Buying A Business

[ZOVOX]

I AM A UK CITIZEN MARRIED TO THAI WIFE AND LOOKING TO BUY SMALL BUSINESS IN THAILAND FOR MY WIFE TO MANAGE E.G INTERNET CAFE OR MINIMART. IS IT CHEAPER TO BUY THE BUSINESS IN MY WIFES NAME, BECAUSE SHE WOULD NOT NEED TO REGISTER 2M BAHT, OR REGISTER A COMPANY, OR GET A WORK PERMIT ?

ALSO, WOULD IT BE CHEAPER FROM A TAX POINT OF VIEW ?

[Indo-Siam]

She could operate as a sole proprietor - but this has two big potential downsides:

1) She would have personal liability for all debts of, and claims against, the business.

2) All income will be taxed at her personal income tax rate. For marginal earnings above four million baht per year, personal taxes are higher than corporate taxes.

What I would think would suit your situation would be to form a Thai Private Co. Ltd., and then have that entity execute an asset purchase agreement to buy only the specifically listed assets that you wish to acquire (but none of the unlisted liabilities) from the company that previously owned the shop.

She would not need a work permit, but this approach would involve registering a company (to relieve her of personal liabilty). Concerning capitalization - she would most likely want to register at least 1,000,000 baht - but - whatever the purchase price of the business you will acquire, that full amount should be run through a cmpany bank account as capital funding - and I presume that buying eirther of the venues you describe (plus allowing for working capital) will amount to more than 1,000,000 baht.

Good luck!

Steve Sykes

Managing Director

Indo-Siam Group

Bangkok

[email protected]

www.thaistartup.com

[Sunbelt Asia]

Sole proprietors may have some special tax benefits. While they are taxed at

the progressive personal tax rates, a sole proprietor can in most cases choose to be taxed on his gross receipts less a standard deduction. Although a proprietor must keep a record of his gross receipts, by Thai law he does not need to keep a record of his expenses.

The proprietor can elect to pay income tax on gross receipts less itemized expenses or he can elect to pay income tax on gross receipts less an 80% standard deduction regardless of what his actual expenses are and thus pay natural person income tax on the remaining 20%.

As an example, your store does 2,000,000 Gross and has expenses of 1,200,000. Tax could be on 400,000 Baht income based on the 80/20 rule rather than the true 800,000 Baht net income.

Here is the tax due...

Net income (Thai Baht) Tax Rate

0- 80,000 Not taxed

80,001- 100,000 5.0%

100,001- 500,000 10.0%

500,001-1,000,000 20.0%

1,000,001- 4,000,000 30.0%

Over 4,000,001 37.0%

The Tax would be 31,000 on a sole rather than with a limited company it would be 160,000 Baht. (This is based on less than 5 million Baht registration for a limited Company. If your company expanded and you increase the registered capital higher than 5 million Baht registered capital, the tax would be 240,000 Baht on 800,000 Baht income)

The fact is that a sole proprietor pays income tax at only one level (unlike the tax on a limited Co. … tax on the company and then tax on dividends as a individual.)

You as well can choose between itemizing expenses and taking a standard deduction which can also be a substantial benefit. With the 80/20 rule, as a sole proprietor, you are looking at a tax savings of 70,000 Baht (31,000 taxes on 400,000 income versus the 101,000 tax if your company itemized expenses and reported the 800,000 income)

In my opinion, sole proprietor is the clear winner on the tax issue for most small businesses.

The unlimited liability on sole proprietors is still the main concern. One solution is insurance, which is relatively inexpensive in Thailand even using international insurance companies.

www.sunbeltasia.com

[Indo-Siam]

Everything Greg cited appears correct to me.

But - if your clear significantly more than 4,000,000 baht in income, I believe that my comments are applicable.

I am not an expert in Minimart sales, but in the highly competitive maketplace in Bangkok, if you are making 20% profit on gross sales, I believe you are doing very well.

I will also add (and this is in favor of Greg's advice) - in meetings with CP Distribution Services (Thailand's biggest distribution arm for FMCG), on behalf of a client, they build into their cost model for determining acquisition and retail pricing, the exact figure of 20% for retail margin at store level. But - they also explain that this is the national average - in the more competitive markets, this is beaten down to 10% or less.

Good luck!

Steve

Indo-Siam

[Sunbelt Asia]

But - if your clear significantly more than 4,000,000 baht in income, I believe that my comments are applicable.

I'm sorry Steve, I have to disagree.

Lets say the Minimart cleared net 10 million Baht. Lets use the example that its 20% of the gross which would be gross of 50 million per year or sales of 136,986 Baht per day. A very busy minimart indeed doing 5,707 baht per hour.

If I'm a sole proprietor, I pay tax of 3,261,000 and I have 6,739,000 in my pocket. I can do whatever I want with the 6,739,000... It's mine. All mine.

On the otherhand with a limited company registered under 5 million. Indeed my tax for the limited company is 2,800,000. If its registered over 5 million, I'm paying 3 million tax.

HOWEVER the 7,200,000 Baht is still in the corporation, I need to get it in my pocket so I can use it for college education bills and hospital bills for my fiance. Now I have 6 other partners. But in this case I'm Thai and I own 99.94% of the shares. Lets say, we distribute 100% of the dividends which under Thai law you can't on a limited company. But we need to in this example to compare apples with apples

I have 7,200,000 check given to me as a individual. My personal tax is 2,225,000 Baht. I'm left with the balance of 4,975,000 to do what I wish or even less if the company was registered for 5 million + which would be 4,775,000 baht in my pocket versus 6,739,000 left as a sole proprietor.

As a sole proprietor I have 1,764,000+ Baht more in my pocket. If the margins are higher in the store than 20% net, even more. That's a nice new car I can buy with 1.7 million for my fiance and myself!

www.sunbeltasia.com