One of our tax clients asked us on how to revalue the land and houses in Thailand. Normally, land ownership is not possible to foreigners but there are certain ways on how foreigners can own land in Thailand. Our client has set up a Thai majority owned company.
If the company is engage in the business of real estate (buy and sell of land and houses), the land and houses are treated as inventory so the appreciated amount will be income to the company. Thus, when the company revalues the land and houses, it has to book the gain/loss into the company’s profit and loss statement, whereas there are taxes to be paid in case of profits.
However, if the company is not selling real estate, the land is just a normal fixed asset. In summary, if you get the revaluation report and it shows that the land’s value has appreciated and you want to book the appreciated amount in the company’s accounting, it will be booked in the shareholders’ equity section of the Balance Sheet, not as an income in the Profit and Loss Statement. That means no tax to pay yet.
To explain it further, according to the Thai Revenue Department’s Revenue Code Section 65 Bis, value of assets other than value of stock on the last day of an accounting period shall be calculated in accordance with the cost or market price, whichever is lower, and such value shall be deemed to be the value of stock carried forward into the new accounting period, shall use the normal purchase price of such asset and in the case of appreciation in the value of the asset, such appreciation shall not be included in the calculation of net profit or net loss. If any item of assets is entitled to depreciation or depletion, depreciation and depletion shall be deductible in the calculation of net profit or net loss in accordance with the rules, procedures, conditions and previous rates applicable before the appreciation in the value of assets by deducting and only the remaining period and remaining cost of capital of the assets shall be deducted.
MSNA provides accounting, tax, due diligence, payroll and related business services. Contact us now for initial consultation.
Recently we were commissioned to assist on a due diligence investigation for one of our clients for the proposal of its headquarters to undertake initial public offering (IPO) and to list on the Securities Exchange overseas.
First, we discuss Initial Public Offering (IPO). IPO is done by a company who wants to have their stock be sold to the public through the Stocks or Securities Exchange. That is why it is usually referred to “going public”. Since this involves “selling” this could also mean raising cash for the company, hence increasing capital.
One of the requirements to be done to get into IPO is due diligence. Here we will talk only about legal due diligence. It is a comprehensive investigation of company’s legal requirements, checking of company’s compliance to relevant authorities, and a thorough understanding of all the company’s obligations. This kind of practice greatly requires examination of legal matters.
For the legal due diligence that we had with one of our clients for the purpose of IPO, we performed the following actions:
Confirm the good standing of the Company (i.e. that the Company is duly incorporated in Thailand and registered accordingly and that its statutory records and filings with the relevant authorities are up to date and accurate);
Confirm current ownership structure of the Company (i.e. details of all issued shares of the Company; and details of ownership (legal and beneficial) and control of the Company);
Confirm details of all directors; secretaries and officers of the Company;
Review all statutory records and registers of the Company, filings and the minute books available in the data room (access to be provided) and through publicly available searches;
Verify the details of all existing encumbrances of the Company;
Perform litigation and winding-up searches on the Company;
Confirm that the Company has all governmental, statutory or other permits, authorities or licenses required in order for it to satisfy its obligations under material contracts to which it is a party;
Verify that all fees due in relation to all Licenses have been paid and all conditions are complied with;
Confirm full details of any current breach of any License (as per publicly available information);
Confirm that the Proposed Restructure / Proposed Listing will not result in a breach of any License or an entitlement for the issuer to revoke, qualify or vary any License; and;
Review all material contracts in respect of which the Company is a party and provide summary (including details of change of control triggered by the IPO and Proposed Restructure).
IPO is a way to potential growth for any company. But this move would never be easy for anyone; one should be eligible by all means since it involves the public and not all companies would qualify to have their stocks be listed publicly. The company should consider on whom they can rely for the process in undertaking IPO for it to be successful. At MSNA Group, we have our Thai Accountants and Thai Lawyers that has good background on financial and legal aspects of businesses in Thailand to serve in any way possible in attaining our client’s targets. And as our commitment, we will be with them every step of their way – from start-up to growth.
Moreover, due diligence investigation can be carried out for different purposes, the most common purpose for this service is when a potential buyer would like to evaluate a business or company for merger and/or acquisition and another would be, as we’ve mentioned earlier, when a company would like to have their shares be available and listed publicly.
