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Incorporation or Employer of Record (EoR) in Thailand: Which is the Better Option for Your Business?
27/04/2023
Are you considering expanding your business to Thailand but must decide whether to incorporate your own company or use an Employer of Record (EoR)? Both options have advantages and disadvantages, and choosing the best fit for your business needs is essential.
This blog post will explore the differences between incorporation and Employer of Record (EoR) in Thailand. We’ll look at the benefits and drawbacks of each option and how they can impact your business’s operations and bottom line.
Key points
- Incorporation and EoR are two options for setting up a business in Thailand.
- Incorporation involves registering a company with the government and establishing it as a separate legal entity.
- EoR (Employer of Record) involves hiring a third-party company to act as the legal employer of your staff in Thailand.
- Incorporation is a more complex and time-consuming process but provides greater control and flexibility over the business.
- EoR is a faster and more cost-effective option for companies that want to establish a presence in Thailand quickly but may need more control over their operations.
What is company incorporation and an Employer of Record in Thailand?
Company incorporation establishes a new legal entity in Thailand, which can operate as a separate business entity. This process involves registering a new company with the Thai government, obtaining all necessary licenses and permits, and fulfilling legal obligations such as tax compliance, corporate governance, accounting, payroll and annual reporting.
An Employer of Record (EoR) provides employee management services and administrative assistance. Such services and assistance include payroll processing, onboarding, recruiting, benefits management, and HR services.
An EoR allows you to register your employees with the relevant authorities using a company in Thailand as the employer of record.
- Establish the payroll protocols, including salary amounts, Thai labour contracts, etc.
- Distribution of the monthly salaries to staff following previously agreed upon protocols.
- Organise and pay all required social insurance contributions, Withholding Tax (WHT) and personal income tax (PIT).
- Redistribute monthly reimbursements.
Both incorporation and EoR have advantages and disadvantages, and the choice between them largely depends on the nature and scope of your business operations in Thailand.
Company Incorporation in Thailand
A range of business entities is available in Thailand to suit various needs. The private limited company is Thailand’s most popular business entity for conducting business. However, it is important to take time and decide which company structure is best suited for your needs.
Before deciding on the appropriate business entity, foreign investors must take into account several critical factors, including:
- The restrictions on foreign ownership may require a Foreign Business License to maintain foreign ownership.
- The eligibility for a Board of Investment (BOI) promotion should always be considered due to perks such as 100% foreign ownership and reduced quotas for hiring foreign staff.
- The liability of a foreign business for activities performed by its Thai subsidiary or branch office.
- The importance of having a majority of Thai shareholders and directors for obtaining business operation licenses such as FDA or TAT licenses may be more accessible for a Thai company to obtain.
- The availability of double taxation treaties between Thailand and over 60 foreign countries, some of which offer more favorable treatment of remittances than others.
Below we’ll provide a brief overview of the main types of business entities that can be registered in Thailand and outline their key characteristics.
Thai Limited Company
A Limited Company is the most popular form of business structure in Thailand. This is due to the flexibility offered to business owners. Foreigners can establish a Limited Company as a joint venture with a Thai National or a 100% foreign-owned entity.
However, due to the restrictions of the Foreign Business Act, many business activities cannot be undertaken by a 100% foreign-owned company. In such a situation, either a joint venture with Thai partners who own over 50% of the shares, a Foreign Business Licence, or a BOI promotion (depending on activities) will be required to engage in such activitie
As mentioned above, a company with less than 50% foreign-owned shares is considered a Thai company and, therefore, not subject to the restrictions of the FBA.
Foreigners can have control of a Thai Limited company while still adhering to the ownership requirements of the FBA. Under the FBA, Foreigners can have majority voting rights and control in a Thai limited company through preference shares and weighted voting rights.
It is important to note that using nominee shares in Thailand is expressly prohibited by the Foreign Business Act. A nominee shareholder (Thai National) has shares in a company but has no legal rights or ability to control or manage the company.
In Thailand, a limited company can hire foreign employees, but there must be a ratio of four Thai employees to every foreign employee hired to support the work permit.
BOI companies
When considering opening a company in Thailand, entrepreneurs should always consider applying for a Board Of Investment (BOI) promotion. Thailand’s BOI is a special government agency that promotes foreign investment within Thailand.
A BOI promotion removes many of the barriers to doing business in Thailand, such as the restrictions of the Foreign Business Act.
While BOI companies are eligible for various incentives, 100% foreign ownership of the business and reduced requirements for hiring foreign staff are significant bonuses for companies. These incentives could benefit foreign companies looking to establish a presence in Thailand.
100% foreign ownership
Depending on the activities a business undertakes, it is likely that foreign ownership of a regular Thai Limited company would be limited to 49.99%. This limitation is due to the Foreign Business Act and its restrictions on foreign-owned companies from undertaking certain business activities. For more information about this, please take a look at this article.
