|
Reorganisation in Thailand is still in the process of development |
As a result of economic downturn in 1997, the Thai government under pressure from the IMF released various special legislations for business reorganisation and rehabilitation into the Thai market. Major reorganisation schemes in the market include banking, finance, securities, insurance sectors to stimulate the leading sectors in the Thai economy.
Subsequently, the listed companies in the Thai stock market as well as the companies under the investment promotion (BOI) are the targets of reorganisation in view of the government to develop the capital market. In addition, free trade agreement (FTA) is the major source of capital combination of the local business operators to respond to the heavy competition in the economic community.
Thai tax laws provide the provision of tax incentives for business reorganisation under these terms and conditions as follows:
Amalgamation
Amalgamating companies: Asset transfer must be done at the market price on the transaction date. The price of asset transfer is not taxable income for amalgamating companies.
New company: Book value of asset under the transfer from the amalgamating companies shall be continuously depreciated by the new company for tax purposes until the disposal of such asset. Tax loss of amalgamating companies is not allowed to be utilised by the new company.
Shareholders of new company: Gain from retain earning carry forward from the amalgamating companies to the new company shall be treated on a 'realized income' basis when the share is actually sold out. Unrealised gain from evaluation will not be taxed until the share is disposed.
Transfer of assets: Exemption on corporate income tax (no withholding tax), VAT, specific business tax (SBT), stamp duty (SD).
As above, the transfer of asset under the amalgamation from the amalgamating companies to the new company shall not be taxable for corporate income tax purposes and relevant taxes. The change of name in the property registrations, for example . land and building, machine and equipment, vessels are not considered as the nature of asset transfer in the normal case but it is the change of name of corporate entity as a legal consequence (not a contractual consequence) provided by the corporate laws.
Entire business transfer
Transferring company: Asset transfer must be done at the market price on the transaction date. The price of asset transfer is not taxable income for the transferring company. The transferring company is required to register the company liquidation and proceed with the liquidation in the same accounting period of the business transfer. All asset and liabilities shall be transferred to the receiving company under the business transfer agreement.
Receiving company: Book value of asset under the transfer from the transferring company shall be continuously depreciated by the receiving company for tax purposes. No tax loss of transferring company is prohibited. However, we can use the tax loss of receiving company to offset against the profit arising from the future disposal of asset.
Shareholders of companies under the entire business transfer: Gain on shares derived from the corporate and individual shareholders of companies involved in the entire business transfer shall be exempt from corporate and personal income tax respectively. In this regard, 'realised income' basis shall be adopted.
Transfer of assets: Exemption on corporate income tax (no withholding tax),VAT, SBT, SD.)
In practice, the shareholding restructure will be done before the entire business transfer, for example, distribution of dividend in the transferring company to be entitled to the maximum income tax at the rate of 10% or exempt under certain shareholding structure.
Misunderstanding found from the practice of entire business transfer
Thai branch of foreign company
In cases where the transferring company is a foreign company having its branch in Thailand, the cessation of Thai branch and return the foreign business license to the government agency will be considered as a liquidation of transferring company in terms of entire business transfer.
Right of tax refundable
In case of the transferring company filed the request of tax refund from the Revenue Department, the receiving company is entitled to such tax refundable as a result of entire business transfer provided that the business transfer agreement covers the right to claim such tax refund.
Number of receiving company
The transferring company may have more than one company, however, the receiving company must be only one company to support that all asset and liabilities will be entirely transferred to only one receiving company.
Partial business transfer
Corporate reorganisation in the form of partial business transfer was provided the tax incentives on a yearly basis after the economic crisis in 1997. Such tax incentives are provided without limit of period since the enactment in April 2011 effective from January 1 2011. However, the director-general of the Revenue Department will provide detail of requirements to meet with the tax benefits in the near future.
However, the tax benefits on partial business transfer shall be applicable only for the business transfer among the associated companies under the tax privileges with the terms and conditions below.
Transferring company: Asset transfer must be done at the market price on the transaction date. In practice, transfer price not less than the book value of asset on the transfer date is allowable.
Business transfer: In the past, the Revenue Department requires that the transfer must be the asset in connection with the business transfer and not the sale of asset in the ordinary course of business. In addition, the transferee must operate the business in the same nature and such asset must be used in the VAT business of transferee.
Transfer of assets: Exemption on VAT, SBT, SD.
The associated companies in this regard include the companies under the same group with the respective test of more than 50% of the number of shares, number of shareholders, number of directors, as the case may be.
In addition, it will cover the transferor holding share in another company which holds share in the transferee company not less than 50% of the voting shares and such shareholding must continuously be held not less than six months from the end of the accounting period in which the partial transfer is made.
Future of corporate reorganisation in Thailand
Reorganisation in Thailand is in the process of development by the Thai government to reduce the obstacles from existing conditions. It is difficult to conclude what is the best other form of reorganisation, however, background and circumstances of business and companies should be considered to ensure that the shareholder will achieve the maximised benefit from such reorganisation.
