Permanent Establishment

[BKK-Bangkapi]

Hello,

My company (Swiss based) is considering setting up a subsidiary in Thailand in order to develop its market. Its worldwide activities are developping and distributing analysis instruments. 500 employees worldwide, revenue of about MUSD 100, capitalization of MUSD 50.

The Thai subsidiary activities will be to advertise, promote its products and find new customers for the mother company in Switzerland. Its employees will perform visits to leads and perform demonstrations of the instruments. The sales and service contracts will be concluded between the customer and the mother company and the orders will be placed directly by the customers to the mother company. The subsidiary employees (or, if it's an issue as described in an earlier post, a sub-contractor of the Swiss company) will perform installation and service on the instruments. The activities of the subsidiary will be 100% funded by the mother company. The planned expenses for the subsidiary are of MBHT 4/year with 3 thai employees and 1 foreign MD.

My question: For such activities is it possible to register the subsidiary as a Representative Office? Or does such activities make the mother company having a permanent establishment in Thailand, and therefore having all income generated in Thailand beeing taxed at 30%? PLC with Thai ownership is not an option due to company policy.

At http://www.thaistartup.com/Representoffice.htm it is said that a Thai Representative Office is not subject to Thai corporate tax.

Additionally Switzerland has a double taxation agreement with Thailand:

http://www.rd.go.th/publish/7619.0.html

It is defined in chapter 5 that a branch is not considered as a permanent establishment if its activities are to collect information, advertise or perform activities of auxiliary character in Thailand. However if the branch habitually secures orders on behalf of the foreign mother company, even if it has no authority to conclude contracts, it will be considered as a permanent establishment. In my specific case are the activities described part of this scope?

Thanks in advance.

[Indo-Siam]

The scenario you are describing would allow your company to register as a Thai Representative Office (TRO). The one activity you mentioned that this office would NOT be allowed to perform would be post-sale installation and service. So - you would have to work out an arrangement for that work to be performed by a Thai-based Private or Public company.

Just as an example - my company has a client services division that can hire a Thai individual you select to be formally employed by my company - my company then bills your overseas Head Office for that employee's monthly salary and expenses, plus 750 baht for company matching social fund contribution - and we then add a negotiated monthly fee for hosting such an arrangement. That employee then "works very closely" with your office - your TRO is allowed to train local business partners or clients. But - if such work has previously been performed for your company by a Thai agent, then you should continue that relationship (see below).

Your TRO also should not serve as a repair parts stocking location, or repair facility. These functions are out of permitted scope for a TRO.

If approved for opening a TRO, your company has no additional corporate tax responsibility to Thailand. All employees of that office do still pay personal income taxes, and the company also pays VAT on all purchases.

If you presently have a Thai distributor or manufacturers representative (agent or reseller), you want to ensure that your TRO does not replace that agent - it instead should reinforce that agent, and make him more successful. If it appears that your TRO is eliminating a previous local representative, then it is hard to argue that you are not performing work that is beyond the scope of what a TRO is supposed to do. It is useful when submitting a TRO application to include a letter of support from your local Thai agent - reinforcing that your TRO will not be replacing/eliminating the historical role played by your local sales and service agent.

I and my firm would be happy to work with you on both registering a TRO, and setting up any supporting arrangements that might be needed. I originally came to Thailand as "Asian Technical Manager" for a precision industrial equipment manufacturer - so I am likely to understand your company's activities, and be able to present your case to the Department Of Foreign Business.

If interested, please send me a conventional e-mail mesage, to which I can reply with attachments.

Good luck!

Steve Sykes

Managing Director

Indo-Sam Goup

Bangkok

[email protected]

www.thaistartup.com

[BKK-Bangkapi]

Dear Sir,

Thanks for your very informative and professional reply. I've sent you a conventional e-mail for further discussions.

Kind regards