In order to set up my Thai limited company, I am thinking of getting some loans from my friends in Europe. I will make my friends shareholders in the Thai company that I would like to set up. So, I think I will personally sell shares to them and they transfer the money to my personal bank account in Thailand. It is a normal practice in Europe especially because there is no added value yet, that there is no taxation on selling shares. I assume this is the same in Thailand?
In the articles of association should be written that the capital of the company cannot be increased without my explicit permission. The shares can be paid in one go and that they are received immediately if they are paid on a monthly basis the shares will be received after the last payment has been executed. If this sounds as a workable idea, I only have to make up a transaction agreement and we are ready to go. They can bring it in as a cost, investment, and I have, hopefully, no tax to pay on this transaction so everybody is happy.
Also my idea is to start repaying the loan after my new Thai company has started to have income.
What are your thoughts?
You cannot write in the articles of association that way. At least 25% of the registered shares have to be paid up on the day we register the company. And because you are a foreigner, you will need a work permit, so 100% has to be paid up.
I think the best way to do is to have a loan agreement between yourself and the lender saying that the loan will be given to you in installments (if they don’t want to give you the whole lump sum amount at one time) and that the repayment will be done after what condition, for example:
- The loan will be repaid in installments of $ xxx, after your new Thai company has shown a gross profit (which is gross income minus cost of sales, but before office and other expenses) of $xxxx. – This is because you said you wanted to pay back the loan when the new company has started to sell the products, or to make money.
- The loan will be repaid with the share of the company (your shares). You will not pay them with the shares held by the Thai partner because you need to maintain 51% Thai majority for the type of business you are planning to do.
When you sell your share or repay the loan with your shares, if the value of repayment is the same as the par value of the shares, then you don’t have to pay tax. For example you will pay them with 10,000 shares, Baht 100 par value (total value is Baht 1 M) to repay the loan of Baht 1M, then you have no capital gain so you have no tax to pay. But if you give them Baht 1M worth of shares to repay the loan of Baht 2M, then you have a capital gain of Baht 1M, which will be subject to tax.
Contact MSNA for your Thai company registration questions.