Off Shore Accounts

[Indo-Siam]

I will revise my earlier comments:

1. If you are a Thai - individual or business - operating normally, with significant export sales - and you then set up an offshore entity, and adjust transfer pricing to eliminate profits at the Thai end, the Revenue Folks will notice, and may very well come looking for you. As a Thai, you are presumably breaking the law by simulating exports to a foreign entity - that is actually a Thai entity.

2. If you are a foreigner who manages an overseas company - and you wish to have your overseas company purchase wholesale goods or services from Thailand, and then resell them, retail, at a premium, then it is of no concern to Thailand what goes on outside Thailand. If that foreigner happens to live in Thailand, and happens to also run the company from which the overseas company is purchasing its goods - then you probably want to stay within industry norms. For example, BOI companies must add (invoice for) at least 10% value above cost of production, in order to remain eligible for BOI benefits.

However you set things up, in addition to Thai law, you will have to consider the tax laws of your country of origin. In relation to products or services originating from Thailand, Thais who own/operate overseas businesses have different tax considerations than do non-Thais.

There are unremarkable ways to operate, and there are stupid ways to operate.

There are innumerable rules that entail penalties under Thai law - penalties that would astonish most people. Such as penalty for a company not not having up-to-date share certificates in a "share book" - or penalty for company with more than ten Thai employees not having a published company employee rulebook. The maximum penalties for these infractions are actually quite severe. There are many such rules that can "bite" you, if you operate in disdain of prevailing standards.

I am always amazed by the bizarre and extreme positions taken by a number of seemingly intelligent posters, all over the various Thaivisa discussion sub-forums, in relation to interacting with the Thai government system. There are ways to function quite smoothly and harmoniously here - making profit, and sidestepping the effects of many of the imagined "show-stopping" rules. The successful way is to tie all your activities in to a larger "narrative" (story) that you plan out - so that the pieces all ft, in the right time sequence - and the various pieces all mutually support one another. You also have set things up so that your activities are "unremarkable" - they do not "stick out" in comparison to the masses. Your activities should help Thais and Thailand succeed and prosper - as a partner, not an opponent.

Foreign businessmen who succeed here "glide" through many of the complexities that appear as insurmountable obstacles to others, who just cannot build a "narrative" that includes the Thai idiosyncrasies within the fabric of the story.

Indo-Siam

Edited April 10, 2008 by Indo-Siam

[cclub75]

Foreign businessmen who succeed here "glide" through many of the complexities that appear as insurmountable obstacles to others, who just cannot build a "narrative" that includes the Thai idiosyncrasies within the fabric of the story.

I love the way you put things. It's very poetic.

But in my opinion faaaaaaaaaaar too complex.

I don't have your talent : I would just try to translate : basically, you're telling us to stay quiet, leave a little bit of cash for the tax man (to keep him happy and unaware), and smile.

Fair enough.

I would like to add : it's not inherent to Thailand... Those are basic rules in every country.

However, I stick : administration -thai or whatever- is the opponent. Not a partner (this is for fairy tales for children and other "manage your company in harmony" type of guides).

[Naam]

a reasonable conclusion would be "save on taxes, make yourself happy BUT DON'T OVERDO IT and keep the taxman "reasonably" happy too!" i followed that advice for many years in different countries without having any problems.

now i am very grateful that the thai taxman doesn't care about me (yet)

[sibeymai]

That Thai tax system will not care. It is a completely unremarkable and legal transaction - the Thai company is simply a subcontractor to an overseas company. It is irrelevant where that overseas company is located.

Basically, most Thai manufacturing operations for export operate this way.

The Thai officials know where the overseas bank account is - but they do not know the location of the company that operates that bank account.

Cheers!

Indo-Siam

Isn't this type of set up known as "transfer pricing" ?

As far as I know the Thai authorities have regulations regarding this.

While it's not something which is plainly obvious enough to attract attention, if for any reason the Thai company's books are audited this situation will become apparent to the authorities who may take some action by way of taxation penalties.

At least this is my understanding.

No doubt there's lots of people doing the BVI/HK thing and I would expect most are successful and evade scrutiny.

