American Branch Office Options

[Thaiquila]

I have an interesting question.

What are the visa, business, and legal implications of setting up an American branch office in Thailand?

Here are some details:

1. Person running branch office would be a part owner of the American business, which is an American based internet based business; the income from the business would all be directed to the home website in America; there is also the option that the person running the branch office would only be an employee of the American company (if that was much easier legally).

(The target market would include mostly foreign expats and tourists.)

2. What kind of visa would this branch office owner or employee be eligible for and would there be any advantage to being an owner or employee regarding getting a visa? Would this person need a work permit (I would assume so), and if so, any difference if the person was an owner or employee? What are the financial requirements for a setup like this, based on Thai government rules.

3. Would the branch office be required to set up as a Thai business and pay Thai taxes? Would it make a difference whether the person running the branch office was an owner or employee?

4. Could the branch office employ commission based Thai sales people as independent contractors? If not, what are the implications of hiring full time Thai sales employees, as far as taxation?

5. If no Thais were employed or contracted, would there be issues with keeping business visa/work permit considering that the business would be based in America and the customers would largely be non-Thai? In other words, little benefit to Thailand if Thais are not employed.

If people can point me to additional resources implied by these questions, I would be most grateful.

[Indo-Siam]

There is a process for forming a Thai Representative Office (TRO) for an overseas firm.

This is a fairly long and arduous process, compared to forming a Thai Private Co. Ltd. The TRO process starts in country where Head Office is located, by submitting parent company incorporation details and audited financials to Thai Embassy, for "duediligebce" screening and "legalization".

You must then submit a fairly detailed description of your intended business operation here, including a three-year projection of expenses, by category, to the Department of Foreign Business of the Ministry of Commerce.

In practice, it is not usually possible to create a TRO in Thailand for an overseas company that is largely "notional' (or "virtual").

Once estbalished here, the TRO cannot issue loocal quotations, or invoice, or collect income here - not can it perform post-sales installation, maintenance, or service. It does not pay corporate income taxes here - but it does pay VAT, and both personal income taxes and social fund taxes are withheld from salaries.

Based on what you have written, there is a significant likelihood that your company would not be eligible to pursue the TRO route.

In my estimation, forming a TRO norrmally costs at least 4x, and takes at least 6x longer, than forming a Thai Private Co. Ltd. (TPCL). If the registered capitalization of your overseas parent company is high, then regsitration costs for the TRO can be very high.

For a TRO, it is REQUIRED that one foreigner be domiciled in Thailand - he represents the parent company CEO under a Power of Attorney. His ownership stake in the oversaes company is irrelevant, and would have non impact on his visa eligibility. That individual would come here on a Class B, employment-based visa.

Thai government rules require that all funds needed to operate the TRO must be remitted from overseas Head Office - and the required amounts are 1,000,000 baht during 1st six months, 1,000,000 baht during second six months, and 1,000,000 baht during each of the following three years. In my experience, all TROs that have been approved have projected bringing in at least 3 million baht each year.

Concerning Thai employees, you may hire what you need. Work permits and entry permits for foreign manager of TRO are issued at BOI One-Stop center, without consideration of Thai employee headcount. If you hire Thai employees, the total "burdened" compensation that you must figure on is the stated salary, plus the lesser of 3%, or 750 baht (for company's matching social fund contribution).

There are two big requirements that you mst deal with in submitting your application for a TRO here: You must document convincingly two things: 1) The "reason and necessity" for establishment of the TRO; and 2) The benefit to Thailand of establishing the TRO.

My personal opinion: The TRO route is not suitable for any overseas firm not earning revenues of at least US $25 million or so per year, with at least 20-25 employees. The Department of Foreign Business is a painful group to work with. It is MUCH preferable to simply form a TPCL, with majority of shares held by Thai shareholders. Thsi is particularly the case, because: if you are considering a TRO, then you will not be accummulating wealth in Thailand (this is not permitted) - so you will just be bringing in funding to necessary to run the TRO. So - do the same thing as a TPCL - operate the company with only one client - your overseas Head Office - and bill that client monthly for just what is needed to run the TPCL.

The department of foreign business will immediately decline to accept your application the moment they determine that the TRO will effectively be as large as the overseas parent company - they will also turn it down if it appears that an entrepreneuer is seeking to use the TRO route simply to circumvent the correct process for entrepreneurial companies - which is formation of a TPCL.

