Incorporation vs Employer of Record (EoR) in Thailand: Making the Right Decision for Your Business
Key Takeaways:
- When to choose incorporation vs. EoR in Thailand
- Legal, financial, and operational impacts of each option
- Ensuring compliance with Thailand’s employment laws
Introduction
Expanding into Thailand offers two key options: incorporating your business or partnering with an Employer of Record (EoR). Each approach comes with unique benefits and challenges. This guide outlines the key differences to help you make an informed decision.
Overview of Incorporation in Thailand
Requirements, Process, and Timeline
Incorporating a business in Thailand involves several steps and compliance requirements. The process begins with choosing a business structure, which for most foreign companies, is a Private Limited Company. This entity type offers limited liability for shareholders and is the most commonly chosen structure for foreign investors.
Key steps to incorporating in Thailand include:
- Company Registration: Registering the business name with the Department of Business Development (DBD).
- Articles of Association: Drafting and filing the company’s official documents.
- Shareholders: Thailand mandates that at least 51% of the company must be owned by Thai nationals, unless the company obtains special permissions or operates under the Foreign Business Act.
- Board of Investment (BOI) Approval: Foreign companies in specific sectors can apply for incentives and benefits through the BOI, which may grant 100% foreign ownership in certain cases.
- Tax Registration: Businesses must register for Value Added Tax (VAT) and corporate tax with the Revenue Department.
- Obtaining Licenses: Depending on the nature of your business, additional licenses or permits may be required.
The incorporation process typically takes two to three months, depending on approvals and documentation. Companies must also meet capital requirements, including a minimum capital of THB 2 million for most foreign-owned entities.
Advantages: Full Control Over Operations, Greater Brand Presence
Incorporation allows businesses to establish a permanent presence in Thailand. This means complete control over operations, hiring decisions, and local marketing. For companies with long-term plans to build a local brand and invest in infrastructure, incorporation provides the autonomy needed to grow.
By incorporating, businesses can also directly engage with local partners, participate in government tenders, and secure contracts that may not be available to foreign companies without a local entity. Additionally, incorporating offers more flexibility in setting compensation structures and managing employment benefits, giving you the power to attract and retain top local talent.
Disadvantages: High Costs, Complex Compliance Requirements
While incorporation offers control, it comes with significant financial and compliance burdens. Setting up a local entity involves high initial costs for company registration, office space, legal fees, and capital deposits. Ongoing costs include corporate tax filings, payroll management, and maintaining compliance with local employment laws.
Navigating Thailand’s Foreign Business Act can also be a challenge for foreign investors, as some industries have restrictions on foreign ownership. Additionally, businesses must comply with regulations like the Labor Protection Act and the Social Security Act, which add layers of administrative complexity, particularly for companies unfamiliar with Thai regulations.
Overview of Employer of Record (EoR) in Thailand
What Is an EoR?
An Employer of Record (EoR) allows businesses to hire employees in Thailand without the need to incorporate a local entity. Instead, the EoR acts as the legal employer on behalf of the company, managing all aspects of payroll, tax compliance, and employment contracts. This arrangement enables businesses to enter the Thai market quickly and efficiently.
Advantages: Quick Market Entry, Reduced Legal and Administrative Burdens
One of the main benefits of using an EoR in Thailand is the speed at which businesses can enter the market. Since there’s no need to go through the lengthy incorporation process, companies can start hiring talent and operating in Thailand almost immediately. The EoR handles all the administrative and legal requirements, including tax filings, social security contributions, and employee benefits, ensuring full compliance with Thai employment laws.
For companies that want to test the market or expand their workforce without committing to setting up a local entity, an EoR provides the flexibility and cost savings needed to make quick decisions. The lower upfront costs and minimal administrative overhead make it an ideal option for businesses looking to expand without taking on significant financial risk.
