Real Estate – Legalities

General

Thailand is a civil law country meaning that its basic laws are to be found in written codes, similar to those found in continental Europe. This is unlike the common law system that prevails in the USA, the United Kingdom and most of the Commonwealth.

There are four basic codes in Thai law:

  • the Civil and Commercial Code
  • the Civil Procedure Code
  • the Criminal Code
  • the Criminal Procedure Code

There are also specific codes that deal with specific areas of law, for example:
the Land Code and the Revenue Code.

In addition there are also Acts of Parliament, decrees, ministerial regulations and notifications.

Although the Thai law is similar to those found in many countries in the world, there are numerous differences. These similarities and differences extend to the legalities of land and structures (houses / villas, townhouses, apartments etc.).

Freehold Acquisition of Land and Property

Under the Land Code, 1954, “aliens” may not own title to freehold land in Thailand. The definition of “alien” in the Land Code includes a person not of Thai nationality, and “a juristic person” (meaning a limited company) with more than 49 per cent of its share capital being foreign owned or more than half of its shareholders being “aliens”.

Therefore most of the foreigners set up a Thai limited company and transfer the freehold ownership in the land into the company. Thereafter any registered dealing in respect of the land will be done in the name of the company, including any construction of structure (house, villa etc.) thereon.

When re-selling the property owned by the said Thai company, one has the option of selling the shares of the company, since the chances of re-selling the property to another foreigner is high. This method allows the cost of setting up and maintaining the Thai company, up to the time of re-sale, to be incorporated into the selling price. No registration of transfer of ownership is required at the Land Department since technically the property is still owned by the same Thai company. As a result, transfer fees and taxes are avoided at the Land Department.

For more information about sale and purchase of property through shares in a Thai limited company, please contact us.

With regards to the control of the foreigner in the Thai limited company, Thai law allows the foreign shareholder (holding not more than 49% of the shares) to be issued with a different class of shares, as issued to the Thai shareholders. Effective control over the Thai majority shareholders is secured through Thai corporate law including granting the foreign shareholder with “super majority” votes, usually 10:1 per share, any meeting of the shareholders to pass resolution in the company, requires the presence of the foreign shareholders so as to constitute a quorum, and only the foreign shareholders can appoint directors of the company.

Under both the Foreign Business Act and the Land Code, there is no specific prohibition on foreign control (voting and management) of a Thai majority owned company as mentioned above.

Improper company structures such as those that use trust, agency, nominee, agreements etc. may be open to challenge under the anti-nominee provisions of the law, as they would represent clear attempts to circumnavigate the law. It must be pointed out that anti-nominee provisions are found in the Foreign Business Act, 1999 and not in any of the land legislation, the principal one being the Land Code, 1954. Under the FBA, foreigners are prohibited from holding 50 per cent or more of the shares of a Thai company operating a restricted business.

Please note that since May 2006, there have been some changes in the practice of registering the freehold ownership in land into Thai limited companies. These changes are not changes in the Thai law. Proper legal advice should be sought from professionals. Upon request, we are able to provide more information.

An interesting point to note is that, in the worst scenario where an alien is found to have acquired freehold land in his/her own name, the Land Code provides that the alien must dispose of the said land within a period of time not less than 180 days. There are no provisions for seizure of the said land. Supreme Court decisions have even held that in such cases, the proceeds of the disposal belong to the alien. For more information about sale and purchase of property through shares in a Thai limited company, please contact us.

Leasehold Acquisition of Land and Property

Although Thai law does not allow a foreigner to own land in his/her name, it does not forbid a foreigner to lease land. Any lease of real estate longer than 3 years must be registered at the Land Department to be legal binding. For residential property, the maximum register-able lease term is Thirty (30) years. It is a very common practice to include in the terms of the lease, optional renewal of a second and a third 30 years lease terms, bringing to a total of 90 years. In practice, the full consideration of the property is paid up front and not on a regular basis, as in a real lease.

There are some drawbacks to using leasehold to acquire real estate

  • First of all, “a lease … is a lease … is a lease”. In law, the rights and entitlement of a lessee is very different from an owner.
  • Since a lease is an ongoing relationship between a lessee and a lessor, a contract (lease agreement) is in place to stipulate the rights and obligations of both parties. If any party breaches any provision in the contract, the innocent party has to enforce the contract to compel the defaulting party to correct the breach.
  • Since a lessee is not the owner, technically any registered dealing on the property requires the consent of the lessor (the owner), including re-sale.
  • Developing a big piece of land acquired by leasehold, and subsequently re-selling it in several smaller portions poses a lot of obstacles.

