Checking up your annual balance sheets

Some unlicensed professionals want to have their own law firm to steer some gullible foreigners to transfer money into their fake client or escrow accounts. In Europe or America, the law is quite strict with a client or escrow account. Many foreigners were steered to buy the fake business or beer bars by transferring money into the fake client account. After losing money, these gullible foreigners scare to fight for “Justice” by the misconception that these crooks are powerful in Pattaya. “Having a good lawyer and dare no one” should be the motto you may share with our former prime minister who retained a team of lawyers to fight with the junta.

If you need a lawyer, you should deal directly with the Thai lawyer who is licensed as a “Tanai Kwam” not only “Legal Advisor”. You may check his or her professional license which must be issued by the Lawyers Council of Thailand.

A qualified accountant must hold a license issued by the Federation of the Accounting Professions of Thailand. A qualified accountant may work under the same roof with a licensed lawyer but not with a certified public accountant (CPA) who has to work independently. It is similar to the relation between a “solicitor” and “barrister” in the UK who have to work independently.

Most foreigners who set up a company to buy the real property will know only they have to pay for their accounts every year. Do they know what lies beneath their accounts?

The Annual Financial Statements (Balance Sheets & Tax Returns) 

The end of May is the deadline for filing the balance sheets and tax reports of all companies having the normal accounting period starting from 1st of January to the end of December of each year. Failing to file the balance sheets and tax report within 150 days from the end of the accounting period is punishable for the maximum penalty fines of 50,000 baht for each director and company which can be totally 100,000 baht. The imprisonment can be imposed if you still ignore after the lenient fine punishment has been imposed. For the good faith violator, the minimum penalty fines can be about 12,000 baht for the Police Department and 2,000 baht for the Tax Department. But the tax you will have to pay is the separate issue.

Before paying for the annual financial statements which are balance sheets and tax returns, you should have a profound discussion with your licensed lawyer and qualified accountant about the accounting and tax structure of your company. You may search for more information about taxation for dormant companies in our reading room http://www.thaisolicitor.com./

The English language of Thai professionals in Pattaya may not be so excellent but somewhat fair enough for your understanding in all technical aspects. Most of them will prepare a trial balance in English in order that you may review the structure of assets and liabilities to verify tax implications.

If you set up a company to buy the real property which includes the piece of land and building house, the assets in your balance sheet should be recorded as follows:- 

   Current Assets
     - Cash & Bank Deposit
     - Accrued Interest Receivable

   Fixed Assets
     - Account Receivable & Loan from Director

   - Land & Building
     Total Fixed Assets
     Total Assets 

The real property is called “immovable property” under the Civil and Commercial Code of Thailand which means “land” (geographical part) and “building” (building structure). The ownership of the land is recorded in the Land Title Deed (Cha Nod) and the ownership of the building house is recorded in the House Register Book (Tabien Baan).

If you buy the land and house, you should check if the seller has registered with the land office for transfer of both land and building house to you. Some unethical developers avoid the transfer tax by only declaring the land not the building house in order that the transfer tax will be based only on the land.

Some buyers may receive only the land not the building house once they buy the property. It is advisable to use the term “land & building house” in stead of “property” once you deal with a seller or broker.

Once you prepare the balance sheet, you should ensure if the “building house” is also recorded in the balance sheet.

What tax lies beneath?

In case you buy only the empty plot of land and build up a house, all payments you make to your contractor will be subject to the 3% withholding tax for construction service fees. If you fail to deduct this 3% withholding tax, you will be responsible for the tax with surcharge and penalty fine. Under the Revenue Code of Thailand, the company making a payment for service fee must deduct the 3% withholding tax.

The problem can be that some buyers buy the “property” from the developer who avoids the transfer tax by registering with the land office only for the transfer of the “land” not the “building”. The developer may use the name of your company to apply for a building permit. Your company will automatically become the owner of the building house. The question is “How you get this house?”

If it is understood that you bought the house from the developer but you fail to register the transfer of ownership of the house with the land office, it can be regarded that you are involved with the “conspiracy theory of tax evasion” with the developer which is punishable under Thai law.

The developer may say that you hire the developer to build up the house for you. In this case, the payment you make to the developer will be subject to the 3% withholding tax which must be your responsibility.

What lies beneath is the 3% withholding tax with the scenario which may shock you more than a thriller from Hollywood.

 

By: Mr. Ponthep Werachon, Thai Solicitor & Mrs. Darunee Werachon, Thai Solicitor & Accountant of WERACHON LAW OFFICE, 315/304, Moo 12 Theppasit Road (Soi 12) Nongprue,Banglamung,Pattaya City, Chonburi 20260, Kingdom of Thailand Tel: 038 304 084,038 251 533, Fax: 038 304 027, Mobile: 081 423 4255,089 889 6483, Website: http://www.thaisolicitor.com,/ e-mail: thai@werachonlawyers.com