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| 10 Nov 2008 09:49:09 am |
| Property Transfer Taxes 1: The unthinkable has happened |
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Someone once said that though both death and taxes were inevitable, at least death didn't get worse each year. But something has happened in Thailand. There has been a realisation that the property sector has to be stimulated and this has created an opportunity for the moment - taxes on property and land sales have been reduced.
By Royal Decree, issued in accordance with the Revenue Code Regarding Tax Reduction (No 472) B.E. 2551, dated March 28, and Proclamations of the Interior Ministry on March 24, 2008 and on April 30, 2008 by Chalerm Yubamrung, then minister of the interior, specific business tax and government registration fees on property, land sales and mortgages have been reduced for a period of one year, from March 29, 2008 to March 28, 2009. Thus if you know you're going to buy a place to live in Thailand but can't decide when, maybe the time is now.
HERE ARE THE NEW RATES, WHICH APPLY TO BOTH NEW AND USED HOUSING:
For the sale of: 1) a house; 2) land up to one rai (1,600m2) including a house; 3) raw land subdivided under a land allocation licence (the licence a developer gets to subdivide a larger tract); 4) land including house subdivided pursuant to a land allocation licence; 5) a condominium; 6) an office building under the construction control law; or 7) land including an office building under the construction control law.
The registration fee is 0.01% of the assessed price, plus the specific business tax (which includes the municipality tax) of 0.11% of the transaction price (this is only applicable if the property has been held by the seller less than five years), or stamp duty of 0.5% of the transaction price, if the specific business tax is not applicable because the property has been held by the seller more than five years.
For the sale of: 1) raw land; or 2) land exceeding one rai not subdivided pursuant to a land allocation licence that includes a house, the registration fee is 2% of the assessed price, plus the specific business tax of 0.11% of the transaction price (again, this is only applicable if the property has been held by the seller less than five years), or stamp duty of 0.5% of the transaction price, if the specific business tax is not applicable because the property has been held by the seller more than five years.
There are additional fees for the registration of a mortgage on: 1) a house; 2) land up to one rai including a house; 3) raw land subdivided under a land allocation licence; 4) land including house subdivided pursuant to a land allocation licence; or 5) a condominium.
The mortgage registration fee is 0.01% (up to a maximum of 200,000 baht) of the mortgage value for these interests bought between March 29, 2008 until March 28, 2009. For the period before March 29, 2008 and after March 28, 2009, the mortgage registration fee is 1%.
There are still withholding taxes on the seller's income, which must be withheld by the buyer and paid to the government at the time of registration. We will not cover these in this article though because they haven't changed and aren't charged to the buyer, but to the seller.
Here's a very simple example. Let's say a condominium is sold new today without a mortgage for the price of three million baht. The taxes are as
follows: the registration fee is 0.01% of the assessed price, or three million x 0.01% = 300 baht. The specific business tax is 0.11% of the transaction price, or three million x 0.11% = 3,300 baht. Total 3,600 baht.
Under the old rules, and those that will apply after March 28, 2009, this calculation is: The registration fee is 2% of the assessed price, or three million x 2% = 60,000 baht. The specific business tax is 3.3% of the transaction price, or three million x 3.3% = 99,000 baht. Total 159,000 baht.
You can see that the reduction is substantial.
We'll cover a few more subtleties of all this and more examples in later articles.
James Finch of Chavalit Finch and Partners finch(at)chavalitfinchlaw.com and
Nilobon Tangprasit of Siam City Law Offices Limited nilobon(at)siamcitylaw.com.
For more information visit www.chavalitfinchlaw.com
source: www.chavalitfinchlaw.com /Bangkok Post Nov 2 2008 |
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Category : Law
| Posted By : admin |
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| 21 Mar 2008 04:44:18 am |
| Partnership and corporate law upgrades |
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'Why seven shareholders?" is a question businessmen have pestered corporate lawyers with for years, but it is about to become a thing of the past.
The Thai government, prodded by the Commerce Ministry, is adopting major amendments to several partnership and corporate law provisions with the aim to simplify or do away with unnecessary statutory procedures under the Civil and Commercial Code. The amendment was published in the Government Gazette on March 3, 2008 and will be effective on July 1, 2008.
