Thai companies and land ownership by foreigners in Thailand

Can foreigners still own land or a condominium unit beyond the foreign ownership quota with a Thai limited company in Thailand? In new regulations issued by the Thai government, starting with the land office guidelines May 2006, this circumvention of the law by foreigners is no longer ignored by the Thai government.

Thai law permits the purchase of land or condominium by a partly foreign owned Thai company so long as the maximum foreign shareholding does not exceed 49%. Foreigners are under Thai law as a minority shareholder allowed to control a Thai company that owns immovable property and therefore some argue that foreigners can have a form of freehold ownership or control over property that would normally be restricted for foreign ownership (land or a condominium unit beyond the foreign ownership quota).

What is a Thai land owning company

It refers to a limited liability company in Thailand that exists for the sole purpose of owning property (land) in Thailand rather than for the purpose of a business. Note that a business purpose and a business activity (trading at least on paper) by the company is required under Thai law. A limited companies formed merely as a vehicle to own land on behalf of a foreigner is as a structure void because its purpose is to circumvent laws prohibiting foreign land ownership (section 150 civil and commercial code) and illegal under land laws because of its intention of land holding on behalf of a foreigner (section 113 Land Code Act.

History

Before 2006 it was common practice for foreigners to register Thai companies solely for the purpose of land ownership and they used Thai nominee shareholders to create a majority Thai owned company. As a majority Thai company (on paper) they were able to buy and hold land (pursuant to section 96 under 1 Land Code Act). In 2006 new regulations for the land offices were established preventing land ownership registration by such nominee structured limited companies (the business registration departments received similar instructions). The reason for these new regulations were the widespread misuse and illegal use of Thai companies and nominee shareholder structures by foreigners.

Currently the Thai government is actively investigating the Thai shareholders in partly foreign owned limited companies owning property in Thailand.

Nominee shareholding structures

The use of Thai nominee shareholders by foreigners is illegal, not only under the Land Code Act but also under the Foreign Business Act. When a nominee shareholding structure exist, the shares held by the Thai nominee shareholders will be deemed held by the foreigner (as with bearer shares) and the Thai limited company therefore considered foreign. Pursuant to Land Code Act section 97 under 1 the company will be considered foreign and therefore as a foreign company illegally and without permission holding land.

Thai Shareholder rights

Most real estate companies incorporated prior to 2006 were set up with Thai 'nominee shareholders'. It means that the foreigner is considered the actual owner of the shares or principal. Different from a normal company nominee shareholders cannot claim any rights, ownership or control in the company. The registered Thai shareholders merely hold the shares on behalf of the foreigner. This structure is considered illegal for foreigners under the Foreign Business Act and Land Code Act.

A real estate company formed with real Thai shareholders or partners (if the shareholding structure would be accepted by the land office) would be less interesting because they would own 51% in the company.

New regulations

Under new land office guidelines, when a partly foreign owned company is registering property (land), the Thai shareholders in the company must be investigated by the land office official before registration and transfer of land to the company is allowed (i.e. is it a real company or set up to circumvent the law, are the Thai shareholders in the company real shareholders or acting as nominees on behalf of a foreigner).

Main Drawbacks

1.The company must have a business purpose, show activity and is required to file annual financial reports and pay tax. The purpose of a company may not be to circumvent foreign property ownership restrictions in Thailand.

This would be an illegal purpose, making the whole set up and registration into the company's name void under the Civil and Commercial Code and illegal under the Land Code Act (i.e. the company can under Thai law not be a 'special purpose company' or 'land holding company' for the foreigner)

2. Foreigners are not allowed to use Thai nominee shareholders in the company.

Whenever registering legal acts (e.g. selling the immovable property, in some cases subdividing land or registering a lease) the land official may investigate the Thai shareholders, even if the foreigner is removed from the updated shareholder list but appears on the Memorandum of Association the land official could decide to investigate the Thai shareholders and all Thai shareholders must then present themselves at the Land Department at the time of transfer, and unless the company has an acceptable shareholding structure may not be able to sell or transfer the property.

3. If the land and buildings or any other improvements is owned by a company and used for residence of a foreigner the company is required to pay Building and Land Tax, irrespective if they rent the property from the company or not, or if the company receives any income out of it.