Beating inheritance tax
THE INHERITANCE tax law will take effect on February 1 but wealthy families can keep taxmen away from their fortunes by setting up holding companies, a prominent lawyer said.
Under the law, the extra incremental of an inheritance worth over Bt100 million will be taxed at between 5-10 per cent.
The best way to keep taxmen away is to minimise the value of inheritance, said Chinapat Visuttipat, a partner of Siam City Law Offices, during a presentation to Kasikornbank clients last week.
“All the assets should be transferred to a holding company, chiefly land plots,” he said, adding that this should be done as soon as possible as the Treasury Department’s new appraisal value would be effective next year and that would automatically increase the transaction cost.
The holding company can then pay out dividends to all beneficiaries, he said, and despite the transfer the owners enjoy full control of the assets through the ownership of preferred shares.
Of 100 shares, two preferred shares with 200 votes are more powerful than 98 shares owned by their children with 98 votes, he said. Importantly, those receiving the preferred shares control the family business’s reins.
“All the inherited can benefit from the family assets. Yet, this is not inheritance, but the pool of assets, which are not allocated to descendants. As the assets are not passed through, no tax will be levied,” he said. A holding company is also a vehicle to ensure the sustainability of family businesses, he added.
The Chearavanonts (owners of the Charoen Pokphand Group), the Chirathivats (Central Group) and the Bhirombhakdis (Singha Group) were highlighted as successful models for sustainable family business planning.
Big families are advised to put all the family’s tangible assets into a central pool, and all the family members can earn a dividend from long-term rents from the assets in a transparent manner.
Chinapat said that under a holding company, operating companies are created to operate a diverse range of businesses. If there were a need of funds for local and overseas expansion, the company could seek a stock-market listing.
As the companies will not own the family assets, the family business can survive even if the companies are taken over.
Brands or other intellectual properties should be managed by another unit, to create royalty fees and other returns.
He said a good sample of this was Sathorn Thani Co Ltd, an entity of the Wanglees family, who own the Sathorn Thani building. Though the family’s Nakornthon Bank collapsed and was taken over by Standard Chartered, Sathorn Thani survived. Today, it reaps sizeable rents from the building and was expanding its business.
Chinapat noted that without planning, the family business can’t grow. He said that once the number of members grew, the business would be too small to support everyone. Against fears that non-family members would get their hands on the family business, the holding company could set a rule to allow share transfers to family members only.
He added that transparent operations and clear company rules would ensure the sustainability of the family business.
“Holding companies are like hardware, while family’s DNA is software. Of 30 families I advise, none of them carry the same DNA. But all that matters is the company rules and regulations,” he said.
