Samui Phangan Real Estate Magazine December-January

ealty in focus l legal buzz
INVESTING IN A THAI COMPANY
ARTICLE 1 OF 2
This article was written by
Jeffrey Martin,
Senior Associate of
Limcharoen Hughes & Glanville
(Samui).
The next article will address
the steps recommended
to investors after they have
acquires shares.
For further information,
please contact our
Koh Samui offices on
(0) 84 714 8800 or
e-mail jeffrey@limcharoen.com.
Other offices located in
Bangkok, Phuket,
Ho Chi Minh City, Bali
and coming soon, Hong Kong.
52 samui phangan real estate
Real estate investors in Koh Samui and Koh Phangan often elect to acquire
shares in an existing Thai company, which owns land and/or buildings,
rather than procure the direct acquisition of the underlying assets. This
article therefore explores the legal issues associated with investing in
an existing Thai company, including tax considerations, legal risks, the
Share Sale and Purchase Contract, and considerations in completing the
transaction. However, as a number of the readers of this article are no doubt
foreigners, a few preliminary comments are in order relating to foreign land
investment in Thailand.
Subject to certain exceptions, foreigners may not own land in Thailand,
although foreigners are permitted to acquire long-term registered leases
over land and direct ownership of fixtures on land. It is also possible for a
Thai company to own land, and possible for a foreign person or persons
to hold a minority interest in a Thai company which owns land. The Thai
company must have at least three shareholders, a majority of whom must
be Thai, and who must collectively hold the majority shares. In accordance
with Thai law, the Thai shareholders must be genuine investors, and not
mere “nominees” holding shares on behalf of the foreign investors, in order
to “meet the numbers”.
The foregoing issues are significant to foreign investors in Thailand, and
therefore any foreign readers should keep these issues in mind while reading
the reminder of this article.
TAx CONSIDERATIONS
A number of investors elect to proceed with a share acquisition, rather
than an assets acquisition, in order to eliminate land office fees, duty and
taxes. Indeed, the land office costs on the transfer of land and/or buildings
can be significant; however, investors often overlook the tax implications of
acquiring shares. For instance, the purchaser (and not the seller) of shares
in a Thai company may be subject to a withholding tax, which the purchaser
must remit to the authorities.
In addition, an investor may inherit a tax liability if the company’s audited
accounts have understated the assets values. In this event, should the
company elect to dispose of its assets, the taxable gain will be based on
the difference between the sale price of the assets and the book value of
the assets. The taxable gain to the investor may therefore be inflated if the
shares were purchased for a significantly greater price than the book value
of the assets.
LEGAL RISKS AND DUE DILIGENCE
In addition to the above mentioned tax issues, investors should be aware
that the acquisition of shares in a limited company carry certain risks not
necessarily associated with a direct asset acquisition. In particular, investors