Key takeaways
- A good group structure separates the risk of each project; it does not simply mean having many companies. If cash, collateral and guarantees are all cross-linked, an SPV cannot truly separate risk.
- Thailand has no group taxation. Each company files its own tax return, so a loss in one SPV cannot be offset against the profit of another SPV.
- Before setting up a new company, you should be able to answer who owns the land, who borrows, who receives customer money, and how the money will return to shareholders.
The three layers of a developer group
| Tier | Function | Should not do |
|---|---|---|
| Holding | Holds shares, sets policy, allocates capital and manages group treasury | Receive customer money or bear construction risk directly |
| Project SPV | Holds the land and project, takes the project loan, receives customer money and transfers ownership | Run several projects with different banks or co-investors, or lend to other projects |
| Operating / Service | Shared functions such as project management, sales, marketing, and building and hotel management | Accumulate profit without real functions, or charge for services without a contract |
A small company with a single project may not need all three layers. Add structure only when there is a clear risk or funding reason, because every additional company adds accounting, audit, tax filing and governance costs.
When to set up an SPV
- There is a project-specific co-investor and returns must be shared under a JV agreement
- The bank requires the project's cash flow and collateral to sit in a single legal entity
- The project carries construction or sales risk that should not spread to other projects
- The business types differ, for example selling condominium units versus holding a hotel long term
- There is a project-level exit plan, such as selling the shares of the whole SPV
- Investment promotion conditions require the privileged activity to be separated from other activities
When risk separation is lost
An SPV is a separate legal entity, but risk separation may become meaningless when the following occur
| Leak point | Result | How to reduce it |
|---|---|---|
| The parent company or directors guarantee every facility | One project's debt flows back to the whole group | Limit the amount and term, and keep a guarantee register |
| Cross-default between loans | A default on one project spreads to other loans | Negotiate the scope and minimum thresholds before signing |
| Using money across projects without documentation | Debts arise that cannot be proven, with a risk of breaching loan conditions | Use a contract and an approval process every time |
| Teams, systems and accounts are mixed | Costs and profit cannot be separated by project | Shared services have contracts and allocation criteria |
Who holds what
| Questions | General approach |
|---|---|
| Land | Sits in the SPV that will develop and sell. A later transfer triggers tax and transfer fees |
| Project Loan | The SPV is the borrower, with the land and project as collateral |
| Customer money | Goes only into the collection account of the project-owner SPV |
| Capital from the group | The holding company invests as equity or a shareholder loan, in a proportion the bank accepts |
| Central team | Sits in the holding company or a service company and charges fees under a contract |
| Long-term hold assets | Kept separate from the SPV that sells to buyers, so that post-sale obligations do not mix with recurring income |
Tax issues that shape the group
No group tax consolidation
PwC concludes that Thailand does not allow group taxation. Some older documents refer to group loss relief, which should not be used for planning in Thailand. Separating companies may therefore raise the total tax burden in periods when some companies make losses.
Example: losses trapped in an SPV
| THB million | Profit before tax | CIT 20% |
|---|---|---|
| SPV A | 100 | 20 |
| SPV B | (40) | 0 |
| Separate companies | 60 | 20 |
| If in a single company | 60 | 12 |
The THB 8 million difference is either a timing cost or a permanent cost, depending on whether SPV B has profits to use the accumulated losses within the deadline. These figures are illustrative.
Dividends from an SPV up to the holding company
| Conditions for an unlisted Thai company | Result per PwC's summary |
|---|---|
| Holds shares with voting rights of at least 25%, with no cross-shareholding, and holds them for 3 months before and after receiving the dividend | Fully exempt from CIT |
| Meets the holding period but fails the 25% condition or has cross-shareholding | Half exempt |
Withholding tax on dividends also depends on the recipient's conditions, so check before every dividend declaration. In addition, an SPV can pay dividends only when it has legally distributable profit, so it may hold cash that cannot yet be sent up. Trapped cash is therefore an issue to consider from the capital design stage.
Debt versus equity
According to PwC's summary, Thailand has no general thin capitalisation rule. However, a debt-to-equity ratio may be a condition for some types of business or tax privileges, and banks usually set their own minimum equity. Funding through a shareholder loan therefore requires considering loan conditions and interest tax together.
Where there are foreign shareholders, the shareholding proportions, loans and voting rights must be reviewed with legal advisers under foreign business law and land ownership rules. This article does not cover those topics.
Questions before approving a structure
- If this project fails, where does liability stop?
- What collateral or guarantees will the bank ask for from outside the SPV?
- How can money move from the SPV up to the holding company, when, and with how much tax?
- If one project makes a loss and another a profit, how does the total tax burden change?
- Does each related-party transaction have a real function and supporting documents?
- What is this company's annual governance cost, and is it worth it?