Phuket Gazette

PHUKET: When land and/or buildings are held by a Thai company, many owners of such companies, when contemplating a sale of the company owned property, require prospective purchasers to buy and take over their existing company in lieu of a direct sale and transfer of the underlying properties. In many cases, such companies have a low registered capital and face the eventual repayment obligations upon loans outstanding to its current directors.

Therefore, prior to purchasing any company, thorough due diligence should be performed. A prospective purchaser would also be prudent to retain the services of an experienced consultant/lawyer and accountant for proper advice prior to entering into any agreements for its purchase. Unfortunately, the mere examination of a company’s filed balance sheet will not reveal whether the company’s tax liabilities have been correctly stated and whether there are any hidden and unreported debts outstanding.

As a result, a well drafted and strong contract is necessary to protect a buyer. Many times, the biggest problem on such a purchase of a company’s shares are the laws under the income tax statutes and the rules of the Revenue Department – whereby the buyer of shares is responsible for deducting the required withholding for income tax from his/her payment to the seller and to remit such payment directly to the Revenue Department under the following rules:

Tax code section 40 (4) (g) states: "(g) Gains derived from transfer of partnership holdings or shares, debentures, bonds, or bills or debt instruments issued by a company or juristic partnership or by any other juristic person"

Section 50: "A person, partnership, company, association or body of persons paying assessable income under Section 40 shall withhold income tax at every time of payment in accordance with the following methods:

"... (2) In the case of paying assessable income under Section 40 (3) and (4), withholding tax shall be made at the income tax rate. Except:

"... (a) In the case of paying assessable income under Section 40 (3) and (4), not specified in (b), (c), (d) and (e), to a non-resident, withholding tax shall be made at the rate of 15.0 per cent of the income."

A buyer therefore can be made personally responsible for payment of such taxes if not properly withheld as the respective paragraph in the Tax Code states:

Section 54: "If the payer of income under Section 50 and 53 does not withhold and remit tax or remits incorrect amount of tax, he shall be jointly liable with the taxpayer to pay the tax payable in an amount not withheld or remitted or in the missing amount, as the case may be."

"In the case where the payer of income has withheld tax under Section 50 or Section 53, the taxpayer shall be discharged from the liability to pay tax in an amount equal to the amount withheld by the payer of income and only the payer of income shall be liable to that tax amount."

It is therefore extremely important for a buyer of company shares to withhold – from the purchase price to be paid to his seller – the requisite amount of income tax withholding as determined by a certified accountant and then to remit such amount to the Revenue Department.

This article was written by International Law Office Patong Beach Co, Ltd. For any questions you can contact [email protected] or call ILO’s offices at 076 222 191-5. Publications of/about the tax code can be downloaded on the Revenue Department’s website.

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This article first appeared in the current issue (Oct 26-Nov 1) of the hard-copy Phuket Gazette newspaper. Digital subscribers may download the full issue, this week and every week, by clicking
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– ILO

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