Using a Thai Company Limited To Own Villas, Town Homes and Landed Property in Phuket

2020-09-28T08:51:08+00:00

Using a Thai Company Limited To Own Villas, Town Homes and Landed Property in Phuket

sam-faumaWhat Sam Says About Buying Land Through a Thai Company

A Thai Limited Company – having foreign shareholders (not more than 49%) and/or director(s) – can purchase land and register the land in the company name, but this carries certain risks if not done correctly.

To register a company solely for the purchase of a private property is not the right option to begin with, as any company must first be conducting legitimate business, generating revenue, and providing a profit to its shareholders. For business reasons, a company may want to acquire property, but it must be managed according to the corporate laws of Thailand.

If someone shows up at any Phuket Land Office with foreign shareholder(s)/director(s), the Land Officer will normally refuse to register the land. Their suspicion, quite often the correct suspicion, is that the company’s Thai shareholders are mere nominees, holding the shares on behalf of one or more foreigners. It is their right to refuse such a registration on this basis.

If the buyer feels their effort to buy land through the company is legitimate, they may ask to proceed, and the Land Officer will then begin a process of investigating the shareholders and their investment in the company. If this passes the scrutiny of the Land Office, the officer is then likely to send the documents to Bangkok for approval or refusal.

This process can take many months, and it is not always possible for the purchaser to wait, as the agreements entered into do not necessarily provide for such delay. This is because most Purchase/Sales agreements or Pre-Purchase/Pre-Sales Agreements have a closing date, and any delays caused by land department procedures could extend beyond the agreed cut-off date.

It is important for the director(s) to know the exact laws and how they apply to their situation. The right legal advice is crucial, as any failure to adhere to the law could make the directors criminally liable.

When any conversation in the pub turns to “ways you can buy freehold landed property,” the pseudo-legal advice flows faster than the beer.

For many current villa owners, and for many who have recently been persuaded to buy landed property, this is a very sensitive subject. It is almost impossible to challenge someone’s existing beliefs, and no matter what these pages say on the subject, it is bound to upset someone (if it hasn’t already).

So let us just reiterate a simple fact: foreigners are prohibited from owning land in Thailand, and this applies to landed property such as houses and villas. Furthermore, as mentioned previously and contrary to “pub talk”, those who lease land, then build a house on it, do not automatically gain subsequent perpetual ownership rights over the building.

It all may have sounded convincing after a few pints, but it is not true.

When it comes to villas and houses, everything depends on the underlying contract to lease (not buy!) the land, and whether that contract mentions who owns any buildings or what happens to those buildings after the lease expires. Which brings us to everyone’s favourite “loophole” for buying land, villas and houses in Thailand.

Buying Land Through a Thai Company

Buying Landed Property Through a Thai Company

Loopholes exist where there is ambiguity in the law, i.e. there is more than one plausible interpretation, allowing clever legal minds to devise means of bending the law to suit their own ends.

Loopholes remain legal as long as the law is ill-defined, but on two specific points, Thai property law is unambiguous: Foreigners cannot own landed property, and a foreigner cannot control a Thai company using nominee shareholders.

As mentioned previously, the Land Code Promulgating Act states that foreigners (“aliens”) are allowed to own land by virtue of the provisions of a treaty, but fails to mention there has been no such treaty for nearly 50 years.

While it states it in the nicest possible way, the Land Code’s stance on foreign land ownership is nevertheless clear. Enter the Thai Company Limited. Unlike an offshore company (which is also an “alien” under the law), a Thai company offers local ownership. The forbidden fruit (land) can now be harvested, and leasehold becomes freehold.

The Thai company opens up the options for ownership. Buy a villa or a house? No problem. Buy a plot of land and build? No problem. The condo you like is sold out of the 49% allocation to foreigners? Since you are now “Thai”, you can feel free to buy one from among the other 51%.

The problem is a company established solely for the purpose of buying a home to live in – a company with no other function or real business activity – is technically a violation of the law. A company with Thai nominee shareholders (owned “from the shadows” by a foreigner) is flagrantly against the law.

In May 2006 the authorities began clamping down on what was (and remains) an illegal activity.

Procedures were put in place to ensure that Land Department officials made additional, thorough checks to prevent land registration by any company with foreign shareholders. Specifically, they were trying to identify companies established purely to buy land, houses and villas.

The immediate effect of this policy was to reduce the practice, but four months after the enforcement began, on 19 September 2006, Prime Minister Thaksin Shinawatra was deposed in a military coup. Changes in governments often result in changes in priorities, and a succession of new governments did not take up the mantle left by Thaksin.

