Transfer car from my company to me - Is there a way to avoid or reduce VAT?

[fuehrio]

Hello,

 

I need to close my company that I don't use anymore but now I should pay VAT 50,000 to transfer my old 2 cars to my ownership. Does anyone know a solution to avoid or reduce the tax significantly? From my research:

• I could sell it at a discount but if the discount is huge, it requires justification. I could maybe argue that we had to sell in a hurry?
• Transfer as Dividend or Shareholder Benefit. But would I need to pay any taxes on that?
• Donate as a gift. What are the rules in Thailand?

 

I would be super grateful for any advice. 

[Sydebolle]

The VAT amount mentioned by you would represent a today's car value of THB 715,000.

When you bought it, your company used the VAT paid to the dealership as input VAT; i.e. this amount could be used for your company's VAT liabilities against company sales by the company. Obviously you cannot have your cake and eat it; if the car was properly booked as assets into your company with VAT credit, then you have to live with the VAT debit upon selling the asset. 

Given the fact, that your company owned the car two years already, the company could benefit of a write-off 40% (20%/annum) of the car's initial value. Back in the day, the highest purchase price of car accepted by the Revenue Department was THB 1,000,000. Given that, your company's car would have a present-day value of THB 600,000 upon which of 0HB 42,000 VAT would apply. 

Your company could also sell the car below the book or market value - but it would require a paper trail prove it.

Say, you sell the car to a third party and co-incidentally a friend of your confidence decides to buy your company's car in his name due to a very low attractive value, then he would have to pay the company through a bank transfer. On that amount VAT of 7% applies and the car changing ownership from the company to your friend. 

At a later stage your friend might want to sell this car to you - at the same price he bought it or slightly more. You would have to pay your friend with a bank transfer for the paper trail and once done, the car gets transferred from him to you - again against a nominal transfer fee. No VAT would apply on this fictitious transaction anymore as both your friend and yourself have no VAT registration. 

If you'r e lucky, this scenario could happen and Bob's your uncle! 

[fuehrio]

1 hour ago, Sydebolle said:

The VAT amount mentioned by you would represent a today's car value of THB 715,000.

When you bought it, your company used the VAT paid to the dealership as input VAT; i.e. this amount could be used for your company's VAT liabilities against company sales by the company. Obviously you cannot have your cake and eat it; if the car was properly booked as assets into your company with VAT credit, then you have to live with the VAT debit upon selling the asset. 

Given the fact, that your company owned the car two years already, the company could benefit of a write-off 40% (20%/annum) of the car's initial value. Back in the day, the highest purchase price of car accepted by the Revenue Department was THB 1,000,000. Given that, your company's car would have a present-day value of THB 600,000 upon which of 0HB 42,000 VAT would apply. 

Your company could also sell the car below the book or market value - but it would require a paper trail prove it.

Say, you sell the car to a third party and co-incidentally a friend of your confidence decides to buy your company's car in his name due to a very low attractive value, then he would have to pay the company through a bank transfer. On that amount VAT of 7% applies and the car changing ownership from the company to your friend. 

At a later stage your friend might want to sell this car to you - at the same price he bought it or slightly more. You would have to pay your friend with a bank transfer for the paper trail and once done, the car gets transferred from him to you - again against a nominal transfer fee. No VAT would apply on this fictitious transaction anymore as both your friend and yourself have no VAT registration. 

If you'r e lucky, this scenario could happen and Bob's your uncle! 

Many thanks for your vast advice, really appreciated! I see that in the assets file, the depreciation has been set at 20% for everything (furniture, car, equipment, etc). If I can change that to 40% for my cars that would be great. Do you know whether it's 40% or was this an assumption?

Selling it below market value to a friend: Do you think I could do that by like 50% of what is the market value?

[sometimewoodworker]

1 hour ago, fuehrio said:

Do you think I could do that by like 50% of what is the market value?

Since the transactions will be looked at by the TRD that would be an extremely risky course of action.

 

However the report of an “independent” mechanic detailing all the requirements to bring the car to a saleable condition could easily drop the market value by a very significant amount. Nudge nudge wink wink

[fuehrio]

19 minutes ago, sometimewoodworker said:

Since the transactions will be looked at by the TRD that would be an extremely risky course of action.

 

However the report of an “independent” mechanic detailing all the requirements to bring the car to a saleable condition could easily drop the market value by a very significant amount. Nudge nudge wink wink

I did read when looking up on the internet, if selling below market value, there needs to be reason why it has been sold that cheap, e.g. hurry to close the company. I will also talk to a mechanic as you suggested - Thanks!

