Companies as a vehicle to own land for a foreigner is not allowed under Thai law
Thai law allows land ownership by a legitimate partly foreign owned Thai company if the foreign shareholding does not exceed 49% in number of shareholders and percentage of shares. It is not allowed for foreigners to use nominee Thai shareholders to create a majority Thai owned company for the purpose of land ownership. The use of nominee shareholders to circumvent the Thailand Land Code Act or Foreign Business Act is illegal and any foreigner setting up a company with nominee shareholders is violating foreign ownership restrictions and creates an unlawful foreign ownership, irrespective the number of shares he owns in the company.
Up to the May 2006 Land Office guidelines aimed at preventing the use of Thai nominee shareholders by foreigners, it was common practice for foreigners to purchase land or condominium beyond the foreign ownership quota through a nominee structured majority Thai owned foreign controlled Thai limited company. As long as the company had a majority Thai shareholdings there were no practical restrictions when purchasing a property and the partly foreign owned company was treated as any other Thai company. Currently the government has issued new regulation preventing circumvention of the law by foreigners through Thai companies and currently this structure is only possible by circumventing the law and regulations.
In the Land Code Act a company is defined as 'foreign' or 'alien' if more than forty-nine per cent of its capital is owned by foreigners or more than half of whose shareholders are foreigners. Since July 2008 the private limited company must have a minimum of 3 shareholders at all times, and to be considered Thai under the Land Code Act the company must have 2 Thai shareholders opposite 1 foreign shareholder who may hold up to 49 of the shares.
Under the Foreign Business Act a company is deemed foreign if half or more of the juristic person's shares held by foreigners or a juristic person having foreigners investing with a value of half or more of the total capital of the juristic person. A company is still considered Thai under the Foreign Business Act if the company has only 1 Thai shareholder as long as he owns the majority of the shares in the company.
If it is deemed that the partly foreign owned company is using Thai nominee shareholders the company could be deemed foreign irrespective the number of shares held by the foreigner. Currently the bar on the use of nominees lies in the source of the capital investments.
Until the May 25 2006 guidelines and July 21 2006 Standard Practice Letter (how to deal with a partly foreign owned company) the practice of the local Land Offices in the tourist resort areas was to investigate only the number of shares held by the foreigner and if the majority of the shareholders were Thai nationals.
New regulations restricting the use of Thai nationals as nominee or proxy shareholders:
In case of foreign involvement in a company applying registration of land the land officer must under the new Land Office Guidelines investigate the Thai shareholders. The Thai shareholders must present themselves at the land office and among others supply proof of income and monthly salary they earned. The Thai shareholders must be financially able to actually invest the amount of capital in the company. In case the purchase price is higher than the registered capital of the company this shall mean the source of the capital used for the purchase of the land and not only the registered capital of the company.
Under the new regulations a shareholder can't be the cleaner from the law office setting up the company.
The guidelines order the officials to enforce Section 74 of the Land Code:
The Business registration rules preventing the use of Thai nominee shareholders also order the Department of Business officials to investigate the Thai shareholders when dealing with registration of a company with more than 40% foreign ownership or when the company has a foreigner managing director. When submitting the application for registration the Thai shareholders must in this case submit evidences showing the source of their investment together with the business registration application.
The planned Foreign Business Act amendments did not yet pass, but the idea was to include voting rights and management as a criterion in defining partly foreign owned companies foreign. Juristic persons incorporated under Thai law which are deemed foreign are not allowed to own land and land owned must be disposed of by the foreigner.
There is still no general restriction on the nationality of directors in a Thai company and foreigners are allowed to control a Thai company, but as every year (section 1152 Civil and Commercial Code) one third or the number nearest to one-third of the directors must retire from office the amendments would also affect existing partly foreign and foreign controlled companies. It would simply make a foreign director ineligible for re-election or ineligible for re-election as the sole director of a Thai company. In case of re-election it would make itself automatically a foreign company!
Most of the local property law and accounting offices in the tourist areas of Thailand aiming their services at foreigners have the same interest as the real estate agents and fully depend for their income on property sales or have a direct interest in the real estate market. Can you trust them? Not really. They still suggest loopholes as it generates income, but it is not using a loophole when you transfer land to a 100% Thai owned company and the next day transfer 49% or 39% of the (preference) shares to the foreigner. If the company uses nominees (currently defined in the Land Office guidelines and Business registration rules) or is not in operation or set up to circumvent the law the foreigner is violating the law and could on investigation at a later date be forced to sell the land and will be liable for severe penalties.
The only reason to set up the company without a foreign shareholding is obviously because the land office would not allow registration as the structure is illegal. Despite the complicated lengths some will go to suggest ways around the law, it is all doubtful if not obviously illegal.
The recent land registration rules from the Land Department and Ministry of Interior must effectively prevent the use of nominee structured limited companies by foreigners for land purchase. Though, local land officials may turn a blind eye because of corruption and pressure from leading figures with a financial interest in the property market. The law is actually applied in different ways and you could say that because of corruption on a local level the law and latest regulations are not fully enforced. It is well known that several high-end officials were involved in land transactions or have a direct financial interest in the property market. Just look at the alleged involvement of Thai Rak Thai politicians in forest encroachment and land speculation on the Samui island or a recent Samui land scam involving government men and ranking civil servants. There are many more examples where the officials who must apply the law allow a breach of the law because they have a financial interest in the deal where land is in fact sold to foreign investors operating through a Thai company.
This latest policy change by the government is not the closing or removing of a loophole but enforcement of existing laws. Even though offered by local law and accounting firms, setting up companies with nominee shareholders to own land on behalf of foreigners is and always has been an unlawful evasion of the law. Law enforcement and procedures may change rapidly in Thailand and selective or poor law enforcement in the past is no guarantee for the future.
Under present law a foreign managing director acting on behalf of the company (like opening a company's bank account, applying for telephone lines, registering a land transfer, filing balance sheets, applying for updated company documents) may in addition to a passport be required to show a work permit issued by the Alien Employment Division of the Labour Department before any signed document will be accepted. Any document signed by the foreign director could be rejected until a work permit has been issued. It is in the Bangkok area not possible for a foreign director to open a bank account without a work permit.
To comply with the requirements to obtain a work permit could be impossible for a foreigner director of a practically dormant company. Approved and pending amendments (May 2007) to the Alien Employment Act in Thailand will make it even more difficult for foreigners to obtain a work permit.
Work is defined very broadly in the law; 'engaging in work by exerting energy or using knowledge whether or not in consideration of wages or other benefit' (section 5 Alien Working Act). The foreign director acting on behalf of the company without a work permit could in the worst case face criminal charges and even deportation out of Thailand.
Samuiforsale provides general Thai legal information and law resources in English over the Internet. The information in Samuiforsale should be used as general Thai legal information in English but should not be treated as a substitute for specific legal advice concerning individual situations.