EDIT: Sorry Indo-Siam, just read your post #31.

Edited April 10, 2008 by sibeymai

[taxin]

I will revise my earlier comments:

1. If you are a Thai - individual or business - operating normally, with significant export sales - and you then set up an offshore entity, and adjust transfer pricing to eliminate profits at the Thai end, the Revenue Folks will notice, and may very well come looking for you. As a Thai, you are presumably breaking the law by simulating exports to a foreign entity - that is actually a Thai entity.

2. If you are a foreigner who manages an overseas company - and you wish to have your overseas company purchase wholesale goods or services from Thailand, and then resell them, retail, at a premium, then it is of no concern to Thailand what goes on outside Thailand. If that foreigner happens to live in Thailand, and happens to also run the company from which the overseas company is purchasing its goods - then you probably want to stay within industry norms. For example, BOI companies must add (invoice for) at least 10% value above cost of production, in order to remain eligible for BOI benefits.

However you set things up, in addition to Thai law, you will have to consider the tax laws of your country of origin. In relation to products or services originating from Thailand, Thais who own/operate overseas businesses have different tax considerations than do non-Thais.

There are unremarkable ways to operate, and there are stupid ways to operate.

There are innumerable rules that entail penalties under Thai law - penalties that would astonish most people. Such as penalty for a company not not having up-to-date share certificates in a "share book" - or penalty for company with more than ten Thai employees not having a published company employee rulebook. The maximum penalties for these infractions are actually quite severe. There are many such rules that can "bite" you, if you operate in disdain of prevailing standards.

I am always amazed by the bizarre and extreme positions taken by a number of seemingly intelligent posters, all over the various Thaivisa discussion sub-forums, in relation to interacting with the Thai government system. There are ways to function quite smoothly and harmoniously here - making profit, and sidestepping the effects of many of the imagined "show-stopping" rules. The successful way is to tie all your activities in to a larger "narrative" (story) that you plan out - so that the pieces all ft, in the right time sequence - and the various pieces all mutually support one another. You also have set things up so that your activities are "unremarkable" - they do not "stick out" in comparison to the masses. Your activities should help Thais and Thailand succeed and prosper - as a partner, not an opponent.

Foreign businessmen who succeed here "glide" through many of the complexities that appear as insurmountable obstacles to others, who just cannot build a "narrative" that includes the Thai idiosyncrasies within the fabric of the story.

Indo-Siam

I think you guys need to back off from Steve, hes doing this for nothing in case you havent noticed !

Steve, when you say in example 2 "stay within the industry norms", can you explain what the industry norm would be in this example ?

The scenario im looking at kind of puts me into this bracket, the offshore company I wish to open will be owned by me and will even have the same name as the Thai company, are you suggesting this is a bad idea ? (Again, im services not goods or exporting, im not a BOI company).

[Indo-Siam]

In general, the Thai Revenue Department does not pay much attention to new companies during their first two years in business. If you export goods, and seek to recover VAT, then you do have to have very good inventory traceability records - even a new company.

If the Thai company sponsors a work permit, then it must be registered for VAT. You are only supposed to register for VAT if you record 1.8 million baht or more in annual revenue. Again, this is not typically enforced for first year or two - but by year three, they do pressure you to achieve this revenue threshold. That means 126,000 baht per year in VAT collected.

Finally, starting in year three or later, they will sometimes pressure you to show a profit - for a small business, they typically want 24,000 to 30,000 baht in annual profit taxes. If all your income is derived from overseas, then there is zero automatic withholding tax collected ion your billings - so you may have to pay this in cash.

If you are achieving the VAT minimum worth of revenues, and your income exceeds your expenses by about 14,000 baht per month (yielding 25,000 baht per year in profit taxes), no one is going to pay any attention to you.

If overseas company has same name as Thai company, this may beg the question of whether outbound remittances are to an offshore account of the Thai company. If you have been exporting directly to end customers at cost X, and you suddenly insert a same-name company as intermediary - and start charging only 40% of X - then this is when you could attract unwanted attention.

Better to start the offshore company first and than have it establish (or even partly own) the Thai company of same name.