Among other things, the mandatory seven minimum shareholders in a limited company shall be reduced to three. The new rule will benefit both new and old companies.
Having only three persons instead of seven sign the Memorandum of Association (MoA) will make the incorporation process easier and faster. A senior Commerce Ministry official claims that a fringe benefit to existing companies will be that nominee shareholders holding minority shares (typically one share each) will have a chance to make an exit. Many companies are getting ready to reduce the number of their shareholders.
Unlike the number seven, which has never been clarified, there is an explanation as to why at least three shareholders must be maintained, i.e. the requirement of majority number of shareholders still exists in certain statutes.
Another welcome change is that the process of incorporation which takes at least nine days under the present law can be done in one day under the new law. The new law provides for one-day registration of both the MoA and the company together if all requirements are met at the statutory meeting and all the papers are in order. This is a step forward that will put Thailand more in line with international practice.
The rules about shareholders' resolutions are simplified. Currently, a special resolution is required for important matters such as change of company name, address from one province to another, capital, objectives, or Articles of Association, which must be adopted and then confirmed by two successive shareholders' meetings. Said double approval takes at least 21 days and is the key reason why in practice it has been ignored and circumvented by backdating meetings.
The new amendment will allow the passing of a special resolution by only one shareholders' meeting by at least three-quarters of the votes of the shareholders in attendance and entitled to vote. It is interesting to note that calling a shareholders' meeting has always required prior notice either by publication twice in a local newspaper or delivery to all shareholders via registered post.
It came as a surprise to the Commerce Ministry that this provision was altered during the draft approval procedures such that it will take "both" newspaper publication and mail delivery to call a shareholders' meeting once the law is enacted. Doing otherwise cannot be agreed under a company's Articles of Association. Many have criticised that this is impractical and inconsistent with other relaxations. The drawback foreseeable at this point is the extra cost that will be incurred.
Another change is that a company can no longer opt to inform its shareholders of dividend declaration by means of publication in a newspaper instead of delivery by mail. The first will be removed under the new amendment, making it mandatory to individually notify shareholders about dividends by mail. It is hoped that this will fix the current loophole and uphold the right of shareholders under the law.
Although reduction of a company's capital and merger of two companies are not common occurrences, the processing and timeframe are improved. Reduction of capital shall require only one-time publication in a local newspaper (instead of seven times) plus 30 days (instead of three months) objection period for creditors. To merge two companies, publication in a newspaper is reduced from seven times to one, and the objection period for creditors is reduced to 60 days instead of six months.
Finally, the new law makes it possible for an existing partnership to be converted to a limited company, subject to certain formalities. A partnership is nowadays not a popular form of business organization, as liability has increasingly become a concern to business owners, both Thais and foreigners. A great number of medium-to-large partnerships are opting to become a limited company with the aim of going public in the future. Without a legal channel for such transformation, partners would have to transfer the business and assets of a partnership to a new company, hindered by many issues, especially tax implications on the transferring partnership and/or the recipient company.
Even though cutting down and shortening some procedural redundancies will not change the easy and common way of practice in Thailand, such as backdating and paper meetings, one cannot really argue that this is not a real upgrade we all have been waiting for.
Source : Bangkok Post ,Mar 14,08 |
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Category : Law
| Posted By : admin |
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| 04 May 2007 08:20:12 am |
| Construction vs purchase of a villa : The tax difference |
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If you are pondering buying into a villa development in Thailand, the deal offered will most likely be structured on a leasehold basis, relying on the basic principle that foreigners are allowed to take a lease over land in Thailand.
Although leasing deals are becoming the standard form for selling villas to foreigners, developers still have a number of options available to them when structuring such deals. What appears to be quite standard is offering the foreigner a lease over the land and a separate contract for the villa building itself, which in turn should result in the foreigner owning the villa on the land he has leased.
There are essentially two ways for the villa building contract to be drafted – either as a sale and purchase contract or a construction contract. Quite often you will find that a construction contract is proposed, with the foreigner being asked to engage the developer’s construction company to construct his vila
The tax difference
One of the reasons why the construction contract is preferred by the developer is taxation. Under a construction contract, the contractor should pay 7% VAT on the construction price, which he passes onto the buyer. There is also a relatively minor 0.1% stamp duty to be paid on the contract price, which would be the contractor’s responsibility unless the developer shifts this burden to the customer under the contract.
