Crackdown on foreigners using Thai nominees: DSI raid offices of law firm in Bangkok, Phuket and Samui

[Dogmatix]

Interestingly the Land Department's website actually sums up the punitive measures in the Land Code relating to alien ownership of land. We are not allowed to quote in foreign languages (including Thai) or post links to foreign language quotes in TV but Google translate makes a passable job of this one as follows.

"Compulsory and punitive measures to hold land instead of aliens.

In the event of a later fact that the land was taken instead of the alien. There will be forced operation. Land and punish the offender. 1) Measures relating to land by forcing land to be sold in accordance with the procedure of law. Under Section 94 and 96 of the Land Code Determine the criteria when it appears. Acquire land as an owner instead of an alien. Or foreign entity Or aliens come to the land. Unlawful The alien shall manage the land within the time prescribed by the Director-General. Not less than one hundred and eighty days. But not more than one year If the land is not sold within the specified time. The Director General shall have the power to dispose of such land. 2) Criminal measures against persons and punishable by law. In case of applying for registration of the land is considered alien. Will be guilty of the following. 2.1 Offense under the Criminal Code, Section 267 base informs the competent official of the duty to write down the false statement in the official documents. Imprisonment for up to three years. Or a fine not exceeding six thousand baht or both. 2.2 Offense under the Land Code by an alien is guilty under Section 111 of the Land Code. Land acquired illegally. Shall be liable to a fine not exceeding twenty thousand Baht or imprisonment for not more than two years or both. The juristic person is guilty under Section 112 of the Land Code. Thai people are guilty under Section 113 of the Land Code. Land acquisition as a representative of the alien. Or entity that is considered alien. Shall be liable to a fine not exceeding twenty thousand Baht or imprisonment for not more than two years or both."   It seems  that we have been underestimating the extent of criminal penalties that can be levied in respect of acquisition of land by aliens, since the Land Department doesn't regard these as limited to Section 113 which prescribes penalties of B20,000 or two years or both for a person who buys land for an alien as an agent.  The department interprets Section 111 as providing for a penalty of B20,000 or 2 years or both for a person that acquires land for an alien.  The juristic person or company that acquires land for an alien can be prosecuted under Section 112 whcich provides for a fine of B20,000.  Furthermore those who make false statements to government officials regarding the application to register land for an alien can be prosecuted under Section 267 of the Criminal Code which provides for a penalty of up to B6,000 or 3 years in prison or both.   So there we have it.  The Land Department feels that the Land Code provides very clear penalties for individuals who register land for aliens, which probably includes the aliens themselves, and for the companies. In addition it would want prosecution under Section 267 of the Criminal Code which provides for a tougher prison sentence than the Land Code itself.  The defence of regarding the definition of "agent" from the CCC would only be of help in averting a conviction under Section 113 but violators could still get 5 years in prison without being prosecuted as an agent under this section. Convicting someone as a agent of an alien would probably just be icing on the cake, as far as the Land Department would be concerned.   I think this illustrates very aptly the dangers of only reading Thai laws in translation and jumping to conclusions without reading the vast amount of material relating to the laws available in Thai.

[Horace]

16 hours ago, Gulfsailor said:

True. Except of course when there is an undated but signed agreement between said Thai shareholder and a yet to be filled in party/person, by which his shares are transferred to this new person/party. That's how Thai shareholders in 'sham' companies are exactly told how to vote and this act as agents. In return they get a monthly stipend. 

Hard to proof such agreement is in place, unless one raids the law firm who set it all up and where the contracts are likely being kept..

 

You are right, but if is this what was actually done, it's not a preference share structure, and someone was very foolish.

[Horace]

12 hours ago, Dogmatix said:

The Land Department feels that the Land Code provides very clear penalties for individuals who register land for aliens,

 

But if the land is acquired by a Thai majority owned company, the land was not acquired by an Alien and these penalties would not apply. 

 

What makes a company that is majority owned by Thais, an Alien or a foreign company instead of a Thai company?  What provision of the Land Act says that a company where a majority of the shares are owned by bona fide Thai shareholders (i.e., Thais who invested their own money to buy shares in the company), is actually a foreign or an Alien Company buying land in circumvention of the Land Act?  

 

Thai law allows companies to have shares with different voting and economic rights. Where does it say that the shares held by foreigners can't have superior voting or economic rights?  Assume: (1) a company where Thais own more than 50% of the shares; (2) the Thais invested their own money to buy the shares and can prove it; and (3) the foreigners hold less than 50% of the shares but their class of shares has superior voting and economic rights.  How does this violate the Land Act?  

