Thai Property Law
Thailand's property and real estate laws can seem fairly restrictive as applied to foreigners, but they are really no different from other countries where special treaties are not in place. Although foreigners may own buildings, condominium units or houses, in their own names, Thai law stipulates that foreigners cannot own Thai land in their own names. There are, however, several ways in which foreigners can acquire land rights in the Kingdom of Thailand ...
The romantic solution
Repeating 30-year lease
Limited Company
Condominiums
Vacation Investment Program
Option # 1 - The romantic solution
Meet and marry a Thai person you love and trust, buy house and land in his or her name, and live happily together ever after! This beautifully simple solution is, for reasons we will not discuss here, the least popular option. It is, however, not uncommon, and thank goodness for that!
Option # 2 - Renewable/resellable 30-year lease
Leasing is legally the simplest, most straightforward way to own land rights in Thailand, a solution used by foreigners and Thais alike. Land lease contracts can cover periods of 30 years, or consecutive periods of 30 years, and can confer rights equivalent to freehold ownership to the buyer. Leasing is currently seen as a reliable solution, if also as one which bridges the time until a more agreeable option is introduced.
If the intention of the seller is to transfer rights equivalent to freehold ownership to the buyer and a leasing solution is used as the best legal alternative, the purchase contract will reflect this intention by featuring clauses concerning renewal of the lease or freehold sale of the property, putting control of these with the lessee and obliging the lessor to provide properly notorised editions of the required documents at any given time. This is a business agreement concerning the buyer's right to renew or resell at any time in the future, it does not confer actual ownership of the land. This agreement finds support in Thai commercial and civil law and does not require support from the land law.
The actual contract to lease the land for the first 30 years, and the buyer's rights therein to build and own, is the part of the whole agreement which is covered by Thai land law and which can be registered with the Land Department. If the intention of the buyer is to lease for 30 years only, some finite plan or perhaps a commercial venture, this part of the agreement covers all ownership aspects.
Thai land lease lease contracts, therefore, are all based on the registerable 30 year period for which a standard contract is often used, and thereafter make the appropriate agreements between buyer and seller in the purchase contract. The registered 30-year lease contracts are in the Thai language but they are, of course, accompanied by notarised English translations. With all this paperwork in order, the future of a lease can be considered legally fully secure.
HH-property's land lease solutions, created in-house and executed in cooperation with our legal associates, costs THB 65,000. The registration fee payable at the Land Office is 1.1% of the property value stated in the contract, which is normally equal to the Land Office's appraised value of the property, which in turn is normally far less than the actual market value.
Option # 3 - Limited Company
This option has long been the most popular way of enabling foreigners to acquire land in Thailand. It involves the incorporation of a limited company, legally, a "Thai Juristic Person" which has the undeniable right to own land, using the identities of voluntary Thai persons as nominee shareholders and the installment of the sole foreign investor as Sole Executive Officer of the company. The company owns the land and the foreigner owns the company. Perhaps due to the enormous value of foreign investment in Thai property, successive governments have consistently left this aspect of the nominee issue alone. There has been some tightening of the rules in recent years in response to alleged commercial abuse of the system such that establishing such companies is a little more difficult and costly to do than before, but this solution is still highly viable and effective.
Many properties are already owned by foreigners under the company model, and the most expedient way to buy these is as follows: One does not actually buy the property, one buys the company director's shares and is installed as the company's sole executive officer, thereby taking over full control of the company and its asset, the property. This takeover procedure must, of course, be administrated by a law firm or agency with the knowledge and experience to do it properly. All documents are in the Thai language, but notarized English translations are normally provided.
HH-property's company solutions, created in cooperation with our legal associates, cost THB 95,000 and it takes one month to incorporate a new company and register the property. The transfer fees payable at the Land Office normally ammount to 6.35% of the property value stated in the registration documentation, which is normally agreed by buyer and seller, often in consultation with TH-property and the land office, at a value far less than the actual purchase price.
The "nominee" solution has been in use since 1932 and is seen and accepted as the proper way for foreign individuals to own business or property interests in Thailand. Business ownership is one thing, but it is the issue of land ownership, so fundamentally important to Thailand and its people, which is the reason for much of the concern over the nominee solution. Thailand understands, however, that foreign investors require acceptable security, and perhaps consequently, the nominee system is still in full use while the world waits for the outcome of presumably important political discussions which have been pending since 1932. On the date of writing, March 26 2008, land offices still inspect and accept correctly prepared companies with foreign executives and conduct the registration of land and property ownership in the names of these companies.