BOI-promoted companies are not subject to these restrictions and generally can be 100% foreign owned (subject to certain exceptions).
The reduced quota for hiring foreign employees
Unlike other company structures, BOI-promoted companies are not subject to any quotas when hiring foreign employees. For example, Thai Limited Companies cannot hire a foreign employee unless the following quotas are satisfied:
A ratio of 4:1 Thai to foreign employees. Essentially, there must be 4 Thai employees employed by the company per 1 foreign employee.
Removing this quota removes a massive barrier to employing foreign staff and is a huge advantage to a BOI promotion.
Other non-tax incentives:
- Permit to own land
- Permit to remit money abroad in a foreign currency
- Protection against nationalization of the business
- The BOI will also announce a wide range of additional and often time-sensitive incentives for companies already operating under a BOI license.
Tax Incentives (does not apply to all promotions):
- Exemption or reduction of import duties
- Exemption of a juristic person’s income tax and dividends
- Double deductions from the costs of transportation, electricity, and water supply
- Eight-year corporate income tax exemption for:
- Knowledge-based activities focussing on R&D and design to enhance Thailand’s competitiveness, or
- Activities in infrastructure for Thailand’s development, or
- Activities using advanced technology to create value-added
- Five-year corporate income tax exemption for high-technology activities, deemed important to Thailand’s development, with few investments already existing here.
- Three-year corporate income tax exemption for activities with lower technology than above adds value to domestic resources and supply-chain.
Representative Offices
A Representative Office would be an ideal choice for any international company that wishes to be in Thailand without applying for a Foreign Business License. Representative offices also have a significant advantage in hiring foreign employees with a reduced ratio when compared to a Thai Limited Company. For a Representative Office, the required ratio is one Thai employee for every foreign employee hired to support the work permit.
However, a Representative Office can only perform “non-income related activities” as permissible by laws. Therefore, the Representative Office cannot earn income or issue invoices in Thailand.
The permitted activities for a Registered Office are as follows:
- Training and development;
- Technical assistance;
- Financial management;
- Control of marketing and sales promotion planning;
- Product development; and
- Research and development.
A minimum investment of 2 million Baht is required to establish a Representative office.
Payment for the capital can be made as either a lump sum or by paying in installments as follows:
- 25% within the first 3 months of registration;
- 25% within the first year;
- 25% within the second year; and
- 25% within the third year.
Branch Offices
Contrary to the Representative Office, a Branch Office can perform any “income-related activity” in Thailand on behalf of its head office.
If the business is considered a ‘restricted business’ under the FBA, which in most cases it will be, a Foreign Business License must be obtained from the Ministry of Commerce. If the business is not considered a restricted business, a Foreign Business Licence is not required, but a Commercial Registration Certificate from the Ministry of Commerce would be needed.
The required minimum capital amount for a Branch Office is 3 million Thai Baht for restricted businesses and 2 million Thai Baht for non-restricted businesses.
It is also important to note that the rules governing the activities of a Branch Office are the same as the rules governing the activities of a foreign-held limited company.
The registration process of the Branch Office could also be significantly longer than that of a Representative Office. Please click here to learn more about registering a Branch Office in Thailand.
Treaty of Amity companies in Thailand
The Treaty of Amity (the Treaty of Amity and Economic Relations between the Kingdom of Thailand and the United States of America) is a bilateral agreement between Thailand and the US.
The Treaty of Amity aims to provide significant advantages for US investors and companies to enter the Thai market.
For example, suppose one of the shareholders in the company is a US citizen and this shareholder will hold the majority of the shares. In that case, this company will be considered a US-majority-owned company. US-majority-owned companies are eligible to apply for protection under the Treaty of Amity. A Treaty of Amity company can operate in Thailand without applying for an FBL or a BOI promotion.
Companies eligible for the protections granted by the Treaty of Amity must still satisfy the minimum capital requirements established under the Foreign Business Act (FBA).
If the business performs an unrestricted activity set out by the FBA, the minimum capital requirement for a Treaty of Amity-protected company is THB 2 million.
Several restrictions must be considered. The Treaty of Amity prohibits American investors from operating in the following reserved activities:
- Communications
- Transportation
- Fiduciary functions
- Banking involving depository functions
- Land Ownership, Exploitation of land or other natural resources
- Domestic trade in indigenous agricultural products
The following requirements also apply:
- American citizens must hold a minimum of 51% of shares
- A minimum of 50% of directors must be American citizens
Employer of Record in Thailand
If you are considering expanding your business to Thailand, your first consideration may have been setting up a company or a representative office. However, if you want to have foreign employees start to work as soon as possible or would prefer to test the market before establishing a legal entity, one alternative is to use an Employer of Record, also known as a Professional Employer Organization (PEO) service or a sponsored work permit.
What is an Employer of Record?
An EoR, also known as a sponsored work permit or Professional Employer Organization (PEO), provides employee management services and administrative assistance. Such services and assistance include payroll processing, onboarding, recruiting, benefits management, and HR services.