 

This is where we keep going in circles. And that is why I keep asking  for a cite to a specific law that says this specific set of facts violates Thai law.

[xylophone]

19 hours ago, OldSiamHand said:

Nobody can provide a plausible answer because there simply isn't one

Well, consider this...………

 

Perhaps all of this discussion is overlooking one key fact, which will override all of the “arguments” put forward with regards to definitions of words, how transliteration affects meaning, and whether this or that is included in this code, or that code or this act or this government decree and so on.

 

This because what we do know is that foreigners, with a few documented exceptions, are not allowed to own land in Thailand and this is clearly stated, and this is the overarching Thai position with regards to foreigners owning land here.

 

Bearing this in mind, do the posters really think that the following is legal: –

 

A foreigner brings 5 million baht into Thailand and a lawyer sets up a company to own a property/land. But there is no real company involved because this “company” produces nothing, employs no Thai employees and the Thai “shareholders” who are put together by the lawyer, invest no money whatsoever in this company and do not attend shareholder meetings to assist with the performance and regulatory requirements of that company.

 

So, does this tie in with what the Thai government is trying to achieve with regards to foreigners not owning land?

 

Irrespective of arguments around what constitutes an “alien” or a “nominee” surely it is plain for all to see that the structure I have outlined above is nothing more than a sham and I believe that’s the way that the government will see it if they decide to put resources into this area.

 

If this “company” was to appear in court for whatever reason, I propose that the following would be the ruling: – “if one strips away the false paperwork, signatures, lies and deceit assembled in constructing this sham company, then it will be clearly seen that it is no more than a facade to allow a foreigner to own land. And that is illegal”.

 

So perhaps posters are being too clever with regards to trying to sort out the intricacies of this law, as we see it, because it is not intricate at all…….the Thais have it covered with the overarching position that, “foreigners cannot own land in Thailand”.

 

[xylophone]

16 hours ago, Gulfsailor said:

In return they get a monthly stipend. 

In the cases of the sham companies that I am aware of, the faux "shareholders" were paid a once-off amount only.

 

And now that the Gov't has stated that any "shareholder" of such a company can be investigated and must be able to show their actual investment etc, or fines will ensue, there are fewer willing to take the chance.

[Horace]

4 hours ago, xylophone said:

invest no money whatsoever in this company and do not attend shareholder meetings to assist with the

 

Chalk and cheese.  We have been talking, from the beginning, about a structure where the Thai shareholders do invest money and retain evidence that they did, in fact, invest money. Look at my example.  

 

Let's also say, as I have said before, that they get a return in the form of a fixed and cumulative right of 10% dividends on their paid-in capital.  The company also complies with corporate formalities, such as the board of director meetings, annual shareholders meetings to approve the annual financial statements.  Not hard to do.  The company also pays tax.  There is income in the form of rent and rent itself is subject to specific tax (I think around 12.5%) under the Land and Property and Property tax.

 

You have simply removed that part of the structure to make the company look bogus. Let's put these parts back in.  How can you claim this structure is illegal or the company is bogus?

 

The company pays taxes. Thais put in their own money. The Thai get a commercial return on their investment.  How is the company illegal or bogus?

 

 Make it even safer.  The foreigner holds of his 40% shares (with 95% voting control and superior economic rights) in a holding company that is 60% owned by Thais. The Thais are bona fide investors, meaning they invested their own money, can prove it and get a generous commercial return on their investment (10% per annum), etc.  The holding company doesn't even own land. The holding company is an investment company, which is permitted under Thai law.  The holding company owns 99% of the shares in the bottom tier Thai company that owns the land.  The Thai company that owns the land is 99% Thai, but controlled by a foreigner and that foreigner (after the cumulative 10% dividend paid to the Thai shareholders at the holding company level) enjoys all of the economic benefits from the structure. 

 

Yes, this is cumbersome.  But how is it illegal?

 

[xylophone]

3 hours ago, Horace said:

We have been talking, from the beginning, about a structure where the Thai shareholders do invest money and retain evidence that they did, in fact, invest money

You obviously haven't been reading the majority of the posts Horace, because they are dealing with the sham/shell/fake company situation set up by crooked lawyers because farangs want to own property & land, with all of the constituent fake parts mentioned in my previous email.

 

You are dealing with a different situation, as has been pointed out to you on several occasions in the thread, as has Dogmatix, in the main.

