Thai rental income - ways of distributing possible profit

[sureno]

I have the option of investing as follows:

(Early stages so no money put in / commitment yet, I wont be offended by any answers saying I am crazy, I havnt done much in Thailand although property and financing I do have plenty of experience elsewhere. I understand and am comfortable with any issues with Thai partner and therefore not relevant for my questions)

1. Thai partner buys land, around 250m2
2. Leases to me for 30 years
3. I pay rent to Thai partner
4. I build 2 or 3 x small homes on land, financed and then owned by myself, on the Thai partner land, build managed by Thai partner
5. Rental revenue gained (holiday let)
6. I pay management fee for managing the properties to Thai partner
7. Profit remaining distributed to me

Questions as follows:

Lease and work permits

• I assume the 30 year option would be ok in this case, maybe there would be an issue with me, Farang owner, when registered publicly, which I think you need to do?
• Having more than one property on the site which looks to be a commercial venture? Would that be clear from the registration? Problem with that...?
• I am not intending getting a work permit, as I wont be doing any work in theory
• (I do not want to set up a Thai company)

Financial

• Money from transactions could either go into a Thai bank account, or, preferable, if it is possible, via transaction merchant to foreign bank account?
• Thai partner gets management fee / salary for managing properties, deducted from rental, basically doing all the work
• With the net rental, could I then invoice myself via a UK company for advertising/web and financial services? I would therefore pay tax in the UK on this service charge, which is fair given that is where the finance and work is done....
• Alternative is I just pay tax in Thailand on the net earnings, but I wonder if that has its own problems?

Thanks for any help offered.

[BkkLifeA]

Loads of questions....

Being in the field before a bit so will try to answer some of your thoughts.

the land size is very small, for 2-3 small homes.....

Container homes are maybe an option.....

Currently the government rules for guesthouse licence (if they not have changed it) are to get a licence (if you want) you need minimum of 5 houses. below that no licence and paying tax, even if you want it, is difficult, as they not know what you are talking about.

But paying tax has huge advantages to bank financing if you want to grow. (but business bank loans are around 8-9% so your business must be run well....

You talk about financing the houses, sure ? Your thai partner can maybe get a finance but you wont.

rental income if booked via flipkey or airbnb can be diverted to whatever country. But local governments become more aware of the fact that they start loosing out of tax income, and probably in the next 3-4 years those "consolidators" have to pay % of your income direct to the local governments. (Airbnb and City of Amsterdam's tax department do this already from what i heard.) So with logic thinking, in Amsterdam apartment owners who have a tax licence can deduct it, while people who dont have a tax licence cant claim anything back. For this i suggest to go for a "guesthouse" licence or study this subject beforehand......

UK and Thai dont have a tax treaty on the way you think i think....? but you are talking complicated tax issues for peanut (net) income. and youare talking about VAT or TAX like revenue tax you like to hide...

added... basic rental tax is 15% with some other taxes based on gross income (from my mind.....) I had an accountant, (who also was not really up to date) but rev department are good lady's lol)

just my 2 cents...

Edited May 7, 2016 by BkkLifeA

[sureno]

Thanks for your reply.

Yes size will be tight but doable.

"Currently the government rules for guesthouse licence (if they not have changed it) are to get a licence (if you want) you need minimum of 5 houses. below that no licence and paying tax, even if you want it, is difficult, as they not know what you are talking about."

​I would like to pay tax, for the reasons you say, but charging myself through an oversees company would give the money a legitamacy once it was taxed through the oversees company wouldn't it? Yes, I would like to avoid hassle factor of paying what would be a small amount of tax in Thailand, by eliminating profit through this service charge if poss.

"You talk about financing the houses, sure ? Your thai partner can maybe get a finance but you wont."

We have the cash, there will be little or no borrowing,

Good point about guesthouse licence. I think my partner has this, as we have done this before on a very small scale.

