Question about loaning money to a company you own

[BillR]

Hi,

In 2013 I purchased a lot of industrial equipment with my own personal funds, and was issued receipts in my company name. I never gave this too much thought but apparently now I have an issue as the company income does not support those purchases.

My accountant has advised a few options, but I'd like to here from anyone with experience doing the same thing. ie: what is the proper way in the case of loaning your own personal funds to your own business.

Thank you

[KhunOr]

Yes, logically your accounts can't show those company purchases if there was no money to pay for them. The books won't balance. The funds for the purchases can come either from income from sales, shown in your P&L, or from loans to the company, shown in your balance sheet.

It is OK for you to make loans to your company. Even though you say you 'own' the company, it should be regarded as a separate entity. In effect you can use the loan account like you would a bank account. Every time you use personal money to make company purchases, that is shown as a loan. And every time you draw cash from the till for your personal use, you show that as a repayment of the loan.

The loan is a liability in the accounts and over time if you keep using your personal money to keep the company afloat, the loan will grow, making your balance sheet unhealthy. There will come a point when the Tax Office auditors will start asking awkward questions about what the purpose of your company actually is ("To make a profit and to pay tax" is how they see it of course).

[Gulfsailor]

Don't forget to charge your company interest on the loan. 6% is very reasonable and accepted by RD. If your company makes a profit do it. If not don't.

[Satcommlee]

Perhaps you can retain ownership of the items and only lend or rent them to your company.

But if you have a good accountant, he will know what to do, the big issue of course is if you have claimed back the VAT.

[Gulfsailor]

Perhaps you can retain ownership of the items and only lend or rent them to your company.

But if you have a good accountant, he will know what to do, the big issue of course is if you have claimed back the VAT.

If you keep as private possession you can't claim VAT back. Also on most rent or lease there is a withholding tax applicable. Percentage depends on product. You can use it as a credit against to be paid corporate tax, but if your company doesn't make a profit, then no point of doing so.

Claiming VAT back is nigh on impossible in Thailand. But you can keep it as a credit for a couple of years, to be used against VAT on sales.

[Estrada]

Perhaps you can retain ownership of the items and only lend or rent them to your company.

But if you have a good accountant, he will know what to do, the big issue of course is if you have claimed back the VAT.

If you keep as private possession you can't claim VAT back. Also on most rent or lease there is a withholding tax applicable. Percentage depends on product. You can use it as a credit against to be paid corporate tax, but if your company doesn't make a profit, then no point of doing so.

Claiming VAT back is nigh on impossible in Thailand. But you can keep it as a credit for a couple of years, to be used against VAT on sales.

Claiming back VAT is normal in Thailand, not impossible. But it does take a long time unless you get on friendly terms with the VAT department. I had my own Company here for years and I was able to claim VAT back on any receipts attributable to the Company. This is deducted from the VAT you charge to customers and you only pay the net to the VAT Department. However, if you have a business like some of my friends where he is 100% exporting, then 95% of all the VAT is owed to you by the VAT Department. This takes time and sometimes he has had to wait up to 8 months for his money., but he always gets it especially with incentives to move his case to the top of the pile.

[harrry]

Would you have to pay stamp duty on the loan?

[Gulfsailor]

Perhaps you can retain ownership of the items and only lend or rent them to your company.

But if you have a good accountant, he will know what to do, the big issue of course is if you have claimed back the VAT.

If you keep as private possession you can't claim VAT back. Also on most rent or lease there is a withholding tax applicable. Percentage depends on product. You can use it as a credit against to be paid corporate tax, but if your company doesn't make a profit, then no point of doing so.

Claiming VAT back is nigh on impossible in Thailand. But you can keep it as a credit for a couple of years, to be used against VAT on sales.

Claiming back VAT is normal in Thailand, not impossible. But it does take a long time unless you get on friendly terms with the VAT department. I had my own Company here for years and I was able to claim VAT back on any receipts attributable to the Company. This is deducted from the VAT you charge to customers and you only pay the net to the VAT Department. However, if you have a business like some of my friends where he is 100% exporting, then 95% of all the VAT is owed to you by the VAT Department. This takes time and sometimes he has had to wait up to 8 months for his money., but he always gets it especially with incentives to move his case to the top of the pile.

With claiming VAT back I meant as in your last example. Actually getting a cheque from the RD. Using it as a credit against VAT received via sales now or in the future is no problem. But getting the RD to send you money is hard. If you are a fully exporting company, then it may be a bit easier. But as a company that has 50/50 domestic/foreign sales, the RD is not going to write you a cheque, before they send a team to your office and go through all your books with a very fine comb. IE claiming VAT back is asking for trouble.

[Nobbie49]

There is nothing wrong with the company showing a liability towards you. Gulfsailor has got it wrong saying that you have to charge interest. Only in cases where the company lends money does it (i.e. the company) have to charge interest, not if it is the other way round. The only issue that the DBD or Revenue Dept may raise at some point is when your loans become excessive according to their interpretation and especially if you do charge interest to the company as an expense and by doing so reduce the company's profit. The DBD may actually force you to increase your capital by offsetting those loans, a debt for equity swap as it is known in accounting parlance.

[Gulfsailor]

There is nothing wrong with the company showing a liability towards you. Gulfsailor has got it wrong saying that you have to charge interest. Only in cases where the company lends money does it (i.e. the company) have to charge interest, not if it is the other way round. The only issue that the DBD or Revenue Dept may raise at some point is when your loans become excessive according to their interpretation and especially if you do charge interest to the company as an expense and by doing so reduce the company's profit. The DBD may actually force you to increase your capital by offsetting those loans, a debt for equity swap as it is known in accounting parlance.

I didn't say you have to charge interest. Just meant it is common sense to do so if company is making a profit. Within limitations as you point out. But if a bank charges 12% interest to borrow funds to acquire some key equipment for your business, then loaning it from a private source (could be a major shareholder) at 6 or even 8% makes economic sense, and RD will accept that.

[Satcommlee]

How about raising the share capital and fully paying them up using the equipment value... other directors remain non-fully paid up.

[Nobbie49]

Well yes and no. Dont forget thev15% withholding tax upon payment of interest

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[Gulfsailor]

Well yes and no. Dont forget thev15% withholding tax upon payment of interest

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Isn't the 15% withholding tax on interest only applicable to non-residents?

Residents just add the accrued interest to their taxable income. So as a resident it is better to charge interest to your company, pay more income tax, but reduce profit and subsequently corporate tax and thus increase dividend (taxed as personal income on 4/7th of the amount). Only if you are in highest 35% bracket for PIT (income over 4 million) the advantage disappears.

[BanTamo]

You might consider selling the equipment into the company at a significant profit, charge market rate interest on the loan, allowing the interest payable to accrue, all the while capitalizing interest and of course technical services fees, etc (also accrued, not paid) into the CAPEX, then depreciating it all against those certain future profits (insert hockey stick revenue projection curve here). Then just before you run out of tax offsets, sell the lot to a bigger fool (Koninklige Bolls Wessanen comes to mind). It's worked before.