SECTION 11: USING A THAI COMPANY LIMITED TO OWN VILLAS, TOWN HOUSES AND LANDED PROPERTY IN PHUKET
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What 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 Phuket 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.
Pub Talk in Phuket
When any conversation in the pub turns to “ways you can buy a freehold villa in Phuket,” the pseudo-legal advice flows faster than the beer.
For many current Phuket 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 Phuket, and this applies to all landed property such as villas, houses, townhomes, bungalows etc. 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 and villas in Phuket.
Buying a Phuket Villa Through a Thai Company Limited
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 a Phuket leasehold becomes Phuket freehold.
The Thai company, therefore, opens up the options for ownership. Buy a stunning sea view Phuket pool villa? No problem. Buy a plot of land in Phuket and build your own dream villa? No problem. The luxury condo you like is sold out of the 49% allocation to foreigners? Since your Thai company means you are now “Thai”, you can feel free to buy one from among the other 51%. No problem.
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 Phuket villas, houses and land.
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.
It didn’t take long after the 2006 crackdown for potential buyers to forget the crackdown had even happened, and potential villa buyers became one again unconcerned about this law. The successive governments had more pressing matters on their plate (like staying in office), and so Phuket’s real estate industry, suffering from collective amnesia, simply forgot that this was even an issue.
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?
What Olaf Says About Buying Property Through a Company
Using a company to own Phuket real estate is commonplace, but it is not necessarily recommended because there are potential legal and commercial liabilities.
The Legalities of Owning Land and Villas in Phuket
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 Thai 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 in Phuket 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 Costs for a Thai Company
Owning a Phuket 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 any real estate in Phuket 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 in Phuket 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 (Offshore) 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 Phuket 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.
Legitimate Corporate Ownership of Phuket Villas and Land
There is however one set of circumstances whereby buying a villa or 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 Phuket in the name of their company.
If the foreigner is making personal use of their villa in Phuket owned by the Thai 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.
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Understanding The Spirit of the Law if buying a Phuket Villa Using a Thai Company
There are a multitude of opinions and recommendations for how a foreigner may get around “the letter” of the law to own a landed Phuket 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 throughout Thailand, including Phuket. 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 in Phuket 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.
Achieving Legal Ownership of Land or a Villa in Phuket
Buying Phuket Property: Investment Promotion Opportunities
We mentioned previously, the “extremely limited and exceptional circumstances” whereby a foreigner could legally acquire land or landed property in Phuket. This is that exception.
Under Section 96 of the Land Code Act, a foreigner may apply to own up to 1,600 m2 (1 Rai) of land if they make a Prescribed Investment of not less than THB 40 million in bonds of either the Thai Government, the Bank of Thailand, a State Enterprise, or bonds of which the Ministry of Finance secures the capital or interest. It is also possible to make the same application for land ownership if the THB 40 million is invested in the share capital of a juristic person who is granted investment promotion under the relevant investment promotion law.
The ownership granted to the foreigner is subject to the Prescribed Investment remaining in place for a continuous period of not less than five years from the date of registration of the land ownership.
Section 96 offers a real and absolute path to ownership for anyone who can afford it. There are exquisite villas in Phuket which sell for as much as THB 400 million, and some of these are bought (or even leased) by foreigners. Any foreigner considering a property in this price range may be best served by investing THB 40 million into the Thai Government Bonds, then spending the balance on a villa.
The application for Investment Promotion is best done through a competent Phuket lawyer, but for any foreigner who has the resources it is a legitimate route to freehold land ownership.
While the company will be the “promoted person,” and therefore the owner of the land, the foreigner may control the Thai company under the BOI scheme. This foreign ownership of the company is not possible with a standard Thai Company Limited, and because the foreigner controls the company, they also control the assets of the company (including any land).
For a foreigner with the resources to take advantage of this program, it is another route to legal control of Phuket villas and land.
The Board of Investment
A similar path to legal ownership of a villa in Phuket is through The Board of Investment (BOI). The BOI was established in 1997 to assist with, and provide incentives for, investment in Thailand. These are primarily tax privileges, and certain exemptions on foreign ownership of companies.
Although these incentives are also available to Thai nationals, foreigners who wish to invest and promote a business in Thailand are granted certain privileges, which may include permission to own land.
The relevant law supporting this program is the Investment Promotion Act, which may “grant promotion” to companies which are substantially beneficial to Thailand and its economy. In addition to the amount of capital invested, the criteria for qualification require a company to be economically and technologically sound, and not undertake any business which is harmful to the environment.