[john donson]

no accountant??? ah fake company

[Sydebolle]

19 hours ago, fuehrio said:

Many thanks for your vast advice, really appreciated! I see that in the assets file, the depreciation has been set at 20% for everything (furniture, car, equipment, etc). If I can change that to 40% for my cars that would be great. Do you know whether it's 40% or was this an assumption?

Selling it below market value to a friend: Do you think I could do that by like 50% of what is the market value?

Read very carefully:

1) I referred to 40% write-off - that is over the time span of TWO years; one year allows 20% usually. So, the remaining value of the car is 60% of the purchase price. 

2) well, the 50% - or even less - could be the case, if you had a major water damage due to the present heavy monsoon while you parked the car wrong. Put this as "water damaged" onto the sales contract between the company and your friend and all is OK. There will be thousands if not more such cars on the market within weeks - given the present weather pattern. I am sure that your friend would not offer more than 30% - 40% of the value as he might have to rip out all the carpets, upholstery and many other components of the car, don't you think so? 

When transferring the car, you will have to have the car inspected. This is done either at the Department of Land Transport or external, officially authorized, inspection agencies (see logo photo enclosed here symbolizing a cog wheel - visible at the road side):


Go to an external one, they just check the engine's fumes and the brakes and give you a paper confirming, that your road is roadworthy. There is a nominal fee of a few hundert Baht for this.  And, while you are at it, get a new insurance coverage (the government insurance for THB 650+ or something like that). Then take this certification, the insurance confirmation, the blue car registration book with the sales contract, duly signed by the company's authorized signatory/ies and the company seal  (see sample) to the DLT for transferring ownership:


Make sure your friend's paperwork is in order and you'll finish this in one go. 

[fuehrio]

3 hours ago, john donson said:

no accountant??? ah fake company

I don't use this company since 3 years, just paid the annual tax report in case I would use it again. But I am sure now I don't, so I am closing....

[fuehrio]

1 hour ago, Sydebolle said:

Read very carefully:

1) I referred to 40% write-off - that is over the time span of TWO years; one year allows 20% usually. So, the remaining value of the car is 60% of the purchase price. 

2) well, the 50% - or even less - could be the case, if you had a major water damage due to the present heavy monsoon while you parked the car wrong. Put this as "water damaged" onto the sales contract between the company and your friend and all is OK. There will be thousands if not more such cars on the market within weeks - given the present weather pattern. I am sure that your friend would not offer more than 30% - 40% of the value as he might have to rip out all the carpets, upholstery and many other components of the car, don't you think so? 

When transferring the car, you will have to have the car inspected. This is done either at the Department of Land Transport or external, officially authorized, inspection agencies (see logo photo enclosed here symbolizing a cog wheel - visible at the road side):


Go to an external one, they just check the engine's fumes and the brakes and give you a paper confirming, that your road is roadworthy. There is a nominal fee of a few hundert Baht for this.  And, while you are at it, get a new insurance coverage (the government insurance for THB 650+ or something like that). Then take this certification, the insurance confirmation, the blue car registration book with the sales contract, duly signed by the company's authorized signatory/ies and the company seal  (see sample) to the DLT for transferring ownership:


Make sure your friend's paperwork is in order and you'll finish this in one go. 

1) OK, understood now about the depreciation.

 

2) This seems a very good way. But as I wrote in the original post, I have 2 cars, not sure this will be looked at with such a story (water damage). Also, a Thai friend told me that I should sell the car first before closing the company, instead of closing and transfer without actually paying into the company account. This way I should be able to sell the car at any price (e.g. 100,000 Baht) and there should be no additional tax when closing the company as the asset is gone. I guess I also would need to sell to a friend first and not directly to me as a shareholder. What is your opinion on this approach?

[Sydebolle]

20 hours ago, fuehrio said:

1) OK, understood now about the depreciation.

 

2) This seems a very good way. But as I wrote in the original post, I have 2 cars, not sure this will be looked at with such a story (water damage). Also, a Thai friend told me that I should sell the car first before closing the company, instead of closing and transfer without actually paying into the company account. This way I should be able to sell the car at any price (e.g. 100,000 Baht) and there should be no additional tax when closing the company as the asset is gone. I guess I also would need to sell to a friend first and not directly to me as a shareholder. What is your opinion on this approach?

