Targeting property purchases by proxies

[William]

Not one of mine. But T&G are a respected firm in Thailand

Targeting property purchases by proxies


Thailand, with its rich culture and beautiful sites, presents a very attractive destination to foreigners from many countries _ for visit, travel, or even retirement purposes. Some of these foreigners wish to own property in Thailand, either as an investment or as personal residence.

Thai laws are quite explicit concerning foreign ownership of property, stating that a foreign individual, foreign entity or a Thai company with more than 49% of its shares held by foreigners cannot own land in Thailand, except for particular investment purposes under certain laws such as the Investment Promotion Act, Industrial Estate Authority of Thailand Act, and property fund regulations.


These exceptions, providing benefits to foreign direct investment in Thailand, were intended mainly to promote the country's economy. To enjoy the benefits of these exceptions, foreign investors must meet multiple requirements set out by the relevant legislation and undergo strict scrutiny from authorities.


To date, foreigners wishing to own land in Thailand have attempted to circumvent Thai laws through a legal arrangement establishing a Thai entity where they own part of the shares and induce Thai nationals to act as nominees holding more than 51% or more of the company's shares without true control. This practice has become common in Thailand, with land officials accepting this type of arrangement and creating no impediments to the transfer of land to such companies.


On May 15 2006, the Interior Ministry issued a policy addressed to all provincial governors regarding the avoidance of law in the acquisition of land by an entity with foreign shareholders. The policy seeks to prevent the purchase of land for the benefit of a foreigner in accordance with Section 74 of the Land Code.


It directs officials to be more vigilant in scrutinising the purchases of land by an entity with a foreign shareholder or director, or where reasonable grounds exist to believe that a Thai is a nominee shareholder on behalf of a foreigner. The policy requires the competent official to carefully scrutinise the supporting evidence submitted for consideration, while paying particular attention to the occupation, duration of work and the monthly income of the Thai shareholder.


If, following the investigation, it is the opinion of the competent official that the registration of transfer represents an avoidance of law or that a Thai is trying to purchase land for the benefit of a foreigner, he should conduct further investigation and submit the case to the Land Department for ministerial advice.


As each competent official has discretion in the implementation of the policy, the method of investigation by land offices could vary from province to province. The Ministry of Interior has yet to relay a clear procedure on how to conduct the investigation or define what officials should consider as ''believably acting for the benefit of a foreigner''.

Without a clear procedure, some land offices have ceased to transfer land to entities with foreign shareholders, partners or directors. Others continue to transfer land, but with the condition that the entity's objectives do not include engaging in real estate business. The different standards could be potentially misleading and confusing to the public.

In a further proactive step, the ministry made clear its concern that some companies were avoiding the Land Code by accepting a land transfer when foreigner shareholders do not hold more than 49% of a company's shares, but foreign shareholders then acquire more shares in the company or increase their capital in the company after the transfer. This results in foreign shareholders holding more than 49% of the company, making the company a foreign entity under the Land Code subject to the requirement to sell the land within one year or a period specified by the Director-General.


Land offices have conducted investigations by cross-checking companies holding land in their jurisdiction with the relevant authorities of the Commerce Ministry to verify the shareholding structure of each company. If the search shows that the shareholding of foreigners amounts to more than 49%, the authority will force that company to sell the acquired land.

The property sector in Thailand, especially projects targeting foreign customers, has been somewhat affected by this policy. At the very least, the transfer of land to a company with foreign shareholders is not as simple or certain as before.


Nonetheless, at its core, this policy presents nothing new. This policy merely reasserts, adjusts and attempts to bring current practice in line with the already existing law relating to the transfer of property to companies with foreign shareholders.

Written by Dussadee Rattanopas, an attorney in the Commercial Department, Tilleke & Gibbins International Ltd. Please send comments or suggestions to Marilyn Tinnakul at marilyn

[Marmite the Dog]

Nice article.

I was thinking about what happens if one changes the percentage of Thai/foreigners after the purchase, and this explains it clearly.

[Butterfly]

a guy I know in properties just reported to me that a few farangs with this structure setup a few years ago have already been targeted and were being investigated. So they are cracking down on the old companies too, not only the new ones

[Itchy]

I've always suspected that the way the Thais would deal with this issue is to set arbitary taxes - Sort of along the lines 'Oh your company owns this Bht10Milliion house and land - Let's see, we'll call that 250K tax a year'