If the developer however makes a contract to sell the villa, the sale should be registered at the Land Department, at which time several taxes and fees will be collected. The taxes and fees typically collected are summarised in the table below.
Although 7% VAT, is not imposed on the sale of the villa building, this does not necessarily translate into a 7% tax saving. The VAT paid by the developer on his building supplies will now end up being a cost for him, whereas under a construction contract he could claim them back as a tax credit. Hence the VAT costs incurred by the developer should translate into a higher sales price compared to the pre VAT construction price. There still may be a net VAT saving, depending on how the developer undertakes the construction e.g. if he hires his own workforce, then the labour costs are not subject to VAT.
Purchase v construction – who is the owner?
Putting the tax issues aside for a moment, a purchaser may feel more comfortable with a straight sale and purchase as opposed to a construction agreement, because then his ownership of the villa building has been registered at the land office.
With a construction agreement, you would normally expect the building owner to obtain the construction permit from the local authorities to construct the villa, not the developer. Foreigners are supposed to prove that they are domiciled in Thailand in order to obtain a construction permit and this may become an issue for a foreign purchaser that only visits Thailand occasionally. Having your name in the construction permit will be important if you wish to transfer the villa in the future.
If you do attempt to restructure the deal so that you buy the villa instead of constructing it, then you need to be aware that the tax treatment will be different and most likely the developer will try to shift any additional burden to you. In the developers case the way he recognises the profit from the sale may also differ depending on the contractual arrangements adopted.
Although the transfer taxes and fees in the table add up to 6.3%, on investigation you should find that the additional burden will be much lower. For example, the 2% transfer registration fee is based on the Land Department’s own assessment of the building’s value, which is often much lower than the actual sales price of the villa. The 3.3% specific business tax will certainly be an additional cost – to get this tax down it may be worth looking at how the pricing of the contracts have been determined and whether there is scope to shift more value to the lease instead which only attracts a 1.1% levy in registration fees and duties.
Finally, the 1% withholding tax can be used by the seller as a tax credit against his corporate income tax bill, so in theory the purchaser should be able to persuade the developer to accept this tax as his own.
In the long run any additional tax costs that the purchaser may end up having to bear to purchase rather than construct the villa may well be worth it.
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Category : Law
| Posted By : admin |
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| 28 Jun 2007 03:35:06 am |
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A foreign perspective on recent policy changes in Thailand
If Thailand could be defined in one word, it would be “Balance”. I have always believed that one of Thailand’s greatest strengths is its people’s ability to preserve their culture whilst embracing new ideas in a uniquely Thai way. The country’s interaction with foreigners is an important example of this. No other country in the Mekong region managed to stay independent of France or Britain in the 19th Century, or free of the socialist tide in the 20th Century, both results of clever Thai diplomacy and the forging of balanced sustainable alliances. Balance is the key to everything, and the Thais know this well. Yielding to extremes, whether political, ideological or business, set all the Mekong countries back decades; it is no accident that Thailand is now the richest country in this region. Over in Malaysia, whilst unpopular with some, it is the enforced balance between the ethnic Chinese and indigenous Malays that has kept the peace and allowed Malaysia to avoid the damaging pogroms that have scourged its more populous neighbour, Indonesia.
Applied to foreign investment and foreign influence, the concept of balance has led to Thailand becoming the favoured manufacturing choice for Japanese and Taiwanese industrialists in South East Asia, as well as the most popular retirement and long-stay tourist destination in all of Asia. Inevitably, in a country of strong culture and history, the pendulum swings back and forth over the years, but without the radical crackdowns and nationalizations you see in many countries where the door is opened too wide. Some emerging markets are currently cheering in the foreigners, but it will be different when foreigners wish to take their money out or when the local backlash begins. I remember clearly the unease with which foreigners viewed the election of former Prime Minister Thaksin Shinawatra. Somehow they were convinced that he was anti-foreign, but ironically he was ultimately removed from office partly for “selling Thailand to Singapore”. Perhaps it is inevitable that there is a time-out for re-evaluation each time Thai political winds shift, but this also highlights the fragile balancing act between foreign domination versus foreign cooperation and technology transfer.
