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New property law stuns foreigners

Bangkok (dpa) - Thailand's booming property sector has been thrown into confusion by a new regulation issued this month that requires all partly foreign-owned companies to prove the source of their funding before purchasing land, industry sources said Tuesday.

The new Interior Ministry regulation that went into effect on May 25 has already started to slow sales of housing estates in Thailand's popular seaside resorts, such as Pattaya, Phuket, Hua Hin and Samui Island, which have been specifically targeting well-to-do foreigners as vacation getaways or retirement homes.

"The property boom ended on May 25," said Ronachai Krisadaolarn, managing director of Bangkok International Associates, a Bangkok-based legal consultancy firm that caters to foreign clients.

Thailand has strict laws prohibiting foreigners from directly purchasing property themselves although loopholes in the law allow them to own land and their houses through long leases or a "nominee company," providing the company is majority Thai-owned.



It is common practice for such "shell companies" to include Thai nationals who have been paid to act as nominees to facilitate the deal and who have invested nothing in the purchase.

The new regulation, signed by Suraart Thoingniramol, deputy permanent secretary of the Interior Ministry, is designed to halt the use of such companies for property purchases in the future.

"If it appears that an alien holds shares or is a director or it is reasonable to believe that a Thai holds shares as a representative of an alien, the officers shall investigate the income of Thais holding shares, delving into the number of years [they have spent] in the current profession and monthly salary," reads a translation of the law. "The provision of necessary evidence is required."

Unless all the shareholders could prove that they paid for acquiring the land as per the share holding structure. The Thai shareholders also have to prove that they legally acquired the funds, mainly by showing tax-slips, or proof of taking out a loan (not from a Foreigner!!!)

Evidence of Ownership
Title deeds are the most secure form of evidence of land ownership in Thailand . However, "Chanotes" title deeds are not issued for land located in unsurveyed areas of Thailand, and other documents such as title deed maps (Nor.Sor. 3, Nor.Sor. 3 Gor.), certificates of ownership in lieu of title deeds, pre emption certificates stamped "Already in Use," certificates of land examination, certificates of land utilization (Sor. Kor. 1), or notices of possession may be used to evidence land ownership or possessor interests (Land Code § 56).

Registration requirements for the above documents are as follows:
 
1. title deeds, title deed maps, certificates of ownership in lieu of title deeds, and pre emption certificates are to be registered with the Provincial Land Office or a branch of the Provincial Land Office concerned; and

2. certificates of land utilization, notices of possession, and certificates of land examination are to be registered with the District (Amphur) office in which the land is located.

All interests in land may be registered in the name of a natural person, a juristic person, or to several persons in common. 

Land Transactions

Acquisition of Land

Land may be acquired by sale, hire purchase, gift, inheritance or adverse possession. Under the CCC, no acquisition of land or immovable property is complete unless made in writing and registered with the competent official (CCC § 1299).

A sale of land or the transfer of a tenancy which has a title deed or certificate of land utilization must be made in writing and registered with the competent official at the Land Department . There are land transfer restrictions that apply in certain cases.

  • A sale of land with the right of redemption is recognized by Thai law, provided the redemption occurs not more than 10 years after the date of sale.
  • Hire purchase is a relatively common method of acquiring land in Thailand and involves an owner letting out land on hire with the promise to sell it in the future. Normally, land ownership will transfer to the hiree after he or she completes a certain number of installment payments (Land Code § 54)

Mortgages

Land may be mortgaged by the land owner to secure the performance of an obligation of the land owner, such as payment of indebtedness. Land may also be mortgaged by the owner to secure performance of an obligation of another party. Mortgages of land for any purpose must be made in writing and registered with the competent official at the Land Department where the mortgaged land is located.

A mortgage of land does not extend to permanent fixtures or buildings on the land, and does not include rights over buildings erected on the land after the date of the mortgage unless provided for in the mortgage. Likewise, a mortgage over buildings does not extend over the land.

Leases

Leases of land are not enforceable unless there is some written evidence signed by the party against whom the attempt to enforce is being made. If leases are for more than three years or for the life of the lessor or lessee, they are enforceable only for three years unless made in writing and registered with the competent official.

Except for leases for the life of the lessee or lessor, leases must have a maximum duration not exceeding 30 years, with an option for renewal that shall not exceed a further 30 years.

A lease of real property for a commercial or industrial purpose can be made for a term of 50 years, renewable for another 50 years term.

Taxes and Registration Fees

Land transactions are subject to taxes and fees under the Land Code. Transfer of land is subject to:
 
1. stamp duty (0.5% of transfer price or assessed value, whichever is higher);

2. withholding tax (1% of transfer price or assessed value, whichever is higher, if the transferor is a juristic person, or at a progressive rate based on the number of years of holding if the transferor is a natural person);

3. land transfer registration fee (2% of assessed value); and

4. specific business tax and municipality tax (3.3% of transfer price or assessed value, whichever is higher.)


The following require registration fees:

1. mortgages (1% of mortgaged amount with a maximum of 200,000 baht); and inheritances (0.5% of assessed value).

Leases are subject to stamp duties (0.1% of rent throughout the lease period).

Restriction on Foreign Ownership of Land

Foreigners are prohibited from owning land in Thailand unless permitted by the Ministry of Interior pursuant to treaties in force between Thailand and a particular foreign country. At present, all applicable bilateral treaties relating to land ownership have expired, and only foreigners who have acquired land prior to the expiry date may continue to own land. However, foreigners may freely lease land, construct and own buildings and acquire superficies and usufructs.
A superficies is the right to own buildings, structures or plantings on or under the land. A usufruct is the right of a person to possess, use or enjoy land belonging to another. Both rights may extend for a limited duration or for life.

