Thailand property - Legal FAQs

Thailand property - Legal FAQs

Ownership Options for Foreign Buyers of Thai Houses, Villas and Town Houses

Thai law states that foreigners cannot own land, they can own buildings only. So, if a foreigner wants to buy a house, (or duplex/townhouse), which includes land, he has two basic ownership options for acquiring the land.

1. Set up a carefully structured Thai limited company to hold the freehold of the land. The freehold of the land is put in the company name. The minimum requirement for the company is for two Thai shareholders. These Thai shareholders will be provided by the lawyer setting up the company. The foreign buyer is made a director, and a shareholder, in the company. You can also have more than one foreign shareholder or director but the total foreign shareholding must not exceed 49%. Crucially, there are a number of protective measures always put in place by the lawyer setting up the company to create a very safe structure for the foreign directors. These give the foreign directors complete control and they typically include, but are not limited to, the following: the foreign director(s) is the only officer who can commit or bind the company in any contractual dealings; the director’s shares are preference shares and hold 10 times the voting rights of the nominal shares, giving the directors 90% of the voting power; when the company is set up, all of the Thai shareholders sign an open dated share transfer form. This means that they can all be signed out and replaced with other shareholders whenever the foreign director(s) wishes.

The company owns the freehold of the land and the investor(s) is free to build on the land, sell or lease property and transfer their rights to next of kin.

Note: The Company must comply with the law and money should pass through the company books, shareholder meetings must be held, minutes of meeting prepared, and yearly accounting must be filed. But a good local accountant can take care of all of this for you. It is easy to put some expenses for running the property through the company books. The accountant will also submit annual accounts for a typical fee of around 20,000 THB.

What is A Thai Limited Company?

A Limited Company, particularly a Private Thai Limited Company, is the most popular form of business structures in Thailand. Its key features are:

• The liability of the shareholders are limited to any amount left unpaid on their shares.
• There is a separation between owners and management.

Section 1096 of the Thai CCC (Civil and Commercial Code) has provided that "A limited company is that kind of which is formed with a capital divided into equal shares, and the liability of the shareholders is limited to the amount, if any, unpaid on the shares respectively held by them."

The incorporation of a Private Limited Company requires:

• A minimum of three promoters
• At least one director
• An auditor
• A memorandum of association
• A statutory meeting
• Registration of the incorporation papers

They must also follow accounting procedures specified in the Civil and Commercial code, the Revenue Code and the Accounts Act. A balance sheet must be prepared once a year and filed with the Department of Revenue and Commercial Registration. In addition, companies are required to withhold income tax from the salary of all regular employees.

Brief Procedures to Register a Thai Limited Company

• Reserve Your Proposed Company Name

The Thai limited company name reservation must follow the guidelines of the Business Development Office in the Ministry of Commerce amongst other guidelines.

• File a Memorandum of Association

The Memorandum of Association of the Thai limited company must to be filed with the relevant Thai authorities.

• Convene a Statutory Meeting

The Thai limited company must convene a statutory meeting to make all the appointments.

• Company Registration

To establish the Thai limited company it has to be registered with the Thai government.

• VAT or SBT Registration

Depending on its business activities, a Limited Company may have to register for the Value Added Tax or Specific Business Tax

2. Lease the land on a rolling 30 year lease. An alternative to setting up a Thai limited company is for the foreigner to purchase a 30 year lease for the land. Options to renew the lease for 2 further periods of 30 years are built into the contract to make a total lease period of 90 years. The contract can also include a fixed option to purchase the freehold whenever the foreigner wishes.

Note: The house itself (i.e. the building) can be owned directly by the foreign buyer. However, if the freehold of the land is held in a Thai company, then the house will typically be held in the same company. This is for reasons of tax efficiency and ease of resale.

Property Lease in Thailand

As foreigners cannot claim ownership over land as freehold, the preferred method of acquiring land is through leasehold.

A foreigner can safely acquire the right to use the land and register the right for a maximum lease term of 30-year lease at the Land Department.

Lease term - A lease agreement will usually guarantee the initial 30-year lease term.

Renewal of Lease

Renewal of lease in Thailand is not in Perpetuity. There is no automatic right to renewal and parties must take an active step to renew the lease towards the end of the initial term.

It is difficult but possible and success will depend upon careful drafting of the clause regarding the intention to renew and there it will still subject to the Registrar's discretion.

Renewal periods thereafter the initial period must not exceed 30 years.

Have your lawyer advice you on renewal clauses.

Lease Agreements and Registration

• Drafting of the Lease

The lease contract is usually drafted in the Thai language, however we do provide English versions if needed.

It is recommended to include family members such as young adults as co-lessees in the contract. In the uneventful demise of the parents, the children can carry on the full term of the lease period.

• Registration

Leases for more than 3 years are able to be registered at the Land Office, which will then further protect your interest in the house, as it becomes an encumbrance.

Upon registration, the title deed will then contain your name and particulars as to the lease. The lease contract is then attached to the title deed and maintained at the Land Department.