Option # 4 - Condominiums
Under condominium law, up to 49% of the units in a condominium complex can be owned by foreign nationals. To ensure that the registration of ownership goes smoothly, there are clear procedures which ought to be followed correctly: Foreigners buying condos must transfer funds in foreign currency from a bank account outside Thailand to an account at a Thai bank. The name of the transferree must be the same as the name that will appear on the final purchase contract, ie. the buyer. Use Bangkok Bank or Kasikorn Bank (f.k.a. Thai Farmer's Bank), the only two with full international services and English speaking staff, and be sure that the funds transfer documentation stipulates that the funds will be used to purchase a condominium. It is also common to transfer funds to the escrow accounts of estate agents or lawyers administrating the condo purchase, who can ensure that the correct documentation is collected from the receiving bank. Transfers must be made in amounts USD 20.000 or more in order to qualify for Foreign Exchange Transaction Forms issued by the receiving bank to verify that the originating funding came from outside Thailand in a currency other than Thai Baht. This bank certificate confirms the origin and purpose of the funds and furthermore facilitates the repatriation of the funds if/when the condo is later sold. The Department of Lands (Land Office) may refuse to execute ownership transfers if these bank certificates cannot be produced. There is a great deal of paperwork, which can be very awkward to correct if first done wrongly, required for the purchase of condos, so please do use a qualified agent or lawyer to handle this.
HH-property's condominium acquistion service, provided in cooperation with our lawyers, costs THB 65,000 and involves full cooperation with banks and the with seller of the condo. The registration fees and taxes payable at the Land Office can ammount to 6.35% of the purchase price.
Option # 5 - Vacation Investment Program
On 25 November 2006, the Royal Thai Government presented its first fully-comprehensive solution for foreign ownership of Thai property at a public meeting in Hua Hin attended by HH-property Estate Agents Co. Ltd. and other estate agencies and property developers. Perhaps the most secure solution by virtue of it's governmental endorsement and management, this solution is, however, by far the most expensive, although it does come with several advantages.
A private enterprise named Thai Longstay Management Co. Ltd. (TLM) has been established in a joint venture between the private sector and the governmental Tourism Authority of Thailand. When a foreigner buys a property in Thailand using TLM's Vacation Investment Program (VIP), the buyer pays the seller in the normal way and a new company is formed with the name Thai Longstay Property (TLP) (Customer's Name) Co. Ltd., co-directed by TLM and the VIP customer. The buyer's money is secured via a loan agreement between the buyer and this new company. This loan agreement also documents the funds used for the company's share capital (equal to the purchase price of the property), and the property is then transferred to the new company. The buyer's investment is further secured with repeating 30-year leases (maximum 90 years) which can be sold or sub-leased.
Entrance fees to the Vacation Investment Program are rather high. For example, purchase of a 10 million baht property costs 1.1 million baht and yearly management fees of 98,000 baht. In return, buyers get absolute legal security and further advantages including long-stay visas, "Fast Track" services through Thai international airports, discounts at participating commercial outlets such as hotels, golf courses, restaurants, hospitals and insurance companies, telephone SIM cards, legal advice, and property taxes, and accounting and auditing costs are covered. The VIP charges an exit fee of 5% of the capital gain when the property is sold, offset by an interest calculation of 3.5% of the initial investment. This "interest" ammount is exempt from the exit fee.
The Vacation Investment Program was officially launched in Bangkok at the Ministry of Tourism and Sports on Wednesday, November 29, 2006, but has met little success.
The result of joining this program is that you will have paid about 1 million baht simply to join up, you will then pay about 100,000 baht annually for administration, and you still only have a 30 year lease, which it will cost another million baht to renew.
Taxes
When property is transfered from seller to buyer, there are some taxes to pay at the Land Office. The Land Office has its own, forever changing, evaluations of land in different locations, and this is how the "appraised" value of the land is set. The appraised value of buildings is 5,750.00 baht per square meter, no matter their quality and features. These two values together constitute the basis for calculation of the Registration Fee (2%) and the Stamp Duty (0.5%). Then there is the "registered" value of the property, which is the basis of the Withholding Tax (1%, falls away if the seller has owned the land for more than 5 years) and the Business Tax (3.3%). It would be entirely correct to register the property at the price one is actually paying, but this never done (to lessen the tax impact), except with condos where the purchase contract must be presented at the Land Office. Normal practice decrees that buyer and seller agree what value they will state at the Land Office, and this value is normally set just a little over the appraised value. It would also be entirely correct for the buyer to pay the Registration Fee and Stamp Duty, and for the seller to pay the Business Tax and Withholding Tax, but arrangement is seldom made. Normally, the entire tax bill is bourne equally by both parties.
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