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Share Deal or Asset Deal?
The acquisition of a Thai business can generally be structured as an asset deal acquiring the specific assets that together make up the business to be acquired, or as a share deal by acquiring shares in a legal entity and thus such legal entity’s entire business.
In order to decide whether to pursue an acquisition of a business via an asset deal or a share deal, various aspects, advantages, and disadvantages from different perspectives should be taken into consideration.
1. Taxation of an asset deal
If the transaction is structured as an asset deal, the taxes to be considered are in particular the following:
a. Corporate income tax (“CIT”)
Corporate Income Tax at the rate of 20% of the net taxable profits generated from the sale of land or real estate or/and any company asset (moveable properties) will be subject to CIT tax at a rate of 20% and subsequent years.
b. Value-added tax (“VAT”)
VAT 7% applied for sale of the company asset according to Section 77/2 TRC (exception: in the case of an Entire Business Transfer).
c. Taxes related to the sale of immovable property
If the assets include immovable property, the following transfer fees and taxes need to be considered:
Please feel free to contact us if you have any inquiries regarding the information in this article at [email protected] View the original article on the FRANK Legal & Tax website
- Withholding tax (“WHT”) - Thai Withholding Tax at the rate of 1% of the actual selling price or the official appraisal price of Land Department, whichever is greater at the time of registration of ownership transfer at the Land Department in accordance with the Section 69 Ter of the Thai Revenue Code.
- Specific business tax (“SBT”) - Special Business Tax at the rate of 3.3% of the actual selling price or the official appraisal price of the Land Department, whichever is greater at the time of the ownership transfer registration at the Land Department in accordance with Section 91/6 (3) of the Thai Revenue Code.
- Transfer fee - Transfer Registration Fee of 2% of the official appraisal price of Land Department regardless of whether the actual sale price is higher or lower than the appraised value by the Land Department in which Seller and the Purchaser each pay 1% unless otherwise agreed by both parties.
- Personal income tax (“PIT”) (if the shareholder is an individual) - Personal income tax on the capital gains in case the shares are sold/transferred with profit over the par value according to Section 40(4)(g) TRC. The personal income tax is levied at a progressive rate of 5-35%.
- Corporate income tax (“CIT”) (if the shareholder is a company) - If a company holds the shares and receives profit from the sale of these shares, then CIT at a rate of 20% on the net profit applies. If the company distributes dividends, the company’s shareholders will be subject to an additional WHT of 10% on the dividend.
- The liabilities and business risks of the seller company are not transferred to the buyer. For a share transfer, the buyer will have to take on liabilities such as tax since the seller has operated the company, which could be risky with tax inspectors.
- For the transfer of shares concerning employee liabilities, the buyer has to take care of all pending contracts. If the buyer fires any employees, the buyer has to pay severance pay based on the number of years they have worked with the company.
- It is possible to acquire only some parts of the business.
- Interest to fund the acquisition of assets should be tax-deductible.
- The purchase price of the relevant assets, including goodwill, may be depreciated for tax purposes.
- The buyer does not inherit historical tax liabilities and exposures from the seller.
- The buyer can cherry-pick employees’ assets, or contracts, leaving unwanted ones for the seller to handle.
- A more limited scope of legal and financial due diligence means lower transaction costs.
- The buyer is less likely to assume any contingent liability.
- Possibility of taxable gains derived from the assets for the seller, such as land/immovable properties.
- Possibility of significant transfer taxes on the sale of the property.
- The buyer cannot get the trademark, branding name, or customer base and expert staff if the buyer runs the same business as the seller and continues their business. If the transferred shares belong to the company, the buyer can continue the business and only change the company shareholders.
- Transfer of each contract requires the contractual party’s consent and execution of a novation agreement, which is a time-consuming and lengthy process.
- No losses carried forward can be transferred to the buyer for future use.
- Certain governmental licenses/ permits can be transferred to the buyer, while others are nontransferable.
Please feel free to contact us if you have any inquiries regarding the information in this article at [email protected] View the original article on the FRANK Legal & Tax website