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

[CG1 Blue]

I haven't had time to read all 37 pages on this, so apologies if this has already been covered.

 

My question; is there any legitimate way for a foreigner to buy land / a property in Thailand? I'm talking about for personal use, not business.  For living in 3-6 months per year, and rental for the remainder.

 

About 12 years ago I looked at a plot of land and made some serious enquiries. At that time I believe I was told all property/land must be at least 51% Thai owned, so you either need to have a very trustworthy Thai friend / wife, or some Thai law firms would effectively take a 51% 'silent' ownership for you.

Or maybe that 'silent' ownership was the same as this nominee malarkey that's being cracked down on here?

 

Anyway, in the end I decided I should only invest what I can afford to lose given the risks involved, and the (highly inflated) price of the land (on Samui) was more than I could afford to lose at the time.  

[Dogmatix]

47 minutes ago, xylophone said:

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.

 

Even though the company has no business and never will, the only plausible explanation of the house to the Land Dept, when the Thai nominees are interviewed and later to the Revenue Dept, can be that it is the shell company's office.  In many cases, once the land has been transferred, it will in fact be the registered office of the company.  When I was considering doing this, the house was my registered office and I was told by the accountant that the rental contract, if I had gone ahead with it, would have been for the parts of the house that were not considered the company's office. If you were to use another address as your company's registered address, you could, on paper, rent out the whole house to the foreign owner.  Whatever address you use runs the risk of being visited without notice by the Revenue Dept.  They visited my "office" once and called the accountant to say that no one answered the door at the company's office which illegally had no name plate on the gate, but they did see a farang swimming in the pool and wondered what the company was all about.  LOL. My accountant offered some explanation that seemed to shut them up.

 

Incidentally I notice that the DSI has a notice in Thai only on its website dated 2016 to the effect that one of its important missions is defending national security by investigating the various fake structures and strategies employed by foreigners to control businesses in Thailand in violation of the Foreign Business Act.  I believe we saw them in action fulfilling this mission at DFDL's offices.  There is no mention on their website of the unenforceable nature of the FBA or any references to the definition of "agent" or "nominee", of which they may be blissfully unaware.  

[Dogmatix]

1 hour ago, CG1 Blue said:

I haven't had time to read all 37 pages on this, so apologies if this has already been covered.

 

My question; is there any legitimate way for a foreigner to buy land / a property in Thailand? I'm talking about for personal use, not business.  For living in 3-6 months per year, and rental for the remainder.

 

About 12 years ago I looked at a plot of land and made some serious enquiries. At that time I believe I was told all property/land must be at least 51% Thai owned, so you either need to have a very trustworthy Thai friend / wife, or some Thai law firms would effectively take a 51% 'silent' ownership for you.

Or maybe that 'silent' ownership was the same as this nominee malarkey that's being cracked down on here?

 

Anyway, in the end I decided I should only invest what I can afford to lose given the risks involved, and the (highly inflated) price of the land (on Samui) was more than I could afford to lose at the time.  

 

Using a company with real Thai shareholders is OK, if it has a real business. If not, you are in a grey area which could become increasingly difficult.  Using a Thai nominee to buy the land in an individual capacity as a nominee is also illegal but you much less likely to have legal problems under the Land Code because you have turned over ownership to a Thai without any recourse, although you can add a 30 year lease or a lifetime usufruct agreement, your land offices will allow a usufruct. If your Thai friend goes under a bus or goes rogue, that extra protection might prove useful. However, getting his heirs to abide by a lease agreement or a usufruct might prove difficult, especially if they want to sell up their inheritance as quickly as possible.  Lease law is not well developed in Thailand.  Buying through a Thai spouse is legal, provided you both sign a standard form in the Land Office to say the money was the Thai party's own funds and the land will not form part of the conjugal property under the Civil and Commercial Code.