 

This (fake company, fake shareholders, no Thai money invested, no Thais employed, no business undertaken, no shareholder meetings/governance) etc, is considered a sham company and illegal, whereas you are dealing with another situation altogether.

 

Kao-jai mai.

[Arkady]

I think we discussed the type of companies like AIS and DTAC that have  real businesses and use well lawyered structures with hi-so Thai nominees who clearly have the ability to invest their own money  early on the thread. All agreed that this type of structure was in compliance with the FBA and should not have problems, even if they owned land, barring of course an attack from a Thai owned competitor. Having agreed on that, we moved to focus more on less well structured situations where foreigners have set up “man of straw companies” with a minimum of expense and less than expert advice, simply to own land without any operating business. That is the type of situation that is of more interest to TV members. Very few of them are controlling shareholders of large companies of the AIS and DTAC type. So there is no need to reiterate that they are OK because we all agree on that.

[Horace]

14 hours ago, xylophone said:

You obviously haven't been reading the majority of the posts Horace, because they are dealing with the sham/shell/fake company situation set up by crooked lawyers because farangs want to own property & land, with all of the constituent fake parts mentioned in my previous email.

You are missing the point of this thread.  This thread is about the raid on DFDL. Why did it happen?  

 

I don't have personal knowledge of what DFDL did here.  But I have been absolutely clear from the outset that I have talking about a preference share structure, preferably multi-tiered, with bona fide Thai investors that comply with corporate formalities where a foreigner has management control and superior economic benefits.  I have to assume DFDL used this sort of structure. 

 

I have never argued or even suggested a land owning company where there is an agreement in a lawyer's vault saying the Thai shareholder is holding shares on behalf of the foreigner as a nominee or agent is legitimate.  Indeed, go back to the first pages of this thread and you will see that I said that the this would be foolish and easily establish a nominee or agency relationship.

 

Recall that I have repeatedly asked why a Thai majority owned company that complies with corporate formalities and has bona fide Thai investors would be illegal simply because foreigners have management control and enjoy superior economic benefits?  That has been the crux of the argument here.  Why would such a structure be illegal or prohibited under the FBA or Land Act?  

 

Or do we all agree now that this sort of structure does not violate Thai law?

 

Maybe we do?  No one thus far has answered my question about why mere foreign control and economic benefit makes a Thai majority company an Alien company (or nominee or agent of an Alien) under the FBA or Land Act? Instead, when pressed to answer this question, someone posits a shady lawyer holding some sort of nominee deed of shareholding in his vault stating that the Thai shareholder must do as directed by the foreign shareholder. Or, without any explanation or analysis, claim that the company is, in some undefined way, "bogus".  

 

I don't think that DFDL employed the "nominee deed of trust in the lawyer's vault" approach  and I don't see why any foreigner needs to this, including the iconic foreigner retiree who wants a villa in Koh Samui with an infinity pool.  

 

If the preference share structure works, why can't our foreign retiree use that structure.  Its cumbersome, but when you consider the cost of villa in Koh Samui with an infinity pool, it would be foolish not to adopt this approach.  This thread is about a raid on DFDL, and I can't believe they used the indefensible  "deed of nominee shareholding in the vault" approach.  

 

So, why did DFDL get raided if they employed multi-tiered preference share structures that have bona fide investors and comply with corporate formalities?  That has always been the question here.

[Horace]

14 hours ago, Arkady said:

That is the type of situation that is of more interest to TV members. Very few of them are controlling shareholders of large companies of the AIS and DTAC type.

 

The type of structure I have been discussed can be used by TV members. They don't need a Thai Hi-So.  They need a Thai who can afford the shares in a holding company and is willing to do so in return for a fixed, cumulative 10% return on dividends.  

 

Yes, its more expensive and cumbersome than the dodgy deals some here posited, but if a foreigner wants effective management control and economic benefit from a company that owns a villa in Koh Samu with an infinity pool (or any other place in Thailand), I don't see why they can't also use that structure.  It's not that expensive to do it right.  And I have to believe that DFDL did it right.

[xylophone]

1 hour ago, Horace said:

You are missing the point of this thread.

You are missing the point as to what the thread has become............it started out like that, but it soon morphed into a thread relating to foreigners setting up sham companies to own land.

 

See Arkady's post below, as well as many others debating the foreigner/sham company illegality.

 

15 hours ago, Arkady said:

Having agreed on that, we moved to focus more on less well structured situations where foreigners have set up “man of straw companies” with a minimum of expense and less than expert advice, simply to own land without any operating business. That is the type of situation that is of more interest to TV members. Very few of them are controlling shareholders of large companies of the AIS and DTAC type. So there is no need to reiterate that they are OK because we all agree on that.