Here is stupidity:

Register Thai company with 2,000,000 baht registered capital.

Pay in no capital, by recording that it was paid in, and then immediately loaned out to director.

Obtain VAT registration to support work permit

Obtain work permit at monthly salary of 50,000 baht per month

Draw no actual salary - just pay the taxes on your salary

Have 50,000 baht per month in other costs

Run company, but invoice for only 80,000 baht per month - all invoices to overseas clients

Claim continual annual losses - with no corporate tax withheld

Do the above for three years

Yes, you are going to have problems. People do this. Probably, someone is reading that list, and going: "yes, yes, 'yup, that;' me, what's the problem?"

Double company's monthly income to 160,000 baht - and you will be OK. You will be OK if the real worth of the services is 200,000 baht per month - or if it is 500,00 baht per month. On paper (invoices and receipts), the intrinsic value of intangible services is not evident.

Indo-Siam

[taxin]

In general, the Thai Revenue Department does not pay much attention to new companies during their first two years in business. If you export goods, and seek to recover VAT, then you do have to have very good inventory traceability records - even a new company.

If the Thai company sponsors a work permit, then it must be registered for VAT. You are only supposed to register for VAT if you record 1.8 million baht or more in annual revenue. Again, this is not typically enforced for first year or two - but by year three, they do pressure you to achieve this revenue threshold. That means 126,000 baht per year in VAT collected.

Finally, starting in year three or later, they will sometimes pressure you to show a profit - for a small business, they typically want 24,000 to 30,000 baht in annual profit taxes. If all your income is derived from overseas, then there is zero automatic withholding tax collected ion your billings - so you may have to pay this in cash.

If you are achieving the VAT minimum worth of revenues, and your income exceeds your expenses by about 14,000 baht per month (yielding 25,000 baht per year in profit taxes), no one is going to pay any attention to you.

If overseas company has same name as Thai company, this may beg the question of whether outbound remittances are to an offshore account of the Thai company. If you have been exporting directly to end customers at cost X, and you suddenly insert a same-name company as intermediary - and start charging only 40% of X - then this is when you could attract unwanted attention.

Better to start the offshore company first and than have it establish (or even partly own) the Thai company of same name.

Here is stupidity:

Register Thai company with 2,000,000 baht registered capital.

Pay in no capital, by recording that it was paid in, and then immediately loaned out to director.

Obtain VAT registration to support work permit

Obtain work permit at monthly salary of 50,000 baht per month

Draw no actual salary - just pay the taxes on your salary

Have 50,000 baht per month in other costs

Run company, but invoice for only 80,000 baht per month - all invoices to overseas clients

Claim continual annual losses - with no corporate tax withheld

Do the above for three years

Yes, you are going to have problems. People do this. Probably, someone is reading that list, and going: "yes, yes, 'yup, that;' me, what's the problem?"

Double company's monthly income to 160,000 baht - and you will be OK. You will be OK if the real worth of the services is 200,000 baht per month - or if it is 500,00 baht per month. On paper (invoices and receipts), the intrinsic value of intangible services is not evident.

Indo-Siam

How stupid are you are if you are only guilty of doing half the above ?

[PREM-R]

monty Posted Yesterday, 2008-04-10 09:30:06

"Tax avoidance on the other hand is illegal"

Quoting Wikipedia

"Tax avoidance is the legal utilization of the tax regime to one's own advantage, in order to reduce the amount of tax that is payable by means that are within the law. By contrast tax evasion is the general term for efforts to not pay taxes by illegal means."

[monty]

monty Posted Yesterday, 2008-04-10 09:30:06

"Tax avoidance on the other hand is illegal"

Quoting Wikipedia

"Tax avoidance is the legal utilization of the tax regime to one's own advantage, in order to reduce the amount of tax that is payable by means that are within the law. By contrast tax evasion is the general term for efforts to not pay taxes by illegal means."

I stand corrected! Evasion is what I meant, and I guess avoidance is what I called optimization!

[worldfun]

What we have here is tax planning via nominee offshore 'transfer pricing', but since the offshore company is owned & operated/managed in LOS it's tax evasion, but as long as the tax man don't know it's fine :-)

My question would thus be if it's even worth the hassle of running an offshore company if only for the purpose of issuing invoices and perhaps bank account?

