Venturing into Thailand: The Strategic Choice Between Branch Offices and Subsidiaries
Thailand: More Than a Vacation Destination
Stunning beaches, a rich cultural heritage, and spicy culinary delights make Thailand a global hotspot. Yet beyond its popular appeal, the country is steadily emerging as a business hub, especially in sectors such as technology, tourism, and manufacturing. As the old adage goes, ‘with great opportunity comes great responsibility,’ and this couldn’t be more pertinent for companies considering a Thai venture.
Investment Opportunities in Thailand
Before discussing the specifics of branch offices and subsidiaries, it’s essential to understand the investment opportunities available in Thailand. With a strong focus on industries like tourism, agriculture, and manufacturing, Thailand offers a fertile ground for business growth. However, foreign companies must be aware of the regulations outlined in Thailand’s Foreign Business Act, which may restrict or prohibit certain activities for non-domestic companies.
Venturing into Thailand: The Strategic Choice Between Branch Offices and Subsidiaries
If the vibrant markets of Thailand beckon your enterprise, take note. Whether you’re contemplating setting up a branch office or launching a subsidiary, here’s the low-down on each, along with some legal caveats to consider.
Branch Office in Thailand: An Extension of Your International Presence
What is a Branch Office?
A branch office serves as an extended arm of its foreign parent company. It operates under the same legal framework as the parent company, sharing not just assets but also liabilities.
Strengths
- Control: Complete control remains with the parent company.
- Ownership: No requirement for Thai shareholding; 100% foreign ownership permitted.
- Simplicity in Structure: Generally easier to establish than a subsidiary.
- Workforce Flexibility: Fewer restrictions on hiring foreign talent.
Points to Consider
- Unsheltered Liability: Your parent company absorbs all financial risks or legal liabilities.
- Tax Implications: Revenues generated in Thailand may be subject to higher taxation rates.
Legal Roadmap
Branch offices are not exempt from Thailand’s regulatory landscape, being subject to the Foreign Business Act (FBA). This Act governs which activities are either prohibited or restricted for foreign entities, adding extra hurdles for those venturing into sectors exclusive to Thai nationals
Subsidiary in Thailand: Carving Out Independence
What is a Subsidiary?
Unlike a branch office, a subsidiary operates as a separate legal entity from its foreign parent company.
Strengths
- Limited Liability: Protects the parent company from the subsidiary’s debts or other liabilities.
- Operational Flexibility: Functions as an independent entity, offering more control over assets and operations.
- Fiscal Advantages: Eligible for tax benefits and import duty waivers, depending on the industry and business type.
Points to Consider
- Complex Setup: Requires more extensive documentation for establishment.
- Ownership Restrictions: Certain industries may enforce limitations on foreign ownership.
Legal Roadmap
Although separate from its parent company, a subsidiary must also comply with the FBA. Despite bypassing some of the ownership limitations that apply to branch offices, subsidiaries have their own set of legal obligations to navigate.
Legal Implications for Branch Offices and Subsidiaries
Foreign businesses operating in Thailand must adhere to the Foreign Business Act (FBA), which categorizes permissible business activities into three distinct lists: prohibited, restricted, and those requiring special authorization.
Prohibited Business Activities
List One of the FBA explicitly prohibits foreign companies from engaging in certain sectors, such as land trading and fisheries, reserved exclusively for Thai nationals.
Restricted Business Activities
List Two and List Three of the FBA highlight activities with restrictions for foreign companies. To engage in any of these, one must obtain a Foreign Business License (FBL).
* List Two involves activities related to national security and certain modes of domestic transportation. Gaining approval to engage in these activities is exceedingly challenging and requires consent from the Minister of Commerce and the Cabinet.
* List Three focuses on areas where Thai companies are deemed not ready to compete with foreign businesses. Obtaining approval for List Three activities is relatively easier but still requires sanction from key governmental departments.
Acquiring a Foreign Business License (FBL)
For businesses looking to operate in restricted sectors, acquiring an FBL is a mandatory step. The license application is reviewed on multiple criteria.
The application process includes scrutiny by the Department of Business Development and may involve Cabinet or Foreign Business Committee review. Key evaluation criteria include:
- National security implications
- Potential for economic and social development
- Size of the enterprise
- Local employment creation
- Compatibility with Thai interests
Applications showing demonstrable benefits to Thailand and not competing directly with local businesses stand a better chance of approval.
Minimum Capital Requirements: Know Your Numbers
While branch offices are required to have a minimum capital of 3 million THB, subsidiaries can be established with a starting capital as low as 50,000 THB, which increases to 2 million THB if hiring foreign staff is intended.
Your choice between establishing a branch office and forming a subsidiary in Thailand hinges on your tolerance for risk, your specific business objectives, and your preferred level of involvement. With the proper planning and understanding of the legal landscape, the Thai market can offer promising opportunities for your business.
When it comes to setting up in Thailand, there’s no one-size-fits-all strategy. Whether a branch office or a subsidiary is right for you depends on a host of factors, from your risk appetite to your operational needs.
Disclaimer: The above information has not been independently verified. This investment brief is given for information only and does not represent an investment proposal, recommendation or advice to invest in the shares or business of the subject company. Additional information shall be made available to interested parties subject to the execution of the requisite confidentiality undertakings. The financial information, actual and/or forecast, provide herein is based on management representation.
