As new regulations come into force, and the authorities make it clear they will be taking illegal land ownership on the island more seriously, this article examines the situation faced by foreigners wishing to purchase land or landed property here.
Anyone who decides to invest in Phuket property needs to ensure that they are adhering to the laws of Thailand. While, for the most part, the laws may be similar to those in western countries, there is one oversized elephant in the room: almost without exception, foreigners are not allowed to own land in the Kingdom!!!
The object of this article is not to discourage potential buyers from purchasing landed property in Phuket, but rather to ensure they have a healthy respect for Thai law and adhere to the correct way of doing things. With the right professional help to navigate these laws, it is possible to find a home without stress or worry.
While this topic probably warrants an entire volume, we will try to condense its essence into this single article. There are numerous reasons for this stricter enforcement, but they generally boil down to people taking the wrong advice, and/or adopting the attitude that what they are doing is fine because “everyone else is doing it.”
Irrespective of ‘pub talk’ or the outlandish opinions permeating through the expatriate community, there is very little ambiguity on this matter. If a foreigner decides to circumnavigate the laws in an attempt to own landed property, or is otherwise not 100% compliant with the laws of Thailand, then the authorities will consider such ownership to be illegal.
Over the last 25 years there have been widely publicised government proposals to change these laws, but very little ever comes of them. If anything, the parameters under which foreigners can buy property have gotten even more tightly defined during that time.
Of course, foreigners may own luxury condominiums as ‘Foreign Freehold’, but a condo does not always ‘tick all the boxes’ they are looking for in a dream home. Many buyers are looking for larger living areas, gardens and private pools, so they inevitably cast a larger net to include villas. Because villas generally offer greater value for money, they are more likely to match a buyer’s criteria.
The 2006 Crackdown
Prior to 2006, it was common practice for foreigners to set up a Thai Company in Phuket with shareholders they had never met. If the company had majority Thai shareholders, then most land or villa purchases received a rubber stamp.
In May of that year, things changed. The lack of prior enforcement had given the foreign land owners the illusion of legality, but during a four-month period in 2006 the authorities began to curtail the use of Thai Companies to purchase land.
This crackdown was cut short when Prime Minister Thaksin Shinawatra was deposed by a military coup in September 2006. Most foreign land owners who rode out the storm were fortunate not to be subjected to the planned enforcement, but some were forced to sell their land and/or villas, or dissolve their Thai companies.
Winds of Change
Starting in 2007 Thai companies with foreign shareholders or directors were prohibited from purchasing land or landed houses and villas, while just last year a new regulation came into effect preventing a Thai company with any foreign shareholder or foreign director from ‘selling’ land in Phuket.
Many lawyers and accountancy firms overcame the 2007 law by changing the shareholders shortly after the Thai Company purchased land but, since June of this year, new requirements intended put a stop to this practice were introduced.
All shareholders of Thai companies buying land must now physically visit the Land Department to be vetted by the authorities, and sign a declaration. In addition, if an individual shareholder’s name keeps popping up, making it obvious they are a nominee, they too could be investigated.
No sooner were those requirements in force than the Department of Special Investigation (DSI) raided a Phuket accounting and law firm suspected of using its own employees as nominee shareholders.
Many foreigners with questionable ownership structures are still told not to worry because the government can’t possibly investigate every Thai company. Recent murmurings from Bangkok (and actions taken in Phuket) suggest otherwise.
The authorities have also made it clear they are opposed to the transfer of shares/change of company director as a means of avoiding taxation when selling a property. In addition, it is a criminal offense to declare a below market selling price at the Land Department (a frequent practice when land is sold). This violates two laws: submitting false documents to a government official and tax evasion.
These have been common practices employed by companies over the years, and we would not be surprised to see further guidelines, amendments and regulations applying to land ownership by both existing and new companies.
The new restrictions and regulations are all directed at people attempting to use their Thai company to exploit supposed loopholes in Thai law. But, as mentioned above, the law is unambiguous.
Interestingly, section 86 of the Land Code Promulgating Act does provide the closest thing to a loophole: “Aliens may acquire land by virtue of the provisions of a treaty giving the right to own immovable properties…” Unfortunately, it fails to mention whether such a treaty actually exists.
The Board of Investment (BOI)
What does exist, however, are legal exceptions which allow foreigners to own up to one rai of land. If a foreign national is approved under the BOI scheme, they are required to invest 40 million THB in approved government securities or a BOI company. The foreigner is then granted certain privileges, including owning a rai of land – for residential purposes only – if so approved by the Interior Minister. (The ‘Prescribed Investment’ scheme also offers this privilege.)
Unfortunately, both processes are long and tedious, so it is unlikely a seller of property, whether private owners or developers, will hang around waiting for the buyer to gain approval.
Legitimate Corporate Ownership
As mentioned at the beginning – structured correctly with real shareholders adhering to all the corporate laws of Thailand – a Thai company may own land. The key points are structured correctly, and adhering to the law.
If the company is simply a holding vehicle – not trading in any way– there may be consequences for any foreigner involved, should that company own land.
If, however, that company can demonstrate that it is generating revenue, with proper accounting practices, filing balance sheets and paying taxes, and holding AGMs with real shareholders, who keep minutes of those meetings . . . well, the authorities would be unlikely to view this unfavourably.
It is anyone’s guess when and if another 2006-style crackdown will come, but significant steps have already been taken to ensure only Thai entities own land.
A properly structured Thai company is one such entity, and as long as it adheres to both the letter and the spirit of the law, remains a viable vehicle for owning a Phuket property.