Buying property in Thailand
June 10th, 2010
Thai law stipulates that a foreigner may not own land in his name, he has the right of ownership of buildings only. If a foreigner wishes to purchase land to build a property he has 2 options.
The land is purchased on a 30 year leasehold, with an option to extend the lease for further 30 year periods. Possession of the land is assured by virtue of the fact that the property occupies the land. The lessor cannot seize the property upon expiration of the lease, as the property is separate from the land.
If a foreigner is going to operate a business in Thailand then he may purchase the freehold of the land through his Limited Company. The land will be owned by the Company, not the individual.
Even recent amendments that allow a Thai spouse (male or female) of a foreigner to buy land require proof that the money used in the purchase of freehold land is legally solely theirs with no foreign claim to it.
Although Thai Law stipulates that a foreigner may not own land in Thailand, there is an alternative step of owning land in Thailand. This involves registering a Thai Limited Company. A Thai Limited Company means that 51% or more of the company must be owned by Thai Shareholders (the remaining shares may be held by non-Thais). This “Thai” company may then legally purchase land in Thailand.
It is recommended that foreign investors form a “Thai Company Limited” because the Articles of Association of this form of Company can be varied to allow greater protection for foreign minority shareholders where majority Thai ownership is required under the applicable Law. The Article of Association can be changed to authorize the foreigner to be the sole director of the company, and the only person of the company who can commit or bind the company in any contractual dealing (buying or selling land), effectively giving the minority shareholders control over the company.
By following the above procedures the foreigner would control the company and the company owns the land, for this there is no need of recorded funds from overseas.
If however, what you want is a house, the fact that you can’t acquire freehold land should not be a deterrent. You may own the building freehold and together with a well constructed leasehold (typically a 30 year lease with two prepaid 30 year renewals) and a purchase option for the land (that could be exercised in the event the laws of foreign ownership changed – or you sold the property on to a Thai person or legal entity) you will have effective ownership, yet still remain within the laws of Thailand.
Foreigners may own assets in Thailand such as a development constructed on the land. The owners of the development usually set up a legal structure and mechanism which enables the purchaser of the property to own the property.
Here is an example of how this is achieved
Corporate Ownership of property
Thai corporate structures are very similar to British common law.Thai law allows for PLC;s LLC;s Ltd partnerships and other types of corporate entities. Once formed they are referred to as “Juristic perons” in Thai jargon (legal entities). Juristic persons in Thailand which are owned by a Thai majority are considered in terms of property ownership, to be a Thai person and therefore, may own property in Thailand. Note that equitable ownership, which Thai law addresses, does not necessarily equate to actual control of the Juristic Person. The most popular form of corporate land ownership is the Limited Liability Company (LLC).
Control of the Limited Liability Company
Thai law allows the issuing of classified or two tiered stocks. Hence shares of the LLC may be issued as “Ordinary Shares” where the holder of one share is entitled to one vote, and Preferred Shares where a shareholder must have multiple shares in order to obtain one vote. The Thai majority shares may be issued as “Preferred” and the foreign minority shares as “Ordinary”. This allows the foreign minority shareholders to hold fewer number of shares, but in fact have control of the company by voting rights.
The land of the development is owned by XYZ Phuket Co.Ltd which in turn is owned by XYZ Phuket Holdings Co.Ltd (XYZCHL). The Thai partner in the development holds the Preference Shares in XYZCHL and the Ordinary shares are owned by XYZ Owners Ltd (“OWNERS”). Each purchaser at XYZ Co.Ltd receives one equal pro rata share of the common stock of OWNERS.
On completion of the agreed purchase amount each purchaser will own a Villa plus an equal share in OWNERS and a lease.
Purchasing a condominium is the easiest, simplest transaction. The law allows foreigners to hold 49% of the units in a condominium freehold while in certain condominium blocks a full 100 % of the units can be owned by foreigners on a freehold basis. One important requirement in order to qualify for freehold status is that the foreign currency funds for the purchase have been remitted from abroad and correctly recorded as such by a Thai bank. The foreign freehold is definitely the preferred structure for purchase of an condominium apartment.
Foreigners have the right to ownership of buildings only, where land is not included. Legal acts are unlimited. A suggestion for foreigners is to lease the land for 30 years with an option to an extension of the lease, then purchase ownership of the house built on the land. Certainty of possession of land and house is assured, by being the owner of the house. The ownership of the land shall be leased out. If arranged as stated above, then the house will be separate from the land, and will not be a component part under the Civil Law. Ownership of buildings can be confirmed, and the lessor cannot seize the house upon expiration of the lease.
See Condominium Ownership here
Land Title Search
It is highly recommended that a proper land search at the land office is carried out prior to making an offer. See land titles.
If a second hand property is being purchased, it is essential a building survey is carried out.
What will it cost?
Property tax – Does not apply to property being used for private residential purposes.
Costs only apply upon transfer of ownership. These fall into four categories (From 1st July 2010)
- Transfer fees 2.0%
- Stamp duty 3.3%
- Business tax 0.1%
- Income tax (the Thai equivalent to capital gains tax – a variable rate).
Most of the fees are calculated relative to the government’s tax assessment value of the property and this value is well below market value.
The precise methods of calculation are complex, but usually these costs are split between the buyer and seller.
Is my investment secure?
You should use a reputable business advisor and lawyer, carry out “due diligence”, and have a lease agreement prepared. Once this is done, your investment is as secure as anywhere in the world.