This article shall briefly set out the various pro and con points relating to setting up a new branch office in Thailand from various perspectives including ongoing legal compliance, tax and visa/ work permit considerations.
Registration & Management Considerations
| Pro | Con |
| A branch office is relatively easy to re-register at the Department of Business Development (DBD) as fewer documents are required when compared to the registration of a company limited. It will however need to lodge copies of the parent company’s certificate of incorporation, memorandum and articles of association (or other equivalent documents) and a power of attorney for the branch office manager. It is worth noting that the DBD may request other documentation as part of the registration process. | Permitted business objectives of a branch office cannot exceed those of the overseas parent company (as stated in the parent company’s affidavit or memorandum of association or equivalent document).
Moreover, a branch office cannot be re-registered and cannot operate a business in Thailand unless it obtains a Foreign Business License (FBL) for one or more business activities as specified on lists 2 or 3 of the Foreign Business Act (FBA).
Note: branch office registration & the FBL application are the same process.
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| It is relatively easier to change the branch office manager as compared to a director of a company limited as there is no need to hold a board of director meeting or a shareholder meeting, the parent company only needs to appoint a new person using a new notarized and legalized power of attorney. | If the overseas parent company is de-registered and/or changes its company registration information then the branch office will also need to be de-registered and/or change its company registration information in Thailand (as the case may be) given that it is part of the parent company rather than a separate legal entity. |
| A branch office has simplified management given that it only needs one person to act as the ‘branch office manager’, however, it could be more than one person depending on who the parent company wishes to appoint as the branch office manager(s). | Most of the documents required for the registration of a branch office such as the affidavit of the parent company, power of attorney (PoA) to the branch office manager etc must be notarized by a notary public and then legalized by the Royal Thai Embassy in the country of notarization. Such documents shall only be valid for 6 months from legalization date thereafter new sets will need to be obtained. |
| A branch office is relatively easier to close when compared to the liquidation and dissolution of a company limited which can be far more time consuming and complicated. | The PoA to the appointed branch office manager must be sufficiently broad so as to give such person adequate authority to effectively manage the branch office. If the PoA grants inadequate power/ authority then it can create many problems in practice as the manager may not be able to undertake juristic acts which lie outside the scope of the PoA. In such case a new revised PoA may be necessary but this can take time to prepare and lodge with the DBD. |
Foreign Business Act Considerations
| Pro | Con |
| Pursuant to the FBA, in order to re-register a branch office of a foreign company/juristic person, it is necessary to apply for and obtain a FBL in essentially the same manner and pursuant to essentially the same criteria as a limited company does.
Applying for a FBL can be time consuming and involves a considerable amount of paperwork including a technology transfer plan, employment plan, 3 year income & expenses plan etc. Importantly, an FBL requires the applying entity to have high technology with respect to the applied for business activities. |
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| If the branch office obtains an FBL then for the first three (3) years thereafter it must submit an annual company business operational report with a technology transfer plan report to the Ministry of Commerce to prove its compliance with such plan. | |
| Despite the fact that a branch office does not have its own shareholders like a company limited in Thailand, because a branch office has a FBL it must remit a minimum amount of foreign currency into its Thailand bank account to comply with its FBL conditions. The foreign currency remittance requirements are a minimum of 3 million baht per approved business activity under the FBL, however it could be more depending on the estimated 3 year income & expenses plan which forms part of the FBL application). | |
| If a branch office has its FBL cancelled by the Ministry of Commerce then it must close and be de-registered at the DBD. | |
| A branch office cannot apply for Board of Investment (BOI) investment privileges as these are only available to companies registered in Thailand. |
Ongoing Legal Compliance
| Pro | Con |
| Given that a branch office is not a separate legal entity but rather a part of an existing company registered outside of Thailand (i.e. the parent company) there is no need for a branch office to have an annual shareholder Annual General Meeting (AGM), hence less legal compliance in this regard. | Given that a branch office is a part of its parent company rather than a separate legal entity, this effectively means that the parent company is liable under civil and criminal law for all the acts and omissions of the branch office. |
| A branch office is required to comply with certain ongoing compliance obligations, including the following:
– A limited company established under a foreign law must submit its annual financial statement and form PorNgorDor.50 to the DBD within one month from the day its general meeting of shareholders approves such financial statement; A branch office must also report its foreign currency remittance from the parent company to the DBD as a condition of its FBL. |
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| Depending on the business activities of the branch office it may also need to obtain other licenses or permits in Thailand such as an import/ export licenses etc.
Note: Certain licenses/permits or terms of reference for Govt. contract bidding require a company limited rather than a branch office. |
Taxation Considerations
| Pro | Con |
A branch office is subject to:
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A branch office in Thailand must apply for and obtain a tax identification number. It must also apply for Value Added Tax (VAT) registration if it shall have revenue over the required threshold (1.8 million baht per annum). |
Visa & Work Permit Considerations
| Pro | Con |
| Requirements for foreign employee non-immigrant B visa extensions are easier when compared to a company limited given that the required Thai: foreign staff ratio is only 1:1 (not 4:1 as in case of a company limited). | The work permit issuance and renewal for foreign (non-Thai) staff shall be linked to the foreign currency remittance from the parent company to the branch office. A branch office requires at least 3 million baht in foreign currency remittance per work permit.
The evidence of remittance (credit advice) must be certified by the bank and should be no older than six months from the date of yearly renewal of the relevant work permit. Note: This money can be used as working capital for the branch office. |
Writer: Ryan Crowley – Foreign Services Manager
Dharmniti Law Office Co., Ltd.
2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330.
Tel: (66) 2680 9777
Fax: (66) 2680 9711
Email: info@dlo.co.th
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