Understanding Employer of Record (EOR) Services in Thailand: Legal Restrictions for Foreign-Owned Companies
Employer of Record (EOR) services have become an increasingly popular option for companies seeking to expand their operations internationally. These services allow businesses to employ staff in foreign countries without the need to establish a legal entity, making market entry more seamless and cost-effective. However, in Thailand, foreign-owned companies face significant legal restrictions when it comes to offering EOR services due to local labour laws and the Foreign Business Act (FBA).
What Are EOR Services?
EOR services involve a third-party provider legally employing staff on behalf of a company. The EOR provider is responsible for handling all employment-related matters, including payroll, tax compliance, employee benefits, and regulatory adherence. For foreign companies, this can be an attractive solution to hiring talent in Thailand without navigating the complexities of setting up a local subsidiary.
Restrictions Under Thai Law
Thailand imposes strict regulations on foreign-owned companies, particularly under the Foreign Business Act B.E. 2542 (1999).
The FBA categorizes businesses into three schedules, specifying activities in which foreign companies are either prohibited or require special permission to engage. EOR services typically fall under the category of “service businesses,” which are listed in Schedule 3 of the FBA. Foreign-owned companies must obtain a Foreign Business License (FBL) to engage in these activities, and obtaining such a license can be both challenging and time-consuming.
Key Legal Challenges for Foreign-Owned EOR Providers
- Requirement for Local Incorporation
Foreign companies wishing to offer EOR services in Thailand are often required to establish a Thai subsidiary and apply for an FBL. Even with this license, they may face additional scrutiny to ensure compliance with labour and tax laws.
- Restricted Activities
EOR services involve directly hiring employees and managing employment contracts, which can be interpreted as labour outsourcing. Under Thai law, labour outsourcing is a sensitive area, and strict compliance with the Labor Protection Act and Social Security Act is required. Foreign entities may find these regulations particularly restrictive.
- Minimum Thai Shareholding
Foreign businesses operating in restricted sectors often need to adhere to the requirement of having at least 51% Thai ownership to qualify as a “Thai company.” This presents a structural challenge for foreign companies seeking to maintain control while offering EOR services.
- Work Permit and Visa Requirements
Foreign companies employing workers through an EOR model must also comply with Thailand’s visa and work permit requirements. Any deviation or non-compliance may lead to significant penalties.
How We Can Help
At Kreston Thailand, we specialize in crafting eligible solutions for seamless business expansion in Thailand. Our services include:
- Business Incorporation: Guiding you through the legal and regulatory framework.
- Foreign Business Licenses: Navigating restrictions and securing necessary permits.
- Corporate Structuring: Designing optimal structures, including multi-layer setups.
- Regulatory Compliance: Ensuring adherence to Thai laws and regulations.
- Tailored Strategies: Offering customized solutions aligned with your business goals.
Kreston Thailand offers a comprehensive range of services to support your business, including:
- Statutory audits and assurance
- Internal audits and risk management
- Outsourced accounting and payroll management
- Tax compliance and advisory
- Transfer pricing
- Transactions
- Corporate legal services