Under the Land Code, the following juristic persons are deemed foreigners:

1. public companies limited or private limited companies wherein more than 49% of their registered capital is held by foreigners or more than half of their shareholders are foreigners;

2. limited partnerships or registered ordinary partnerships wherein more than 49% of their registered capital is contributed by foreigners or more than half of their partners are foreigners;

3. associations, including cooperatives, of which more than half the members are foreigners or which operate especially or for the most part in the interest of foreigners; and

4. foundations which operate especially or for the most part in the interest of foreigners.

In a newly-acquired subsidiary, affiliated company, or associated company, the foreign interests in the parent company is added onto the foreign interests already owned in the subsidiary, affiliated or associated company for the purposes of calculating foreign shareholding under Thai law.

A promoted foreign company under the Investment Promotion Act may be granted the right to own land necessary for carrying on its activities subject to conditions specified by the Board of Investment. The Petroleum Act, also permits oil concessionaires to own land necessary for their activities. Under the Industrial Estates Authority of Thailand ("IEAT") Act, the IEAT may allow a foreigner to own land in an industrial estate.

A foreigner who brings not less than 40 million baht.investment capital into Thailand and maintains that investment capital for no less than five years for the investment activities listed below can own land in Bangkok, Pattaya, any municipality area or  any residential area specified under the city planning law, provided such land is not within a security zone under the law on military security zoning:

Examples of foreigners permitted under certain circumstances to own land include:

  • purchaser of government bonds or bonds issued, or guaranteed, by government bodies;
  • investor in property mutual funds, or property mutual funds for financial system restructuring, or property mutual funds for restructuring of financial institutions established under the law on securities;
  • investor in registered capitals of juristic entities promoted under the law on investment promotion; and
  • investor in businesses eligible for promotion under the law on investment promotion.

Condominiums

Definition

A "condominium" is a multi unit building with individual ownership of each unit and undivided ownership interests in the land on which the building rests and areas shared commonly with other unit owners such as elevators, main lobbies, hallways, staircases, swimming pools, parking areas, tennis courts and other facilities or property made for common use or benefit.

Foreign Ownership

Foreign ownership in units of a condominium will be limited to no more than 49% of the total area of all the units in the condominium.

These covered are:-

  • foreigners enjoying resident status under Thai immigration law;
  • foreigners permitted to enter Thailand under the Investment Promotion Act;
  • juristic persons deemed foreigners under the Land Code and registered as juristic persons under Thai law;
  • foreigners under the Foreign Business Act who have been granted promotion under the Investment Promotion Act; and
  • foreigners or foreign juristic persons who have brought funds from offshore Thailand to purchase condominiums.

Registration

A condominium project is required to be registered as a juristic person whose purposes include managing and maintaining the common property. The by-laws of a condominium are registered with the Land Department instead of the Ministry of Commerce as for traditional businesses. The by-laws must set forth the condominium's objects, the procedure for management of common property, procedure for general and special meetings and the percentage ownership of each unit owner.

Management

Unit owners may appoint a natural person to act as their representative and to manage the affairs of the condominium in accordance with the objects and resolutions of unit owner meetings. Unit owners may also appoint a board of directors to supervise the manager.

Transfer of Ownership

A foreigner or a foreign juristic person is required to transfer the ownership of a condominium in the following cases:

  • if a foreigner or foreign juristic person inherits a condominium and such ownership exceeds the allowed maximum foreign shareholding of the condominium;
  • the permission for the foreigner to reside in Thailand has been revoked or rendered invalid;
  • pursuant to the invalidity or revocation of residence or investment promotion certificate or the exceeding of the allowed maximum foreign shareholding and such foreigner is deported or not granted a relaxation;
  • if a foreigner does not receive permission from the Board of Investment to stay in Thailand; or
  • the investment promotion certificate of a foreign juristic person is revoked.

Real Estate Development Projects

1. A Real Estate Development Project ("REDP") is a project where a land owner divides one or several adjoining plots of land into at least ten divided plots for sale or otherwise disposal for remuneration. This includes a division of land into less than ten plots but subsequent divisions of the land within 3 years account for a total of at least ten plots.

2. A land owner who establishes an REDP is required to obtain real estate project development permit from the relevant Real Estate Development Commission ("Commission") in Bangkok or in the relevant province.

3. A project owner who is granted an REDP permit is prohibited from undertaking any juristic act which creates an encumbrance over the land designated as public utilities and public services when the permit was requested, except in case a written permission is obtained from the Commission. The project owner is required to maintain the public utilities and public services .

4. A sale and purchase agreement for land in an REDP must be made in the form to be prescribed by the Commission. If the sale and purchase agreement is not made in the prescribed form, any provision thereof which is not for the benefit of the buyer shall be unenforceable.

5. The project owner is released from his obligation to maintain the public utilities and public services in the REDP if:

  • the buyers of the land plots in the REDP have jointly established a real estate project juristic person ("REPJP") to manage and supervise such utilities and services;
  • the project owner has been granted an approval from the Commission to take any act for the purpose of maintaining the public utilities and public services; or
  • the project owner has registered the transfer the public utilities and public services as a public domain.

An REPJP can be established by the buyers of not less than a half of the divided plots of land in an REDP. An REPJP must be registered with the relevant land office. It must have articles of association or by-laws covering such items as its name, objectives and location. Once an REPJP is established each of all the buyers of the land plots in the project required to be a member of the REPJP. An REPJP is operated by its Board of Directors under the laws and its by-laws. Its Board of Directors has authority to deal with third parties for it and on its behalf

 



 
 
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