That has to be very clear to all reading it except you!! 

[Horace]

1 hour ago, xylophone said:

You are missing the point as to what the thread has become............it started out like that, but it soon morphed into a thread relating to foreigners setting up sham companies to own land.

 

See Arkady's post below, as well as many others debating the foreigner/sham company illegality.

 

That has to be very clear to all reading it except you!! 

 

I am not sure how you can speak for a thread and everyone who has posted on it, but my point has simply been that Thai law cannot prohibit a company that is majority owned by bona fide Thai shareholders, but controlled by a foreigner who holds another class of shares that gives that foreigner voting control and superior voting rights, from owning land or engaging in activities restricted under the FBA.  If you and everyone else have now come around to agreeing with this point, which I made at the very outset, that is great.  Thank you very much!

 

Oh, and TV members, if they hire a competent lawyer, are quite capable of forming a compliant structure to hold land or conduct business restricted under the FBA.  It is not limited to DTAC and it's not that hard to do. 

[xylophone]

42 minutes ago, Horace said:

I am not sure how you can speak for a thread and everyone who has posted on it

My point was related to the number of posts on the sham/farang company illegal set-up.

 

43 minutes ago, Horace said:

If you and everyone else have now come around to agreeing with this point, which I made at the very outset, that is great.  Thank you very much!

Actually Arkady states that but I and others do not agree with your assumption, because the case for and against your argument is unproven either way, with others stating that the overarching principle that foreigners (with stated exceptions) cannot own land will prevail, or that rulings in such a case can change and reflect the Thai Governments "mood" at the time.

 

3 hours ago, Horace said:

The type of structure I have been discussed can be used by TV members. They don't need a Thai Hi-So.  They need a Thai who can afford the shares in a holding company and is willing to do so in return for a fixed, cumulative 10% return on dividends.  

 

Yes, its more expensive and cumbersome than the dodgy deals some here posited, but if a foreigner wants effective management control and economic benefit from a company that owns a villa in Koh Samu with an infinity pool (or any other place in Thailand), I don't see why they can't also use that structure.  It's not that expensive to do it right.  And I have to believe that DFDL did it right.

And as for this post, well it has more holes in it than a colander and really not worth debating!

 

[ravip]

On 8/17/2018 at 9:35 AM, jvs said:

You are over reacting!!This comes around every once in awhile.If they would really go after every company set up buying houses for foreigners it would be really really big!!!

There is absolutely no way the would take your property away from you.They would give you a certain time in which you would have to sell or put in some other name.I do not believe in these panic reactions.

If they would really go after every company set up buying houses for foreigners it would be really really big!!!

 

Does that mean that as much the Thai companies are corrupt, there are equal amount of corrupt foreigners ?

 

[Horace]

5 hours ago, xylophone said:

6 hours ago, Horace said:

f you and everyone else have now come around to agreeing with this point, which I made at the very outset, that is great.  Thank you very much!

 Actually Arkady states that but I and others do not agree with your assumption, because the case for and against your argument is unproven either way, with others stating that the overarching principle that foreigners (with stated exceptions) cannot own land will prevail, or that rulings in such a case can change and reflect the Thai Governments "mood" at the time.

 

A little comedy to end the weekend?  First you claim there is no point in my making any further points because there is no dispute anymore that preference share structures, which involve Thai companies, are fine because they are not shams.  And now, less than 23 hours later, you contradict yourself, saying you: "do not agree with my assumption" (hint: "assumption" is the wrong word here).  In other words, stating it honestly, you don't like my analysis, but you are unable to articulate a principled basis for objecting to that analysis.

 

I think we are done here.

[xylophone]

49 minutes ago, Horace said:

 

A little comedy to end the weekend?  First you claim there is no point in my making any further points because there is no dispute anymore that preference share structures, which involve Thai companies, are fine because they are not shams.  And now, less than 23 hours later, you contradict yourself, saying you: "do not agree with my assumption" (hint: "assumption" is the wrong word here).  In other words, stating it honestly, you don't like my analysis, but you are unable to articulate a principled basis for objecting to that analysis.

 

I think we are done here.

You do have trouble reading don't you...…………….

 

A  way back you were arguing your point whereas the majority of other posters were debating/stating/arguing another scenario entirely, but you couldn't see it!! Yet you still applied your argument to this scenario??