People ceased to be concerned about this law because successive governments had more pressing matters on their plate (like staying in office). But during the last 13 years only the current government has had any real staying power.

Recent murmurings from Bangkok have suggested that another round of legislative amendments, guidelines and regulations could be on the cards. And yet newcomers to Thailand are being told by some that the government would be shooting itself in the foot if it were ever to crack down again.

If a further clamp down does come, one which targets the use of Thai companies with nominee shareholders to acquire landed property, foreign shareholders could find that the “loophole” they bought into was no such thing.  Instead, they could face the forced sale of their home, which would be a huge inconvenience, a good deal of stress and in all likelihood some financial loss.

Everyone has an opinion on the laws in Thailand restricting foreign land ownership. But is Thailand truly alone when it comes to home ownership laws? You can find out in this article here:

Is Thailand Alone? How Many Countries in the World Prohibit Foreign Ownership of Land?

Buying Thai Properties Through a Company

What Olaf Says About Buying Property Through a Company

Using a company to own Thai real estate is commonplace, but it is not necessarily recommended because there are potential legal and commercial liabilities.

Legal

While a company registered in Thailand can own land, there are certain rules which must be followed. Basically, there must be at least two shareholders of Thai nationality, who between them own in excess of half the share capital of the company. It is essential, however, that the Thais individuals have a legitimate stake in the company, i.e. that they have paid for their shares, and invested actual capital in the company.

It is illegal if such Thai shareholders are “nominee shareholders”, meaning they were shareholders in name only, who were given shares to satisfy Thai company ownership laws, but whose real purpose was to facilitate the purchase of a property by the foreign director of the company.

For starters, companies without business purpose are not recognized under Thai law. A company established for the sole purpose of owning assets, but which does not conduct any regular trade or business activity (which would mean it is also avoiding paying any taxes) may be dissolved.

Any foreigner who establishes such a company, and seeks to benefit from the use of Thai nominee shareholders, will be subject to fines, imprisonment, or both. It is possible in such a case that the company would not only be subject to dissolution, but that the land office would also require that the company sell any land that it owns.

Commercial

Owning a property through a Thai Company Ltd. could be more costly than you first expected because a Thai Company is responsible for the following annual expenses :

  • preparing and filing audited accounts;
  • preparing and filing a tax return (which is a semi-annual tax return after the first year).

The following are also requirements for a Thai Company :

  • it must have a registered address. A company is required to be registered at a property which qualifies as an office address, should it not have one already;
  • if the company earns rental income from real estate which it owns, the company shall be liable for taxes on said income. If the director of company lives in a property owned by the company rent free, personal income taxes may also be due on the market rate of the rental income not paid. (These taxes would obviously not apply to any villa or condo owned in an individual’s name.);
  • the sale of any property which an individual has owned in their own name for five years or longer is subject to a stamp duty of 0.5%of the sale price. This applies equally to a villa or a condominium, and is payable at the time of transfer. Under Thai tax law, however, the identical property owned for five years or more in the name of a company will be liable for 3.3% tax on the sale price; and
  • any income tax which may apply to the sale of a company-owned property may be considerably higher than it would be for an individual owner.

Overseas Company Ownership

Using a company registered outside of Thailand is not necessarily the answer either. It is quite common to see Thai properties purchased through “offshore” companies (e.g. ones which are registered in low tax jurisdictions such as the Seychelles or the British Virgin Islands).

Offshore companies are perhaps used because they do not have the same legal liabilities mentioned above. Aside from the statutory audited accounts and tax filing, however, they do have the commercial liabilities. Regardless of jurisdiction, an offshore company costs money to operate, which must be taken into consideration.

There are a few instances where it might be justified, certainly when it comes to the ease of selling property or leaving it as an inheritance. To transfer ownership of the property, one must only transfer the shares of the company, which is a relatively simple procedure. But an offshore company may not own landed property.

There Are Other Options

Foreigners are not only allowed to own condominium units outright(freehold), but are also allowed to own villas (the physical structures, not the land). They can lease the land, and a properly structured lease will offer their investment legal security. More importantly, the foreigner would not subject him/herself to the potential liabilities mentioned above.

Doing Things the Right Way

Since the foreign demand for Phuket property began in earnest 20 years ago, there have been numerous efforts to disguise illegal company ownership. But experienced lawyers know that there is a way for foreigners to buy landed property through a Thai company, provided everything is done the right way.

