About To Incorporate - Remaining Questions

[kudroz]

I've been doing some research over the past few weeks and I think I'm ready to go forward with incorporating, but still I remain unclear on certain topics.

1.) 51+ % of the Shares have to be in Thai control.

I've been told this - and I've also read this on this forum. Although while visiting the website of a Law Firm in Bangkok - I came accross this publication that says otherwise: http://www.tillekeandgibbins.com/Publicati...on_thailand.pdf

" Shares in a company can be 100% owned by foreigners, who can be

individuals or entities, unless the intended businesses are reserved for Thai nationals only under

the FBA, which requires the company to apply for an alien business license prior to

commencement of business. "

Question: Can anyone confirm and/or clarify what is the law pertaining to foreign control over a limited thai company?

2.) 2,000,000 THB Registered Capital

It is my understanding that 25% of the registered capital has to be paid-up and deposited into a bank account as working capital. In the case of a 2,000,000 THB registered capital Limited Company, i believe that I would need to deposit at least 500,000 THB.

Question: What about the remaining 75%? Do I have to invest the remaining 1,500,000 THB within a certain period of time? What are the restrictions if I do not or penalties?

3.) Workpermit issued by my newly incorporated thai limited company

I read for my company to apply for a workpermit for a foreigner, the said company has to have, at least, a FULLY PAID-UP capital of 2,000,000 THB for each workpermit to be issued to a foreigner.

Question: Does the 2,000,000 THB has to be fully paid-up or can it be also (i heard) that the company employs 1 thai national (in the case of a consultant thai company) or 4 thai nationals (in the case of any other thai company)? I am confused with the "first issuance" and "renewal" requirements of the workpermit. Can somebody please explain?

4.) Thai taxes on income earned outside of Thailand

This one is a little bit complicated - and I understand that most lawyer that are reading the forum here will probably ask me to contact them directly to get personalised advise (which I intend to). But for the moment I will try to remain general in my question.

It is my understanding that Thai taxes income that is derived from source inside Thailand (a thai company or from work performed in thailand) - and also from income that is derived from sources worldwide BUT ONLY on the portion that is brought into Thailand (i earn income from business carried outside thailand for i.e 1,000,000 THB but only wire transfer 100,000 THB into a Thai bank account: only the 100,000 THB brought into Thailand is subject to Thai taxes).

Question: Is it me that does not fully understand this - but It appears to me as being one heck of a tax loophole, where somebody could legally avoid taxes in a big way by having his Tax Residency in Thailand (being here more than 180 days in a calendar year) and having most of his ties in Thailand so he is recognized as being a non-resident for tax purposes in his home country.

[Indo-Siam]

Some answers:

1) Any seven foreigners can start a company here - with 100% foreign ownership. Nothing stops you. By law, if yourcompany will be pursuing any of the activities in lists 2 or 3 at http://www.thailawforum.com/database1/foreign5.html, you will be operating illegally, unless you first obtain an Alien Business License (ABL). Basically, the only activities not on this list are manufacturing, and exporting of Thai products. But - this law is not actively enforced in terms of prosecution. But - if your company's share allocation form (my informal term -officcially the Bor Or Jor 5 form) shows majority foreign share ownership, you will not be able to get a work permit, an entry permit extension, or an import/export license unless you have an ABL. Thecatual percentage required is not "51%" - it is 50% + one share. But - in practice, everyone just uses 51/49%. If you do not need any of the permits I mentioned - in other words, your company will only employ Thais, and operate domestically, you can effectively operate with majority foreign ownsership - but you will be liable to the penalties at Sections 36 and 37 at http://www.thailawforum.com/database1/foreign3.html, if anyone does ever decide to enforce the law.

2) Thai law does require that 25% of registered capital be paid-in within 90 days of incorporation - but there is no effective mechanism to enforce this rule. At present, there is no requirement to ever pay-in more than 25% of registered capital.

3) At present, you do not need any paid up capital or any Thai employees to obtain a work permit - you only need 2,000,000 baht REGISTERED CAPITAL perwork permit (unless applicant is married to a Thai - then 1,000,000 baht). The Thai employees are required by Immigration, for a long-term entry permit extension based on qualifying employment for a qualifying employer. If you can live with making 90 day visa runs/border crossings, you do not need Thai employees.

4) I'm too lazy to address this one for free.

Cheers!

Steve Sykes

Managing Director

Indo-Siam Group

Bangkok

[email protected]

www.thaistartup.com

[Sunbelt Asia]

Question: Can anyone confirm and/or clarify what is the law pertaining to foreign control over a limited thai company?

I'll just add to Steve's post that Hotel Mgmt is another way a foreigner can own a business 100%. Americans with the Amity treaty can own most businesses 100%.