 

Then another poster, not me, posted that he thought your argument had merit and it just so happens it was posted along with another point he/I was trying to make, i.e. the main point being...………

 

we moved to focus more on less well structured situations where foreigners have set up “man of straw companies” with a minimum of expense and less than expert advice, simply to own land without any operating business. That is the type of situation that is of more interest to TV members.

 

But you still didn't see it, then a post or so ago you came up with a ridiculous suggestion which, as I stated, had more holes in it than a colander!!!

 

Well as for comedy, your previous suggestion in post 523 was akin to a tragi-comedy...…...didn't know whether to laugh or cry!

 

So for those who are thinking of owning land through a sham company, which isn't really a company, produces nothing, has no financial input from Thai "shareholders", employs no Thais and whose sole financial input comes from a foreigner...…..don't do it because it is illegal.

[mogandave]

Yes, and to be clear, anyone that can find several Thai nationals that are willing to buy a company that does nothing but finance a home for someone else to live in, that should be okay as well.

[xylophone]

13 hours ago, mogandave said:

Yes, and to be clear, anyone that can find several Thai nationals that are willing to buy a company that does nothing but finance a home for someone else to live in, that should be okay as well.
 

Yes you can imagine how the advertisement might read for these gullible investors: –

 

Three Thai investors needed to invest 1 million baht each in a new company. Actually it is a company on paper only and not really a company because it produces nothing and employs no one.

 

It will be registered as a company to enable a foreigner to purchase a house and land here in Thailand and you will be “shareholders”, although you don’t have to worry about attending shareholder meetings, because there will be none. Furthermore you will have no rights as regards this foreigner or property.

 

As for a return on your investment, well this will be dependent on how much the foreigner can pay you from his own account, because this investment on its own produces no income or dividends.

 

Should you wish to divest of your shareholding, then you will have to find another “investor” to buy you out, because it’s very likely that the foreigner will not be able to. And, in the event that the foreigner gets into financial difficulties, then you are pretty much on your own with regards to how to recoup your initial investment.

 

If it sounds like something you would like to be part of, then contact…………

[Horace]

2 hours ago, xylophone said:

Yes you can imagine how the advertisement might read for these gullible investors: –

 

Three Thai investors needed to invest 1 million baht each in a new company. Actually it is a company on paper only and not really a company because it produces nothing and employs no one.

 

It will be registered as a company to enable a foreigner to purchase a house and land here in Thailand and you will be “shareholders”, although you don’t have to worry about attending shareholder meetings, because there will be none. Furthermore you will have no rights as regards this foreigner or property.

 

As for a return on your investment, well this will be dependent on how much the foreigner can pay you from his own account, because this investment on its own produces no income or dividends.

 

Should you wish to divest of your shareholding, then you will have to find another “investor” to buy you out, because it’s very likely that the foreigner will not be able to. And, in the event that the foreigner gets into financial difficulties, then you are pretty much on your own with regards to how to recoup your initial investment.

 

If it sounds like something you would like to be part of, then

 

Oh brother. The Thai shareholders are bona fide if they pay for their shares in the Thai company with their own funds. The Thai company is buying the property, not the shareholders. Funding for the purchase can come in the form of a loan, a premium on capital, etc. That is the way all companies work.

 

And because a bona fide Thai company is buying the property you can’t claim that foreigners are buying land through a “loophole”. A Thai company is buying the land, not a foreigner. If the company is fully capitalized, complies with all corporate formalities and pays taxes, you can’t legitimately claim it’s a “”sham” company.

 

The Thai majority shareholders own a class of shares where the dividend is fixed at 10%, cumulative and paid before other classes of shareholders. 

 

Explain why that doesn’t work? And try to be civil.

[OldSiamHand]

On 8/31/2018 at 4:57 PM, Horace said:

 

 Just read that there is still a debate about whether the GT200 bomb detectors (an obvious fraud) work and should be used.

Good grief!

[OldSiamHand]

On 8/31/2018 at 4:22 PM, Horace said:

 

This could be correct.  But if the Thai shareholder is an agent of a foreign shareholder in agreeing to act as a shareholder, that Thai shareholder, as an agent, must follow the express or implicit instructions of the foreign shareholder while acting as a shareholder (CCC Sec. 807), provide information to the foreign shareholder on the shares the Thai shareholder is holding (CCC Sec. 809), hand over monies received by the Thai shareholder connection with the agency, the holding of shares of in the company (CCC Sec. 810), etc. 

