Lowering Registered Capital

[mco]

Purchased land 5 years ago. Set up Thai company with nominees. The company was structured with the full price of the land going in as registered capital. Come sale time (not at the moment) it looks like the only way to get the original investment out is through a dividend. This will tax it to death. Here is a bit from the web instructing on how it should have been done when the land was purchased.

Alternatively, it is suggested that the buyer sets the registered capital at nominal amount of 1 million Baht.  The difference between the purchase price and the registered capital can be made in the form of a loan to the company from a foreign director. In this case, evidence can be shown to the Land Department that the Company has a source of money to purchase the land.  In additional if in the future the Company wishes to remit funds outside Thailand they may be able to do so under the premise that those funds are for payment of a loan from a foreign director.

I've been told I can lower the registered capital and create a loan document even though we are already 5 years into this. My lawyer, however, disagrees. She says it's too much headache, too much red tape and won't advise it. But I'm stuck staring at an initial investment that will be squeezed to death (nearly 50%) when it's all said and done. I'm happy to give Thailand it's taxes after profit. I'd just like to be able to get the original investment back if at all possible.

Has anyone any knowledge/experience with attempts at lowering registered capital?

Thank you in advance,

mco

[getgoin]

Check with a tax professional but it is my understanding that you get back the initial capitalization of the business and only the profit will be taxed. It would be the profit that you would either take as some sort of salary or as a dividend. It seems to me that lowering your registered capital and taking a loan from officers would only save you the tax on the interest which the loaner would have to pay tax on. The company would still have to pay tax on any profit on the sale and on any distribution. But check with a good accountant.

[MikeyIdea]

Check with a tax professional but it is my understanding that you get back the initial capitalization of the business and only the profit will be taxed. It would be the profit that you would either take as some sort of salary or as a dividend. It seems to me that lowering your registered capital and taking a loan from officers would only save you the tax on the interest which the loaner would have to pay tax on. The company would still have to pay tax on any profit on the sale and on any distribution. But check with a good accountant.

What I have is old information but... I had a friend in the 90s who opened up a company and didn't listen to his lawyers advice and paid up the capital with land instead of with nothing. I don't know the end of the story but I know that the guy was quite upset when he found out that he had to pay taxes to be able to get out. Yepp, I have heard it before, there may be workarounds, check around carefully before you do anything

Good Luck

[manhattan55]

Why don't you sell the shares of the company rather than the property? This way you avoid paying property tax and the only tax payable would be any profit made on the sale of the shares.

[mco]

Thanks for the contributions and ideas.

Manhattan, ideally it would be great to sell the shares but the lawyer, myself, and others speculate as to the willingness of someone to take on my company instead of just forming one of their own. And you have the potential obstacle of my Thai partner not wanting to be partner to this new buyer.

One thing that might be in our favor is the apparent difficulty, now, in forming a Thai company. I've heard this but have no firsthand knowledge. Back in 2005 it was easier, I'm told, for foreigners to have Thai nominees and form a company.

[manhattan55]

Thanks for the contributions and ideas.

Manhattan, ideally it would be great to sell the shares but the lawyer, myself, and others speculate as to the willingness of someone to take on my company instead of just forming one of their own. And you have the potential obstacle of my Thai partner not wanting to be partner to this new buyer.

One thing that might be in our favor is the apparent difficulty, now, in forming a Thai company. I've heard this but have no firsthand knowledge. Back in 2005 it was easier, I'm told, for foreigners to have Thai nominees and form a company.

I am assuming that your company is a single-purpose company, i.e. its sole purpose is to own the property. Furthermore, I am assuming that your Thai partner would have to agree to the sale of the property due to his/her controling ownership stake. So why would the Thai partner not agree to sell the shares of the company if that is more advantageous for you and at worst neutral to your partner? Just some food for thought.

[mco]

Manhattan, that makes sense. I guess I'm thinking of a single foreign buyer who is having trouble forming a Thai company. That sole buyer still needs two Thais now, by law, as shareholders. So if it's just one person...but perhaps you're right, perhaps they are one person with an existing Thai partner. Then the shares of the entire company could be sold to the Thai and perhaps then the foreigner could buy his/her shares from the partner.

On your second question, yes, our Thai partner would have no problem selling their shares. I'm just thinking of it from the buyer's perspective. But, yes, food for thought.