Foreign Ownership in Phuket Thailand
Introduction:
Foreigners from all around the world buy real estate, both residential & commercial in Thailand. This essay attempts to explain the current laws & legal options available to potential foreign (non-Thai) purchasers.
Please note that whilst every care has been taken in the research of the content herein, Garden Island Co., Ltd. accepts no responsibility for any errors or misinformation that may occur.
Should you find any "passages" to be ambiguous or need further clarification on any matter, please do not hesitate in contacting us.
Ownership methods:
I. Investment / BOI:
Since 2002, a foreigner is permitted by the Ministry of Interior to purchase land up to one rai (1600 square meters) for residential purpose, on condition that he invests 40 million Baht in Thailand, for some purpose other than ownership of real estate itself. Actually, this option is problematical for the majority of foreign investors because of the legal restrictions involved and is relatively seldom used.
II. Leasing:
Leasing is a popular and straightforward option to acquire a property in Thailand. The maximum duration of a lease permitted under Thai law for non-commercial usage is 30 years, (for commercial usage 50 years), renewable for two additional terms of 30 years (commercial usage 50 years), if contractually agreed.
IMPORTANT! Any land leased for more than 3 years must be registered at the Land Department or it is only enforceable for the first three years.
It is possible under Thai law to lease land as an individual rather than through a Thai company.
III. Corporate Ownership:
A further option is to establish a Thailand-registered company, preferably a Thai limited company, to acquire land. It needs a minimum of 7 different shareholders at all times, but only one director who can be a foreigner. At the beginning this director may have to be Thai in order to apply for the Tax ID and VAT registration of the Company. Thai law (land Code) requires that at lease 51% of the shares are held by Thai nationals and a maximum 49% of the shares may be owned by foreign shareholder because the land Code prohibition on foreign land ownership includes not only foreign individuals, but also Thai registered companies in which foreigners own more that 49% of the shares. Because there's no restriction under Thai law that one share must equal one vote, it is allowed to issue classified shares: The A-Shares ("Ordinary Shares") where the holder one share is entitled to one vote and the B-Shares ("preferred Share") where a shareholder must have multiple shares in order to obtain one vote. The foreign shareholders will subscribe to all A-Shares, whereby the B-shares are held by Thai holders. This structure enables the foreign minority shareholder to hold fewer numbers of shares, but in fact control the company by voting rights.
Since the foreign shareholder of the Thai Company can be a natural or a juristic person, it is possible to use an off-shore entity, e.g.a BVI (British Virgin Island) Company, for tax efficiency.
IV. Managed Estates:
Currently, managed estates are very common. They all vary in structure. Normally the managed property is offered as a freehold purchase through Thai companies or with a leasehold structure concerning the buildings in combination with subscribing to a certain number of shares in a Thai company, which owns the land underneath the properties that are leased. This structure is advisable because the lessees of the buildings are more secure when they are also indirectly the "joint-landlords". With a land owning company which effectly protection that a lease is protected from being terminated by requiring typically at lease 75% of the owners to terminate a lease.
The potential problem with an "owner operated" managed estate is the necessity for the majority of the owners to confer & meet with each other. This may not be deemed as a practical or indeed attractive commitment.
V. Condominium:
Acquiring a condominium is gaining in popularity amongst foreigners. A condominium is a building that can have its separate portions sold to individuals or groups for personal property ownership.
Foreign purchasers are allowed under Thai law to purchase and own condominiums in Thailand.
There are five classes of criteria which alternative qualify foreigners as owners of condominium:
a) Holding a residency permit under Thai Immigration law, or
b) Permitted to stay in Thailand under the Investment Promotion law (BIO), or
c) A Thai registered entity with at least 51% of share held by Thai shareholder, or
d) Foreign juristic entity in receipt of a promotion certificate under the Investment Promotion law (BOI), or
e) A foreigner or foreign entity remitting a foreign currency into Thailand, or withdrawing money from Thai Baht account of the persons residing abroad, or withdrawing from foreign currency account.
Fortunately the last criteria applies to most foreign condominium purchasers and therefore it is the most typical way for foreigners to buy a condominium in Thailand.
According to the condominium act, foreigners or a foreign legal entity normally can acquire up to, but not exceeding 49% of a condominium block (direct freehold).