In essence, we do not discourage acquiring land through leasehold if

  • the property to be acquired is a stand alone, one unit, land and house
  • there is no intention of re-sale or any other registered dealing on the property, and
  • all necessary precautions are taken to protect the interests of the investor.

Proper legal advice should be sought to prepare a lease agreement that could best protect the investor.

Ownership of Condominium

The rules concerning the ownership of condominium are similar to those concerning land. Every unit in a condominium is issued with a “Chanote” which is a form of ownership title deed. Dealings such as transfer of ownership are also registered at the Land Department.

Foreigners may own up to 49% of the area of a condominium project. There must be proof that fund for purchasing the condominium is brought into Thailand to purchase the unit. This condition is so stringent that the name stated as the sender of the fund must match the purchaser of the condominium exactly.

In any event condominium units may be leased by foreigners in the same way that they may lease land.

The Land Department

All registered dealings in land and structure is recorded in the Land Department (or Land Office). In Thai, it is transliterated as “Groom Tee-Din” or “Sam Ngak Ngan Tee-Din”, “Tee-Din” being the word for land in Thai, if you have not noticed.

Transfer of ownership, lease, mortgages, lien, servitude (easement), sub-division, upgrade etc. are all applied for and registered here. Unlike several other countries in the world, it has been known that there is no official land search (due diligence) system in place by the Land Department, Thailand, for the general public. Searches are normally done through qualified legal professionals.

Apart from registered dealings, the Land Department conducts land surveys to ascertain land boundaries and area. It is also the agency for placement and re-placement of Chanote (Nor Sor 4 Jor) markers.

The Municipality

Some call it City Hall or City Municipal, depending on where you come from. In Thai, it is transliterated as “Tasabaan”. Its core function is the administration, regulation, installation and construction of the District’s infrastructure and utilities. This is where one would contact regarding public roads, installing of electric poles, drainage system etc.

Before a house, villa, apartment or any permanent structure can be built, a building permit must first be applied for and issued by the Municipality. Needless to say, architectural plans and related documents of the proposed structure have to be submitted to the Municipality for consideration and approval. The proposed construction must be within the local and national building regulations. Some of the major considerations include the possession title and location/zone of the proposed site, the rights of the applicant, building height, distance of walls and roof overhang from the land boundaries.

On approval and issuance, the building permit normally contains information such as the name of the applicant, short description of the structure, the land on which the same is to be built on and the date of issuance and expiry of the permit.

Upon completion of the construction and the satisfied inspection by the officials of the Municipality, the House Registration Book (transliterated as “Tabian Baan”) is issued. This is where the official address of the house is documented. A common misconception of the House Registration Book is that many think that it represents the title or ownership of the house. The House Registration Book is merely a document for registering the house (structure) and the name(s) written in the Book reflects the occupant(s) of the house, not the legal and beneficial owner. At most, the House Registration Book can only be used as a part evidence of ownership.

In the event the house is sold or leased, registration is done at the Land Department, not the Municipality.

For more information regarding the ownership of a structure in Thailand, please contact us.

The Department of Business Development (“Panit Jangwat”)

This is a department under the Ministry of Commence, Thailand. The Company Registration Section administrates the incorporation and registration of juristic persons, one of which is the limited (liability) company. Any amendments to the company such as change of company’s address, list of shareholders and directors etc. are registered here as well. The DBD administrates and registers limited companies incorporated.

All official company documents are in Thai language. It usually comes in a set, documenting the name and address of the company, business objectives, list of shareholders and directors, by-laws (if any) of the company etc. A point to note is that for every set of company documents issued by the DBD, there is a date stamped on it. This stipulates the date of which the information contained therein is accurate. Depending on the usage of such company documents, an updated set may be required. For example, to open a corporate bank account, the bank may require a set of company documents not older than 3 months.

All active companies must prepare and file the audited account to the DBD and the Revenue Department yearly. Failing which, severe penalties may be imposed on the company and the director.

Transferring funds into Thailand and Repatriation

When remitting funds for acquiring real estate into Thailand, it is advised that

  • the funds be remitted in foreign currency (GBP, EUR, USD etc.) and NOT in Thai Baht,
  • the purpose of the remittance should be stated as “FOR INVESTMENT IN THAILAND” or “TO PURCHASE PROPERTY IN THAILAND” or the equivalent,
  • each individual remittance in foreign currency should exceed USD$20,000 or in the case of other foreign currency, the equivalent of 800,000 Thai Baht.