 

Really the only sensible options available to you that are neither illegal or in a grey area are either buying through a Thai spouse or renting with a 30 year lease or a lifetime usufruct agreement.  No Thai property companies will give you a lifetime usufruct but developers sell a lot of 30 year leases to foreigners for the same price as the freehold.  The usual scam is to combine it with two options to renew for 30 years making it look like a 90 year lease but since the Land Code doesn't recognise leases longer than 30 years for residential property, the options are unenforceable.  So you only get a 30 year lease with no resale value whatsoever.  If you don't have a Thai spouse you can trust, I would say that it is not worth it nowadays, unless you can afford to put money in a 30 year lease with no residual value.  If you have a Thai spouse, you can get her to do a lifetime usufruct agreement for you, which might afford some protection, but this is best done before marriage, if possible, since all agreements between a man and wife can be nullified under the Civil and Commercial Code.      

[CG1 Blue]

31 minutes ago, Dogmatix said:

 

Using a company with real Thai shareholders is OK, if it has a real business. If not, you are in a grey area which could become increasingly difficult.  Using a Thai nominee to buy the land in an individual capacity as a nominee is also illegal but you much less likely to have legal problems under the Land Code because you have turned over ownership to a Thai without any recourse, although you can add a 30 year lease or a lifetime usufruct agreement, your land offices will allow a usufruct. If your Thai friend goes under a bus or goes rogue, that extra protection might prove useful. However, getting his heirs to abide by a lease agreement or a usufruct might prove difficult, especially if they want to sell up their inheritance as quickly as possible.  Lease law is not well developed in Thailand.  Buying through a Thai spouse is legal, provided you both sign a standard form in the Land Office to say the money was the Thai party's own funds and the land will not form part of the conjugal property under the Civil and Commercial Code.

 

Really the only sensible options available to you that are neither illegal or in a grey area are either buying through a Thai spouse or renting with a 30 year lease or a lifetime usufruct agreement.  No Thai property companies will give you a lifetime usufruct but developers sell a lot of 30 year leases to foreigners for the same price as the freehold.  The usual scam is to combine it with two options to renew for 30 years making it look like a 90 year lease but since the Land Code doesn't recognise leases longer than 30 years for residential property, the options are unenforceable.  So you only get a 30 year lease with no resale value whatsoever.  If you don't have a Thai spouse you can trust, I would say that it is not worth it nowadays, unless you can afford to put money in a 30 year lease with no residual value.  If you have a Thai spouse, you can get her to do a lifetime usufruct agreement for you, which might afford some protection, but this is best done before marriage, if possible, since all agreements between a man and wife can be nullified under the Civil and Commercial Code.      

Interesting, thank you. I don't have a Thai spouse, so the 30 year lease route seems the only one open for me. I'll look into the costs involved.

As a lessee, do you know if there would be any restrictions on 'sub-letting' the property while I'm not using it?

[Dogmatix]

55 minutes ago, CG1 Blue said:

Interesting, thank you. I don't have a Thai spouse, so the 30 year lease route seems the only one open for me. I'll look into the costs involved.

As a lessee, do you know if there would be any restrictions on 'sub-letting' the property while I'm not using it?

 

No legal restrictions as far as I know but you would need to ensure that right is including in the lease agreement. One of the problems of long leases in Thailand is that it is not entirely clear legally that the agreement is binding on successors of the lessor or lessee, i.e. new owners or heirs of a deceased owner, or to the benefit of your heirs if you are deceased.  The lease is registered at the Land Dept, which doesn't record much detail, and the details are subject to the Civil and Commercial Code which cannot subsequently bind another party to the agreement.  So you probably safer to do a deal with a substantial company which doesn't look likely to go bankrupt in the next 30 years.  That doesn't include any farang operated developers.   If you are married to a foreigner or have an unmarried foreign partner, you need to make a joint lease agreement with rights specifically continuing for the survivor, if one of you passes on.  I have heard of cases where the grieving spouse was summarily booted out of the house because this was not done properly.    

