SETTING UP A THAI PRIVATE LIMITED COMPANY

Buying property with a limited liability company is one of the most popular methods for foreign investors. This is because the Articles of Association can be written to allow greater protection for foreign minority shareholders. Thailand law generally requires that Thai nationals own a majority interest in a company if they wish to purchase land legally. A number of means can be used to ensure that the foreign minority shareholders have effective management and financial control of the company. These include but are not limited to creating different classes of shares along with different voting and directional appointment rights.

Thai Law requires that 51% of the shares be held by Thai juristic persons, however, any company with more than 40% foreign interest that purchases land will be investigated by the Central Land Office in Bangkok (under section 74 of the Land Code) to ensure that the company has not been organized in an attempt to circumvent the prohibition against foreign ownership of land.

This results in the foreign ownership of the company being limited to 39% (only if buying land), but with the recommended changes of the Articles of Association, the foreigner can be the only director of the company, and the only person of the company who can commit or bind the company in any contractual dealings (buy or sell land or house), effectively giving the minority shareholders control over the company.

FORMING A THAI LIMITED COMPANY

In order to set up a limited company in Thailand, the following procedures should be followed:

Corporate Name Reservation

The name to be reserved must not be the same or close to that of other companies. Certain names are not allowed and therefore the name reservation guidelines of the Commercial Registration Department in the Ministry of Commerce should be observed. The approved corporate name is valid for 30 days only and no extensions are allowed.

File a Memorandum of Association

A Memorandum of Association to be filed with the Commercial Registration Department must include the name of the company that has been successfully reserved, the province where the company will be located, its business objectives, the capital to be registered and the names of the seven promoters. The capital information must include the number of shares and the par value. At the formation step, the authorized capital, although partly paid, must all be issued. Although there are no minimum capital requirements, the amount of the capital should be respectable enough and adequate for the intended business operation.

Convene a Statutory Meeting

Once the share structure has been defined, a Statutory Meeting is called during which the articles of incorporation and bylaws are approved, the Board of Directors is elected and an auditor appointed. A minimum of 25% of the par value of each subscribed share must be paid.

Registration

Within three months of the date of the Statutory Meeting, the directors must submit the application to establish the company. You will need to pay in at least 25% of your registered capital, within 90 days of registering your company.

Tax Registration

Businesses liable for income tax must obtain a tax ID-Card and Number for the company from the Revenue Department within 60 days of incorporation or the start of operations. Business operators earning more than THB 600.000,- per annum must register for VAT within 30 days of the date they reach THB 600.000,- in sales.

Bank

If you are purchasing property in Thailand and you want to pay in Thai Baht, ensure that your funds are transferred into Thailand in foreign currency and converted to Thai Baht here. The reason for this is that the receiving bank will issue the Foreign Exchange Transaction Form (Thor Tor 3 certificate) which is an official bank document issued by the receiving bank upon the receipt of foreign currency into your bank account in Thailand. You must request a Foreign Exchange Transaction Form from your bank when you are remitting funds to Thailand for solely the purpose of purchasing a condominium or a property in Thailand. Code 5.22. The relevance of the Thor Tor 3 Certificate is that it is one of the documents you will need in the future if you wish to repatriate funds without incurring tax penalties. Also please be aware that Banks will only issue Thor Tor 3 Certificates for individual inward transfers exceeding USD 10.000,- .

Tax Expenses

The Transfer of immovable property, including the purchase of land, land with building or a condominium unit owned by a natural person, including an alien juristic person shall be subject to the following costs and taxes.

Transfer Fee

The transfer fee is usually collected at the rate of 2% of the appraised value of property by the Land Department.

Stamp Duty

Stamp duty shall be collected at the rate of 0,5% of the actual purchase price or the appraised value of the Land Department, whichever is the higher.

Withholding Tax

Withholding tax is a tax payable by the seller of an immovable property to the Land Department immediately at the occurrence of purchase. The collection of withholding tax can be divided into two cases as follows:

Withholding Personal Income Tax

The computation shall be based on the appraised value of the Land Department.

Withholding Corporate Income Tax

The computation shall be based on the appraised value or the actual purchase price, whichever is higher. The rate used is currently 1%.

Specific Business Tax

Specific business tax shall be collected from the sale of immovable property for trade or profit purposes at the rate of 3.3% of the appraised value or the actual purchase price, whichever is higher.

Sale of immovable property subject to specific business Tax

The sale of land subdivision which is registered under the regulations regarding the land subdivision. The sale of a condominium unit which is registered under the Condominium Act. The sale of a building which is constructed for sale or indicated as constructed for sale, including the sale of land where the building e.g. shop houses, commercial buildings, houses or townhouses is situated whether or not the sales are made separately. The sale of the immovable property that does not fall within the descriptions of the above written but is a plot in the same manner as statutory land subdivision, the sale of a condominium or the sale of divided buildings or the sale of the property without being divided but clearly could be divided after sale. The sale of immovable property, which is used for conducting business, in order to move to a new location, except for the sale of land used for agriculture but not including the building on the land, e.g. the sale of a field for growing rice, crop or plant. The sale of the immovable property that does not fall within the descriptions of I-V but is made within 5 years from the date of acquisition of such immovable property.

Local Development Tax

The local development tax shall be collected from the possession of the landowner on land only in accordance with the Local Development Tax Act. B.E. 2508 as follows:

The land owner who possesses the land as of the 1^st of January each year shall have the duty to pay local development tax at the rate computed on the medium value of the land of the year concerned according to the rate prescribed by the government agency pursuant to the law. The medium value of the land is appraised on the last purchase price in good faith of lands in the same area of not less than three previous purchases within the period not exceeding one year before the date of appraisal, which shall then be averaged to obtain the medium value of the land without taking into account the value of the building and structure.