Owning Property Through A Thai Company

A Limited Company in Thailand that has foreign shareholders (no more than 49% total), and/or foreign directors, can use the said company to purchase land in Thailand and also register the land in the company name as an asset. Of course, owning property through a Thai company can carry a certain level of risk if the procedure is not done correctly.

Registering a company in Thailand with the sole purpose of purchasing private property and land is starting things off on the wrong foot immediately as the company in question must also be ticking a few boxes, these are:

– Conducting Legitimate Business Activities
– Generating Revenue
– Providing Profit To The Shareholders

It’s not uncommon for a business to want to acquire a property to set up a base from, but the corporate laws of Thailand must be followed correctly.

Foreign shareholders and/or directors that take a trip to the Phuket Land Office with hopes of registering land under a company name will normally be refused. The Land Office will almost certainly presume that the company in question will only have nominee Thai shareholders who only hold their shares as a proxy for one or more of the foreign shareholders, and let’s be honest, this is often the case. The Phuket Land Office maintain a right-to-refuse on this basis alone.

If the buyer feels that they are legitimately purchasing the property/land on behalf of the company, they have the right to ask to proceed. This will start an investigation process by the Land Office regarding each of the shareholders, and their investment in the company. If the investigation by the Land Office doesn’t throw up any red flags, the officer should then proceed to send the documents over to the Bangkok offices for either approval or refusal.

The approval process can drag on unfortunately and may end up taking many months and sometimes it may not be possible for the purchaser to be able to wait that long. Purchase/Sales and Pre-Purchase/Pre-Sales agreements will normally have a reasonable closing date but adding months onto that time frame can lead to unforeseen problems.

As a company director, it’s important to know the exact laws regarding property/land purchase, and how they will apply to your situation. This is where getting the right legal advice will come into play. It’s a crucial stage of company land purchase and any failure that your company has to adhere to the letter of the law may end up making the company directors criminally liable!

It’s quite easy to be sat in a bar and spitballing ideas of “ways to buy freehold landed property”, but be wary of the pseudo-legal advice that will end up flowing faster than the beer will.

For many of the villa and townhouse owners in Phuket, that have recently chosen or been persuaded to buy landed property, this can often be a very sensitive subject. Not everyone has the same respect for the Thai Law regarding property and land ownership and it’s often impossible to challenge someone’s pre-existing belief that “they paid for it so they own it”, regardless of the sheer volume of information on the subject that states otherwise. It’s a conversation that is bound to upset someone at some point.

So for the sake of argument, let’s reiterate a simple fact: Foreigners Are Prohibited From Owning Land In Thailand.

This applies to any landed property be it a townhouse or a villa. For anyone that’s leased land, the same rules still apply, regardless of what “bar talk” has happened. They can opt to build a house on the leased land, but they will not automatically gain the subsequent perpetual rights of ownership of any buildings constructed, as the land is only leased.

It’s easy to try and justify ownership after a few bottles of San Miguel, but it’s simply now true.

Villa & House Ownership In Thailand.

Where townhouses and villas are concerned, it will all depend on the underlying contract to lease the land (not to buy!), and whether the contract goes on to mention who actually “owns” the buildings and what will happen to the buildings after the lease on the land expires. This conveniently leads us to everyone’s favourite loophole, and the point of the article, for purchasing villas, townhouses and land in Thailand.

Purchasing Landed Property Through A Thai Company

Loopholes tend to easily form when the law is ambiguous. It’s not hard for a clever legal mind to devise a way to bend a law for their benefit, especially when there are multiple plausible interpretations of a certain law.

The loophole will remain “legal” as long as the law that it is attached to remains ill-defined. Let’s highlight two specific points where Thai Property Law is unambiguous:

1. Foreigners Cannot Own Landed Property In Thailand
2. A Foreigner Cannot Control A Thai Company Using Nominee Shareholders

As we touched on earlier, the Land Code Promulgating Act of Thailand clearly states that foreigners (or “aliens”) are, by the virtue of the provisions of a treaty, allowed to own land. It does fail to mention that for nearly 50 years now, there has been no such treaty in place.

While it has been dressed up in the nicest way possible, the stance on foreign land ownership in the Land Code is pretty clear. This is where the Thai Company LTD comes into play. While an offshore company is still considered “alien” under the law, a Thailand company can offer local ownership. This means that the forbidden fruit of Land ownership is within biting distance and the old Leasehold issue now becomes the much more appetising Freehold.

Having a company in Thailand will open up an option for property/land ownership. Do you want to buy a townhouse, villa or plot of land? Not a problem! Your dream condo is all out of the 49% allocation of foreign ownership, “mai pen rai”, you’re not “Thai” and can buy one of the remaining 51% through your Thai company.

