Companies for property ownership in Thailand (land or condo purchase) benefits and drawbacks

Thai law permits the purchase of land by a legitimate partly foreign owned Thai company structure so long as the maximum foreign shareholding does not exceed 49%. In this case there are 2 definitions relevant under Thai law; the foreigner definition under the Land Code Act and the foreigner definition under the Foreign Business Act. The Condominium Act (section 19) refers to the foreigner definition of juristic persons under the Foreign Business Act and the Land Code Act (e.g. a company deemed foreign under the Foreign Business Act or the Land Code Act will be regarded as a foreign company under the Condominium Act.

In the Land Code Act and the Foreign Business Act foreigner or 'alien' is defined as:

It is still possible to own land or a condominium beyond the foreign ownership quota through a majority Thai owned company in Thailand, however, as a property holding vehicle for foreigners this is discouraged and restricted by the government. 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 through a majority Thai owned but foreign controlled Thai limited company. As long as the company had majority Thai shareholdings in practice there were no restrictions and the company was treated as any other Thai company. Currently the government is restricting the misuse of Thai companies by foreigners by enforcing laws that previously were not enforced. Under these laws they specify the procedures for the officials to follow when dealing with partly foreign owned companies registering land or rights over land. In this case the Thai shareholders in the company will be investigated to determine if they are not acting as nominee shareholders on behalf of foreigners. Is it a real company and are the shareholders real shareholders? Holding companies formed for property purchase by foreigners are currently much less common, but still a few foreigners choose (or are advised) to own property in Thailand through a Thai company. In this case, generally, the foreigner will not appear on the company formation documents (Memorandum of Association) or on the shareholder list when the property is transferred to the company (this to circumvent the regulations). After the property has been transferred to the 100% Thai company up to 49% of the (preference) shares will be transferred to the foreigner.

The legal threats and drawbacks are:

(a) Do I have real Thai shareholders? A company must have at least 3 shareholders during its existence. To be considered a Thai company 51% of the shares must be held by Thai shareholders who must be real shareholders and not nominees acting on behalf of the foreigner (and under the Land Code Act more than half of the shareholers must be Thai). According to the current guidelines 'real shareholders' are roughly defined as Thais with sufficient income, job history and believable financial history and must be able to proof this by evidence at the Land Department.
(b) Do I have a buisness purpose for the company? The purpose of the company may not be landholding or an ownership vehicle for the foreigner (such a purpose would be void under the Civil and Commercial Code, and illegal under the Land Code Act)
(c) Can I comply with the yearly accounting requirments? The company must be in operation as a normal company and file yearly balance sheets and correct accounting. The Department of Business Development gives some information on the responsibilities of running a company in Thailand (website). It may not be a dormant company.
(d) Do I have full control over the property to sell? Unless you have proper real Thai shareholders you may encounter problems whenever you need to register acts at the Land Department or sell the property because the Land Official must investigate the Thai shareholders in a partly foreign owned company. Even if the foreigner is removed from the updated shareholder list but appears on the Memorandum of Association the official must investigate the Thai shareholders to determine if they are real shareholders and not nominees. The memorandum can't be changed, so the foreigner's name will always appear if he was one of the promoters of the company.
(e) Can I 100% control the company? Previous amendments (which did not pass) aimed to change the foreigner definition under Thai law (i.e. a majority foreign controlled companies would be deemed foreign and the foreigners would loose control in the company). Control and voting rights could be used as a future criterion in defining foreign ownership. Companies controlled by foreigners in terms of voting rights and/or majority foreign management (directors) could under possible future law be classified as foreign, even if direct foreign shareholdings are in a minority (e.g. foreigner definition under FBA amendments). Juristic persons incorporated under Thai law which are deemed 'foreign' entities are not allowed to own land or a condomium unit beyond the 49% foreign ownership quota.
(f) What are the overall threats? Overall stricter application of existing laws in general could make it an unpleasant ownership construction.

On the positive side it is possible to argue:

1. A Thai company is a Thai company. As long as the majority of the company's shareholders are Thai nationals and more than 51% of the shares are owned by Thai nationals the company is under Thai law a Thai juristic entity, therefore the company is allowed and will have a 100% legal ownership over land or condominium.
2. Owning shares as a foreigner in a Thai company is not in conflict with the law. It is legal under Thai law to transfer land or condominium to a 100% Thai owned company and in a later stage transfer up to 49% of the shares of that company to a foreigner.
3. The government can't enforce a rule that is not defined in the law and ignored and allowed by the previous governments. What is a nominee? There is no definition of what constitutes a Thai nominee shareholder, and besides, there is no law or regulation requiring investigation into who the Thai shareholders in a company are.
4. It's not illegal for a foreigner to have controlling shares in a Thai company. It is 100% legal under the Foreign Business Act for foreigners to control a Thai company. Foreigners can under present law be the sole director of a Thai company and can be appointed as the managing director. The foreigners rights as a minority shareholder are fully and legally protected through the issue of preference shares and weighted voting rights.
5. It's allowed to make arrangements with Thai shareholders. It is legal to enter into joint venture and loan agreements with the Thai shareholders in the company to structure the company.
6. You simply have to do your accounting. As long as the company keeps accounting records and files accounts the company complies with the law and there is no reason for the government to close down or investigate the company.

Existing partly foreign owned property holding companies are ignored by the Thai officials. Even though it's the only option for foreigners to have control in land (and some cases a condominium) we do not advice a Thai company structure as a vehicle to own land or a condominium beyond the foreign ownership quota because of the doubtful legal status of these companies and associated risks of a change in policy towards these companies. We set up companies for foreigners if;

Foreigners who decide to go the company route with additional property ownership in mind (land, land and house or condominium) should be adviced by a Thai lawyer with experiences in business and property law. Too often foreigners who set up companies end up with problems at the Land Department when registering the property because of simple mistakes made by the lawyer. The rules and details of the Land office regulations are complicated.

Foreign companies with substantial investments benefiting the Thai economy may have special privileges and exemptions granted under section 27 of the Investment Promotion Act, Under section 44 of the Industrial Estate Authority of Thailand Act or section 65 of the Petroleum Act (generally for the duration of their approved business in Thailand).

Foreign Land Ownership and Limited Companies in Thailand

The legal threats and drawbacks are:

On the positive side it is possible to argue: