A Permanent Establishment (PE) in Thailand refers to any type of establishment that is responsible for carrying out business activities in the kingdom. This can be set up by both Thai as well as foreign citizens. In general, referred to as “PE”, a Permanent Establishment has various legal and taxation obligations which you must know, especially, if you are a foreigner. This article encapsulates the information provided by our team with more than a decade of experience in setting up Permanent Establishment or PE in Thailand.
- Carrying on Business in Thailand vs Permanent Establishment in Thailand
- Types of Permanent Establishments in Thailand
- Activities a Permanent Establishment Can Do in Thailand
- Registration Process of A Permanent Establishment in Thailand
- Restrictions on Permanent Establishments in Thailand
- Tax Liabilities on Permanent Establishments in Thailand
- Greatest Assistance You Need!
Carrying on Business vs Permanent Establishment in Thailand
Regarding taxation, the phrases “carrying on business in Thailand” and “having a permanent establishment in Thailand” are crucial. The payment of income or profit tax in Thailand may depend on these two conditions.
In general, if a foreign corporation conducts business in Thailand, it must pay corporate income tax. If a foreign company has its headquarters in a nation that has a Double Tax Agreement (“DTA”) with Thailand and has a permanent establishment (“PE”) in Thailand, it is subject to corporate income tax in Thailand.
Carrying on Business in Thailand
If a foreign company has a registered branch, or if an agent or employee of the company conducts business in the Kingdom of Thailand, it will be regarded as “carrying on business in Thailand”. There are two forms for the same:
- Through a Registered Branch in Thailand: The Revenue Department of Thailand often declares that a foreign firm must pay corporate income tax when it establishes a branch in Thailand.
- Through Agents and/or Employees: A foreign company can conduct its business in Thailand through its agents or employees. In such cases, the actions of the agents and/or employees play a crucial role in ascertaining the process of income of the company in the nation. The allowed actions are broadly classified as:
I. On behalf of the foreign company, the agent or employee travel to Thailand to sign a sales agreement with a Thai company (even if it is just once).
II. The agent or employee merely assists in securing orders with a Thai company in Thailand on behalf of a foreign company.
Technical Assistance or Consulting activities of foreign representatives or workers may not be deemed to be taxable. Whereas, if the nature of the service is related to manufacturing, construction, or installation, then that gets covered under the taxation slabs.
Types of Permanent Establishments in Thailand
Permanent Establishments in Thailand are divided into 3 categories:
Asset PE
According to a Double Tax Agreement (DTA) of Thailand with any nation, an Asset PE can be established of the following structures:
- Management Unit
- Branch Office
- Business Office
- Factory
- Workshop
- Mine, Oil or Gas Well
- Quarry or any place of extraction of Natural Resources
- Farm or Plantation
- Warehouse or Storage Facilities
However, the Revenue Department of Thailand furthermore has some additions to Thai categorization, which are:
- Rented Offices
- Space is provided free of charge for at least 6 months
Activity PE
According to DTAs, a foreign firm is generally regarded as having an “Activity PE” in Thailand if it finances a building site, a construction project, an installation project, or an assembly project, and these specific activities have been ongoing in Thailand for longer than six months.
It should be noted that supervision actions are not considered an “Activity PE” under the DTA between Thailand and Germany, especially for German businesses. As a result, German businesses are not required to treat sending employees to Thailand for longer than six months to provide consulting services as having an “Activity PE.”
Agent PE
As per the norms of DTAs, an Agent PE satisfies the following conditions:
- a person who regularly holds the power to negotiate and sign sales agreements on the foreign company’s behalf in Thailand;
- someone who lacks such power but consistently keeps a stock of commodities or merchandise from which he fills orders or delivers packages on behalf of the international business;
- a person who routinely obtains orders in Thailand that are completely or nearly complete for the foreign company or other businesses that it controls or that it owns a controlling interest in.
However, if a business is conducted through a broker, general commission agent, or any other agent of an independent standing, a foreign firm is not considered to have an “Agent PE” in Thailand.
Every time the DTA provides a definition of an independent agent, the Revenue Department also uses it. However, if the DTA does not define an independent agency, the status of an independent agent is decided by examining whether the agent is under the control of a foreign corporation. If the agent receives more than 75% of all commission fees from the foreign corporation, it is typically safe to presume that the agent is dependent.