Question: What about the remaining 75%? Do I have to invest the remaining 1,500,000 THB within a certain period of time? What are the restrictions if I do not or penalties?

Was told the fine is 1,000 Baht if you don't pay the 25% in cash but I have never seen this enforced. The 75% paid up capital can be knowledge, IP property, equipment, inventory.

Question: Does the 2,000,000 THB has to be fully paid-up or can it be also (i heard) that the company employs 1 thai national (in the case of a consultant thai company) or 4 thai nationals (in the case of any other thai company)? I am confused with the "first issuance" and "renewal" requirements of the workpermit. Can somebody please explain?

No one looks at your bank account if you form a Thai limited company.

or can it be also (i heard) that the company employs 1 thai national (in the case of a consultant thai company) or 4 thai nationals (in the case of any other thai company. Can somebody please explain?

This is not the criteria for the work permit of having Thai employees. You are confused with the criteria to have a extension of stay based on business. Many clients do not have Thai employees but have work permits and either do visa runs with a multiple entry visa, have a extension of stay based on support of a Thai national, extension of stay based on education or have a extension of stay based on investment. You only need a 2 million Baht register company( 1 million if married to a Thai) for each work permit and a non immigrant visa to obtain the work permit

I am confused with the "first issuance" and "renewal" requirements of the workpermit.

On the renewal they will be asking for more documents to determine if your business is sound such as your withholding Tax Por Ngor Dor 1 for the previous 3 months or your company audit, etc.

Question: Is it me that does not fully understand this - but It appears to me as being one heck of a tax loophole, where somebody could legally avoid taxes in a big way by having his Tax Residency in Thailand (being here more than 180 days in a calendar year) and having most of his ties in Thailand so he is recognized as being a non-resident for tax purposes in his home country.

Taxpayers are classified into "resident" and "non-resident". "Resident" means any person residing in Thailand for a period or periods aggregating more than 180 days in any tax (calendar) year. A resident of Thailand is liable to pay tax on income from sources in Thailand on a cash basis, regardless where the money is paid, as well as on the portion of income from foreign sources that is brought into Thailand. A non-resident is, however, subject to tax only on income from sources in Thailand.

Depends where you call home. In the States you would have to pay tax on this income from the other sources but not on the income you have paid tax in Thailand.

Please look at the tax treaties for these countries with Thailand to see where you would stand.

http://www.rd.go.th/publish/766.0.html

www.lawyer.th.com

[~G~]

The 75% paid up capital can be knowledge, IP property, equipment, inventory.

This point is quite controversial, at least according to acountants I have consulted with.

Sunbelt, could you please explain how do you value and register "Knowledge" as company capital? And what will you say to a skeptical autidor about it when Audit is due.

Edited April 7, 2006 by ~G~

[Sunbelt Asia]

This point is quite controversial, at least according to acountants I have consulted with.

Sunbelt, could you please explain how do you value and register "Knowledge" as company capital? And what will you say to a skeptical autidor about it when Audit is due.

The major weakness in Thai accounting lies in the valuation method. Valuation of assets is a serious flaw in the Thai accounting process. Unclear rules pertaining to the methods by which assets can be valued represent a large loophole through which accountant can manipulate assets to make financial reports look good or even more inflated. Because of these unclear rules, it leaves controversy.

Several Auditors that I have talk to in the past, state you as a shareholder can pay for your shares of the company with " knowledge" which is trade secrets, drawings, business plan and you obtained this knowledge, or did this work outside Thailand. You should have a confidentiality agreement with the company you won't divulge this IP property. Lets say you have a 2 million Baht company and its exporting. 75% of that is 1.5 million Baht. You own 99.99 % of the shares. As a result of this income (payment when getting shares of this company) of getting 1,499,850 Baht in share value, you as a individual need to pay personal income tax. Your deductions on this contract can be the actual expense or 70% of the gross income.

Lets say you use the 70% of the gross income as the deduction( you don't need to show any invoices for your expenses under Thai law as a individual) your personal income tax would be then off of the 449,955 Baht. If you were not showing any other income for that year. You would of had to pay 31,996 Baht tax . The corporation should of withheld 3% of the 1,499.850 Baht and this would be 44,996 Baht. You would get the credit of 13,000 Baht from the government when you filed your tax return as your tax was only 31,996 Baht.

One other auditor pointed out if this IP property happen to be in the form of software and a computer together for the shares. Then no withholding tax would be withheld from the corporation.( the key is the computer and software being sold together for the shares) If you could not come up with invoices for your expense on your personal tax return. Then it would be a 80% deduction of the 1,499,850 Baht when filing the individual tax report or 16,997 Baht in tax owed.( When not having any other income)

www.lawyer.th.com