The foreigner can construct a house on the land if the lease agreement permits. The construction permit must be applied for in the name of the foreigner and subsequently the foreigner will own the structure in his/her own name.

Most importantly, leases are valid even upon the demise of the lessor, or in the event that the land is sold. However, leases are only transferable to third parties in the event that the guarantor of the lease permits it.

The advantage of leasehold is a lower registration fee. The registration fee for registering such a lease is 1.1% of the rental value.

Ownership Options for Foreign Buyers of Condominiums and Apartments

Condominiums in Thailand are distinct from ‘standard’ apartments in that they have a condominium license which means that up to 49% of the private living space of the condominium building can be bought by foreign investors on a freehold basis. The remaining 51% can be directly owned by Thai individuals, held in a Thai company or leased to foreigners.

Buying a Condominium in Thailand

STEP 1: Finding Real Estate in Thailand

Real Estate in Thailand has taken off in the past decade with more foreigners' wishing to retire in Thailand. You must consider the following:

• Always make use of registered lawyers in Thailand
• Always make use of reputable estate agents when taking advice on real estate in Thailand.
• Be it in Bangkok, Pattaya or Hua Hin. Be aware that many of the problems that do arise from the purchase of a condo in Thailand can be avoided early on in the property search.
• Do they allow animals in the condo?
• Ask the right questions to avoid costly litigation.

STEP 2: Consulting a Lawyer in Thailand

Buying any Real Estate in Thailand be it a house or a condo requires the services of a reputable law firm. Once you have decided which real estate you are going to purchase, always consult a lawyer before signing any documents. The following would be checked amongst other property services:

• A title search over the property
• Note the type of Title Deeds in Thailand
• Review the contracts before signing

The considerations to bear in mind when you are buying a condo off plan:

• You would need legal advice as to buying in pre-construction projects.
• There is also the cost of transfer or tax for your condominium.

STEP 3: Mortgages in Thailand for Foreigners

Each year many people come here to enjoy their holidays in the comfort of a second home or their most treasured property investment in Thailand.

Obtaining a mortgage to finance your purchase of property in Thailand is possible.

• There are currently two banking institutions which provide mortgage bonds to foreigners. They are Bangkok Bank and United Overseas Bank (UOB). These mortgage bonds are concluded 'off-shore' at their Singapore branch.

• The home loans they provide to foreigners are based in foreign currencies. Your home loan/mortgage bond would be provided in either Japanese Yen, Euro or US Dollar. The interest rates also vary with each currency.

Apartments (i.e. where the development has no condominium license), these can only be leased on a rolling 30 year lease. Options to renew the lease for 2 further periods of 30 years are built into the contract to make a total lease period of 90 years.

Obtaining Construction Permission

Construction permission may be obtained at the Local Administration organization (Aor Bor Tor), or the Municipal Office, where your land is located. Structure Plans submitted shall be certified by an architect or an engineer. A building must have the specifications indicating in the permission.

Buying a Property in Thailand at my Absence

Yes. A person wishing to buy a land, including a foreigner, may purchase a land without being present at the time of registration of ownership at the Land Department. This shall be done by appointing, by a power of attorney, a lawyer to act on your behalf.

Nevertheless, if you are married to a Thai, you, a foreign spouse of a Thai, is required to declare in a written agreement that a fund, of a purchase of land, is purely of your Thai spouse as her personal affair before marriage. This procedure may be done by signing such declaration abroad, and demand for a certification at the Consulate of Thailand in your country.

Legally Rent Out a Property in Thailand

Yes. A foreign-owned property may be rented out. Some banks may allow you to open an account to collect the rents. You, as a non-resident, must be aware that personal income tax shall be deducted from your income earning in Thailand.

Visa Options for Long Term Stay in Thailand

There are 3 types of visa that allow long term stay:

Tourist Visa - issued by a Thai embassy abroad. These are valid for 60-90 days depending on the country of issue. You can simply leave the country when the visa expires and come straight back in another 60 or 90 days. Many quasi resident visitors to Thailand use this approach to stay for years. This approach is fine as long as you are solvent and not engaging in business in Thailand.

Non Immigrant Visa - issued by a Thai embassy abroad. These are for a maximum of 1 year but you have to leave the country every 3 months. There are 3 basic ways to qualify for a non-immigrant visa:

1. You are employed (or own a company) with at least 2 million baht capital value.
2. You have a Thai family.
3. You are retired and can prove adequate financial means to support yourself. We give you legal assistance to obtain a non-immigrant visa.

Resident Visa - Hard to get and rarely issued. To qualify you need to read and write Thai along with strong local financial status and influential Thai references.

Measurements Using for Land in Thailand

In Thailand, Land is measured in Rai, Ngan and Wah.
• 1 Rai = 4 Ngan (or 1600 Sq.m.)
• 1 Ngan = 100 Wah (or 400 Sq.m.)
• 1 Wah = 4 Sq.m.
• 1 Acer = 2.5 Rai
• 1 Hectare = 6.25 Rai

Land prices are usually expressed in Baht per Rai or Baht per Wah. Condominium prices are usually expressed in Baht per sqm (square meter)