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Establishing a branch office in Thailand can be more complex, costly, and timely when compared to incorporating a private limited company. However, the advantage of a branch office is that it can be 100 percent foreign-owned.
Foreign businesses seeking to set up a branch office must also obtain a Foreign Business License and adhere to the regulations under the Foreign Business Act.
The Act draws a clear line on what activities are regulated and restricted to foreign companies. While some sectors are totally prohibited to foreign entities, others are open through the explicit permission of a designated government agency.
Establishing a branch office in Thailand is often considered more complex, costly, and timely compared to setting up a private limited company, but since the branch office is considered an extension of its foreign head office, it can therefore be 100 percent foreign-owned and will not have separate shareholders from those in the head office.
Since the branch office is an extension of the head office, this business entity is allowed to generate revenue in Thailand and must meet the requirements specified in the Foreign Business Act of 1999, such as obtaining a Foreign Business License (FBL) and registering for VAT. Further, the head office is held responsible for the liabilities of the branch office.
Thailand’s Foreign Business Act of 1999 restricts the activities foreign companies may engage in and are thus reserved only for Thai nationals. There are three lists annexed in the Foreign Business Act.
- List one – business activities not permitted for foreigners due to special reasons (e.g., animal husbandry, fisheries, farming or horticulture, trading in land).
- List two – business activities that are related to national security, natural resources, or traditional handicraft. Such activities require special approval from the Cabinet (e.g., manufacture, distribution, and maintenance of firearms, wood carvings, manufacture of Thai musical instruments, mining of rock salt, furniture production, and mining activities).
- List three – business activities where Thai nationals are currently unable to compete with foreign businesses. Still, foreign companies will need the approval of the Thai Ministry of Commerce to engage in activities under list three (e.g., rice milling, forestry, legal services, accountancy, engineering, tourism, advertising, and sale of food and beverages).
What are the requirements to set up a branch office in Thailand?
The parent company will need to fulfill the following criteria to the Thai Ministry of Commerce before establishing the branch office.
A copy of the company’s incorporation documents, members of the board of directors, the official place of business, and business objectives.
Appointing an agent to head the branch office
A letter stating the appointment of an agent who will head the branch office. The individual can be a Thai national or a foreigner. If a foreigner is appointed, they will need to submit their passport details and evidence of permission to enter and stay in Thailand.
A declaration on the type of business activities and type of business license including the size of the operations, the size of the workforce in Thailand, and a declaration on how Thailand will benefit from the business operation.
Applying for a Foreign Business License
After fulfilling the mentioned criteria, the branch office must then apply for a Foreign Business License under the category that best fits the company’s business activity. Obtaining an FBL usually takes 60 days from the date the application is submitted. Once approved, the branch office will be considered legally registered.
Each application submitted to the Ministry of Commerce is reviewed on its own merits, and as mentioned, the parent company will need to showcase how the branch office will benefit Thailand.
When the application is accepted by the Ministry of Commerce, it will be reviewed by the Foreign Business Committee within 60 days after acceptance.In the case of an application being rejected, the Ministry of Commerce will inform the applicant within 15 days in writing, stating the explicit reason why the application was denied. Companies can appeal this decision, but it must be done within 30 days from the date on which the applicant received the rejection notice.
Minimum capital requirement
The minimum capital requirement is 3 million baht (US$84,295). No less than 25 percent of this amount must be brought into Thailand within three months of approval. During the same year of operations, 50 percent must be remitted and the remaining 25 percent to be remitted the year after.
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, Munich, and Essen in Germany, Boston, and Salt Lake City in the United States, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner firms in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at [email protected] or visit our website at www.dezshira.com.
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ASEAN Briefing features business news, regulatory updates and extensive data on ASEAN free trade, double tax agreements and foreign direct investment laws in the region. Covering all ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)