Activities a Permanent Establishment Can Do in Thailand
| Types of Activities | Asset PE | Activity PE | Agent PE | Not a PE |
| Office, Factory or Workshop in Thailand | ✔ | |||
| Service Activities in Thailand | ✔ | ✔ | ||
| Have Persons to Conclude and Execute Contracts in Thailand | ✔ | |||
| Have Persons to Secure Orders in Thailand | ✔ | |||
| Start Subsidiary in Thailand | ✔ | |||
| Have Independent Agents in Thailand to Sign Contracts & Secure Orders | ✔ | |||
| Have fixed space in Thailand for stock and storage of goods | ✔ |
Registration Process of A Permanent Establishment in Thailand
To register a Permanent Establishment in Thailand, you have to follow the processes defined by the following bodies:
- Revenue Department of Thailand
- Department of Business Development of Thailand
- Board of Investment Thailand
Under the regulations of the said bodies, you can register the following types of business entities:
- Private Limited Companies
- Public Limited Companies
- Branch Office
- Factory or Production Unit
- Representative Office
- Regional Office
The process of forming any of the above types of business entities in Thailand involves a streamlined process that is similar in most of the stages. However, a few steps vary depending upon the nature of the business, the nationality of the shareholders, and the region of the establishment of the business. Please note that you can start your Permanent Establishment in Thailand with minimum investment if your business supports the promotion the Royal Thai Government offers in the target industries. To avail this, you have to abide by the regulations of the following:
Board of Investment of Thailand – Click to know more
Start Business in Free Trade Zones – Click to know more
Do Business in Special Economic Zones – Click to know more
However, the process of forming a PE in Thailand is equivalent to company registration in Thailand that pertains to the following steps:
- Search, Reserve, and Register the Name of the Company
- File Memorandum of Association with the following details:
- Name and Objectives
- Registered Office of the Business
- Declaration on the minimum capital and liability of the company
- Names and other information on the shareholders and directors of the company
- Have Statutory Meet
- Company Registration
- VAT & Tax Registration
- Registration for Social Security
Restrictions on Permanent Establishments in Thailand
Although Permanent Establishment in Thailand, when formed by foreign entities helps them enjoy business liberties quite similar to Thai natives, yet, there are some limitations as well. A PE in Thailand may not be deemed to perform the following activities:
- the use of spaces purely for the purpose of displaying or storing commodities or merchandise that belong to the business;
- the maintenance of a stock of goods belonging to the business that are only used for show or storage;
- the maintenance of a stock of the company’s goods or items purely for the purpose of processing by another company;
- the management of a permanent location of business used just for gathering data or making purchases of commodities or merchandise for the business;
- the maintenance of a permanent location of business only for the purpose of conducting any other preliminary or auxiliary activity for the enterprise;
- the management of a permanent place of business exclusively for any combination of the activities indicated in sub-paragraphs (a) to (e), so long as the overall activity of the fixed place of business arising from this combination is of a preparatory or auxiliary nature.
Tax Liabilities on Permanent Establishments in Thailand
| Status | Residents of DTA Countries | Residents of non-DTA Countries |
| Tax Eligibility | Have a Permanent Establishment in Thailand | Conduct any type of trade or business in Thailand |
| Base Tax Rate | 20% on all profits earned in and from Thailand | 20% on all profits earned in and from Thailand |
| Withholding Tax Rate | Depending upon the type of business, WHT varies between 1%, 3% and 5% for a Permanent Establishment in Thailand** 0% if no PE in Thailand | Depending upon the type of business, WHT varies between 1%, 3% and 5% for carrying on business in Thailand** 15% for not carrying on business in Thailand |
**a. The WHT is 1% if paid by the Thai Government or any government agency or organization.
b. WHT is 3% if paid by any foreign juristic company or partnership with a permanent office in Thailand. In contrast to “permanent establishment,” a foreign legal entity or partnership has a “permanent office” if it:
- is the proprietor of a business in Thailand; or
- Is conducting additional business in Thailand in addition to completing contractual work, that is, legally conducting additional business on a regular basis, such as trade;
- has a provident fund established in Thailand for its employees in compliance with Section 65 of the Revenue Code.
c. The WHT is 5% for foreign juristic companies or partnerships carrying on business in Thailand without a permanent office.
Greatest Assistance You Need!
Now as you know the importance of having a Permanent Establishment in Thailand, you must also know how to incorporate the same. The primary and mandatory requirement is to have knowledge and experience in Thai regulations. As a foreigner in Thailand, it is not possible for you to have in-depth analyses of the same. Here is where you must seek help from a reliable and reputed law and accounting firm in Thailand.
Without local legal support, you won’t be able to proceed in your process due to the following reasons:
- Law and Accounting professionals in Thailand understand the protocols better than you.
- You can expect local references from these firms that can be useful for your business.
- Their contacts can help you select the best property for your office.
- They can take care of the entire application, documentation, and certification process.
- The knowledge of by-laws is very essential in business operations which can be acquired only through experience.
- Get round-the-year accounting, taxation and payroll support
We can cover all of these facilities when you come in for a brief round of free consultation with us. Therefore, if you are planning to set up a Permanent Establishment in Thailand, can email us their requirements at [email protected].
