Owning Property in Thailand ?
The property ownership laws of Thailand are nationalistic, whereby it is difficult for foreign nationals to legitimately secure property. The main issue is concerning real estate. If you are not legally established in Thailand and following the legal procedures, then you are taking risks, that could ultimately lead to a huge financial loss.
Foreigners can own condominium freehold as long as a maximum of 49% of the apartments are owned by foreigners. Whenever a condominium project sells a unit to a foreigner, a number of documents are required from the building stating that after the sale, a maximum of 49% foreign ownership is still valid. Before being granted permission to buy an apartment, the local building inspector will inspect and approve the permission.
A foreigner cannot own land in Thailand. There have been rare exceptions. A foreigner can own a house but the land on which it stands cannot be outright owned.
The most common methods of properly securing land are:
- Having signatory authority of a domestic Thai company which owns the property (and usually the largest shareholder, but normally a foreigner will own 39% of the shares; or
- Sign a 30-year (or less) lease with a domestic company or Thai individual, with an automatic option to renew for two times 30 years.
These are the only valid ( legal ) ways to secure land in Thailand.
There will be other people with interesting stories about how they secured their land. There will also be lawyers stating they can work their magic. However it will never be fully legal, and at some point you could see your investment being seized. So always remember to have at least 1 or 2 different lawyers look over the details of a contract, before parting with a huge chunk of your savings.
Setting up a Thai Registered Company to buy property
To properly setup and manage a company that owns land and/or a house, you will need minimum 6 shareholders owning at least 61% of the company. You can then own the remaining 39%. Your 6 shareholders should be reputable friends, employees, co-workers and such. There can easily be legally binding contracts in place that prohibits them from taking control of the company. A good choice of a shareholder is someone who is already a share owner in other companies. If you don’t know anyone, many law offices will assist you in this critical phase of your company formation. However, do always get a second or third opinion to be sure every document is in order. Having the documents translated by an interpreter would also help you minimize any confusion.
You should be aware, however, that bogus companies for the sole purpose of property ownership and nominee directors are not legal. There is a risk to be prosecuted, as minimal as it may be.
The best option is for the company to own the property and issue a lease contract to you. The same applies to the Thai wife — she owns the property but leases it to you.
To many, the main benefit of company ownership of property is that a company can own or lease a lot more property than any individual can, without getting into questions about the wife’s money, and where they came from. If you are planning on renting your property, it is also easier to deal with taxes, income statements etc when you run it as a proper business, also allowing you to have a work permit and visa for being director of that company.
Plan ahead. Think what will happen in the case of an accident or loss of life. Make a will, plan who will inherit your shares, your lease contract and your house.
Getting a mortgage
Some banks offer mortgages to foreigners based on certain criteria and up to a certain percent, but if you are just moving to Thailand, expect this to be rather hopeless. If the land and house is in a Thai registered company, it will need to be a well run, well established company for this to be approved.
A foreigner can lease land for 30 years at a time, according to the laws of Thailand. You can add two clauses to the lease contract, that should you see fit, a second 30 year lease contract can/will be added and upon that lease term coming to and end, a final third 30 year lease contract can/will be added. You can stipulate the terms in this current first lease contract. So effectively you can now own that piece of land for the next 90 years.
If your wife is Thai, you can buy the land in your wife’s name and then lease it from your wife. Imagine that somewhere down the line, you get divorced from your wife. And this once loving friendly caring individual now becomes intent on making your life miserable. So if you don’t lease the land and if you didn’t put the house in your own name, you can now be kicked out of your own house. This happens all the time to blue eyes foreigners in love. Seriously sort out the lease contract.
A real estate lease registration fee is charged at the rate of 1 % of the total rental throughout the whole lease term and collected by the land office at the time of registration. Also a stamp duty is collected at a rate of 0.1% of the total rental throughout the lease term. This also helps you verify the legality of the contract.
Your wife will be the rightful owner, once the lease contract expires. And at this time she can do what she wants with the land. If you are divorced at the time, and it ended badly you may be kicked off the land. However if the house is in your name – you are free to demolish it before the lease expires. Another scenario is that you will be asked to remove the house at your expense. To avoid these issues, make sure you add the optional extension clause in the lease contract.
Scams and Complications
Do not believe any signboards or lawyer or other source of information, stating it is now possible for foreigners to legally own land in Thailand. For that to happen, the whole internet would be booming with the news, and not just one single law office, that “knows the law better” than the next law office. At some point in time, many years ago – there was issued land title deeds to Americans that qualified under an investment law, that helped Thailand recover from bankruptcy. This law does not still exist. There is no other legal ways to acquire land than previously mentioned.
Once you have seen the property you are interested in, make sure the land title deed is of the right type and that the co-ordinates match the property you have seen. This is easily doable, by bringing an attorney to the land office and ask to see a copy of the title deed. If the land has been surveyed recently the title deed will have been upgraded to Chanote. If any other title, there has not been a survey done recently and you could end up losing chunks of your land to neighbors. More on land titles below.
