Thai Companies and Land Ownership by Foreigners in Thailand

Can foreigners still own land or a condominium unit beyond the foreign ownership quota with a Thai limited company in Thailand? In new regulations issued by the Thai government, starting with the Land Office guidelines of May 2006, this circumvention of the law by foreigners is no longer ignored by the Thai government.

Special Purpose Companies and Foreign Ownership

Thai law permits the purchase of land or a condominium by a partly foreign-owned Thai limited company, so long as the maximum foreign shareholding does not exceed 49%. Under Thai law, foreigners may control a Thai company as minority shareholders, even if that company owns immovable property. Therefore, some argue that foreigners can have a form of freehold ownership or control over property that would normally be restricted for foreign ownership (such as land or a condominium unit beyond the foreign ownership quota).

What Is a Thai Land-Owning Company?

This refers to a limited liability company in Thailand that exists for the sole purpose of owning property (land) rather than conducting actual business operations. However, Thai law requires that such a company must have a legitimate business purpose and demonstrate trading activity (even on paper). A limited company formed merely as a vehicle to own land on behalf of a foreigner is considered void under Section 150 of the Civil and Commercial Code and illegal under the Land Code Act due to its intention of land holding on behalf of a foreigner (Section 113 Land Code Act).

History

Before 2006, it was common practice for foreigners to register Thai companies solely for the purpose of land ownership, using Thai nominee shareholders to create a majority Thai-owned company on paper. As a majority Thai company, they were able to buy and hold land pursuant to Section 96 (1) of the Land Code Act. In 2006, new regulations were issued to land offices, preventing land ownership registration by such nominee-structured limited companies. Similar instructions were issued to the business registration departments. These changes addressed the widespread misuse of nominee structures by foreigners.

Currently, the Thai government actively investigates Thai shareholders in partly foreign-owned limited companies that own property in Thailand.

Nominee Shareholding Structures

The use of Thai nominee shareholders by foreigners is illegal, not only under the Land Code Act but also under the Foreign Business Act. When a nominee shareholding structure exists, the shares held by the Thai nominee shareholders will be deemed held by the foreigner (as with bearer shares). The company will then be considered foreign under Section 97 (1) of the Land Code Act and, therefore, be illegally holding land without permission.

Thai Shareholder Rights

Most real estate companies incorporated prior to 2006 were set up with Thai nominee shareholders. In these cases, the foreigner is considered the actual owner of the shares or the principal. Unlike in regular companies, nominee shareholders cannot claim any rights, ownership, or control. The registered Thai shareholders merely hold the shares on behalf of the foreigner. This structure is illegal under both the Foreign Business Act and the Land Code Act.

A real estate company formed with genuine Thai shareholders or partners (if such a structure would be accepted by the Land Office) would be less attractive because the Thai shareholders would legally own 51% of the company.

New Regulations

Under the new Land Office guidelines, when a partly foreign-owned company registers property (land), the Thai shareholders must be investigated by the Land Office before registration and transfer can be approved. This process determines whether the company is genuine or created to circumvent the law, and whether the Thai shareholders are actual shareholders or acting as nominees.

Main Drawbacks

1. The company must have a business purpose, show activity, file annual financial reports, and pay tax. The purpose may not be to circumvent property ownership restrictions.

This would be an illegal purpose, making the entire setup and registration void under the Civil and Commercial Code and illegal under the Land Code Act. A company cannot be a "special purpose vehicle" or "landholding company" for a foreigner.

2. Foreigners are not allowed to use Thai nominee shareholders in the company.

When registering legal acts (e.g. selling property, subdividing land, or registering a lease), the Land Office may investigate the Thai shareholders. Even if the foreigner has been removed from the current shareholder list, appearing in the Memorandum of Association may still trigger investigation. All Thai shareholders must present themselves at the Land Department at the time of transfer, and unless the structure is legally sound, the transfer may be blocked.

3. If the land and buildings (or any other improvements) are owned by a company and used as a foreigner's residence, the company must pay Building and Land Tax, even if the foreigner pays no rent or the company receives no income.