Thailand Entire Business Transfers Tax Free Cash Backs
Tax Insight | September 2012
One of the measures introduced after the 1997 Asian economic crisis was the granting of tax exemptions to shareholders receiving benefits from a company that had transferred its entire business to another. The exemptions were granted to corporate shareholders under Royal Decree (No 341) BE 2541 and individual shareholders under Ministerial Regulation No 215 (BE 2541).
Whilst the words in Royal Decree (No 341) and Ministerial Regulation No 215 are a little bit different to each other, the meaning is the same, which we paraphrase as follows:
Income tax shall be exempted for a shareholder receiving benefits from a company that has transferred its entire business to another in accordance with the rules, procedures and conditions prescribed by the Director-General, for benefits received exceeding the cost of the investment.
And whilst it was stated in the Government's explanation of the laws that they were intended for the purposes of assisting companies to continue in business during the aftermath of the 1997 economic crisis, the intention was ignored, and the Royal Decree 341 and Ministerial Regulation 215 were used to structure a normal sale of a business as an Entire Business Transfer transaction in order to get tax-free cash back to the shareholders of the transferor (seller) company.
In September 2012, the Government plugged this loophole by issuing Royal Decree (No 542) BE 2555 and Ministerial Regulation No 291 (BE 2555), which repeal the previously issued Royal Decree (No 341) and Ministerial Regulation No 215, and replace the words therein with the following:
Income tax shall be exempted for a shareholder receiving benefits from a company that has transferred its entire business to another and receiving shares in the transferee for the value of the shares exceeding the cost of the investment, for shares that are received in the same accounting period as the transfer of the entire business.
Thus, from September 2012, the structuring of a normal sale of a business transaction as an Entire Business Transfer in order to get tax-free cash back to the shareholders of the transferor company has now been plugged.
This Tax Insight Article is general information only. It should not be used to determine any matter without consulting with an experienced Thailand tax advisor.