If you pursue the TRO process, you must describe in detail the specific operations, products and services, and the business model of both your Head Office and your proposed TRO. If you form a TPCL, you effectuvely create a holding coimpany, that can pursue a wide range of activities - and the Commercial Registration Department does not ask you anything about what business activities you intend to pursue.

Good luck!

Steve Sykes

Managing Director

Indo-Siam Group

Bangkok

[email protected]

www.thaistartup.com

[Thaiquila]

Thank Steve,

That was very informative. Based on what you said, the TRO is not an option because this would be a startup company (so not really big enough for a Thai TRO), but now I am wondering what would be the best structure to pursue this business in Thailand. I think I need to contact you via your company.

[Indo-Siam]

Hi - If you send me a conventional e-mail to which I can reply with attachments, I will send you (and anyone else who is interested) a collection of documents that outline the various considerations and costs.

Send to: [email protected]

Cheers!

Steve

[Sunbelt Asia]

Steve, very good post. Thanks.

I like to point out however as an American company, that is seeking to set up a Representative Office, Branch Office, or U.S. Subsidiary in Thailand, the USA company simply needs to submit documents confirming that a majority of the company's shareholders are US citizens. This would be approved in 5-6 weeks and would be much easier route than setting up a TRO in the normal route. On paperwork, your only requirement is that majority of the companys shareholders are US citizens. Nothing else!

This window of opportunity is closing fast. In compliance with World Trade Organization rules requiring member nations to extend most favored nation status equally to all other WTO members, the treaty ends Dec 31st 2004. However if you apply before that date, the opinion of many is the company will not lose its Alien Business License and will be " grandfather"

There are two major benefits of the treaty:

The Amity Treaty gives American companies national treatment. That is, they may engage in business on the same basis as Thai companies, and are exempt from most of the restrictions on foreign investment imposed by the Alien Business Law of 1972.

The Treaty allows American companies to maintain a majority shareholding or to wholly own its company, branch office or representative office located in Thailand

www.sunbeltasia.com

[Sumitr Man]

Alien Business Law of 1972

Which was superseded by the Foreign Business Act of 1999 - with less restrictions than ABL '72.

Also, if you do go down this route, as well as capital contributions, ask your lawyers how many of your directors need to be Americans, and how many of those need to be resident in Thailand. In this regard, I believe that your CEO would need to be an American and/or Thai national.

Finally, if the company is being set-up with upline/upstream companies, it may be the case that a line will be followed to see who the overall parent company is - and what nationality they are.

[Sunbelt Asia]

Also, if you do go down this route, as well as capital contributions, ask your lawyers how many of your directors need to be Americans,

You'll need more American or Thai directors than any other nationality.

Which was superseded by the Foreign Business Act of 1999 - with less restrictions than ABL '72.

You are correct, however in reality, nothing has changed since May 29, 1968 the only restrictions on American investment have been:

Owning land;

Engaging in the business of inland communication;

Engaging in inland transportation and communication industries;

Engaging in fiduciary functions;

Engaging in banking involving depository functions;

Engaging in domestic trade in indigenous agricultural products;

Exploiting land or other natural resources

www.sunbeltasia.com

[Indo-Siam]

Greg -

In this guy's situation - where he proposes to basically start up a "notional" overseas parent company and head office, just to justify creation of a TRO, I do not believe that he will be able to register a TRO - even as an American. He could register a Thai Private Co. Ltd. under Amity Treaty, but the Department of Foreign Business will not approve a TRO for a basically non-existent overseas parent company. They have a specific policy in this regard.

Or - do you know otherwise? Is Sunbelt able to create TRO's - for Americans or anybody else - for "notional" (basically non-existent) overseas parent companies?

Cheers!

Steve

Indo-Siam

[Sunbelt Asia]

Hi Steve,

here he proposes to basically start up a "notional" overseas parent company and head office, just to justify creation of a TRO

I felt it was an existing business in the States. Reread his post and still came up with the same feeling as he wrote

Person running branch office would be a part owner of the American business, which is an American based internet based business; the income from the business would all be directed to the home website in America

Could he just be an Sole Propreitor in the States? This would shed light on it different. Hard to know without asking more questions.

I agree the Thai limited cpompany under Amity would be the best if this was just a startup in the States and he was not even registered.

www.sunbeltasia.com