Start Up Cost

[Munutkangkao]

My question is regarding the Price breakdown of opening a business in Thailand. I would like to use the example of opening a Bar, a Coffee Shop or even lets say a Restaurant.

The Thai Business Model of this sector; Key Money, Lease and monthly Rent can seem logical at first. But when you start to negotiate with Land owners, and Bar owners, the business model is not as clear as you thought. I do have a grasp the system in place and would like to know if someone can explain the breakdown of what I can estimate for allocation of cost, prior to set up.

For members responding, this business would “not involve” Key money, there will be no Tea Money paid to the police. It will be legitimate without violations of illegal activity. Just a straight up brick and mortar establishment as the ones previously mentioned.

My example will be based on a budget of 5 million BTH and the lease will be for 10 years. Monthly Rent will be 50, 000 BTH. So, if I have found a place I want to set up shop in; how much is this 5 million BTH budget going to be allocated before the keys are handed over? Ideally one would want the longest lease possible for a large investment and all the work put into it.

Would the Land Lord request the whole amount for the 10 year lease up front leaving you zero for rent, renovations, supplies, etc. before I even open the doors. Do Land Lords only require first and last months rent?

I appreciate input from current or X owners in Thailand as the best source to respond or examples that can be provided. I know there are so many different payment structures, but am I incorrect to think I could get such a long lease as I mentioned with only paying the first and last months rent? If I want to get the place looking the way I planned and budgeted for is the shorter lease the only option? Thank you.

[torrenova]

OK, firstly you need to make sure that all the people involved are principals or have authority to act. You need to do your due diligence before making any offers etc.

Leases tend to be for 3 years or less and are often written up as 3+3+3 for example because a lease over 3 years has to be registered and therefore the rent is clearly identified for the tax man to come after. The beginning or renewal of a lease can involve the payment of key money. This is effectively advance rent but your sure ain't getting it back if you break the lease. It is again often associated with under the counter payments but it can be and should be written into your contract. Any payments required to exercise the 3+3 lease extensions should also be written into the initial contract. If you are on a 3+3+3, then you should not really get to the last 3 year term before renewing for another 3+3+3 as the landlord can, if not in the lease, ask for any amount of key money to renew or you are forced to sell or walk away. Either of those will cost you money and can cost you your business.

Normal leases might require a deposit, from perhaps one month's rent up to anything really but realistically up to 3 month's rent. You might be asked to pay a year's rent in advance etc. You should look to pay as little in advance as possible and as low a deposit as possible.

So on your 50k a month rent, I would look to pay just 50,000 baht in advance as the best option and if I had to spend months on building before opening, I might ask for a rent free period at the beginning, until I open. The demand for your location will dictate what you can ask for.

You need to know what your utility bills will be. You want to be paying government electricity rates, not some jacked up rate your landlord wants to charge you.

My guess is that you are a very long way off going to look at places as you haven't even identified what sort of business you would like to open. Be careful you are not relieved of all your money as you work through your inexperience.

[raro]

As for rent/lease...make sure that you get your proper receipt and cut the 5% withholding tax. Ask this question first before negotiating any further with landlords. Otherwise, you cannot deduct this as a corporate expense!

[Munutkangkao]

torrenova and raro,

Thank you for your response and information, really appreciated. I know the area that I'm looking at but want to try and avoid placing bargaining power to the landlord. I will, I will, I will do my due dillagence.... If its not to my liking I will go somewhere else and will be patient. Thank you for responding I thought I was going to be shut out on this one when I saw 128 views and no responses. I was thinking to myself that this really is a confusing subject or poorly written question on my part.

[VocalNeal]

Maybe it should also be mentioned that the "key" money or advance rent does not usaully in my experience involve a receipt so you would only get a receipt for 25,000 per month if that

Also if it is in a popular location and you serve alcohol the chance you not paying tea money is slim to none uless your relatives are already in the police.

[raro]

If no receipt is issued, I would not pay any money. Ask with a totally innocent face how they can pay taxes if they do not issue a receipt...because your (made-up) friend, that tax inspector in Bangkok, told you that in Thailand you cannot collect money without receipt...done that before and I have a real tax inspector friend in Bangkok...the reaction is hilarious

[torrenova]

You may also wish to enquire whether the landlord will allow you to have the lease in a company name, if you were going to start a company as this is a clear indication of whether he is on the fiddle. If you have a company then you need a company address and it makes sense most of the time to have it registered at the premises where the business trades.

I think you will find that the landlord wants the lease to be in your name and not the name of the company or refuses any paperwork. Do not walk away, run !