Types of business organisations - foreigner companies

The branch of a foreign company

A foreign company has the ability to create a branch in order to conduct business in Thailand. However, there are several reasons why the establishment of Thai company may be more preferable rather than the establishment of a branch, namely:

- The legal entity registered on the territory of Thailand only can get the privileges of the Board of Investment of Thailand (Board of Investment);

- Some of the licenses or permits to do business in Thailand can be granted to Thai companies only;

- The legislation of Thailand prohibits the activities of foreign companies in certain areas of commercial activity in the country;

- Thai companies only can get tax advantages, including a lower rate of income tax and the tax savings in the derivation of net income outside of Thailand (repatriation of profits).

Representative office of foreign companies

A foreign company may establish its representative office in Thailand in order to participate in non-commercial activities on behalf of the foreign company. The rules concerning the establishment of the representative offices are contained in the Regulations of the Office of the Prime Minister 1986.

The representative office activity restricted by the following activities:

- the searching for the local suppliers of goods and services for its head office;

- the verification and control the quality and quantity of goods purchased by the head office;

- advising local distributors and consumers on various aspects relating to the products sold by the head office of the company;

- distribute information about new products and services provided by the head office;

- reporting to the head office about the local enterprises and the local markets.

License that gives a power to carry out the representative office's activity must be received before the registration of representative office and rules regarding minimum capital contributions apply.

For corporate tax purposes, if the representative office renders services only to its foreign head office and receives contributions from its head office merely to defray expenses, such contributions are not subject to corporate income tax. A representative office will still have the duty to file a corporate tax return even if it does not receive revenue subject to corporate income tax.

Regional office of transnational corporations

Transnational corporation may establish a regional office in Thailand in order to participate in non-profit activities. The terms of creating a regional office contained in the Regulations of the Office of the Prime Minister 1992.

The activity of transnational corporations restricted by the following items:

- Close interaction, coordination and control of activities of subsidiaries in the region;

- Providing services to subsidiaries, namely:

- Advisory and management services;

- Training and staff development services;

- Financial management;

- Marketing and sales promotion;

- Research and product development.

The regional office will not be eligible to receive purchase orders, to offer their services and products at reduced prices or to conduct business negotiations with individuals or entities on the territory of Thailand.

The Headquarter of transnational corporation is responsible for all expenses of the regional office. License that gives a power to carry out the regional office's activity must be received before the registration of this regional office and rules regarding minimum capital contributions apply.

For corporate tax purposes, if the regional office renders services only to its foreign head office and receives contributions from its head office merely to defray expenses, such contributions are not subject to corporate income tax. A regional office will still have the duty to file a corporate tax return even if it does not receive revenue subject to corporate income tax. If the regional office carries on activities outside its permitted scope, it may be liable to corporate tax in respect of such activities.

Regional Operating Headquarters (ROH)

In 2002, the Thai Government approved a package of tax incentives aimed at attracting foreign regional operating headquarters (ROH) to Thailand. The incentives will play a pivotal role in the Thai government's plan to attract foreign investment.

For the purposes of the tax incentives, an ROH is defined as a company incorporated under Thai law that provides the following services to its branches or associated enterprises located in Thailand or abroad:

-Management and administrative services;

-Technical services; or

-Support services.

Support services

Support services are defined as follows:

-General administration, business planning and co-ordination.

-Procurement of raw materials and components.

-Product research and development.

-Technical support.

-Marketing and sales support.

-Regional training and personnel management.

-Financial advisory services.

-Economic and investment research and analysis.

-Credit management and administration.

-Any other activities prescribed by the Director-General of the Revenue Department.

Qualifying criteria

In order to be eligible for the tax incentives, an ROH must meet the following conditions:

1. The paid-up capital of the ROH must be at least Baht ten million on the last day of each accounting period.

2. Services must be provided to associated enterprises or branches in at least three countries other than Thailand.

3. Qualifying service and royalty income of the ROH paid from or within foreign countries must comprise at least fifty percent of total revenues. For the first three accounting periods the rate will be reduced to one-third of total revenues. The Director-General of the Revenue Department will have the power to accept a lower ratio in certain cases for one accounting period.

4. The ROH must be registered in accordance with the rules, procedures and conditions prescribed by the Director-General of the Revenue Department. In this regard the Director-General has prescribed that a company wishing to receive the ROH incentives must complete and file a registration form with the Revenue Department.

5. The ROH must comply with rules, procedures and conditions prescribed by the Director-General of the Revenue Department.

Non -tax incentives

An ROH promoted by the Board of Investment can receive non-tax incentives, such as permission to own land, permission to bring in foreign experts and technicians and permission to be 100% foreign owned.