"hobby" Businesses

[fxm88]

Hey All!

I was just wondering about the huge number of businesses in e.g. Pattaya that never seem to have any customers but never seem to go out of business. I assume that in a majority of these cases it's simply a farang opening a shop to give the wife/girlfriend "something to do" i.e. keep busy, no real hope of ever turning a profit (don't mind as long as the losses aren't too big), more of a clubhouse than a business, etc.

In the States the tax authorities will usually classify something like this a "hobby business". (Small businesses anyway, airlines never seem to suffer this fate no matter how unprofitable). Once that happens, expenses (e.g. your new car with the company's logo stuck to the door) are no longer deductible against your other income (e.g. your full-time job) so you lose the tax shelter.

Do any Americans own a business in Thailand that has fallen afoul of this rule? (Does the UK/EU have this rule? If not, it could explain the plethora of apparently UK-themed bar/hotels and the relative dearth of similar US establishments -- it's not a bar, it's a tax dodge.) Does Thailand have similar rules (assuming you're working/earning an income in Thailand)?

Thanks for any info!

[Chang_paarp]

In the land of OZ the tax dept will wear 5 years of losses, then they start looking at you. If you can show that you are working the business and not getting ahead they will give you some time. If they think you are just playing games they will look at your last few tax returns, and declare it a hobby. If they are in the wrong mood they will reassess you and give you a big bill plus interest.

As an interesting aside to this. I heard this from the accountant involved. A gentleman raised greyhounds for a hobby. He raced them, and any winnings were not considered taxable as it was a hobby. Untill he finally had the BIG ONE. The dog won large amounts of money. The tax dept came knocking on his door wanting their pound of flesh. Unlike many hobbists this gentleman kept receipts. Through his accountant he said that if this was a business this year he wanted to submit adjustments to the previous 15 years of tax returns as they were building to this success. All documents of the costs involved are available for inspection they were told. After a hurried conference, it was decided that it was a hobby but any interest paid on the winnings would be taxed.

Not Thailand but as with many places your milage may vary.

If Thailand was worried about registered businesses not making a profit a large number of the vehicles used to control real estate would be be subject to close inspection. Just get the paperwork in.