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