A PEO allows you to register your employees with the relevant authorities using a company in Thailand as the employer of record.
- Establish the payroll protocols, including salary amounts, Thai labour contracts, etc.
- Distribution of the monthly salaries to staff following previously agreed upon protocols.
- Organise and pay all required social insurance contributions, Withholding Tax (WHT) and personal income tax (PIT).
- Redistribute monthly reimbursements.
What are the benefits of an EoR?
Opening or expanding your business globally can be a difficult and complex process that can take time and resources. This is especially true for companies that haven’t established their entity in Thailand or are stuck trying to obtain visas and work permits for their foreign staff.
By utilizing a EoR service, companies will receive help complying with international employment laws, onboarding employees, and dealing with all necessary accounting and payroll requirements, such as salary payments and tax deductions.
EoR services also grant companies far quicker access to the market than would be achieved through setting up a local entity first.
This assistance from a EoR frees up valuable time and resources as well as saving you money in the long term.
What types of businesses need an EoR ?
EoR services are available and can be utilized by any type of business. Whether a two-person office or a manufacturing unit employing many workers co-employment through a EoR services can be an effective solution.
However, from our experience, EoR services are often used by foreign employees who are looking to start work as soon as possible or foreign entities would prefer to test the market before establishing a legal entity in Thailand.
How do clients using an EoR control their employees?
While the EoR service will officially fulfill all the staffing, payroll, and accounting requirements, business owners or clients can still directly supervise or control the employees. The client will determine all job responsibilities, quality standards, wage rates, performance standards, working hours, compliance with rules, and other terms per Thai labour laws.
Do I need to pay taxes for my employees when using an EoR service?
Yes, however, in practice the EoR provider in Thailand will invoice the gross amount of the employees salary and from this the EoR provider will deduct the Personal Income Tax of the employee and also the social security contributions.
When using a sponsored an EoR service, who deals with regulatory compliance obligations?
Entities looking to expand their businesses to foreign countries often need adequate knowledge of the local regulatory compliance requirements. A EoR service will efficiently manage all payroll, accounting, taxation, and compliance issues, meaning you don’t have to.
Incorporation or EoR in Thailand: Which Option Is Right for Your Business?
Which option is the best for your business? It ultimately depends on your business needs and goals. In practice if the company wants to start its operations in Thailand quickly, without having to go through the incorporation process first and mitigating any risk, the EoR service could be the best option. EoR services are quick to set out and there no monthly accounting, tax filings and compliance requirements to deal with. Companies also don’t have to consider things such as business licences and other areas of the business environment they are not familiar with.
However, from the moment your company hires or plans to hire 4 or more employees, it may be wiser to incorporate a proper business entity. In such a situation, doing so will be a more cost effective solution.
Incorporation involves establishing a new legal entity in Thailand, registering the company with the Thai government, and fulfilling legal requirements. This process can be complicated, time-consuming, and expensive, but it gives you full control over your business operations in Thailand. Incorporation allows you to operate independently, hire staff, and own assets under your company’s name.
On the other hand, using an EoR in Thailand allows you to avoid many of the complexities of incorporation. EoRs act as a third-party company that takes on the role of employer for your company’s employees in Thailand. The EoR manages all administrative and legal responsibilities related to payroll, taxes, benefits, and employment contracts on behalf of your company. This option lets you focus on expanding your business without worrying about regulatory compliance.
How can Belaws help?
For more information about incorporating a company or using an Employer of Record in Thailand, why not talk to one of our experts now?
This article is for information purposes only and does not constitute legal advice.
Our consultations last for a period of up to 1 hour and are conducted by expert Lawyers who are fluent in English, French and Thai.
Consultations can be hosted via WhatsApp or Video Conferencing software for your convenience. A consultation with one of our legal experts is undoubtedly the best way to get all the information you need and answer any questions you may have about your new business or project.
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Frequently asked questions
What are the pros of EOR?
EOR is a faster and more cost-effective option for companies that want to establish a presence in Thailand quickly, but may need more control over their operations. It provides employee management services and administrative assistance such as payroll processing, onboarding, recruiting, benefits management, and HR services.
Is employer of record legal in Thailand?
Yes, employer of record is legal in Thailand.
What is the employer of record in Thailand?
An Employer of Record (EoR) involves hiring a third-party company to act as the legal employer of your staff in Thailand. It provides employee management services and administrative assistance such as payroll processing, onboarding, recruiting, benefits management, and HR services.
What are the employee benefit obligations in Thailand?
The employee benefit obligations in Thailand include establishing the payroll protocols, including salary amounts, Thai labour contracts, distribution of the monthly salaries to staff following previously agreed upon protocols, organizing and paying all required social insurance contributions, Withholding Tax (WHT), and personal income tax (PIT).
When should I go to EOR?
EOR is suitable for companies that want to establish a presence in Thailand quickly, but may need more control over their operations.
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