Real Estate Property Transfer Taxes and Fees
Do not pay more fees and taxes than necessary
Transfer fees and taxes of immovable property
LAND OFFICE transfer tax of immovable property (land, house, condominium)
- Transfer Fee 2% over the appraised value of the property
- Business Tax 3.3% over the registered (sale) value or appraised value (whichever is higher)
- Stamp Duty 0.5% over the registered value
- if the seller is a company withholding tax is fixed at 1% over the registered sale value or appraised value (whichever is higher)
- if the seller is a private person withholding tax is calculated at a progressive rate based on the appraised value of the property
Note on stamp duty and specific business tax (SBT):
- Stamp duty is exempt if Specific Business Tax is charged.
- Business tax consist out of 3% business tax + a municipal tax of 10% assessed on the amount of the specific business tax (total tax 3.3%).
If the seller is an individual (not a company) Specific Business Tax does not have to be paid if:
- The seller has possessed the property more than five years before the transfer (the transferred property has been used as the principal place of residence, and the seller’s name appeared in the house register for not less than one year from the date of acquiring such property).
- The seller transfers the property to the legal heir or an heir by a will.
- The seller transfers the property to a legitimate child, but not including an adopted child.
- The seller transfers the property to government agencies.
- The seller transfers the property to temples, churches or mosques.
Note; Land office transfer fees and taxes are collected when the real property transfer is registered. The appraised value or government assessed value (land valuation) is set by the Land Department and Treasury Department and adjusted every 4 years with the last valuation in 2011 for the period 01-01-2012 to 01-01-2016. The appraised government values on which fees and taxes are based will be higher from january 2012
Income Tax calculator: Thailand Revenue Department’s website tax calculator (Thai language)
Lease registration fee
A real estate lease registration fee is charged at the rate of 1% of the total rental throughout the whole lease term and collected by the land office at the time of registration. Also a stamp duty is collected at a rate of 0.1% of the total rental throughout the lease term.
Which party usually pays which tax when transferring real estate
Unless you are buying from a developer in a licensed housing or condominium development there is no fixed rule for who pays which part of the land office transfer fees and taxes. It is part of the overall price negotiation to come up with an appropriate formula for sharing these costs and it can vary from purchaser pays all to seller pays all. It’s most important that you have resolved this in the sale and purchase agreement so the seller doesn’t try to force in this provision a week before the transfer or you must work out such details when you arrive at the land office. It should clearly exclude the seller’s personal withholding tax, because of the wording in the contract it has happened that the buyer was forced to pay the seller’s personal income withholding tax, as this is part of the taxes to be paid at the land office when transferring land.
In a private sale of real estate property the following division of taxes and fees is recommended:
Specific Business Tax : the seller’s duty
Stamp duty : the seller’s duty
Transfer fees : the buyer’s duty or shared
Withholding tax : always the seller’s duty
When purchasing an off-plan condominium or house in an official licensed housing or condo development the developer may only pass on up to half of the transfer fee (2%) to the purchaser under consumer protection laws. The developer will be responsible in full for specific business tax and withholding tax and at least for 50% of the transfer fees.
The registration of a land, house, condominium transfer or lease registration in the land office may take up to six hours, depending on how busy the officers or if ‘extra money’ has been paid to ensure the smooth and quick registration. Usually, for registration of property transfer, extra money or tea money varies between 1,000 and 3,000 baht.
If the foreign purchaser cannot attend the land office, a proxy can be appointed. In this case, the official Thai script land office power of attorney form is required. Other forms of power of attorneys are NOT accepted by the Land Office.
The seller wants the declared price to be less than what I’m going to pay
The appraised value land office value is often pretty much lower than the actual sale price, and in practice the Thai seller tends to insist on declaring and registering a sale price close to the appraised value as this decreases his personal income taxes. This is a known practice but not so common practice as this practice is illegal. The parties are required by law to state the correct true sale price at the Land Department.
In case the purchaser is a company, for accounting purposes the company accounts should reflect the purchase price as reflected in the actual sale and purchase contract (separate from the land office sale agreement). These are the accounts that will eventually be audited and on which and the company tax return will be based. In case a lower price is declared there is a risk that this valuation discrepancy will be caught in the future. This is for Revenue Department comparing the official land office documents with the company accounts. In this case the situation would have to be corrected and a substantial fine to be paid.
Share transfer if the owner is a company
If the owner/ seller is a Thai incorporated holding company selling to another foreigner a share transfer agreement is usually drawn up. The property (land, house or condo unit) sale will look like a share transfer, without the necessity of re-registering the property at the Land Office. It could be deemed a tax evasion to create such legal arrangements. Selling a property naked you will be liable for all of the taxes and fees that were applicable at the time of purchase over the sale amount. The proceeds derived from the sale of property by a company are taxed as corporate income tax.