Comparing Incorporation And Employer Of Record (EOR) In Thailand

Comparing Incorporation And Employer Of Record (EOR) In Thailand

In case you are thinking of expanding your business in Thailand, there are several ways you can do this through the formation of a branch office or with the help of an EOR in Thailand depending on the extent of the expansion you are planning for.

The following article provides a comparison between both methods and will help you in determining which is suitable for your business.

Incorporating A Business In Thailand

Incorporation is the process of establishing a permanent offshore company that operates in a foreign country with its legal and physical presence. It commonly includes government regulation for the establishment of the firm as well as opening a branch office or a subsidiary company within the country.

Businesses in Thailand

There are several types of businesses in Thailand that are suitable for every need. A private limited company or Ltd is the most popular type of business entity in Thailand currently. In the following part, we are going to briefly describe the main types of business entities that can be registered in Thailand with their main characteristics: 

Representative office

For companies that want to perform market research and explore business opportunities in the Thai market without necessarily starting operations in the country, a representative office is suitable. 

Hiring employees

The representative office can directly recruit Thai nationals on a contractual basis; however, employing foreign nationals needs a ratio of 1 Thai employee for every foreign employee to obtain a work permit.

Minimum registered capital

The minimum amount of registered capital is 2 million THB for investments within the first 3 years of the Company’s establishment. It is placed in Thailand in specified amounts and must be retained in the country. This capital is expected to be used on costs that are likely to be incurred in business such as rent and wages. The requirement is as follows:

  • The initial transfer is 25% when set up. 
  • At least 50% must be transferred within the first year. 
  • At least 25% of capital each year is required to be transferred during the 2nd and 3rd years. 
  • The full transfer of capital has to be completed within 3 years.  

Setup time

It will take about one month to be able to set up the representative office.

Private limited company

A private limited company is the most suitable business model for most businesses. It does not take much time to register and it offers no limitations to the activities. The Thai limited company is required to be at least 51% Thai ownership. You can also apply for a Thai limited company under the Board of Investment (BOI) company and get 100% foreign ownership or a five-year corporate tax exemption or exemption from import tariffs. However, BOI is promoted only in some specific activities.

Another advantage is that Thai companies can be 100% foreign-owned under the Amity Treaty through acquiring a Foreign Business License (FBL). However, if the activity of the business is not on the prohibited list of the Foreign Business Act of Thailand, it can be foreign ownership even without obtaining FBL, for instance, a 100% export company. 

Hiring employees

Hiring local staff can be done through direct employment and contractual agreements while for foreigners it might be a challenge since employing a foreign staff requires four Thai employees to support the permit.

Minimum registered capital

An expatriate with a working permit requires 2 million THB per foreign and the company under BOI/Amity/FBL will be 3 million THB.

Setup time

It normally takes up to two weeks from start to finish to set up a normal Thai Limited company excluding BOI/Amity/FBL company.

Branch office

A branch office is suitable for those companies who are already in business and want to extend their branch office in Thailand.

Hiring employees

The branch office can hire local employees through contracts, but in the case of hiring foreign employees, a ratio of four Thai employees to one foreign employee has to be provided to obtain a work permit in Thailand.

Minimum registered capital

To operate the branch office, you may require a Foreign Business License which needs a registered capital of 3 million THB or above. However, if the activities of the business are not on the prohibited list of the Foreign Business Act, then you will be free to run the business without the Foreign Business License.

Such funds are transferred to the country at certain intervals and have to reside in Thailand later on. This capital must be directed toward operational expenses like rent and wages.

  • When setting up, the initial transfer has to be 25%
  • At least 50% has to be transferred within the first year
  • At least 25% of the capital for each year has to be transferred in the 2nd and 3rd year
  • The transfer of capital must be fully completed within 3 years. 

Set up time

The setting up process requires more time than a Thai limited company or representative office, ranging from three to five months, depending upon the nature of the business operations.

Choosing the right business entity

When choosing the right type of business entity to invest in for a foreign investor, the following factors must be considered: 

  • Foreign business ownership is limited under various policies and laws in Thailand with diverse sectors. This is why Thai law requires a Foreign Business License to ensure the limitation of foreign ownership.
  • Under the Investment Promotion Act, a BOI promotion is given to companies that are legally incorporated in Thailand and to some activities enclosed in the BOI regulations.
  • A foreign business cannot be held responsible for any activities that its Thai subsidiary conducts, but a business entity is held responsible for the activities conducted by its branch in Thailand.
  • Obtaining business operation permits, such as FDA or TAT licenses, is usually easier for a Thai company or it may require certain licenses if the entity has the majority of Thai shareholders and directors. Additionally, the notarization of documents by a Thai embassy overseas is frequently required for branch offices.
  • Some of the foreign countries have double taxation treaties with Thailand and some have a more encouraging treatment of remittance as compared to others.

Employer Of Record Service In Thailand

An employer of record (EoR) works as an intermediate for a client organization to recruit new talent without opening a new company in another country.

It will have a physical legal entity and will appear as an employer in all official documents, whereas all related decisions concerning hiring, decision about the position of the employee, or termination of employment will be made by the client company.

Another key reason why EoR is helpful to companies is to establish their businesses in a foreign country within a very short amount of time. Companies can begin operations as soon as they have made employment in a particular country.