"but you are talking complicated tax issues for peanut (net) income. and youare talking about VAT or TAX like revenue tax you like to hide..."

Definitely will not be doing any tax dodging no matter how easy it could or might be. However would VAT really apply in this instance....is vat applied on rental income in Thailand? Yes, I will need some formal advice but before going to anyone Thai side, I would like to understand all the minefields I am likely to come across. You have raised a few good ones here.

Once again thanks a lot for your points and any further comment you can add.

[WorkingTourist]

Some of your questions depend on where you incorporate.

For example you could setup a company in Belize.

Your Thai partner will invoice this company for the cost of running the operation in Thailand.

You will invoice this company for the time you spend on “marketing”. This will be an expense for the company, so the company does not pay tax on this amount, but you will pay U.K. tax on it since it’s basically your salary.

Your customers will pay this company for accommodation, and the sales tax they are charged depend on the rules of Belize. For example inside the European Union, if you sell “services” to other member states, you have to charge the VAT rate of the customer’s member state, whereas customers outside the union are not charged VAT at all.

Though with the above setup, as you are the owner of the company in Belize, you likely have to declare this, and that might have some tax implications (since I doubt there is any tax treaty between the two countries). Of course people who use such setup normally “forget” to declare that they own the company

Disclaimer: I do not have any company in Belize, nor am I a U.K. citizen or accountant, so above is just a rough idea about how such setup would work.

For you, it sounds like if you’re mostly based in the U.K., you should setup a U.K. company to make it 100% legal following both the letter and spirit of the law.

[SOUTHERNSTAR]

If you go the Thai company route you may find that your tax liability maybe much less than what it would be if taxed in the UK. I think you need to obtain professional help from an accountant/financial adviser about this. If you do this wrong you could end up with major problems. For example if your business exceed the minimum VAT registration amount and your partner dont register and get caught. Less complicated to have a Thai company that owns the property and runs the business. Your way you loose control of a big part of the business which could bite you in the bud. If you bring the money into Thailand the correct way you can get it out easy. Always use a simple business plan, the more complicated it gets the easier something will go wrong.

[ghworker2010]

yes, you are crazy, especially n.o 3

[sureno]

yes, you are crazy, especially n.o 3

Ok..... Care to elaborate? I've worked with them before without a problem. They'll be doing the work and I'll be paying them, therefore.... Thanks

[sureno]

If you go the Thai company route you may find that your tax liability maybe much less than what it would be if taxed in the UK. I think you need to obtain professional help from an accountant/financial adviser about this. If you do this wrong you could end up with major problems. For example if your business exceed the minimum VAT registration amount and your partner dont register and get caught. Less complicated to have a Thai company that owns the property and runs the business. Your way you loose control of a big part of the business which could bite you in the bud. If you bring the money into Thailand the correct way you can get it out easy. Always use a simple business plan, the more complicated it gets the easier something will go wrong.

Thanks for that. My issue with Thai company is the requirements regarding number of employees per farang, getting a work permit, along with the fact that I would only be a minority shareholder. I have never actually been involved in a Thai company by the way, so my points could be incorrect.

Regarding vat, if you're talking about UK, annual charge for the management would need to be below £83k.

If you're talking vat in Thailand then I didn't think that would apply on rental/property income?

[taninthai]

I'm doing exactly the same as what you are planning on doing ,got the land and usufruct coming on Friday for protection on the land,was thinking the same as you don't want to get involved with Thai company ,but have since changed my mind and am going Thai company route,well worth it in my opinion business visa comes and work permit cpomes with the company so no worries about length of time I can stay in the country or illegal working,imho if you are going to start investing money in Thailand it's best to be fully legit,the 4 Thai workers can be waived for 1 year on new company start ups .

If you think you are not gonna be doing any work maybe you can just get the company and be shareholder or director,you then might need work permit or the 4 Thai workers.

Edited May 11, 2016 by taninthai