[Dogmatix]

I have been looking through a list of legal examples in Thai to do with foreign ownership of land in the Land Department's archives. They are mostly quite old because they include cases where Thai women had tried to cover the fact they were married to a foreigner which dates them to before 1999 when the Interior Ministry put Thai women and men with foreign partners on an equal basis and allowed them buy land subject to the statutory declaration.  I haven't been able to find any cases involving companies but there are quite a few where the Interior Minister's discretion under Sections 94 and 96 of the Land Code was in fact used to force a sale of land that had been purchased for a foreigner by a Thai individual.  Several of the cases also reference Section 113 of the Land Code re Thai "agents", without regard to the CCC definition of an agent. The word "tuathaen" or agent or representative is also used in the respect of the Thais who bought land for aliens that was subject to forced sale under Sections 94 and 96.  There are also several references to Sections 137 and 267 of the Criminal Code to do with lying to and providing false information to a government official that might cause harm to the country in the case of Section 137.

 

Even though these cases all seem quite old and may have been succeeded by new cases that were treated differently there is no suggestion that the Land Department has historically had an interest in pursuing criminal prosecutions, even though it may cite criminal provisions in its arguments.  I think this is quite common with certain government departments responsible with enforcing laws, although not necessarily out of sympathy for the wrongdoers.  The SEC, for example, is responsible for enforcing the SEC Act which provides for criminal penalties but, like the Land Dept, it has no powers of prosecution.  This means that cases have to be handed to police or the DSI to investigate and pass to prosecutors and courts.  Given the inefficiency and corruption in the Thai justice system, the SEC hardly ever bothers to try to prosecute cases after having unpleasant experiences in its early days where obvious criminals were acquitted after many years for "lack of evidence".  Instead it uses the statutory powers it has to levy fines, suspend or cancel licenses and to censure.  This is a far more effective use of its time and resources, even though it means that insider traders and others evade prison.  Similarly the Land Dept seems to have traditionally used its powers to prevent registration of land and to force the sale of land that was bought by Thai nominees for foreigners without pushing for prosecution.  However, the past is no guarantee of the future and things could change if a government really decided to crack down on foreign land ownership.    

[blackcab]

3 hours ago, CG1 Blue said:

As a lessee, do you know if there would be any restrictions on 'sub-letting' the property while I'm not using it?

 

In general you will not be able to offer a lease longer than 3 years. This is because a lease longer than 3 years must be registered on the back of the title deed, and most Land Offices won't allow a foreigner to do this, even with the consent of the land owner.

 

This is because you would effectively be managing land, and most Land Offices just won't suffer it.

 

That being said, leases up to 3 years are the most common in terms of  duration, so there is no real hardship for you at all.

[eisfeld]

53 minutes ago, blackcab said:

 

In general you will not be able to offer a lease longer than 3 years. This is because a lease longer than 3 years must be registered on the back of the title deed, and most Land Offices won't allow a foreigner to do this, even with the consent of the land owner.

 

This is because you would effectively be managing land, and most Land Offices just won't suffer it. 

 

That being said, leases up to 3 years are the most common in terms of  duration, so there is no real hardship for you at all.

I have never heard of the Land Office rejecting a lease for a foreigner if done properly. There are no rules or laws against this for leases up to 30 years. Maybe some land offices tell you something like that to make you go away but they wont succeed if you stand your ground properly. If your lease is not registered at the Land Office at the back of the chanote, then good luck enforcing it. And what's the worth of a 3 year land lease anyways unless it's for agricultural or temporary purposes?

[blackcab]

13 minutes ago, eisfeld said:

I have never heard of the Land Office rejecting a lease for a foreigner if done properly. There are no rules or laws against this for leases up to 30 years. Maybe some land offices tell you something like that to make you go away but they wont succeed if you stand your ground properly. If your lease is not registered at the Land Office at the back of the chanote, then good luck enforcing it. And what's the worth of a 3 year land lease anyways unless it's for agricultural or temporary purposes?