These are business incentives, so if the “promoted person” (which is the business, not the foreigner) dissolves the promoted activity or transfers it to another person, the incentives no longer apply. If the promoted person has acquired land, the land must be disposed of. If the company does not sell the land within 1 year, the Director General of the Land Department shall have the power to dispose of it under the Land Code.
Buying Phuket Property in a Thai Spouse’s Name
Prior to 1998, a Thai woman who married a foreigner gave up her right to own land in Thailand. This restriction was removed in that year. However, a foreign husband is not permitted to co-own the land with his wife. (Because it is the most common relationship dynamic, we will continue to use the example of a Thai wife and foreign husband, but it applies equally the other way around.)
When purchasing a Phuket villa or a plot of land in a Thai wife’s name today, a joint declaration must be made stating that the wife purchased the villa with her own personal funds. Because the foreign husband has no claim on the villa, it may therefore be mortgaged or sold without obtaining his consent.
It was once a common practice in Phuket for the wife to be the legal owner of the land, which she would lease to the husband on a 30-year basis. The husband would then pay to construct his dream Phuket villa, which he could own through a right of superficies. Even if the wife were to sell the land, the husband’s right to live on it would be protected for the duration of the lease.
But any agreement between a husband and a wife pertaining to property, which was formalised during marriage, may be voided by either the husband or wife at any time (or within 1 year of the dissolution of the marriage). At present, it appears as though the Land Office will not even register any agreements signed between husband and wife (i.e. long-term lease, superficies, usufruct, lifetime living rights).
A foreigner may inherit a villa property from his Thai wife, but he may not assume permanent legal ownership. If the wife were to precede her husband in death, he could inherit the property as a statutory heir, but would not be permitted to register the land in his own name. Under present law, as a sole non-Thai beneficiary, he must dispose of the land to a Thai national within a reasonable period (typically not longer than 180 days).
A foreigner would also be permitted to act as the executor of his wife’s estate, which would allow him to rent out, dispose of, or manage the property in any way he sees fit. But unless a period of time is otherwise fixed by the testator, by a majority of the heirs, or by the Court, the executor of an estate must perform his duties and complete the distribution of assets, including the property, within 1 year.
As always, it is highly recommended that a foreigner consult a reputable lawyer when purchasing any type of property in Phuket.
Using a Thai Company to Own Land or a Villa in Phuket
This topic is covered in much greater depth in a later section. It is important, mainly because it is the number one thing a foreigner should educate themselves on when buying landed property or a villa in Phuket. Some foreigners do own land in Phuket legally, but a huge percentage do not.
There are laws that state quite categorically that foreigners may not set up a Thai Company for the sole purpose of owning land, especially when the company is not trading in any way, and the Thai shareholders are simply strawmen, or nominees.
If a Thai company is running a business, generating revenue, filing accounts, paying taxes, has been set up with legitimate Thai shareholders, as well as adhering to all the corporate laws of Thailand, the Thai company may own land, even if the company is controlled by a foreigner.
In Summary – In A Very Big Nutshell
This section has offered an extremely forthright overview of the stories foreigners are told about buying property in Phuket, 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 villas and land in Phuket 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 Phuket. 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.
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SECTION 7: The Inherent Risks to Buyers a Buyer Should be aware of: What Every Buyer of Property in Phuket Needs to Know
Foreigners who arrive in the “Land of smiles”, are mesmerised by how beautiful the Kingdom of Thailand is, and that surely in such an incredible place, full of such nice people, nothing can go wrong. Unfortunately, things often go wrong in Phuket, through either unfortunate circumstances, deliberate intentions or through the bereavement of the original lessee or land owner who made promises that the heirs refuse to accept. Buyers also need to be aware that many properties in Phuket are built illegally, and so the sale of the property at a later date, sometimes proves impossible.
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SECTION 8: The Importance of Sound Legal Advice for Foreigners when Buying Property in Phuket
Foreigners are not allowed to own landed property in Phuket. This is a truth we have to accept. A foreigner is a guest in the Kingdom of Thailand, but every foreigner can seek quality legal representation from ethical lawyers to make sure that all is done correctly, and that foreigners are adhering to either condominium laws, and/or, more importantly, land ownership laws enforced strongly by the Thai authorities. Legal advice from an experienced Thai Lawyer is essential. If any foreigners decides to purchase a property in Phuket, then they must ensure, without a shadow of a doubt, that everything is done according the laws of the kingdom.
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