 

A Thai shareholder in a preference share structure has none of these obligations.  The Thai shareholder does not have to follow the instructions of the foreign shareholder (implicit or express), a Thai shareholder does not have to give information to the foreign shareholder on his shares and a Thai shareholder does not have to hand over dividends he gets from his shares in the company.

 

Round hole / square peg.  And not the only one in Thai law.

That makes sense.  In fact, it seems you could put the whole idea of an implied agency idea to rest (at least as far as CCC Sec. 810 is concerned) by having the company eventually pay a dividend and allowing the Thai shareholder to retain its small, capped share without question .

[pgrahmm]

https://asia.nikkei.com/Economy/Asian-companies-and-consumers-weighed-down-by-sliding-currencies

 

Interesting story here this might be part of a bigger backlash....

The Thai part is in the second half of the article.....

[xylophone]

9 hours ago, Horace said:

 

Oh brother. The Thai shareholders are bona fide if they pay for their shares in the Thai company with their own funds. The Thai company is buying the property, not the shareholders. Funding for the purchase can come in the form of a loan, a premium on capital, etc. That is the way all companies work.

 

And because a bona fide Thai company is buying the property you can’t claim that foreigners are buying land through a “loophole”. A Thai company is buying the land, not a foreigner. If the company is fully capitalized, complies with all corporate formalities and pays taxes, you can’t legitimately claim it’s a “”sham” company.

 

The Thai majority shareholders own a class of shares where the dividend is fixed at 10%, cumulative and paid before other classes of shareholders. 

 

Explain why that doesn’t work? And try to be civil.

I always have been civil, if just a little frustrated! I see some obvious flaws in your argument perhaps: –

 

In the first instance, once all of the facade is stripped away, this is merely a means by which a foreigner is trying to own property and that is illegal, and I know this to be the case because a court has ruled against a friend for that very reason and he has lost his Villa. Not only that it has been explained countless number of times on this thread and on the websites of various legal firms here.

 

Notwithstanding that, your hypothetical/stated case becomes almost a nonsense case because the Thai shareholders will have to be paid for their "investment" in the foreigner's property and that will be paid for by the foreigner because their "company" produces no income or dividends whatsoever, so do you really think any sensible Thai investor would take that risk?

 

Now take the case of a loan – – it has been stated by the Land Office that loans to Thai shareholders can be investigated, so if the loan actually comes from the foreigner, then that is illegal.

 

You mentioned that the Thai majority shareholders own a class of shares where the dividend is fixed at 10% cumulative and paid before the other classes of shareholders, but where do these dividends come from if there is no company producing them?? 

 

The foreigner sitting in his property is not going to want to be able to be the provider of "dividends" ad infinitum is he? Then you talk about the company complying with all corporate formalities, but it doesn't, because it does not employ Thai workers.

 

What I think you are trying to say is that a company set up in the proper manner can have all of those aspects mentioned in your post (debatable), but what I'm trying to say is that none of the "companies" that are set up by foreigners to own property are of that ilk, but follow the key attributes of a sham company as described in my posts.

[OldSiamHand]

21 hours ago, xylophone said:

So for those who are thinking of owning land through a sham company, which isn't really a company, produces nothing, has no financial input from Thai "shareholders", employs no Thais and whose sole financial input comes from a foreigner...…..don't do it because it is illegal.

No question.  I can't see anyone finding fault with this analysis.

[OldSiamHand]

5 hours ago, xylophone said:

I always have been civil, if just a little frustrated! I see some obvious flaws in your argument perhaps: –

 

Now take the case of a loan – – it has been stated by the Land Office that loans to Thai shareholders can be investigated, so if the loan actually comes from the foreigner, then that is illegal.

I'm sure Horace will have his own reply to all of your points (if he still has the energy and wherewithal), but your questioning of the loan is worth exploring.  First, I believe that any proposed loan would be made to the company to buy the land, not to the thai shareholder to buy the shares.  Such a loan would be strong evidence of a nominee relationship.  Second, making a loan to the company (presumably by the foreigner) might not be the best option.  The loan would presumably incur market interest rates and would need to be repaid with interest.  These payments need to be made before the Thai shareholder receives any dividends.  Thus, if the company is relatively thinly capitalized so that the loan will represent the vast majority of the purchase price for the land, then the company will need to charge pretty significant rental to service the loan as well as to generate a sufficient profit to pay dividends to the Thai shareholder.

