Basic Regulations for Trade and Service in Thailand
Thailand protects its Businesses
Thai industry is well developed. Western or Japanese machines and equipment as well as highly qualified services are in high demand.
However, Thailand and its service providers are considered not yet capable to compete with foreign providers in a number of areas. Therefore, the law states that foreigners are barred from trading or offering services in Thailand. These activities are reserved for Thai enterprises.
Exceptions are granted to only those foreign enterprises that establish trading companies with the equivalent of about €2.5 million in paid-in capital or obtain a “Foreign Business License”, the latter of which is rarely granted.
Consequently, most foreign companies cooperate with contractual importers and service providers or set up a Joint Venture with a Thai share majority.
This is wanted, however not to the benefit of Thailand at all times: Prices for machinery procured through distributors are higher than those directly purchased from the factory. Maintenance and repair also are services which the manufacturer with its trained personnel can usually perform better than a rather “general” local service provider.
The Board of Investment (BOI) and the Department for Business Development (DBD) have the power to grant certain exemptions if these are in the best interest of Thailand and if investors meet a number of criteria.
Sanet Legal Ltd., the German-Thai law firm in Bangkok, is presenting the main aspects of these exemptions below.
There is however one point that must be addressed from the beginning: Direct interaction with the final user with the aim of selling the company’s products is neither intended nor wanted in any of these models. However, all three setups may serve distributors and importers from Thailand up to varying extents and under different conditions, although they will not be able to serve end customers.
The Representative Office (RO)
Focus on purchasing, market intelligence and supporting distributors
The RO is a foreign manufacturer’s “Beachhead” in Thailand. While it concentrates on sourcing goods from Thailand, inspecting its quality, monitoring, and reporting on the market, it also, to some extent, provides support to authorized importers or distributors.
It may also “disseminate” products and innovations of the parent company to the general public, which does not, however, conceptually comprise any introductions for the purpose of making an offer.
The RO may not “accept purchase orders, make sales offers, or conduct business negotiations with any person.” Period!
The Representative Office may also not generate its own revenues, but the Parent Company will bear directly and entirely all the costs of the Representative Office.
The Trade & Investment Service Office (TISO)
Concentrates on consulting and technical services to Thai customers
TISO’s activities focus on providing business consultancy and technical services directly to Thai companies. It thus includes a direct exemption from the ban on consulting and services as stipulated by law for foreign individuals and companies.
The highest benefit from the TISO is for manufacturers of machinery, equipment and tools. There, for example, maintenance, repair and calibration of the machinery supplied, as well as installation and mounting, can be legally carried out and even charged and invoiced to Thai end users.
To a certain extent, also the parent company can be supported, for example, by drafting a marketing plan or monitoring certain functions.
The preconditions for setting up a TISO require an investment of at least THB 1 million (approx. EUR 25,000), a paid n-in capital for the company of at least THB 3 million / approx. EUR 75,000, and annual administrative expenses of THB 10 million (approx. EUR 250,000). The latter can be considered as the main hurdle for an investor, since salary costs for service and sales are not counted as part of this amount.
The application must be based on a very detailed business plan describing each individual service or service process in detail.
Nevertheless, the TISO is an enormously attractive model, especially for machine builders.
The International Business Center (IBC)
Focus on supporting services to associated companies
The IBC has replaced the Regional Headquarters (RHQ) and the International Trade Center (ITC) as the support category of the Board of Investment. It is permitting comprehensive services towards affiliate companies in and outside of Thailand. Those supporting services cover a total of ten different areas, including general administration, business planning, and business coordination.
An important part of this category is the permission to support affiliated companies on their marketing and sales promotions. Again, it is always important to remember, however, that a direct sales conversation with customers is not covered by an IBC.
The IBC may also perform installation, repair, and maintenance for the parent company’s products, but these services are not paid for by the Thai customer, but exclusively by the parent company.
The terms and conditions for an IBC are structured somewhat differently than for the TISO. The requirement to prove administrative expenses of at least EUR 250,000 per year does not apply. In exchange, however, an equally high equity capital of the company (mostly a Company Limited) must be paid in. The minimum investment is also relatively modest at around EUR 25,000.
One important precondition for the IBC to be considered is the employment of at least 10 qualified and “knowledgeable” employees for the rendered services, which will be audited annually in the course of the reporting to the BOI.
Sanet Legal Ltd. and Sanet Group have 17 years of experience in encouraging foreign companies with the Board of Investment. Consult email@example.com or firstname.lastname@example.org for an initial consultation on the proper business and legal set-up for precisely your business plans in Thailand.