Foreign Ownership Rights

One of the most frequently asked questions a developer or estate agent receives is: Can a Foreign National own land outright? The answer is No. Furthermore, they cannot own more than 49% of the shares in a Thai company that owns freehold land but there are legal ways, within the Thai company structure, that will allow a foreigner to exercise sole control over the Thai company and their investment.

A Foreigner is, however, allowed to own a building distinct from the land, which coupled together with a renewable registered 30 year leasehold is regarded by many as being as good as owning the freehold.

Freehold vs Leasehold

Now, there are many questions asked as to which method is better and there are relevant arguments made for both cases. Since foreigners cannot own land outright, registered leaseholds with appropriate extensions are equivalent to freehold. Registered Leaseholds are safe, uncomplicated and easy to setup. For those of you who are not comfortable with Leasehold, the Freehold method of ownership means that the Thai company that you control owns the property.

Freehold Control

The Land Code of Thailand along with the Foreign Business Act (FBA) does not prohibit foreign control (voting and management) of a Thai majority owned company that owns land in Thailand.

Given the above, it is of paramount importance that a proper legal structure is adopted to retain effective control over a Thai majority owned company whilst at the same time avoiding anti-agency and anti-nominee provisions.

A number of means can be used to ensure that the foreign minority shareholders have effective management and financial control of the company.

These include but are not limited to creating different classes of shares along with different voting and director appointment rights.

As an additional safeguard you may set up a company to control the freehold land which you as an individual then lease from the company you control. Further, you may also have the company register a mortgage over the land in your favor.

If you choose to purchase your property freehold you should consult with professionals who will adopt the proper legal structure to protect your interests and who are able to explain the same to you in detail, in your own language or at least in a language that you understand well.

You should also be aware that there are legal responsibilities and tax implications with respect to the owning and running of a Thai company.

If choosing the Freehold method of ownership and control you should appraise yourself of these costs, responsibilities and implications by consulting the professionals in this field such as the Pensit and Laws Group.

How to Pay

If you are purchasing property in Thailand and you want to pay in Thai Baht ensure that your funds are transferred into Thailand in foreign currency and converted to Thai Baht here.

The reason for this is that the receiving bank will issue a Thor Tor 3 Certificate confirming the transaction.

The relevance of the Thor Tor 3 Certificate is that it is one of the documents you will need in the future if you wish to repatriate funds without incurring tax penalties.

Also, please be aware that Banks will only issue Thor Tor 3 Certificates for individual inward transfers exceeding 10,000 US$.

Repatriation of investment funds and repayment of overseas borrowing in foreign currency can be remitted freely upon submission of supporting evidence.

One of these documents would be the Thor Tor 3 mentioned above, or in respect of a foreign currency loan, the loan contract. Remittance of funds without proper documentation could be regarded as income and become liable for tax.

Most real estate agents and property developers on Koh Samui prefer to simplify the process by allowing you to purchase your property in foreign currency. Your money is usually transferred directly into one of their offshore accounts. They will setup the freehold or leasehold for you directly on remittence of this money.

When the time comes that you wish to sell your property you simply sell it on in foreign currency.

Property Taxation

There are 2 different types of Tax levied on property in Thailand and they are called:

• Land Tax, and
• Structures Usage Tax.

Land Tax is a very small tax levied on land ownership equivalent to just a few Baht per Rai per year.

This amount is so small that the land office rarely bothers to collect it and if they do may wait a few years before the amount is worth the effort of collecting. In any commercial sense this tax can be largely discounted.

Structures Usage tax is applicable at the rate of 12.5% on the actual (or assessed) gross rental value of the property.

Lessees are not subject to this tax but may be required by the Developer to pay an "annual ground rent" instead.

Land Title Deeds

True land title deeds are officially called Nor Sor 4 Jor or more commonly "Chanote" and are issued by the Surat Thani Provincial Land Office.

Land held under Chanotes are accurately surveyed and GPS plotted in relation to a national survey grid and marked by unique "numbered" marker posts set in the ground.

When scouting around expect to find many land documents in the form of Nor Sor 3 or Nor Sor 3 Gor which are in the strictest interpretation of the law, certificates of land utilization.

They are to all practical purposes equivalent to land title deeds because they allow the land to be sold, leased or mortgaged in the same way as land held under a Chanote Title.

The difference lies in the fact a Nor Sor 3 certificate is less accurately surveyed than the Chanote.

Nor Sor 3 boundaries are recorded in relation to its neighboring plots and therefore there may be survey errors in length and land area.

The newer Nor Sor 3 Gor is in general a much more accurately surveyed title as each plot is crossed referenced to a master survey of the area and a corresponding aerial photograph.

Now there are a host of "land papers" which we advise all serious investors not to give any credence to. They are in essence a form of claims to possessory rights which have been filed with the district land office and upon which a small tax fee has been paid. The land held under these papers cannot be dealt with by way of sale, lease or mortgage. Legal acts cannot be carried wrt to the property and most importantly, you cannot apply for and obtain approval to build on the land.

In conclusion we recommend that any foreigner wanting to buy land should consider only those held under a Chanote or Nor Sor 3 Gor. Remember, whenever in doubt, please consult a professional.