Legal mechanism of business reorganisation in Thailand |
Key business corporate entities in Thailand consist of private companies and public companies. Business corporate entities in Thailand are alternatively entitled to reorganise their corporate entity for preferable corporate structure by way of shareholders' special resolution. Corporate amalgamationUnder the relevant corporate laws, both corporate entities are allowed to combine their entities into one legal entity in terms of amalgamation. Corporate amalgamation will consist of integration of capital and assets of the amalgamating companies. Validity of amalgamationThe special resolution of the shareholders' meeting at least 75% of total attending shareholders with voting rights is required to pass the resolution to amalgamate the company. In this regard, it means that all companies under the amalgamation schemes are required to declare in its shareholders' meeting for the amalgamation with other companies. The shareholding in the new company will be proportionate to the shareholding of the amalgamating companies, and therefore, it is understood that the portion between old and new shareholding structure must be agreed among the amalgamating companies. In addition, the amalgamating companies are required to notice their creditors to be aware of the amalgamation for any objection against the amalgamation before the registration of amalgamation to become the new company. The name of new company is required to be reserved with the competent government agency. However, it is allowable for the new company to use the previous names of the amalgamating companies. Legal consequence of amalgamationAs a result of amalgamation, the companies involving in the amalgamation schemes will disappear and all assets and liabilities will become the assets and liabilities under the balance sheet of the new company in terms of ongoing basis. All rights and duties of the previous companies including business contract, staff and employees, the litigation rights and duties in court procedures and business licenses will legally be transferred to the new amalgamating company after the registration of amalgamation. The shareholders' equity including retained earnings of the amalgamating companies will transfer to the new company. Consequently, the share capital of the new company will be equivalent to the total amount share capital of the amalgamating companies. In practice, it is not restricted to have more than two companies involved in the amalgamation but the new company after amalgamation is required to have only one company. As above, each step of amalgamation is required to follow the certain limitation of period of time. Amalgamation in practiceThe corporate amalgamation is the most popular form of reorganisation in the Thai market for the amalgamating companies which continuously hold the business permission, government concession, and high retain earnings. In the past, we found that certain business adopted the amalgamation scheme to continue their business license and retain earning as follows:
As above, the amalgamation has been done among the related companies to create more business strength and competition power. It is foreseeable that more Thai companies, especially family businesses and the small and medium enterprises (SMEs), will adopt the amalgamation concept to reorganise their business structure in the near future. Merger and acquisitionThe merger concept is not applicable under Thai corporate laws. However, acquisition of the company can be done by means of entire business transfer and partial business transfer between the transferor and transferee. Validity of business acquisitionEntire business acquisition and disposal is required the special resolution of the shareholders' meeting (at least 75% of total attending shareholders) for the public limited company. However, special resolution of the shareholders' meeting will be required if the private company set out its Articles of Association to control this transactions of both acquisition and disposal. If the entire business transfer will be made and the company will subsequently liquidate, the special resolution of shareholders' meeting is required to approve the company liquidation. In practice, most entire business transfer and partial business transfer have been transacted among the related companies to restructure the organisation in the new forms of business. For example, the expertise corporate structure will be set up to support the group of companies as follows:
In some situations, the partial business transfer has been made to non-related companies when the business owner considers to exit from some business and retain only core business. With this, the due diligence of target company is required to ensure that legal, tax, finance, accounting, IT, and other exposures will be identified and handled with the appropriate commercial ways. Legal consequence of business acquisitionNormally, the business transfer can be legally done by the sale and purchase agreement of businesses including tangible and intangible assets. In relation to business transfer regardless of whether entire business transfer or partial business transfer, the assignment agreement and novation contract may be required to support the transactions in the case of transfer of the business contracts (suppliers and customers), employment agreement and loans. Difference of amalgamation and business acquisition is the disappearance of amalgamating companies after completion of amalgamation to be a new company while the corporate entities under business acquisition still exist under the business acquisition schemes. In addition, the business acquisition will not relate to the share-related transaction and business acquisition in this regard will be narrowly considered by way of business transfer rather than the takeover of shares in the target company. Business acquisition in practiceTo enjoy tax incentives, most business operators prefer the entire business transfer and the transferor will liquidate its company after the completion of transfer. For example, business acquisitions found in the Thai market are as follows:
|
Biography |
||
|
|
Chinapat Visuttipat Tax Partner HNP Counsel – Taxand Thailand Tel: +66 (0) 2632 1800 Ext. 181 Mobile: +66 (0) 81 421 8661 Fax: +66 (0) 2632 1332 Email: chinapat.vs@hnpcounsel.com Chinapat Visuttipat has more than 20 years of experience providing tax and legal advisory services to local and multinational companies. His specialties include transactional planning, corporate taxation and reorganisation, legal and tax due diligence, international taxation and financial transactions. His industry experience includes the hospitality and property services, educational, international transport and logistics, and retail businesses. |