Disadvantages: Limited Control Over HR Policies and Operations
While an EoR simplifies market entry, it comes with certain limitations. Since the EoR is the legal employer, businesses have less control over HR policies, employment contracts, and benefit structures. This can limit your ability to create customized employment packages or enforce certain internal policies that might be critical to your company culture.
Additionally, businesses working with an EoR may find it challenging to establish a strong local brand presence, as the EoR acts as the legal employer on paper. For companies with long-term plans to invest in Thailand or expand operations beyond hiring, incorporation might offer more strategic flexibility.
We’re here to help you on your journey to hire, manage and pay.
Key Differences Between Incorporation and EoR
Cost: Incorporation vs. EoR
Incorporation involves significant setup costs, including government fees, legal expenses, and capital deposits. There are also ongoing operational expenses, such as tax compliance, office rent, and employee salaries. While incorporation can be costly, it may be necessary for companies looking to establish a long-term presence in Thailand.
On the other hand, an EoR typically operates on a service fee model, where the costs are tied to the number of employees managed. This makes it a more cost-effective option for businesses looking to hire a small workforce or expand on a trial basis. With an EoR, businesses avoid the hefty costs of incorporation while still gaining access to the local labor market.
Compliance: Incorporation vs. EoR
Compliance is a major consideration for businesses expanding into Thailand. With incorporation, companies are responsible for ensuring they adhere to Thai labor laws, tax regulations, and corporate governance requirements. This includes managing payroll taxes, social security contributions, and employee benefits, as well as meeting annual filing requirements with local authorities.
In contrast, an EoR handles all compliance responsibilities on your behalf, ensuring that your business operates in full compliance with local laws. The EoR manages everything from onboarding to termination, reducing the risk of non-compliance and penalties.
Scalability: Incorporation vs. EoR
For businesses looking to scale quickly, an EoR offers greater flexibility. Since there’s no need to set up a legal entity, companies can hire employees and expand their workforce without committing to the long-term costs associated with incorporation. This makes it an attractive option for businesses that are testing the market or expanding gradually.
However, for companies with long-term expansion plans, incorporation might be the better choice. Once a business reaches a certain size, the ongoing service fees associated with an EoR could outweigh the costs of incorporating a local entity. Additionally, businesses that want full control over operations and branding may find incorporation more suitable as they scale.
Choosing the Right Option for Your Business
SMEs vs. Large Corporations
For small and medium-sized enterprises (SMEs), the flexibility and lower costs of an EoR make it an ideal option. SMEs can quickly hire local talent, expand their presence, and test the Thai market without the financial burden of incorporation. Additionally, an EoR allows SMEs to focus on growth while the EoR handles all compliance and HR matters.
For larger corporations, incorporation might be the better option, especially if they have long-term plans to establish a significant presence in Thailand. Larger businesses may require full control over hiring practices, compensation packages, and HR operations, which an EoR cannot provide. Incorporation also allows larger corporations to build local partnerships, bid for contracts, and expand infrastructure in Thailand.
Business Goals: Short-Term vs. Long-Term
Your business goals will also influence the decision between incorporation and EoR. If your business is looking to test the market or enter Thailand on a short-term basis, an EoR provides the flexibility and low-risk entry needed to achieve those goals. An EoR allows you to quickly hire and manage employees while remaining compliant with Thai laws.
If your goal is to invest in Thailand and establish a long-term operation, incorporating a local entity may be the more strategic option. Incorporation gives you full control over operations, allows for greater scalability, and positions your business for sustainable growth in the Thai market.
How AYP Can Help
At AYP, we understand the complexities of expanding into new markets like Thailand. Our Employer of Record (EoR) services are designed to help businesses navigate the challenges of market entry by handling all aspects of employment, payroll, and compliance. With AYP, you can hire employees in Thailand without the need for a local entity, allowing you to focus on growing your business.
Whether you’re looking to expand on a short-term or long-term basis, AYP offers tailored solutions to fit your business needs. Let us help you make the right decision between incorporation and EoR, so you can achieve your business goals in Thailand with confidence.