Some of the advantages of working with the EOR include the following: 

  • Avoiding the risks of breaking labor rules and regulations in a foreign country
  • Reducing the potential risks arising from new market entries without an established subsidiary
  • Enabling companies to expand to multiple countries at the same time
  • Effective staff recruitment in the new market 
  • The management and tracking of employee payroll services are typically handled by local human resources on behalf of the client’s business.
  • Lower setup cost and recurring cost than a standard business formation service
  •  EOR can take over the role of your employee’s legal employer and save you from responsibilities. 
  • The exit strategy with company dissolution is also good for EOR and offers to keep the staff even if you shut down your entity.

Incorporation Vs EOR In Thailand: Which Option Is Right For Your Business?

If you are a business owner who has plans to start a new branch in Thailand, do you begin the process by recruiting employees? If so, you have the following choices based on your hiring reason: 

Reason #1: Research the market 

A lot of companies that are planning to enter a new market would like to have some or all of their key business development personnel on the ground to analyze the market opportunities and establish enough contacts to ensure a successful market penetration. It is also possible to hire staff and have them legally registered in Thailand to perform this type of work before the incorporation process. Here are some options:

Representative office

  • Must employ staff
  • Can facilitate work permits for foreigners
  • Must rent an office
  • Cannot trade (i.e. issue invoices or accept payments)
  • Must close and form a limited company or branch if the office is required to trade in the future

PEO providing EoR service

  • Legally employ staff
  • Low overheads

Reason #2: Respect and build upon existing customer/supplier relationships

If you need staff to assist your Thai clients, carry out marketing campaigns, or collaborate with suppliers on exports from Thailand. There are ways you can operate as an employer even without establishing a company. All the options imply that your company will issue invoices and accept payments from outside Thailand’s jurisdiction.

Representative office

  • Must employ staff
  •  to acquire work permits for foreign citizens
  • Must rent an office
  • Cannot trade (that means cannot raise invoices or accept payment)
  • Must close and form a limited company or branch if the office needs to trade in the future

PEO providing EoR service

  • Legally employ staff
  • Low overheads

Reason #3: To start trading immediately

There are some circumstances where your Thailand expansion project requires your business to immediately issue invoices and make payments within the country so you have to incorporate. The options are: 

Private Limited Company (Co.Ltd.) 

  • Except the business venture is manufacturing or operating as an export only, it cannot be 100% foreign-owned without obtaining BOI certification, foreign business license, or Amity certificate

Branch office

  • 100% owned by a foreign company
  • Business activities to be similar to those of the parent company
  • Liability will be with the parent company
  • Take time to establish

With any of these choices, you may choose to outsource the employer of registration (EOR) obligation and HR responsibilities to a PEO to keep things simple.

Additional Factors To Consider

Being Familiar With Rules And Regulations In Thailand

In terms of regulations concerning international incorporation, business owners have to understand that everything will not be the same as in their home country. The laws and regulations are quite different from one country to another and violating the rules can suffer in the form of large penalties.

However, working with a local PEO can assist in reducing that risk while you focus on other activities for your business growth.

The Scale Of Your Business Expansion

Before entering into a new market, there is a need to assess how much you are willing to spend on the market. Ask yourself whether it is merely an experimental market or if you are confident about this market to make your investment. 

Remember that incorporation can always begin with the EOR provider to assess the potential downsides or advantages that come with the process and see if everything looks good for your business.

Economy of Thailand

When entering into a new market, there is a lot to gain and also so much to lose. Opportunities like first-mover advantages and rapid GDP growth are available in emerging economies but they are also subject to political instability and economic inequalities.

It is also vital to look for changes over the long run regarding cultural and social norms in the country. Today’s popular product or your career path may not be appealing to the selected demographic in the future. 

It must be remembered that the unstable socioeconomic environment can interfere with even the best strategic management initiatives. Exploring the current economic status and evaluating what can significantly interrupt you and your business is necessary to protect yourself from potential risks.

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How FastLane Group Can Help?

When considering expanding into Thailand, you have two main options: registering a subsidiary or employing an EoR (employee of record). A subsidiary offers greater control, autonomy, legitimacy, and legal protection, making it ideal for long-term commitments and activities like importing/exporting goods. On the other hand, an EoR is simpler and more flexible, perfect for testing new markets or launching pilot projects. Evaluate your priorities, resources, and growth strategy to determine the best approach for your business expansion.

At FastLane Group, we provide expert guidance at every stage of your journey in Thailand. Whether you opt for a PEO partnership or need support in establishing a new legal entity, our tailored corporate services and market entry solutions are designed to meet your evolving business needs. Contact us to find out how we can help you successfully navigate your expansion into the Thai market.

Author

ang wee chun

Ang Wee Chun

Wee Chun Ang is a seasoned professional with expertise in business expansion, global workforce solutions, accounting, and strategic marketing, backed by a strong foundation in financial markets. He began his career managing high-value FX transactions at Affin Moneybrokers, a subsidiary of Affin Group, and KAF Astley & Pearce, a subsidiary of KAF Investment Bank. During his tenure, he played a pivotal role in setting up FX options desks, achieving significant milestones, including a 300% increase in desk revenue.