THAILAND Trends and Developments Contributed by: Nattaya Tantirangsi, Kantinan Buraphacheep and Chawit Khiewtai, MSC International Law Office
land’s company laws do not automatically apply to the UJV. A UJV agreement, therefore, shall be carefully drafted to elaborate full details of how the UJV parties manage their relationships in terms of each party’s rights, obligations and liabilities between themselves and towards any third party. Pitfall of a UJV Though a UJV agreement may separate each party’s liabilities towards any third party, the UJV parties may jointly be liable to the third party because the Supreme Court of Thailand ruled in 1988 that a UJV was con - sidered an “ordinary partnership” which is a form of business unit under Thailand’s Civil and Commercial Code; therefore, the partners were jointly liable to the injured party in a tort claim. Likewise, if the UJV wishes to start a claim against any person, it is the JV parties who must file a claim to the court because, though a UJV is a tax entity under the Revenue Code, it does not have a legal personal - ity, and therefore does not have the legal capacity to start a claim. It is, therefore, wise for the UJV agreement to pro - vide a right to an innocent JV party to have recourse against a guilty JV party. Tax exposure of a UJV The Revenue Department’s ruling number 0702/8592, dated 2015, ruled that a UJV that possesses the fol - lowing characteristics shall be considered a “joint ven - ture under the Revenue Code”, which consequently is a tax entity separate from its JV parties. A joint venture is a tax entity under the Revenue Code when it is a joint venture that operates in a commer - cial or profitable manner, between a company or juris - tic partnership on one hand, and companies, juristic partnerships, individuals, non-juristic body of persons, and ordinary partnerships on the other hand, which undertakes any of the following activities. • The JV parties agree to pool resources, eg, money, assets, labour or technology, or agree to share profit or loss arising from any contract made with a third party.
• A contract is entered into with a third party, where the contract specifies that it is a joint venture. • A contract is made with a third party, where the contract states that the JV parties are jointly liable for the whole or parts of its work under such contract, and the JV parties will jointly receive the payment under the contract from the counterparty without any provision that separates their obliga - tions and payments among themselves. Such UJV, therefore, is required to apply for its own tax identification number; prepare its own financial statements; file its own tax returns and pay taxes from the taxable income generated by the UJV itself. Tax incentives of a UJV “Section 5 bis of the Royal Decree No. 10 issued under the Revenue Code regarding tax exemption” exempts income tax on the share of profits that (i) a “company and juristic partnership” incorporated under Thai law, or (ii) a “company and juristic partner - ship” incorporated under foreign law and carrying on business in Thailand receives from a joint venture (in this case, a UJV). A “company and juristic partnership” refers to the type of entity under the Revenue Code that is subject to Thai corporate tax. The above exemption does not apply to the party to the UJV that is a natural person. Any share of profits from a UJV paid to a natural person will be subject to personal income tax. Incorporated joint venture (IJV) An IJV is a joint venture where the JV parties incorpo - rate a separate legal entity, normally a private com - pany, as a JV company. The JV parties will become shareholders of the JV company after its incorpora - tion. IJV agreement Since an IJV is a limited company (public or private), Thai company laws apply to it. The parties to the IJV agreement may include only the provisions that they would like to be legally different from the company laws in the IJV agreement, so that the IJV can be man - aged as agreed as opposed to as statutorily required.
211 CHAMBERS.COM
Powered by FlippingBook