Thailand is one of the most popular destinations for investors from across the world to start business ventures. Being the gateway of Southeast Asia, Thailand is a cradle of opportunity for these investors in their desired business domain. There are LLPs, Representative Offices, Branch Offices, and Regional Headquarters of foreign investors and companies operating in Thailand. Yet, as a leading law and accounting firm in Thailand, we often receive requests for Permanent Establishment (PE) Registration in Thailand. This article aims to clear the concept and process of getting a permanent establishment in Thailand.
What is a Permanent Establishment in Thailand?
We often come across statements that make us feel that people often assume a “Permanent Establishment” to be a physical business body. It’s not that!
A foreign company becomes a permanent establishment in a said jurisdiction when it maintains a stable and consistent presence in any nation outside their home country and therefore, becomes tax-liable in the nation they are operating in. For example, if you are from the United States and have a business in Thailand that is paying tax in Thailand for their profit in Thailand, you are very likely to hold a permanent establishment status.
To make the concept simpler, a PE is a company or business creating a taxable presence outside its home territory or nation. However, for PE status in Thailand, companies must meet the following criteria:
- The business is established in Thailand
- The place of the business in Thailand is fixed or permanent
- The establishment in Thailand wholly or partly operates the business
Do you already have a business in Thailand that meets the above-mentioned criteria? Note that you may not be able to enjoy the benefits of a double tax treaty between your nation and Thailand if your organization in Thailand holds the PE status. Therefore, now is high time to consult with a reliable corporate tax firm in Thailand to check and claim your status.
Categories & Types of Permanent Establishments in Thailand
The categories of business resulting in various types of permanent establishments are subject to change with the evolution of business practices and technologies involved. However, the three primary types of PEs in Thailand are as follows:
Asset Permanent Establishments (PE)
A business can hold the Asset PE status only when there is a provision in a Double Tax Agreement (DTA) between their native country and Thailand. If the DTA permits, a foreign investor or business in Thailand can be a PE in the following business structures:
- Business management unit
- Branch Office
- Normal Office generating revenue in Thailand
- Factory or Workshop
- Mine, Oil or Gas Well, Quarry, or any place of extraction of Natural Resources
- Farm or Plantation
- Warehouse or Storage Facilities
Although the list is not limited to the ones mentioned, yet, these are the primary categories. However, if any of the listed business units conducts the following activities, it will not be considered as a PE:
- Use of the fixed place of business only to store or display goods or merchandise of the company.
- Use of premises only to maintain stocks of goods or merchandise of the same company or another firm.
- Maintaining a fixed place of business with the sole purpose of purchasing goods or merchandise or collecting information for the company.
- Using the fixed place of business with the sole purpose of advertising, information sharing, research, and/or activities that are purely preparatory or auxiliary in nature.
Furthermore, a foreign business in Thailand can have multiple units involved in storage, preparatory, and auxiliary activities without gaining PE status. If you analyze, you will understand that all these businesses are not focusing on revenue generation instantly. Therefore, they are not liable to pay tax and hence cannot be eligible to gain PE status.
Nevertheless, if you are planning to open a Representative Office in Thailand, you may not be eligible to register your business as a PE in Thailand.
Activity Permanent Establishments (PE)
Foreign establishments in Thailand carrying on activities related to construction, building sites, or installation or assembly projects can form an Activity PE. All the said or similar activities that DTA permits and that have been going on in Thailand for more than 6 months endorse the business with a PE status.
Therefore, if you are planning to start a manufacturing company in Thailand, you must check with a reliable corporate law firm in Thailand. Maybe, you are going for a Permanent Establishment Registration in Thailand!
Agent Permanent Establishments (PE)
If a foreign business in Thailand falls eligible under the respective DTA and meets the following criteria, it can form an Agent Permanent Establishment (PE):
- A person with permission to routinely negotiate and sign contracts for sales on behalf of a foreign company in Thailand.
- A person who routinely maintains a supply of goods from which he fills orders or sends packages on behalf of the foreign company.
- A person who regularly obtains orders in Thailand that are fully or nearly fully completed for the foreign company or other businesses that it controls or that it owns a controlling interest in.
However, a foreign company cannot have an “Agent PE” in Thailand if it is handled through a broker, general commission agency, or any other agent of an independent standing.
Permanent Establishment Registration in Thailand
If you have read till here, it must have been already clear that there is nothing in particular that can be termed as “Permanent Establishment Registration in Thailand”. PE is an international taxation concept that is governed to a great extent by Double Tax Agreements (DTAs).
It all depends on the type of business and activities conducted by a foreign business in Thailand. Under the guidelines of respective DTAs, if your foreign business and its activities gain PE status, you may not be able to avail of the DTA benefits in terms of taxation.
Permanent Establishment in Thailand is a critical concept and to understand the same, both expertise and experience in the domain are necessary. Therefore, if you are planning to start a business in Thailand and want it to have a PE status, consult with a firm that deals with similar matters. You can simply email us at [email protected]. Whether you are a registered foreign business or going to start the same in Thailand, our team of expert Thai corporate law and tax professionals will surely identify the PE Scope for your business in Thailand.