The problem that occurs doing it this way is that if the company sole purpose of establishment was to buy a home or some land, and that the company serves no other purposes than to purchase said property/land, the company itself is technically a violation of Thailand’s laws. A company with only Thailand nationals as nominee shareholders and is 100% foreign-owned is flagrantly against the law.

In May 2006 the Thailand authorities began a clampdown on what and remains to this day, an illegal activity.

Procedures began to be put in place that ensured the officials of the Land Department were to make additional, and much more thorough, checks that prevented Land registration by any company that had foreign shareholders. This was specifically aimed at companies that were solely created to purchase townhouses, villas and/or land.

This had an immediate effect on shell companies created for property/land purchase, but only 4 months after the enforcement of the new rules began, on the 19th September 2006, Prime Minister Thaksin Shinawatra was deposed after a military coup was successful. Like with most changes that come with a Government overhaul, priorities often change also. The succession of new governments since then have not taken up the mantle of flushing out these shell companies.

Foreigners became less concerned about this law as the governments that have taken over since have had much more pressing matters to deal with (staying in office for one). During the past 13 years though, only the current government has maintained its staying power.

There have been some recent murmurings from Bangkok that seem to suggest that there may be another round of legislative amendments, regulations and guidelines on the cards. At the same time, many newcomers to Thailand are being informed that if Thailand were to crack down again, they would be shooting themselves in the foot.

If a further clamp down on the laws is set to come, especially on ones that target the use of nominees as shareholders in Thai Companies, allowing them to acquire property, foreigners that bought into said “loophole” may find that is no existent. Instead, they could end up being forced to sell their property/land, resulting in a massive amount of inconvenience, a large amount of stress, and considerable financial loss.

Opinions constantly differ on the foreign land ownership laws in Thailand, but a further question to ask is if Thailand is the only country that has these laws in place? You can find out in a recent article of ours linked below:

Thailand Foreign Land Ownership Laws

Thailand Laws Must Be Followed

While a company that has been registered in Thailand can own land, several rules must still be followed properly. In short, the company must have at least two shareholders that are Thai nationals. These shares must be over half of the share capital of the company in question. This must be a legitimate stake in the company with a clear paper trail of what they paid for their shares and that they have invested actual capital into the company.

Using a Thai national as a “nominee shareholder” is illegal. If the “nominees” are just there in name only and have acquired shares simply to satisfy the Thailand Company Ownership Laws, but their real purpose is just to enable a foreign investor the ability to purchase property or land through the company, this is breaking Thai law.

Thai Law does not recognise companies that do not have a business purpose. A company that’s sole purpose of being formed is to own assets, and at the same time has no intention of conducting any form of business activity or regular trade (see: not paying taxes!), the company may be dissolved.

A foreigner that establishes a company for those purposes mentioned above, can see themselves subject to fines, imprisonment, or even both. Not only could the company be subject to dissolution, but the Land Office may also require the company to sell any landholdings that are owned by the company.

The Costs Of Owning Property Through A Thai Company

Purchasing and owning a property by using a Thai Company Ltd. could end up costing you a lot more than you may have budgeted for. This is because a Thai Company is also responsible for these annual expenses:

– Preparing and filling audited accounts for the company
– Preparing and filling a tax return (semi-annual after the first year)

There are also a list of requirements for a Thai Company:

– A company must have a registered address
– The company shall be liable for taxes on income
– If the company director lives in the property owned by the company, personal income tax may also be due

Furthermore, the sale of a property that has belonged to the owner in their name, for a minimum term of 5 years, is subject to a 0.5% stamp duty of the final sale price. This is regardless of whether the property is a condo, villa or townhouse. This fee is payable at the same time as the final transfer.

Under Thailand property law, however, if either of the properties mentioned above were registered as a company asset, the stamp duty would rise to 3.3% tax of the total sale price. The income tax that may further be applied to the sale of a property that is owned by a company, may be considerably greater than it would have been if the property was owned by an individual and not a company.

Overseas Company Ownership

Using an offshore company to purchase property in Thailand is also not unheard of, but also not necessarily the correct solution either. It’s not uncommon to see that properties in Thailand have been purchased through offshore companies, these are mainly formed in low tax jurisdictions such as the British Virgins Islands or Seychelles.

Offshore companies don’t carry the same legal liabilities that are mentioned above and that is perhaps why they are used. Ignoring the statutory audited accounts and tax filling that most companies need to do, offshore companies do still have commercial liabilities. Regardless of which jurisdiction that the company falls under, if it costs money to operate the said company, commercial liabilities must be taken into consideration.

