REPRESENTATIVE OFFICE IN THAILAND

THE "BUSINESS UNIT" AS THE BETTER OPTION FOR A REPRESENTATIVE OFFICE IN THAILAND

THE BUSINESS UNIT AT SANET IS YOUR IDEAL THAI PARTNER ON MARKET ENTRY AND THE BETTER ALTERNATIVE TO A REPRESENTATIVE OFFICE IN THAILAND

Market entry and international trading in Thailand are subject to the provisions of the Thai Foreign Business Act. This law protects Thai companies by restricting foreign businesses from trading their goods or providing technical services in Thailand if they have less than 100 million THB paid in capital.

The Business Unit is a contractual relationship specifically designed for Market Entry, Sales and Distribution, and Technical Service for foreign investment products.

Sanet Trade & Services as a Thai marketing, sales and service company acts as an excellent combination of the advantages of Foreign Direct Investment and a contractual partnership in Thailand.

Over two dozen well-known international companies have chosen the Business Unit for their company’s market entry in Thailand since 2014. Based on the experience of successful years, many of them have then decided to set up their own company and apply for permission by the government authorities.

With its partner law firm Sanet Legal & Accountancy, the Sanet Group then organized all the necessary legal and commercial applications and transfers smoothly.

In the following you will learn everything about how to find the right distribution channel, the procedure and how the Business Unit compares with other forms of trading in Thailand. We offer a comprehensive comparison on a well-structured table.

MARKET ENTRY THAILAND: THE BUSINESS UNIT COMPARED TO YOUR OWN TRADING COMPANY

Every solution has advantages and disadvantages. Let us first compare the Business Unit with a fully owned sales company in Thailand.

The advantages of a Business Unit versus your own sales company

• The BU is set up super swiftly. You can get started just a few days after signing the contract.

• The BU has no up-front costs: you only pay when the employee hired specifically for your products starts work. Do you already have a candidate? Sanet Trade & Service will be pleased to check whether the employee may be taken on.

• The BU will represent your interests for a predefined fixed budget. Together with you, we will determine the personnel costs available and the costs of service management and infrastructure.

• Additional costs are only incurred with your consent.

• The BU is not a legal entity or a branch office: you have no involvement with administration and taxes. The Business Unit concentrates fully on sales, advice and service for your products. It is – albeit only economically, not legally – your Representative Office in Thailand.

Further advantages of a Business Unit

• The BU offers complete infrastructure: The employees dedicated to your products have their own modern office, they use the kitchen, conference rooms and the office center close to the international airport and just 5 minutes away from all major highways.

• The BU leaves no one alone: The joint Sanet Business Center with its now 12 hosted Business Units, the Sanet marketing and recruitment teams and the German lawyers in Bangkok from Sanet Legal & Accountancy, is the perfect platform for sharing experiences and professional information.

The advantages of a Company Limited over the BU

• The Business Unit acts only to a limited extent as a dealer. It does not import consumer or investment goods. This is better done via a subsidiary with 100 million capital or a Foreign Business License (FBL).

• Trading spare parts is handled by Sanet on request via a separate agreement. However, a minimum margin is required here.

• A subsidiary with support from the Board of Investment (BOI) may acquire land and can easily obtain work permits for foreigners. The usual conditions for visas and work permits apply also to the Business Unit.

Further advantages of a Company Limited

• In your own company, you are the line manager of all employees. In the BU, you are not their disciplinary superior. The BU is a “department” of Sanet Trade & Services with all of the rights and obligations of an employer. However, the BU employees work closely with you on technical and strategic matters. They have no other tasks than to sell and service your products. The BU managers will always coordinate closely with you.

• All costs within the agreed budget are currently subject to 7% VAT as a service, which is not tax-deductible as it would be in your own company.

INTERNATIONAL TRADE THAILAND: THE BUSINESS UNIT AS YOUR SALES PARTNER THAILAND VERSUS THE AUTHORIZED DEALER

The advantages of the Business Unit versus your own sales company

• The employees of the Business Unit only work for one product range, which is that of your company. Contractual partners deploy their employees for different, often competing products.

• There are no dealer margins at the BU. Your products cost what you price them. Sanet does not charge a margin but works within the agreed budget.

• With the BU, you have direct contact with your end customer. Our Business Unit reports directly to you on how your customers are doing. No dealer filters the information between you and your customers.

• You are important to the BU. There is no bigger or more important customer than you for the Business Unit. A dealer will concentrate his efforts on where he generates the most revenue.

• BU employees must participate in your company’s technical training. With dealers, it is uncertain how long the trained employee will continue to work for your products.

• BU staff can also manage and support your dealerships if you have multiple Thai Partners. They can monitor your Thai partner’s Business Planning and steer end customers to your best dealers.

The advantages of the Authorized Dealer over the Business Unit

• The authorized dealer usually has an established customer base to whom they can introduce your products. In the Business Unit, on the other hand, it is important to engage employees who are well networked in your industry and who are able not only to service existing customers but also to acquire new business.

