Commerce. Required documents include:
- Parent company’s registration documents (translated into Thai and certified).
- Business plan for the branch office’s operations in Thailand.
- Proof of remittance of the required minimum capital.
b) Obtaining the Foreign Business License (FBL)
If the branch office will engage in restricted business activities, it must obtain an FBL. The FBL application involves demonstrating the economic benefits of the branch office’s operations, such as job creation, technology transfer, or contributions to the Thai economy.
c) Tax and VAT Registration
After registration, the branch office must register for corporate income tax and VAT with the Revenue Department. The office is subject to taxation based on income generated within Thailand.
5. Liabilities and Responsibilities of the Parent Company
One critical distinction between a branch office and other forms of business entities is that a branch office is not a separate legal entity. This means that the parent company is directly liable for the branch office’s debts, legal obligations, and any disputes arising from its activities in Thailand.
If a branch office is sued in Thailand or incurs financial liabilities, the foreign parent company is responsible for satisfying any legal judgments, fines, or obligations.
6. Differences Between Branch Office and Representative Office
While both branch and representative offices are extensions of the parent company, their scope of activities differs significantly:
- Branch Office: Can engage in revenue-generating activities, sign contracts, and directly conduct business operations.
- Representative Office: Limited to non-revenue-generating activities such as market research, liaison work, and product inspections. A representative office cannot earn income or engage in contracts.
A branch office is typically chosen by foreign companies looking to expand operations and generate income in Thailand, while a representative office is more suitable for companies conducting pre-market entry research or liaison work.
7. Challenges and Considerations
a) Foreign Business License Complexity
Obtaining an FBL for branch offices operating in restricted sectors can be a lengthy and bureaucratic process, often taking several months. The application requires detailed business plans, financial projections, and proof of the business’s contributions to Thailand.
b) Reporting Requirements
Branch offices must adhere to rigorous reporting standards, including audited financial statements, corporate tax filings, and VAT submissions. This requires maintaining clear and accurate records of all business activities and financial transactions.
c) Foreign Exchange Regulations
Thailand has foreign exchange control regulations, which require careful management of funds transferred into or out of the country. Businesses must report any significant remittances or capital flows to the Bank of Thailand.
Conclusion
Setting up a branch office in Thailand is an effective way for foreign companies to expand their presence and engage in revenue-generating activities in the country. However, the process requires careful navigation of Thai legal frameworks, including obtaining the necessary Foreign Business License, meeting capital requirements, and complying with taxation and regulatory reporting obligations. By adhering to the legal structures and maintaining compliance, foreign companies can successfully operate and grow in Thailand’s vibrant economy.