1) - noted
2) - as far as I understand, the two cars were parked next to each other when the water came 😉
3) - VERY IMPORTANT is to liquidate all assets prior to company closing; once the company is closed you literally cannot sell any assets anymore (as the owner/seller - legally speaking - does no longer exist/operates). And yes, the cars are best sold outside in-laws, shareholders or board members; while an employee is no issue (taking advantage of walking out with a nice farewell gift of a discounted, albeit watered, car

 

[FritsSikkink]

On 9/16/2024 at 1:13 PM, Sydebolle said:

Say, you sell the car to a third party and co-incidentally a friend of your confidence decides to buy your company's car in his name due to a very low attractive value, then he would have to pay the company through a bank transfer. On that amount VAT of 7% applies and the car changing ownership from the company to your friend. 

At a later stage your friend might want to sell this car to you - at the same price he bought it or slightly more. You would have to pay your friend with a bank transfer for the paper trail and once done, the car gets transferred from him to you - again against a nominal transfer fee. No VAT would apply on this fictitious transaction anymore as both your friend and yourself have no VAT registration. 

If you'r e lucky, this scenario could happen and Bob's your uncle! 

In this case the VAT would be paid anyhow via his friend.

[Sydebolle]

1 hour ago, FritsSikkink said:

In this case the VAT would be paid anyhow via his friend.

Well, the VAT responsibility is with the seller. Correct is, that his friend will be charged 7% of the sales price and the collection is done by the seller, here the company. The latter then has to balance the VAT account against purchases done by the company and the net left over is then to the benefit of either the Company or the Revenue Department, whoever had a higher tax exposure/income (i.e. here the VAT amount). 

[FritsSikkink]

1 hour ago, Sydebolle said:

Well, the VAT responsibility is with the seller. Correct is, that his friend will be charged 7% of the sales price and the collection is done by the seller, here the company. The latter then has to balance the VAT account against purchases done by the company and the net left over is then to the benefit of either the Company or the Revenue Department, whoever had a higher tax exposure/income (i.e. here the VAT amount). 

I know how VAT works. He asked if he could avoid paying VAT, selling to a friend won't help with that.

[fuehrio]

Having a story like the water damage (that I really liked) requires evidence such as a photograph, the tax officer wouldn't accept just a note in the sales contract. Given this I reluctantly accepted my fate and transferred the cars yesterday.

 

Soon after the transfer, I received an indication that the tax office or the TRD now thinks I should pay 50,000 per car and not for both as my external accountant advise me previously when I started this post. I don't know the details yet, but it seems I just made one of my worst mistakes here and I am deep trouble....I think I need professional help and happy to accept offers in my DM. Note: I accept to pay reasonable tax but the absolute minimum that is possible with any legal trick.

[Sydebolle]

21 hours ago, FritsSikkink said:

I know how VAT works. He asked if he could avoid paying VAT, selling to a friend won't help with that.

Nope, the very last one bites the dust - that is the whole idea of VAT. The final end user, beneficiary, whatever you want to call it, pays the tax on all the "value addition" since creation, import etc. The only accounting advantage could be that, if the friend has a company and books the car(s) as assets, then he can also mark 7% VAT as input tax. As a private individual there is no avoidance or possibility of refund (unless the cars would get exported for good). 

The VAT always* applies and can a positive or negative amount. 
500 = purchased new by the first buyer
  35 = VAT of 7% added on the above
535 = price paid by first buyer
The 35 go, in this example, as input VAT into the seller's tax listing to be net balanced by the end of each month and result in settling a payment or enjoying a tax credit (for the next month)

100 = is the price the above article gets sold on (i.e. a loss of 400)
    7 = VAT of 7% added on the above
107 = price paid by the second buyer (or revenue for the seller, i.e. the first buyer) 

This results in a tax credit of 28 to the benefit of the first buyer. 

*the VAT applies only to products, on which something has been done; fresh unprocessed meat or veggies are VAT-free, a sausage or a plate of cooked veggies in a restaurant are subject to VAT. 

To complicate matters; if you give it away free of charge (say, a hotel gives you a lucky draw award of a free suite with breakfast), then the 7% of the walk-in price still applies. If you have a restaurant and offer free drinks (i.e because you goofed up in the kitchen), then the revenue department is not accepting that. With non-measurable units (i.e. a glass of house wine) or a scoop of ice cream out of the two kilogrammes pail - no issue as the revenue department will never find out. But if you offer a round of beer in stubbies, you give away 10 stubbies with zero revenue which you initially bought. A physical stock control would reveal, that the stock is 10 bottles short of the sales figure. Having had restaurants, I usually just threw in a few boxes of beer on a just-in-case-basis, which happened years later. There were still stock deviations in the individual product listing (buying two cases of Heineken to cover 7 Singha, 12 Leo, 15 San Miguel Light, 9 Asahi and 3 Tiger). As you can see, there are still two stubbies too many in the stock and my accountant explained, that this happens often as staff open the wrong bottles at times.