Incorporation vs Employer of Record (“EoR”)
How to incorporate a business in Thailand?
Business entities in Thailand
Thailand offers a diverse range of business entities to meet a variety of needs. The limited liability company is the most used entity for conducting business in Thailand.
Here is an overview of the main types of entity that can be registered in Thailand, as well as their main characteristics.
1. Representative office
A representative office is an ideal choice for foreign companies wishing to explore the Thai market through research and business development activities.
How to hire employees for a representative office?
The representative office has the option of hiring local staff through contracts. However, hiring foreign employees requires maintaining a specific ratio of one Thai employee for each foreign employee hired in order to comply with work permit regulations.
What is the minimum registered capital?
The minimum share capital is THB 2 million, to be invested over a three-year period. These funds must be transferred into the country at set intervals and must remain in Thailand thereafter. The allocated capital is intended for operational expenses, including rent and salaries. The detailed requirements are as follows:
- Initial transfer: 25% on establishment.
- Minimum 50% transfer in the first year.
- During the second and third years, you have to transfer at least 25% of the capital each year.
It is mandatory to transfer the entire capital within three years.
How low does it take to set up a representative office?
The establishment process for a representative office is estimated to take approximately one month.
2. Limited Liability Company
The kind of company is well-suited for most businesses due to its quick registration process and lack of activity restrictions. While a Thai limited company requires at least a 51% Thai partner, there is an alternative option to register it under the Board of Investment (BOI). This allows for special incentives such as 100% foreign ownership, exemption from corporate tax for up to five years, or free import tariffs. It’s important to note that BOI promotion is applicable to specific activities.
Additionally, a Thai company can achieve 100% foreign ownership through the Amity Treaty or by obtaining a Foreign Business License (FBL). If the business activities do not fall under the prohibited list of the Foreign Business Act of Thailand, it may be possible to have foreign ownership without obtaining an FBL, particularly in the case of activities like a 100% export company.
How to hire employees for a Private Limited Company?
The limited company has the flexibility to hire local staff under contracts. However, recruiting foreign employees involves adhering to a specific ratio, necessitating the employment of four Thai employees for every foreign employee hired. This ratio is a requirement to facilitate the acquisition of work permits for foreign staff.
What is the minimum registered capital?
To facilitate the issuance of a work permit for an expatriate, there is a financial requirement of 2 million THB per foreigner. For companies registered under BOI/Amity/FBL, the stipulated amount is 3 million THB.
How low does it take to set up a representative office?
The process of setting up a regular Thai Limited company (not under BOI/Amity/FBL) is estimated to take approximately two weeks.
3. Branch office
A branch office is an ideal option for well-established companies looking to expand their operations to Thailand.
How to hire employees for a branch office?
The branch office has the flexibility to contract local staff. However, the employment of foreign personnel necessitates adhering to a ratio of four Thai employees per each foreign employee hired, which is essential to facilitate the procurement of a work permit.
What is the minimum registered capital?
A branch office is obligated to secure a FBL, necessitating a registered capital of 3 million THB or more. However, an exception applies if the business activities do not fall under the prohibited list of the Foreign Business Act of Thailand, in which case the Foreign Business License is not mandatory.
The capital, transferred at specified intervals, must remain in Thailand and is earmarked for operational expenses like rent and wages.
The capital transfer follows a structured plan:
- Initial transfer: 25% upon establishment.
- Transfer a minimum of 50% within the first year.
- In the 2nd and 3rd years, transfer at least 25% of the capital each year.
- Completion of the full capital transfer within the three-year timeframe is mandatory.
How low does it take to set up a representative office?
The establishment process for a branch office is more time-consuming compared to that of a Thai limited company or representative office, taking approximately three to five months. The duration can vary based on the nature and complexity of the business activities.
How to choose the right business entity?
Before selecting the appropriate business entity, a foreign investor should carefully consider the following factors:
- Foreign ownership restrictions: different sectors are subject to varying policies and laws regarding foreign ownership. Obtaining a FBL is imperative to maintain foreign ownership within the legal framework.
- BOI promotion: businesses seeking promotion under the Investment Promotion Act by the BOI must be registered in Thailand. Moreover, such promotion is applicable to specific activities outlined in BOI regulations.
- Liability: a foreign business is not responsible for the activities of its Thai subsidiary, but it assumes liability for the actions of its branch office.
- Thai shareholders and directors: for ease of operation or to meet licensing requirements (e.g., FDA or TAT licenses), a Thai company often requires a majority of Thai shareholders and directors. Notarization by a Thai embassy abroad is often necessary for branch office documents.
- Double taxation treaties: Thailand has double taxation treaties with over 60 countries. These treaties may offer varying degrees of favorable treatment for remittances, and it’s crucial for investors to be aware of these implications.
How to use employer of record service in Thailand?
An Employer of Record (EoR) functions as a third-party organization that enables a client firm to engage new talent without establishing a presence in a foreign country.
The EoR has a physical entity and is officially listed as the legal employer, yet all decisions related to hiring, employee roles, and dismissals are managed by the client firm.
Key reasons for companies choosing an EoR partnership include the ability to swiftly launch operations in a new country as soon as a hire is made.
Additional advantages of working with an EoR provider include:
- Compliance assurance: Avoiding potential risks associated with non-compliance with labor laws and regulations in the host country.
- Risk mitigation: Minimizing risks linked to market expansion without the need for an established subsidiary.
- Simultaneous expansion: Enabling businesses to expand into multiple countries concurrently.
- Efficient recruitment: Streamlining the process of recruiting staff in a new market.
- Local HR management: Having local HR experts handle employee payroll on behalf of the business.
- Cost efficiency: Lower setup costs and recurring expenses compared to traditional company formation services.
- Limited liability: the EoR assumes legal employer status, alleviating the client firm of liability.
- Exit strategy support: Assisting with company dissolution and providing an alternative to maintain staff even after entity closure.
Incorporation vs EoR
Are you contemplating the expansion of your business into Thailand but faced with the decision of whether to establish your own company or utilize an Employer of Record (EoR)? Both alternatives come with distinct advantages and disadvantages, making it crucial to carefully assess the best fit for your business requirements.
What is company incorporation and an Employer of Record in Thailand?
Company incorporation involves the establishment of a new legal entity in Thailand, creating a distinct business entity. This process encompasses registering the new company with the Thai government, securing all requisite licenses and permits, and meeting legal obligations such as tax compliance, corporate governance, accounting, payroll, and annual reporting.
An Employer of Record (EoR) provides comprehensive employee management services and administrative support, covering key areas such as payroll processing, onboarding, recruitment, benefits management, and HR services.
When using an EoR, your employees are registered with the relevant authorities under a designated company in Thailand as the employer of record. This involves:
- Establishing payroll protocols, including details such as salary amounts and Thai labor contracts.
- Distributing monthly salaries to staff based on agreed-upon protocols.
- Organizing and remitting all required social insurance contributions, Withholding Tax, and personal income tax.
- Managing the redistribution of monthly reimbursements.
The choice between incorporation and EoR comes with its own set of advantages and disadvantages. The decision hinges on the specific nature and scale of your business operations in Thailand.