Every month H&P Corporate lawyers in Bangkok receive many enquiries from foreign investors coming from all over the world considering different legal entities to enter Thailand. From a business perspective, it is key to understand the nature and limitation of each type of legal entity in Thailand for the success and expansion of the foreign company into Thailand.
Our law firm in Thailand, with a well-known area of practice in foreign investment law, have prepared a comparison of the relevant aspects and 9 main differences between representative office and limited companies.
9 differences between representative offices and limited companies in Thailand
1) Purpose of Establishment
- Representative Office: Established as a liaison office of the foreign parent company. Its sole role is to support the business of the parent company, such as conducting market research, sourcing suppliers, coordinating activities, and inspecting product quality.
It is prohibited from generating income or engaging in commercial activities in Thailand.
A Representative Office cannot enter into business transactions, earn revenue or profit, receive purchase orders, make sales offers, or negotiate business deals with individuals or entities in Thailand. It may only receive financial support from the foreign parent company.
- Limited Company: Established to carry out full-scale commercial operations in Thailand.
A Limited Company can conduct business transactions, generate profit from its operations, and serves as a vehicle for long-term investment and business expansion in Thailand.
2) Scope of Activities
- Representative Office is limited to five activities only:
- Sourcing goods and services in Thailand for the parent company.
- Inspecting and controlling the quality and quantity of goods and services procured by the parent company from Thailand.
- Providing advice to Thai customers or agents regarding the goods and services sold by the parent company.
- Disseminating information to customers about the parent company’s goods and services.
- Reporting on business trends in Thailand to the parent company.
- Limited Company is not restricted to specific activities. It may engage in a wide range of businesses in accordance with its registered objectives filed with the Department of Business Development (DBD).
3) Work Permits and Non-B Visa (Business Visa)
Both Representative Offices and Limited Companies may apply for work permits and Non-B visas for foreign employees, but the requirements differ significantly:
- Limited Company: Must employ 4 Thai employees for every 1 foreign employee.
- Representative Office: Requires only 1 Thai employee registered in Social Security per foreign employee.
4) Minimum Capital Requirements
- Representative Office: Requires a minimum capitalization of THB 2 million, to be remitted either in one installment or within the first three years of operation. This amount may be used as working capital in Thailand.
- Limited Company: Thai law does not stipulate a fixed minimum registered capital, but each share must have a par value of not less than THB 5 per share.
5) Taxation
Both entities must maintain monthly accounting records and undergo annual audits.
- Representative Office: Exempt from corporate income tax under the Revenue Code, except on deposit interest earned from remaining funds remitted from the head office. Such interest is subject to corporate income tax.
- Limited Company: Subject to corporate income tax. In addition, if annual revenue (not profit) exceeds THB 1.8 million, the company must file monthly VAT returns.
6) Ownership
- Representative Office: Must be 100% owned by the foreign parent company.
- Limited Company: May be wholly foreign-owned in specific cases, such as obtaining a Foreign Business License (FBL), receiving BOI promotion, restricting activities to exports, or under the US–Thailand Treaty of Amity or Japan–Thailand Treaty.
In general, however, Limited Companies must comply with the Foreign Business Act, which restricts foreign ownership to less than 50%.
7) Bank Account
Both Representative Offices and Limited Companies may open a corporate bank account in Thailand, accessible only by the company’s director or authorized representative.
- Representative Office: The account may receive funds only from the foreign parent company.
- Limited Company: The account may receive funds from third parties, including customers.
8) Dissolution
- Representative Office: Closure is a straightforward process and can typically be completed within a few months.
- Limited Company: Dissolution is a complex process that involves multiple procedures. It generally takes at least six to twelve months for a company that is not VAT-registered, and at least two years for a company that is VAT-registered.
For this reason, many foreign investors start with a Representative Office to explore the Thai market before transitioning to a Limited Company once they have established a business presence and local partners.
9) Suitability of Use
- Representative Office is suitable for:
- Foreign companies that only wish to conduct market research, liaise with partners, or perform quality control, without generating revenue in Thailand.
- Supporting activities for the parent company.
- Limited Company is suitable for:
- Investors seeking to engage in commercial business in Thailand.
- Selling products or services, earning revenue, and pursuing long-term investment and expansion.
If you are considering expanding your business into Thailand, please contact our corporate lawyers in Bangkok at [email protected]
