lump-sum-turn-key

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LUMP SUM TURN KEYTax considerations to reduce the local taxes by a split of the contracts. : 

LUMP SUM TURN KEYTax considerations to reduce the local taxes by a split of the contracts.

Lump SumTurn Key : 

Lump SumTurn Key

Lump Sum Turn Key Agreement : 

Lump Sum Turn Key Agreement Turn key vs. component agreement Test runs successfully completed Interface and timing risks Fit for purpose FIDIC book master agreements One combined package of contracts Consistent and integrated provisions Engineering Building construction Delivery of components Erection and assembling Start-up / initial operation Erection control / site supervision

Legal Structure : 

Legal Structure Offshore Prime Contractor Local Principal Offshore Sub Contractor Local Sub Contractor Chinese Sub Contractor Lump Sum Turn Key Engineering Building construction Delivery of components Erection & assembling Site supervision Start-up & initial op Exposes entire contract revenue to tax

Tax Implications of the Agreement : 

Tax Implications of the Agreement Tax inefficiencies arising from a single consolidated contract for the entire work and lump sum price Under Local/German DTT sale of goods does not constitute a PE, but in case of combined LSTK service part of the agreement constitutes a PE for the whole scope of deliveries and services. Under Local tax laws no withholding tax on sale, but in case of combined LSTK withholding tax on the full remuneration amount. Withholding tax can be credited against corporation income tax obligations, if any. Tax cash refund in general possible, but request usually causes in aggressive tax audit. Risk of adjustment, because less comparable data for mixed agreements. Importance of duration of construction work? 6 months? 12 months?

Split of the LSTK agreement : 

Split of the LSTK agreement Local Onshore Contractor Local Principal Local Sub Contractor German Sub Contractor Chinese Sub Contractor German Offshore Contractor Offshore contract - Offshore design and engineering - German components - Chinese components - Ownership trans-ferred outside of Onshore - Offshore spare parts Onshore contract - Local engineering - Local components - Erection / assembling - Building construction - Site supervision - Start up & initial op - Onshore spare-parts - Onshore training - Split of the contract - Split of the contractors - Syndicated offer PE of offshore contractor?

Umbrella Agreement : 

Umbrella Agreement Comfort letter of the offshore company to the buyer/employer Three main functions: to assure that the service provider is financial capable to fulfill its obligations, including penalties and damages claims. to assure that buyer/employer has no problem to address the correct contractual partner for claims and information „horizontal defense“, prevent the contractors from relying on the defaults of the other parties to avoid performing their contractual obligations. No overruling and modification of service contract by cross-default clause or taking over of service responsibility by seller Umbrella Agreement should qualify as agreement not to be necessarily disclosed to the tax authorities, because it is irrelevant tax-wise

Consortium Agreement : 

Consortium Agreement Rights and obligations of each member Allocation of costs, risks, Internal chargeback Secondment Agreements Transfer of employees Internal costs allocation Financing agreements stand-alone conditions no collateral in project no reference to project Procedures

Tax Implications after the Split : 

Tax Implications after the Split Offshore contract (Purchase part should be conducted by the Local company) Profits are taxed abroad, tax authorities will look for Local PE No withholding tax Local tax authorities will try to reclassify offshore services as royalties Onshore contract (Service should be rendered by the domestic company or branch (PE)) Under the DTA profits are generally taxed outside of Onshore If there is a PE in Onshore, it will be taxed here Withholding tax of 3%, but deductible against profits Stamp duty, if any, reduced to the service part Remuneration has to be adjusted to arm‘s length principles (transfer pricing) Problem: Tax effects of the umbrella agreement

Other Implications : 

Other Implications Avoidance of local red tape requirements Foreign Business Licenses Business visa and work permit issues Commercial imperatives not to be compromised No uneconomic shift of burden, risks and costs from seller side Turnkey character from employer side No cross-default Availability of all concessions and exemptions for each party

Resumé: Advantages and downsides : 

Resumé: Advantages and downsides Split of LSTK agreement results in tax savings Local onshore contractor can be affiliate to offshore company or its branch. Split results in risk transfer which has to be compensated by bridge agreement. Any assistance fees paid from offshore to onshore contractor might be classified as royalties with a withholding tax rate of 15%. The art of Splitting the Agreement is more than a handcraft Additional costs by the involvement of Local onshore partner Non-tax: Offshore contractor does not need Local Business License Structure is not in-line with FIDIC books. Structure has to be agreed by both parties. Local principal will not take over the tax risks.

Investing in Thailand : 

Investing in Thailand Investing in Thailand - Some-times the water is deeper than it looks. We are specialized to guide foreign investors through the red-tape requirements, legal hurdles and international tax structuring of their foreign in-vestments, trade operations or other business in Thailand and Southeast Asia. We can assure the highest professional standards, level of availability and swift completion of challenging and demanding projects.

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PUGNATORIUS Sophisticated solutions in a complex legal environment. Serious legal and tax advice in the land of smile : 

PUGNATORIUS Sophisticated solutions in a complex legal environment. Serious legal and tax advice in the land of smile Rechtsanwalt Steuerberater Anwaltskanzlei Anwälte Rechtsanwälte Steueranwalt Steuerrecht Wirtschaftskanzlei Steuerkanzlei Steueranwälte, Lawyer Attorney Solicitor Attorney-at-law law firm lawfirm Abogado Abogada Avogado tax lawyer, advogado, consultor fiscal, impuesto consultor Thailand Bangkok Phuket Pattaya Hua Hin Koh Samui Koh Chang, Nonthaburi Pak Kret Tha Khlong, Pathum Thani, Tha Ruea Phra Thaen, Kanchanaburi, Thanya Buri, Pathum Thani, Thung Song, Nakhon Si Thammarat, Trat, Uthai Thani, Uttaradit, Warin Chamrap, Ubon Ratchathani, Yasothon

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