There are a few examples where you could justify using an offshore company, certainly in the case of leaving the property as an inheritance or simple ease of sale. In the case of selling the property owned by an offshore company, you’d simply have to transfer the shares of the company, a fairly simple procedure. The fact remains though, an offshore company may NOT own a landed property.

So What Are The Other Options?

Foreigners can own condominiums outright using a Freehold purchase agreement, but they can also lease land and own the villa built upon the said land. A properly structured lease will give the buyer more legal security in this case. This would also navigate any of the legal problems and potential liabilities that we’ve touched on earlier.

How To Do It The Right Way

The Phuket property boom and increase in foreign demand began around 20 years ago. Since then there have been many different efforts to hide or disguise any form of illegal company ownership. An experienced lawyer will know that provided everything is done correctly, there is still a way for foreign nationals to purchase landed property through a Thai company.

Companies that conduct a legitimate business, without trying to circumnavigate the system, are regularly afforded the ability to purchase land. There are numerous examples of this in Phuket, but a portion of these companies are property development companies or villa rental managers. As we’ve covered before, any condominium project must have at least a 51% of Thai national ownership.

A lot of these developments are built by legitimate Thai limited companies, some of which are run by foreign nationals. These companies will often choose to retain ownership of many of the condo units that they have built, in turn retaining rental income, profits from the sale to a Thai national, or a leasehold sale agreement with a foreign national. The company will have a Freehold on the ownership of the land that the condo project is built on, even if they have a minority of foreign shareholders that maintain a position of control in the company.

This leads to the fact that a foreign national may still set up a Thai company for managing and rental a villa project, and the company could in turn own the land that those villas sit upon. If the company was run the right way, the foreign director could have the option to also live in one of the villas, with only a small chance of facing any issues.

Another good example is schools. International schools in Phuket almost always have some sort of foreign controlling interest, but also still may be permitted freehold ownership of the buildings and the land that they are built on. A School is a legitimate business and of public interest to succeed as they will employ many local Thais are all levels.

Smaller businesses such as IT companies, Dive Shops, Import / Export Traders or Manufacturers can also buy their buildings. Even a legal service company can be entitled to buy their property.

It comes down to the fact that if you have a valid business that adheres to all of the applicable Thai laws, it will be much easier to legitimise the companies reason to purchase freehold landed property. Any property purchased by the company will be owned by the company, not the foreign national that is a minority shareholder. As long as you respect that law, you should have no problems.

Legitimate Corporate Ownership

There is certainly a certain circumstance that purchasing land through a Thai company is completely legitimate – if the company in question is a legitimate business.

Having foreign shareholders in a Thai company may very well be a red flag for the local authorities, but it is not illegal. The same cannot be said for having Thai nominees though. Nominees that have absolutely no stake in the running of the company and whose names are solely on a ledger buried away at a lawyer’s office. If you have the latter, you are breaking the law by being the foreigner that set up a company using nominee names.

If you establish your business properly and ensure that it is run professionally, follows the letter of the law, pays its company taxes, there is little to no chance that Thai authorities will view the company as illegal. Most Thai officials will be able to quickly see straight through any attempts to subvert the Thai company laws, but if you do it the right way, you will be clearing an easy path to land ownership under the name of your legitimate company.

If a foreigner is making personal use of a villa that is purchased and owned by the company, however, they may see themselves facing the same issue of “benefit in kind” that we mentioned in the Offshore Company Ownership section. This will lead to income tax implications and problems. Once again though, if this is handled correctly, using a legitimate company with the right set-up, there is nothing to worry about.

In Closing… Finally!

This blog has aimed to offer a clear overview of buying property in Thailand, some of it taken from stories we’ve been told from foreign nationals travelling down this path. Peoples belief in what is possible and legal will range from one extreme to another depending on who you talk with, but the fact remains that most ways that a foreigner can attempt to own landed property in Thailand will always come with scrutiny from the Thai authorities.

Our intention is not to antagonise any existing property owners or to make the reader feel disheartened so much so that they give up on trying to own their dream property in Thailand, quite the opposite! We wrote this so that potential property buyers in Phuket will be able to understand the legit and legal avenues to travel when looking to own a landed property, and with hopes that they understand that while foreigners do have certain rights when it comes to purchasing property, they are not always guaranteed. Sometimes it can simply come down to the discretion, or interpretation, of the law by the official you get to put up against on the day.

From the busy city life in Bangkok to the stunning mountains in Chiang Mai, and back to down Phuket’s amazing beaches – Thailand truly is an amazing country to live in. There are a lot of amazing condos and villas to own across the country, but sometimes it requires a lot of patience, persistence and a healthy respect for Thai law to be able to secure your dream home.