 

It's therefore likely preferable to have the ordinary shareholder (the foreigner) pay a premium for the ordinary shares as mentioned by Horace in 532.  That way there's no need to service a loan, the company can charge a lower rent and the Thai investor is happy.

[Dogmatix]

On 9/2/2018 at 9:18 AM, Horace said:

 

The type of structure I have been discussed can be used by TV members. They don't need a Thai Hi-So.  They need a Thai who can afford the shares in a holding company and is willing to do so in return for a fixed, cumulative 10% return on dividends.  

 

Yes, its more expensive and cumbersome than the dodgy deals some here posited, but if a foreigner wants effective management control and economic benefit from a company that owns a villa in Koh Samu with an infinity pool (or any other place in Thailand), I don't see why they can't also use that structure.  It's not that expensive to do it right.  And I have to believe that DFDL did it right.

 

A structure as used by foreign multinationals to secure majority ownership and control of Thai subsidiaries is clearly out of the reach of individuals seeking merely to own a house but not do any business. For a start it would not be realistic to expect Thais with their own surplus investment funds to genuinely invest in such as structure.  You can offer them preference shares with diminished voting rights and a preferential dividend of 10% but there is no guarantee they will ever receive a dividend, nor any secondary market for their shares when they want to liquid their investment.  A preferential dividend is just that. You have a preferential right to receive a dividend over common shareholders but there is no guarantee the company will pay you a dividend. Moreover you have invested in a majority share in the company but don't have majority voting control, so there is no way you can step in and take control of the company, if it fails to pay you dividends or if you want to sell the property which would the only way to liquidate your investment. 

 

Preference shares may be accumulative preference shares which means that, if the company misses a preference dividend one year, it has to pay up missed dividends in future years before it can pay any ordinary dividends.  But there is nothing to be done about this, if he company has no retained earnings from which it is legally allowed to pay dividends.  Defaulting on preference dividends is quite normal.  In fact there are SET listed companies with preference shares (not with diminished voting rights) that have defaulted on preferential dividends. 

 

I am a Thai citizen and I can assure you that I would not invest any surplus funds into preference shares in these farang shell companies. There are much better deals available in the property market for Thais that offer better returns without risk that are not in a grey area of the law like the foreign shells.  I can do "Khai Faak" deals (sale with the right of redemption) where I lend money using land as collateral getting a fixed rate of return of 15% allowed by law. The land is transferred to my name on day one with the borrower paying all fees.  If he defaults on the loan, I get to keep the land without having to go to court or pay any fees.  If he wants to redeem, he repays the loan and pays me all outstanding interest and also has to pay the fees at the Land Office to get the land transferred back into his name.  I make sure that the loan value is well under the market value of the land, so that I have good upside, if the borrower defaults. 

 

If I were to invest in a farang shell company through 10% preference shares I have to assume the risk of not receiving any dividends and being stuck indefinitely in an illiquid investment that I cannot sell and have no voting control over, despite making a majority investment.  Add to this risk the possibility that I might be investigated for assisting a foreigner to buy land.  This is not to mention the risk of owning shares in a company whose only asset is a house that might be in a farang ghetto in Hua Hin or somewhere where prices would plummet, if there ever was a crackdown on foreign land ownership. Why would I do this?

 

I can understand more why Thai investors might want to own preference shares with a fixed return in exchange for diminished voting rights in a subsidiary of a large multinational.  They would certainly demand at least a put option to sell their shares back at a fixed price to make the investment technically liquid, assuming they they have faith in the multinational to honour the put.  However, the structure that I was shown by a law firm other than DFDL as the standard nominee structure was that the Thai investors don't effectively invest their money anyway.  They are lent the money offshore which is not detectable through the Thai banking system and pledge their shares as collateral for the loan with all paperwork pre-signed to transfer the shares to another nominee.  They can either lend the money to themselves and have it transferred to Thailand through an overseas shell company as lender or they can use their own onshore funds to buy the shares and use the offshore funds for something else. Going back further before the investigations into AIS and DTAC made people more cautious, the multinational I worked for set up a subsidiary with wealthy Thai nominees and openly loaned them the money to buy the shares in Thailand, as advised by a leading Thai law firm which said this was normal at the time.  Of course inheritance tax might cause a blip when the nominees die these days but that could avoided by using Thai companies as the nominees.  I don't know what structures DFDL has been using but it might be interesting to see, if the DSI ever reveals its findings.  The scheme I was shown is actually not much difference from the property shell structures because the Thai nominees, even though they have sufficient net worth to buy the shares themselves, are actually using the foreigner's money to buy the shares.  Many Thais would not want the risk of preference shares that might never pay dividends in a company they can't control and the multinationals have budgets to invest 100% in their subsidiaries.  They don't actually want the Thai shareholder's money or participation in the company.  They would prefer to rent the use of their names. 