Satisfying these conditions, the Bank of Thailand can issue a Foreign Exchange Transaction Certificate (or some call it Exchange Control Form). This Certificate allows the repatriation of the same amount of funds, back to the same sender, at a later date, without incurring tax. This is useful for investors who do not want their funds to be tied in a certain country.

For more information regarding this subject, one should contact the banks.

Land Documents

There are two types of rights to private land:

  • the right of possession (possessory right) and utilisation to the benefit of land; and
  • ownership by a person who has a title deed in respect of the land.

Here is a broad guide to the various land documents and what they signify:

Sor. Kor. 1

is a notification form of possessed land. This document entitles the holder to occupy and farm the land. Sor Kor 1 land may not be sold – it may only be passed on by inheritance and its use is subject to the same restrictions as Por Bor Tor land.

Por. Bor. Tor. 5 and 6

is evidence that the occupier of a piece of land has been issued a tax number and has paid tax for using the benefit of the land. This confers no rights at all and is merely a piece of evidence towards proving actual possession. The land must be used for agriculture.

Nor. Sor. 3

is an instrument which signifies the land occupier’s right to possess the land, but without conferring actual possession. The borders of the land must be confirmed by neighbours and by a ground survey before the document is issued. There are no “parcel points” i.e. numbered concrete posts which are hammered in to mark the boundaries of the land. This may cause problems in verifying the land area. There are no limits to what use the land may be put to (provided the use does not contravene height restrictions, environmental protection laws, etc.). The land may be sold, subject to a 30-day notice period.

Nor. Sor. 3 Gor.

is an instrument with the same legal basis as Nor. Sor. 3. The difference being that Nor. Sor. 3 Gor has the land area and parcel points set by using an aerial survey. There is no need to publicize any legal acts, and it is possible to partition (sub-divide) the land into smaller plots.

Chanote – Nor. Sor. 4 Jor.

is the only document which can be described a land title deed, because it alone confirms ownership of land. The land is accurately surveyed and its area and boundaries are set using GPS. There is no need to publicize any legal acts, and it is possible to partition (sub-divide) the land into smaller plots.

Property Taxation

Structure Usage Tax is imposed in respect of house, apartment or simply building, put to commercial use. The tax rate is 12.5% of the assessed annual rental value of the property.

Sale and Purchase

The following fees and taxes are imposed at the Land Department during a transaction of sale and purchase of land.

  • Transfer fee = 2% of the assessed value
  • Corporate Income Tax (Withholding) = 1% of the *registered value, if the seller is a juristic person
  • Specific Business Tax = 3.3% of the *registered value

If the land has been held by the seller, who is an individual and not juristic person, for more than 5 years, Stamp Duty = 0.5% of *registered value will be imposed in place of the above Specific Business Tax.

Other fees include application, administrative, power of attorney, registration and witness fee, etc. which normally comes to a negligible amount.

*It is a local practice to declare a sale and purchase price (registered value) which is much lower than the actual market price during a transaction at the Land Department. Please contact your qualified Thai attorney for proper and accurate advice.

The above taxes and fees are similarly applied to sale and purchase of a building (house, villa etc.) except that the registered value is based on the size of the building, according to the original building permit, and the number of years the building has been constructed, etc.

Collectively the above taxes and fees are commonly referred to as transfer costs. Legally speaking, the seller is responsible for the Corporate Income Tax and the Specific Business Tax only while the responsibility of the rest of the fees remains open. Thus it is a very common practice for both the seller and purchaser to negotiate which party shall bear and pay the full transfer costs. In some instance, both parties may even agree to share equally the said costs. Please contact your qualified Thai attorney for proper and accurate advice.

Note:
It must be noted that all of the above information is not intended nor should be construed as legal, tax, investment or other advice, and is provided by Kaegan Corporation Co. Ltd. as a complimentary service. Laws, acts of Parliament, Royal decrees, ministerial regulations may be amended, invoked or implemented from time to time. By voluntarily viewing the Kaegan Corporation Co. Ltd. Web site, you agree that your use of the information contained herein is at your sole risk. Kaegan Corporation Co. Ltd., its directors, shareholders, employees, affiliates, agents, or the like, cannot and does not accept any liability or responsibility for any loss sustained directly or indirectly to any person or organization acting on information contained in this Web site or for any inaccuracy or omission contained in this Web site. Proper advice should be sought from qualified legal professional.