Could it not much simpler just be 'handled' via personal offshore bank account & 'optimised' invoices?

Example for khun x running thai service biz invoicing overseas client monthly:

1. khun x invoices client 100% as per normal. receives payment to offshore (personal) account.

2. khun x 'optimise' above invoice to say 50% & that's what being reported to accounts & thus for tax purposes. payment is brought into LOS (corporate account) from offshore (personal).

Just as with the re-invoicing setup tax evasion is at play, but it's still a step above paying no taxes at all or working without work permit isn't it?

Just a though

Edited April 13, 2008 by worldfun

[raro]

The guy I was talking about has a factory on the Eastern Seaboard (Pin Thong) and produces industrial air conditioning units, partly from local materials and partly from imported materials (mainly the compressors).

He has received his payments through his off shore accounts as described above, keeping his tax liability very low (perhaps too low) for several years without any complaints or inquiries from the revenue department.

One day the tax guys show, and simply asked why he sells his units for peanuts to an off shore company, all the while shipping the units all over the world.

I can assure you it put him darn close to bankruptcy!

what I cannot comprehend is why this guy did not go for BoI...You get up to eight years of tax holidays in Thailand without fiddling around with any offshore companies...

[worldfun]

the guy is probably thinking the same now!

it's always easy to be clever afterwards when something goes wrong, so the challenge as always remains planning ahead - either for the worst or taking some chances for higher payout - sorta like gambling or doing the stock market;)

[cclub75]

what I cannot comprehend is why this guy did not go for BoI...You get up to eight years of tax holidays in Thailand without fiddling around with any offshore companies...

For 2 reasons :

-because there is a vicious pleasure to fraud Revenue Department, especially in Thailand (well no actually everywhere in the damned world)

-and probably because BOI can be a little pain in the arse (red tape, papers, questions, etc.)...

[raro]

what I cannot comprehend is why this guy did not go for BoI...You get up to eight years of tax holidays in Thailand without fiddling around with any offshore companies...

For 2 reasons :

-because there is a vicious pleasure to fraud Revenue Department, especially in Thailand (well no actually everywhere in the damned world)

-and probably because BOI can be a little pain in the arse (red tape, papers, questions, etc.)...

I think that pretty much describes it...

the BoI is actually much easier to deal with than most people think. They want you. So they are very open to talk to you.

[george]

You are only supposed to register for VAT if you record 1.8 million baht or more in annual revenue.

I was under the impression the amount was 1.2 Million baht, or has that amount now suddenly changed to 1.8 million?

[Indo-Siam]

It has been more than one year since the annual revenue amount obligating VAT collection/payment was raised from 1.2 to 1.8 million baht.

The old rate (no longer correct) still shows up on the Revenue Department website: http://www.rd.go.th/publish/6043.0.html - I guess they do not do frequently update their English-language webpages.

The different tax districts (even neighboring ones within Bangkok) treat this in radically different manner. In some districts, a third-year company with work permit can record 800,000 baht in revenue - and there isn't a peep out of the tax office. In other districts, they will harass second-year companies with 1,650,000 baht in annual revenues.

Indo-Siam

[valerian]

Hi,

Are there any legal implications for Thai registered ltd's that open offshore (Singapore) bank accounts?

Best,

Valerian

[lannarebirth]

Liechtenstein affair possibly spreading:

http://www.spiegel.de/international/busine...,566751,00.html

[Naam]

Liechtenstein affair possibly spreading:

Liechtenstein and UBS are two different pairs of shoes LRB. nevertheless the future looks bleak for some "tax savers"

Branson also added that the bank would cooperate with US authorities "to identify the names of US clients who may have engaged in tax fraud," according to the AP. Branson justified the decision by saying that the client-identity protections in Swiss laws were not meant to extend to cases involving tax fraud.

interesting is that Switzerland draws a fine line between tax evasion (not a criminal offence) and tax fraud (which is a criminal offence) although the exact interpretation how to differentiate between the two is quite difficult.