The Representative Office is an important form of business organization in Thailand since it helps to facilitate the import and export of goods by foreign companies. A Representative Office is characterized by the following features:
It does not receive any revenue from providing services
It cannot receive purchase orders or make sales or negotiate business with third-parties
Its expenses are paid entirely by the head office
It is not subject any corporate income tax, except for interests on any remaining funds that it has received from the head office that is deposited in its bank account
Furthermore, a Representative Office is defined by government regulations as the office that a foreign company sets up in Thailand in order to engage in the “international trading business.” According to the “Regulations of the Office of the Prime Minister Re: Establishment of a Service Center for Visas and Work Permits (No. 3) B.E. 2544 (2001)”, the “international trading business” is defined as consisting of the following activities, which are performed on behalf of the head office or affiliated companies:
Reporting on business movement in Thailand
Providing advice related to products that are being sold to distributors or customers
Sourcing goods and services in Thailand
Inspecting and controlling the quality and quantity of goods purchased or ordered to be manufactured in Thailand
Introducing information regarding new products or services
The Representative Office is strictly limited to the above five activities and may engage in any or all of them. However, according to an “Announcement of the Revenue Department Re: Income Tax and Business Tax of a Representative Office of B.E. 2526 (1986)” if the Representative Office were to offer some service outside of this defined scope, then the Revenue Department would be empowered to subject the Representative Office to the regular Thai corporate income tax on all of the income it has received; this includes all of the support income that the Representative Office receives from its head office.
Furthermore, the following business activities are outside the scope of activities of a Representative Office:
Making any purchases or payments or any related business transactions on behalf of the head office or affiliated companies
Making exports of any products ordered by the head office or affiliated companies
Performing quantity and quality control for unaffiliated companies
Performing after-sale services such as installation or maintenance
Providing advice regarding products that are produced by unaffiliated companies
Accepting purchase orders on behalf of the head office or affiliated companies
Coordinating the sales of products on behalf of the head office or affiliated companies
Publicizing products or service which are already available in Thailand
Acting as an agent or distributor between the head office or affiliated companies
Performing any planning or coordination with other entities on behalf of the head office or affiliated companies
Acting as the agent of the head office or affiliated companies in any contracts or any business transactions
Making business reports to unaffiliated companies
In the following article, we will analyze how the government officials consider the criteria that is required to set up the Representative Office and the tax implications.