The military coup of September 19th triggered just such a negative mood. Then the subsequent policy shifts by the interim government exacerbated foreign loss of confidence, at exactly the time when it needed to be reinforced. Firstly the capital controls of December 19th, themselves a misguided response to the strong baht (actually a nice problem to have) Then came the revision and declaration of pending enforcement of the 1998 Foreign Business Act (FBA), the timing of which was also sensitive given the inevitable post-coup slowdown in Foreign Direct Investment (FDI). Thirdly, there was the tightening of tourist visa on arrival requirements, a policy actually initiated under the Thaksin-led “caretaker government” but implemented in October. Combined together these three unrelated policies have created a heightened sense of discomfort amongst foreign stakeholders both within and outside Thailand.
It is important to remember that “foreigners” are not a homogeneous group. Loosely defined there at least four varieties of foreign participants here, each with different perspectives, concerns, and priorities. Firstly, foreign business people generating FDI, the backbone and meat of the Thai manufacturing base. After each coup in the past, there has been an automatic “wait and see” effect on FDI, until the subsequent elected government’s policies can be ascertained. The proposed revisions and stricter enforcement of the FBA has little effect on the larger of these industrialists as they tend to be protected by Board of Investment (BOI) privileges, but still adds a greater note of caution, and may directly affect small and medium sized enterprises (SMEs).
The second group comprises foreign institutional investors. Frustratingly fickle as they are, it is sometimes tempting to say “Who needs them” ? But the reality is that they supply much of the portfolio capital required by listed Thai companies, and it is doubtful that many of these companies would have survived the Asian crisis without injections of capital from foreign institutions. Now that Thai companies are in better shape, it would be churlish not to recognize the past and present contributions that made recovery possible. Additionally, foreign investors have many other choices of countries which welcome their money. The biggest fear amongst global institutional investors is actually not political risk, but rather policy risk. Imagine their horror when they woke up one morning to find that Thailand (already the least popular stockmarket in Asia as evidenced by the lowest valuations), had suddenly decided to forcibly take a 30% interest free loan out of fresh foreign investment remittances ! Fortunately, the architects of the debacle quickly reversed it, but left mainstream institutions with significant losses and scratching their heads wondering “what next ?” Some of the more nimble foreign investors like hedge funds are already returning, but the mainstream, long term investors such as pension fund managers will most likely wait until we are a few months into the newly elected government term before even considering putting money into Thailand again.
Foreign tourists, whether long-stay, or holiday makers, or healthcare visitors, form another important group. The holiday makers are only interested in relaxation, so their concern is purely security. The military coup and December 31st bombings jeopardized security perceptions sufficiently for Thailand to be put on a “watch list” by some countries for possible further deterioration. However, the wonderful experience which is Thailand seems to override this official caution for now, plus considerable goodwill remains from foreign Tsunami victims who remember the kindness and courage of the Thai people at that difficult time. Healthcare visitors similarly have to weigh the balance between security risks with the impressive and affordable services the country has to offer. Both these groups can likely be re-assured by some well-placed advertising.
Long-stay tourists and retirees, are also concerned with security, but most of them feel safe because they already understand the depth of Thai Buddhist culture, which will never allow the current political divisions to persist for long. Land ownership laws and visas are perhaps the key issues for this group. Wealthy villa owners can join “Thailand Elite” and get a five year visa (but not the right to buy up to 5 rai of land as was originally promised); and retirees over the age of 50 can apply for retirement visas. However, other visitors face a new maximum of three renewals to their one month tourist visas, and can spend only three out of every six months in Thailand. No doubt the real targets of this policy were the illegal migrant workers from Myanmar and Cambodia, not Western tourists who we should presumably encourage to stay longer. So why not vary the visa time limits appropriately for low and high risk countries of origin ? For instance Hong Kong grants a six month visa on arrival to some nationalities, whilst others get only 14 days !
