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company invalidated

I finally heard of a case of a company which was ‘invalidated’ by the tax authorities. Here are the specifics of the story (as it was told to me). The limited Thai company was formed primarily to hold one piece of real estate complete with a house. The foreign shareholder lived in the house. He had the company for many years. Often he was delinquent in filing taxes on time. In addition, this particular gentleman had made some enemies who were either of ‘influence’ or otherwise interested enough in getting him out of the neighborhood that they would pony up some funds to get the ball rolling.

The tax department did call on said individual and started an inquiry. They would have reviewed all past tax filings and filed documents. Since the property was company owned, were the residents paying rent to stay in the property (which would show as company income)? Was there any other company activity? Was the company in fact a going concern? In the end the company was invalidated and the principles had 6 months (as prescribed by law) to sell the company assets and dissolve the company.

In Thai law there really isn’t the concept of the ‘dormant’ company. A company is expected to be an ongoing concern. That necessitates the filing of regular tax returns and maintaining a current company address. In addition, the company should be set up for the eventual purpose of making a profit. If a company is really just a vehicle for holding a parcel of land for foreign interest it may fail one of many tests. The company should be getting rent for any portion of a residence used personally. Further, I would recommend only using a company setup if there is some other ongoing real business activity.

One thing that is often misunderstood is that the concept of ‘loop hole’ doesn’t come into play under Thai law. If a company is legally set up and that company buys, sells, invests or develops land — there is no risk that the company will be invalidated because it is in fact foreign controlled. A company is a separate legal entity and it treated as such under applicable laws.

One other point on the subject of companies: often someone touting legal services will make a blanket statement that ‘companies which allow foreign ownership of land as commonly setup are illegal’. This illegality refers this: normally the Thai shareholders will pre-sign ‘shareholder transfer agreements’ (commonly called a proxy) which is an effort to give the minority foreign shareholder effective control of the company. Advice: Don’t set up a company like this and seek a legal representative who can do a proper setup on your behalf – normally the best method would be having two classes of shares issued.

1 Comment

  1. IMHO its only a matter of time (and government whim) before the whole charade is blown wide open, but what do I know?

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