 

I really doubt whether DFDL or any law firm has set up any shell company structures solely for foreigners to own land with Thai investors genuinely investing their own money, even if they have enough funds to invest because the investments would make no sense.   But perhaps there is an opportunity to roll up these investments and re-package them in a fund for Thai investors diversifying the risk.  I think someone did this in the US a few years ago and called it subprime.            

[xylophone]

5 hours ago, OldSiamHand said:

then the company will need to charge pretty significant rental to service the loan as well as to generate a sufficient profit to pay dividends to the Thai shareholder.

First of all see Dogmatix wonderfully constructed argument as it embodies many of the key points I have been trying to make.

 

On to your post...……...the foreigner uses his capital to buy the property through the sham set up, and lives in the property so no rental is collected to enable payment to the Thai shareholders.

 

There is no "company" producing an income/dividend for the Thai shareholders, so from whence does it come? And the foreigner won't want to be paying out 10% dividends from his own funds, if indeed he is able to in the first place.

 

Also please remember that I am describing the normal modus operandi with regards to the foreigner purchasing a property here, as has been the case for years, not how something COULD be constructed (but isn't) if there were gullible Thai investors here, or indeed if it were legal.

[Dogmatix]

6 hours ago, OldSiamHand said:

That makes sense.  In fact, it seems you could put the whole idea of an implied agency idea to rest (at least as far as CCC Sec. 810 is concerned) by having the company eventually pay a dividend and allowing the Thai shareholder to retain its small, capped share without question .

 

There seems to have been no further discussion of the CCC definition of "Tuathaen" or "agent" providing an overarching invincible protective shield making it impossible for the Land Department to fulfil the task of preventing foreign ownership of land assigned to it by the Land Code.  This was after my research into the Land Department's own view of the legal tools available to it in enforce this policy which, in addition to Section 113 of the Land Code which uses the word "Tuathaen", include Sections 111 and 113 of the Land Code and Section 267 of the Criminal Code, all of which provide for criminal penalties without mention of the word "Tuathaen".  It also includes the Interior Minister's authority under the Land Code to order the foreign owner of land to sell the land within 180 days.   The Interior Minster's word in this is final and no court process is required, although it would be possible to appeal in the Administrative Court.  

[Dogmatix]

26 minutes ago, xylophone said:

First of all see Dogmatix wonderfully constructed argument as it embodies many of the key points I have been trying to make.

 

On to your post...……...the foreigner uses his capital to buy the property through the sham set up, and lives in the property so no rental is collected to enable payment to the Thai shareholders.

 

There is no "company" producing an income/dividend for the Thai shareholders, so from whence does it come? And the foreigner won't want to be paying out 10% dividends from his own funds, if indeed he is able to in the first place.

 

Also please remember that I am describing the normal modus operandi with regards to the foreigner purchasing a property here, as has been the case for years, not how something COULD be constructed (but isn't) if there were gullible Thai investors here, or indeed if it were legal.

 

The foreigner can pay a fair market rent for the portion of unutilised space in the company's office deemed liveable in, as many do in the mistaken belief that this "other" income makes it appear that the company has "operating" income.  If that generates a sufficient surplus after servicing loans and paying other expenses to go into retained earnings, then a preference dividend could be paid out of it. If not, in order to fulfil the obligation to pay preference dividends, you may need to find another way to put income through the company, e.g. consulting income from an offshore shell company you own.  But the original objective was to own your own property and not have to pay rent.  Meanwhile, expenses in the form of company running costs, tax and dividends to nominee Thai shareholders, who borrow the money to invest from you, are rising and there is still no guarantee you won't ever get investigated and harassed by authorities who can make life unpleasant, even if they never get you convicted of anything. 

 

Just renting from a genuine Thai owner and keeping your capital invested in something else is starting to look like a far more interesting option.  Shares in listed Thai property developers give you exposure to Thai property and pay dividends of 5% and more.  Or you can just invest your money offshore and remit dividends or interest to Thailand as needed. 

[xylophone]

5 minutes ago, Dogmatix said:

The foreigner can pay a fair market rent for the portion of unutilised space in the company's office deemed liveable in

Like all of your posts Dogmatix………….but not sure of the above quote as it assumes a "company's office" but there is no company in this case, so no office.