With regards to property ownership, people seeking to buy holiday homes are faced with a choice of buying freehold condominiums (up to 49% of the floor area in each building), or leasehold villas, or freehold villas in minority partnership with credible Thai nationals. There are many ways the relative attraction of Thai property could be improved without changing the principle that only Thais can own land. Firstly, condominium ownership could be liberalized to allow up to 100% of the units of any building to be foreign owned, provided the land-owning management company is majority Thai owned. Alternatively, certain zones within Thailand could be designated as “non-sensitive” areas, and made eligible for foreign ownership.. Another option would be to increase the registrable maximum lease terms on land from 30 to 50, 100, or even 1000 years. Similar reforms could be applied to landed property ownership for houses and resort villas, with designated foreign freehold zones or longer lease terms allowed. Another possibility would be to have a foreign quota for freehold housing, as in Guernsey, with certificates of entitlement traded between foreigners. Clearly something has to be done to revise Thailand’s ownership laws, if the country wishes to continue to compete for the world’s affluent buyers with other leading holiday home markets like Spain, Dubai, Singapore, and Malaysia.
The final, and arguably most influential, group of foreigners here are the service industry professionals, such as diplomats, bankers, lawyers, real estate agents, hoteliers, journalists, import/export traders, stockbrokers, and so on. This group is concerned with all the aforementioned factors, and advises and influences all the other groups of foreigners, through Chambers of Commerce and social networks. Currently, their biggest worry is the FBA enforcement program, which demands disclosure of their true shareholding structures. In fact, the interim Government has offered a potential “amnesty” for these service companies if they come clean on their true beneficial interests. More significantly, according to the interim Commerce Minister, the current government has a policy of “grandfathering” approvals for these companies to maintain shareholdings in excess of 49%,. If this proves to be true in practice, there will de facto have been a major liberalization. It remains to be seen how many firms will come clean on their true shareholding structure and throw themselves at the mercy of the promised amnesty. Probably further discussions between the Chambers and the Commerce Ministry will help clarify matters. Although currently the Chambers are taking the extraordinary position that Thailand has no right to enforce its existing laws ! Unfortunately this attitude may only empower medium-level civil servants to dig in their heels.
The Foreign Chambers should just accept for now that foreign businesses have been caught in the crossfire of Thai politics, in particular the scrutiny surrounding the sale of Shin Corporation to Temasek. The enforcement and revision of the FBA is in fact being left to the next government, by allowing 12-24 months for the foreign-linked companies to restructure, and in all probability the next government will make additional revisions itself. In the long run the better solution is to openly liberalize “List 3” companies - if not all companies - to allow majority foreign ownership. The reality is that many foreign investors will still seek Thai partners for operational benefit, and which party ultimately holds the majority will depend on their respective expertise and capital contribution. Additionally, all Thailand- registered companies are still subject to local regulations and laws, such as taxation, labour laws, industry regulation, and the like, so even if the foreigners hold the majority of shares, the company will still in essence be Thai.
For me, a recent experience sums up why foreigners such as myself still want to live and work here. Last month I was at the new airport, picking up my father for a long-overdue visit, having myself just flown in from Phuket. In the rush to get my father’s bags into my mini-van, my driver and I managed to leave my computer bag on the trolley. Of course I didn’t notice until reaching home that the bag that mattered most was missing (complete with cameras, documents and other items). About to call my secretary to send out search parties, my mobile rang showing an unrecognized mobile number calling. I was surprised to find it was the lost luggage department at Suvarnabhumi Airport, and a polite English-speaking chap said they had found my bag and checked inside for my name card. My father couldn’t believe it. Where else in the world would the bag not have vanished within 60 seconds, or at least been plundered for its valuables before being blown up as a potential bomb - in the case of New York. In London you feel lucky to even see checked-in bags again ! Anyway, I quickly dispatched my driver complete with a large tip for the honest lost luggage team. For me this experience exemplifies the unfailing kindness of the Thai people. Whatever anyone says and whatever temporary mis-steps may be taken, this is still Thailand, and it seems we are still Welcome !
Written by : Jeremy King, CEO of Seamico Knight Fund Management Securities Co., Ltd.
Source : Law Magazine : Issue no.1 ; Jun- Sep 2007 |
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Category : Law
| Posted By : admin |
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Indigo Real Estate