• The authorized dealer usually maintains a warehouse and can quickly deliver standard products from his stock. But watch out: industrial goods are usually imported directly by the end user in order to obtain customs and tax benefits that a dealer does not get.

• The authorized dealer costs no margin or commission if he does not sell anything. The fixed budget for business units is also fixed “downwards”.

The information in this overview is provided without guarantee and is therefore subject to the reservation of incorrect interpretation of legal and administrative regulations, which are subject to change at any time. Despite our efforts to keep this information up to date, we cannot provide any guarantee for this, too.

REPRESENTATIVE OFFICE IN THAILAND: THE BUSINESS UNIT VERSUS THE REP OFFICE

When we talk about the Rep Office (RO), we are talking about the Brach Office as it is applied to the Department of Business Development in Thailand for the approval of a non-investive activity in Thailand. However, we use the term “Representative Office” for various types of the “representation” of your interests in Thailand.

The advantages of the Business Unit as a sales partner compared to the Rep Office (RO)

• The Business Unit is allowed to conduct all activities that are also permitted to the Rep Office. As a Thai company, there are no standard trade restrictions for Sanet Trade & Service.

• The BU is permitted to broker trade deals with third parties. The RO is only allowed to service your existing authorized dealers.

• The Business Unit may also offer and service your products to anyone who wishes to make use of this service. The Representative Office (RO) may only do this for your existing authorized dealers.

• The BU is not a legal entity or a permanent business establishment. Accounting and administrative cost are not an issue for the Principal of a BU. The RO is a different matter.

• The BU does not require a minimum investment. Yet, you must finance the RO with at least 2 million THB.

The advantages of the Rep Office (RO) compared to the Business Unit

• The RO is directly under your control as a branch office. You appoint the management.

• The RO operates in Thailand under the same company name as your parent company.

• In the RO, you are in charge of the disciplinary and legal management of the employees.

• Visas and work permits are facilitated for the RO, for example for a foreign managing director.

SEVEN STEPS TO SETTING UP A BUSINESS AT SANET

Step 1: Download the information “Concept of a Business Unit” for preliminary information.

Step 2: Contact Sanet for a free consultation or simply send an email to management@sanet.co.th.

Step 3: Jointly consider with Sanet

• The intended start of a Business Unit;

• The planning of employees specifically for the space planning; whether Sanet is expected to also employ foreigners in the Business Unit.

Step 4: Sanet will send you a specific draft contract. Please note that

• The minimum contract period will be 2 years.

• Sanet will also send you the administrative guidelines and basic principles of the joint external representation.

Step 5: Discuss with Sanet any necessary recruitment of staff and the requirements (job characteristics) for an ideal candidate.

Step 6: Support Sanet in the selection of the employee(s) to be hired.

Step 7: Agree with Sanet on the “onboarding” of the employee, for example through training courses, learning on projects and familiarization with sales guidelines.

A FEW IMPORTANT NOTES AT THE END:

Market Analysis Thailand

Sanet Asian Advisors, the management consultancy of the Sanet Group, will be pleased to prepare a market analysis of your potential in the Thai market prior to your decision.

This will be information such as:

• The analysis of your key international and local competitors in Thailand.

• Analysis of the main potential customers in Thailand.

• Analysis of the key distributors or system integrators in your market.

• The major decision-making mechanisms in the market.

• Overall market development (production, import, export).

The Sanet Asian Advisors are happy to advise with their market experience.

Permanent Establishment

Work Permit

The establishment of a permanent establishment in Thailand may be assumed if you entrust a foreign or even a Thai employee with marketing or sales tasks in Thailand. This applies even if the employee receives his salary abroad.

“He who sweats, works”. Every foreigner who works or pursues a professional activity in Thailand requires a work permit. if receiving a salary is not of importance. Foreign directors of a Thai company also need a work permit if, for example, they sign contracts in Thailand or otherwise carry out business activities. A business visa helps only with trade fair visits or occasional customer visits.

Commission Agents in Thailand

Labor law and Foreigner Law

Representation by a commercial agent is not a recommended option in Thailand. On the one hand, a commercial agent is entitled by law to reimbursement of his costs, regardless of any commission. On the other hand, the agent is quickly assessed as an unauthorized permanent establishment of a foreign company. A tax declaration for all imported products and criminal prosecution under the Foreign Business Act are imminent.

So be careful with foreigners advertising themselves as “Commission Agents” in Thailand without employment and a work permit. They are generally operating illegally and pose a risk for their clients.

Please note that the employment of Thai employees by foreign companies for sales and services in Thailand is a serious violation of Thai law. The foreign employer or its management is also threatened with imprisonment. The employment of an employee through a recruitment agency, a law firm or an accounting firm is also prohibited as “Employer of record”.

Sanet must and will therefore also prevent any direct interference with work rules and disciplinary interventions into the Business Unit and, if necessary, terminate the contract for cause.