If a foreigner wants to register the purchase at the Land Office he has to submit a letter of guarantee from the condominium juristic person which proofs the proportion of foreign ownership among other documents. If the quota of 49% is already used, he can set a Thai company to purchase a condominium without restrictions. Another option is leasing. Condo-minium leases, like land leased are generally prepaid for 30 years with option s of renewing for two additional 30 year periods. In effect, the pre-paid rent is the same as a freehold or purchase price.
A further restriction according to the Condominium Act is that a foreigner must bring currency into Thailand to finance the purchase of the condominium. However, expats which are working in Thailand can use funds earned in Thailand on condition that their funds are paid into a non-resident account.
Further, the purchaser must obtain a Foreign Exchange Transaction form(FET) from the bank as proof of the remittance. This form will be issued by the receiving bank and is filed at the Land Department when the foreign purchaser registers the purchase. The amount of money fixed in the FET form must cover the whole of the condominium price. Should the remittance be less than $20000 USD, the bank will issue a "credit advice" in English which is not acceptable by the Land Office as proof of remittance for the condominium purchase. In case of this, the purchaser has to ask the bank to issue a "letter of guarantee" as evidence of remittance.
An Important addendum:
On May 25th 2006, the Thai Government issued an official statement concerning their determination to implement an aspect land transfer law (section 74 of the Land Act.) This was intended to crack down on property companies attempting to circumvent specific requirements of the act. This edict has caused some confusion unnecessarily. The following is a statement issued by the Chief of the Phuket Provincial Land Office (PPLO) "Supot Suwannachote" where he reassures business people that the Thai Government will do nothing to stem or cause a slowdown in Phuket's vibrant property sector:
Courtesy of Phuket Gazette
Land Office Chief moves to allay property bust fears
Phuket: The Chief of the Phuket Provincial Land Office (PPLO), Supot Suwannachote, has moved to reassure business people that closer inspection of companies wanting to register land title, as ordered by the Ministry of Interior of Interior does not mean that transfers of ownership ownership will be refused.
He stressed that he did not want to see a slowdown in Phuket's booming property industry. "if your company is genuinely 51% Thai-owned, there is no problem."
K. Supot denied that all applications by companies with foreign shareholder are being put on hold, or that applications are automatically being sent to Bangkok for examination.
"The first thing we do is check with the provincial Business Development Office (BDO) whether the company has been properly set up, with foreigners owning no more than 49%
"Where the company has a Thai MD (Managing Director) or has both Thai and foreign MDs, there is no problem. But when a Thai-registered company has a foreigner as its Managing Director, we check more carefully. For example, we check with the BDO whether the shareholding has changed so that foreign share exceeds 49%.
"So far, we have not sent a single case up to Bangkok," he said on June 6.
Details of some application companies with foreign shareholders might be sent to the BDO for further checks, he said, but these checks should not take more than a month to complete. Since the order was issued on May 15, however, no cases have been sent to the BDO.
QUIETER
The PPLO receives between 100 and 120 application for change of ownership of land every day, he said, though most of these are transfers from one Thai to an other or by people wanting to register loan or lease agreements.
Since the original uproar over the tightening of checks on land transfer, matters have gone rather quiet in the property community, with concern over the brakes being put on business having , apparently, abated.
Stuart Reading, Assistant Vice-President of Finance at Laguna Resort & Hotel, said that LRH was not particularly concerned as most of its sales are on a leasehold basis, and therefore do not require a change in land ownership.
But, he added, "I'm not aware of any transfer we've done in the past week that have (run into problems). From what I understood this was mainly aimed at foreign developers. We're a Thai company , so we are legally able to acquire and develop land, because we are a public company.
BDO chief Veerachai Tantiwathanavallop denied that checks on companies would take a month, as suggested by K. Supot. "It will take only a minute or so," he said. "Just give me the name of the company and its registration number and I can tell you." He confirmed that he had, to date, received no queries from the PPLO.
He noted that when people apply to set up companies, he explains to them that in order to register a Thai company the foreign shareholding must be no more than 49%
He said that, theoretically, a company could increase its foreign shareholding to more than 49% but that it would then have to be re-registered as a foreign company, which limit it to just 49 areas of business, all effectively in exports. "I have never had a single application of this nature," he added.
Registration of new company in Phuket continues apace. A total of 157 new limited-liability companies were registered in May.
Of these, 50% were registered to do property business. Of those, 70% had foreign investors.
Garden Island Real Estate & Property Services hopes that this essay has been of some assitance. We look forward to being of service to you in the future & welcome your enquiries.
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