Companies conducting legitimate business are regularly allowed to purchase land. There are many examples of this, but some of these are property developers or villa rental managers. As we know, any condominium must have at least 51% Thai owners, but these developments—which are legitimate Thai limited companies, some run by foreigners – often retain ownership of many of these units, and profit from their eventual rental, sale to Thai nationals, or leasehold sale to foreigners. The company will have freehold ownership of the land, even with minority foreign shareholders in positions of control.

In the same way, a foreigner may set up a company to manage and rent a development of villas, and that management company could own all the land the villas sit on. A foreign director could even live in one of the villas. If the company is run the right way, there is unlikely to be any blow back over such an arrangement.

Other examples we know of are schools. International schools almost always have foreign controlling interests, but they may be permitted freehold ownership of the land and buildings. Schools are in the public interest, they employ local Thais at all levels, and they are legitimate businesses.

The business could even be on a smaller scale and be a perfectly legal owner of a property. For example, an IT company, a dive operator or importer/trader might buy a building as an office or shop. Any manufacturer might own their factory, someone who prints T-shirt could buy their building, and a legal services company might own their offices.

The validity of the business, and whether it is adhering to all applicable laws, will determine the legitimacy of any company’s purchase of freehold landed property. Any property will be owned by the company – not the foreign minority shareholder – and as long as the foreign shareholder respects that dynamic, they should have no problems.

Legitimate Corporate Ownership

There is however one set of circumstances whereby buying land through a local Thai company could be perfectly legitimate – if the company itself is a legitimate business.

The fact that a company has foreign shareholders may be a red flag for the authorities, but this is not illegal. The same cannot be said of the Thai nominees, with no stake in running the company, who are only names on a ledger in a lawyer’s office. They are breaking the law, as is the foreigner who set up the company using their names.

But if a business is established properly, run professionally, follows the law to the letter, and pays its taxes, it is extremely unlikely that the Thai authorities would view it as illegal. Thai officials will quickly see through any attempts to subvert the law, but anyone doing things the right way may just find a clear path to land ownership in the name of their company.

If the foreigner is making personal use of any villa owned by the company, however, the same issue of a “benefit in kind” (discussed under offshore company ownership) would arise, and there would be income tax implications. Again, if this is all handled “by the book” there is nothing to be afraid of.

In A Very Big Nutshell

This section has offered an extremely forthright overview of the stories foreigners are told about buying property in Thailand, including villas. Beliefs as to what is truly possible and what is legal range from one extreme to the other, but most methods of owning landed property fall down under closer scrutiny.

The intention here was not to antagonise existing owners, nor was it to make people so disheartened that they give up on their dream of owning a property in Thailand. Quite the contrary, it so potential buyers understand the legal avenues to ownership in Thailand, and can appreciate that, while some rights may be conferred upon foreigners, these are not all guaranteed. Sometimes everything depends on the discretion of, or interpretation of, the law by the officials dealing with the paperwork.

Whether it is the city life in Bangkok, Phuket’s amazing beaches and sunsets, or the mountains in Chiang Mai, Thailand truly is an amazing country. There are wonderful villas and condos available in every part of the country, but to secure the right home, one sometimes requires patience, persistence and a healthy respect for the law.

The Spirit of the Law

There are a multitude of opinions and recommendations for how a foreigner may get around “the letter” of the law to own landed property. The problem with such schemes is that, if challenged in court, the foreign ownership scheme is unlikely to be upheld.

It is interesting to note what the letter of the law in Thailand actual says about foreign land ownership. Rather than expressly prohibiting foreigners from owning land, the law actually states that foreigners (aliens) are allowed to own land. Section 86 of the Land Code Promulgating Act states that: “Aliens may acquire land by virtue of the provisions of a treaty giving the right to own immovable properties…” What the Act fails to mention is that the last such treaty was terminated in 1970.

In the absence of any treaty, “the spirit of the law” is clearly to forbid foreign ownership of land in Thailand. Regardless of the ingenuity of the supposed loophole, it is clear from court rulings, that this “spirit” of the law is invariably upheld.

When a case goes to court whereby land is deemed either to be owned or controlled by a foreigner, the same verdict is returned pretty much every time. Whether before a local trial court or an appellate court (such as the Supreme Court in Bangkok), schemes which have helped foreigners circumnavigate the law are regularly shot down by judges.

If a foreigner is the owner of the building, and the dispute is merely over use or rights to the land, which they duly lease, it is fairly common for judges to side with the foreigner. It becomes an issue when it involves ownership or control over the physical land.

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Phuket Property Guide 2020 – Table of Contents

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