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Apple’s tax bite could hit real estate nerves

Apple’s tax bite could hit real estate nerves

This week’s EU ruling that has resulted in a massive USD14.5 billion tax bill for Apple is making global waves. For the tech giant the legal battle ahead is looming and lawyer’s bills are only the tip of the iceberg.

For foreign investors into Thai real estate ventures tax planning is always a key risk and reward consideration and frankly the regime in a favorable one. Historically many projects that have sold leasehold villas and apartments to foreign buyers have been able to benefit form a development structure that allows the amortization of revenue over the initial thirty years of the lease.

In a nutshell this revenue when applied against a large upfront cost of construction and selling costs ended up with a perfect tax loss vehicle. The same does not apply to condominium and freehold property where sales revenue must be applied at the time of registration hence the tax bill comes much sooner.

Across the world, after the leak of the Panama Papers and now the Apple case, tax planning is now in many cases falling into the perceived category of tax avoidance which is spooking big and small businesses alike. There clearly is no safe haven and the potential shifting sands of wealth management has taken on an entire new composition.

In our work with new greenfield development, aside from market feasibility, and legal structuring one of other key underlying piece of advice is to engage a qualified tax consultant to create an efficient structure that is both legal and sustainable, yet maximizes returns.

Thailand is one jurisdiction where the government in keen on seeing tax revenue increase but in my own experience the authority and rates are reasonable, especially in the areas of specific business tax, VAT and capital gains. As long as businesses are willing to understand that you can’t get something for nothing, healthy margins can be attained.

What the Apple case is showing though is that even using forward tax planning is not foolproof and cross border transactions are now under the microscope most everywhere.

 

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Bill Barnett has over 30 years of experience in the Asian hospitality and property markets. He is considered to be a leading authority on real estate trends across Asia, and has sat at almost every seat around the hospitality and real estate table. Bill promotes industry insight through regular conference speaking engagements at key events and spends substantial time with his feet on the ground on research projects and gathering market intelligence. Over the past few years he has released four books on Asian property topics.

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