The legend of the inactive company in Thailand
Over the years, many unscrupulous consultants have helped to create what has become a real legend in Thailand costing large sums of money to foreign investors: the inactive company or the “frozen company”.
Many foreign entrepreneurs whose business was no longer fundamental were persuaded by their consultants to “freeze” their company and thus avoid monthly VAT returns, annual audits and many other obligations; according to them, a company could be ” deactivated “and therefore be exempt from tax and bureaucratic obligations.
The inactive company in Thailand is a legend born from the internet and passed by word of mouth (or rather: from website to website) for years. The result was the creation of thousands of irregular companies subject to heavy fines.
For example, visiting the DBD database you can see how hundreds of companies have never filed annual financial statements; only this oversight on the part of the accountant costs the company a fine of 12,000 THB per year.
Why did the legend of the inactive company in Thailand spread out?
The false news spread because in past years the Revenue Department was not digitized; they could not verify all the companies in the various provinces. We then got the feeling that it was legal; but it was legal in the same way it is legal to rob a bank until you get arrested.
Some unscrupulous accountants have used this leverage to persuade small business owners to give them complete control of the business; pretending that in the event of a frozen company they would pay nothing but a reduced fee for consulting. The information was then passed through many consultant sites (who copied and pasted untrue information taken from competing sites); thus, became a supposed truth.
Let’s clarify what an inactive company is
An inactive company does not exist. From the moment of registration in the DBD, the company is in effect active. But, as long as the issue of the VAT number is not requested (with the delivery of the Por.Por. 20), it is not subject to compliance with the Revenue Department. As long as the company has no employees, it is not subject to the payment of Social Security. Once you start paying VAT and Social Security, the only way to stop is to dissolve the Company.
If the Company issues no invoice and has no commercial activity, it will still have to communicate the VAT closure to the Revenue Department every month and pay social security for employees still on the payroll. It will also have to send the mid-year and annual auditing to the DBD like any other company. Summarizing, an inactive company is a company that does not collect revenues but must comply with all the bureaucratic requirements.
How to get back in order if you have been a victim of the legend of the inactive company?
Putting the company believed to be frozen in order is necessary to avoid fines that can also affect the Managing Director. If the responsible person is a foreigner, this could affect the outcome of requests for permanent residence or citizenship. First of all, a fine of THB 500 must be paid for each month of non-submission of VAT returns. Then 12,000 THB for each non-filed annual balance sheet and 5,000 THB fine from DBD. Then there is Social Security, which must be analyzed on a case-by-case basis.
There is also the cost of accounting consultancy (reconstruction of the annual accounts, regularization, budget certification), which will not cost less than 30,000 THB in the simplest cases. This will be done for each year in which the company has been “forgotten” thinking it was inactive. Once it is in order, it will be necessary to keep it regular or liquidate it. It is true, many companies that have been irregular for many years are now probably forgotten due to the impossibility of recovering obsolete data. But with the digitization of institutions, be careful: control are now possible and in fact they are already underway.
Conclusion: a frozen company in Thailand doesn’t exist
The inactive company in Thailand is a legend born thanks to the internet and can represent a problem for small investors, especially foreigners. Managing a company in Thailand is simple if you stay in the legality and bear the minimum costs to fulfill the few bureaucratic obligations. Take this into account when you decide to open a company in Thailand and choose the right consultant to do it.