 

I didn't talk about a simple lease in favour of a non Thai person.

 

What I was discussing was a non Thai person who was granted a lease, who then wants to grant a subordinate lease to a third party.

 

If you have direct experience of this type of superior/subordinate lease being granted please start a separate thread because it would be a great topic.

 

Now back to the main discussion as this is rapidly veering off course.

[Arkady]

CG1 Blue was only asking about sub-letting a leased house for the months in the year he would not be using it. So a simple commercial lease would do without involving the land office.

[xylophone]

19 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.

Oh brother indeed...……...but I think I have the answer!!!

 

You are describing how you believe a foreigner can buy a property/own land through the company route and I'm not arguing whether this is right or wrong because we are, as have I said several times, on different pages.

 

My point is, and always has been, that the way that the foreign ownership of property/land is set up here is not like that which you have described. In fact the way the VAST MAJORITY OF COMPANIES ARE SET UP TO "ALLOW" FOREIGNERS TO OWN PROPERTY/LAND is as follows: –

 

A foreigner wants to own a property and land it sits on.

 

A lawyer sets up a company and asks three associates if he/she can use their names to be included on the list of shareholders (51% as a rule) and for this he/she pays them a small fee.

 

They contribute nothing in the way of funding to this company or to acquire this so-called "shareholding".

 

Therefore they receive no dividends or income because after all they've invested nothing.

 

They are not required to attend shareholder meetings as there are none because this company produces nothing, sells nothing and employs no one.

 

The foreigner does however pay the lawyer a sum of around 25,000 baht per annum to produce "accounts" such as they may be.

 

The foreigner provides all of the funds in order to buy the property/land and pay all of the necessary fees and taxes, with none coming from elsewhere.

 

The company is registered and "buys" the property and land.

 

If the lawyer is really worth his/her salt, a little later on they will approach the sham shareholders and pay them a small sum to have their so-called "shares" transferred to the foreigner (although this doesn't always happen as it should or in a timely manner).

 

The foreigner is now sitting in the house, which is on the land, which he believes he owns, but unfortunately the whole thing is a sham.

 

And that is what the authorities want to crack down on.

 

Now I have one question for you Horace....... given the above is how the vast majority of foreigners acquire their property/land through the company route, do you believe this is legal.

 

YES or NO.

 

A simple answer will suffice with no ifs or buts, or if it is done this way, or if it is done that way, or if so-and-so provides some funding etc because that not what I have been describing. Please give an answer to description I have outlined above.
 

[OldSiamHand]

15 hours 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.

Yes, rental is collected from the owner of the home.  the company will have to produce some income eventually or else risk an audit by the revenue department.  I'm not sure what happens to companies that are merely set up to hold property but do not generate any income, but it's not an advisable structure.

 

the amount of dividends paid on the preference shares would be minimal.  if set up properly, and if using a holdco/opco structure, these could amount to THB 5,100 per year.   Foreigners would be more than happy to pay this amount to ensure use of their home and access to the company's property.

 

The Thai investor would likely be someone familiar to the foreigner.  As mentioned, most Thais probably would be suspicious of ever getting a return on their investment under such a structure.  Having a Thai investor you are familiar with and who is willing to make such an investment is not illegal or necessarily evidence of a nominee relationship.

[Horace]

 

OK, there is a great deal to unpack.  Some of its old arguments, but some of it involves new issues (fortunately - because I am getting tired of going over the same ground again and again).  To be clear, I am not advocating use of these structures.  I am simply saying that, as Thai law is written, these can be used to own land. That's all I am saying.  But there is another issue we haven't discussed that complicates their use, and I am surprised no one has brought it up.  Perhaps because it so delicate?

 

1.  I constantly see the claim that these structures are illegal because foreigners "fundamentally" cannot own land coming up again and again.  It's a red herring.  A Thai is are buying land. These companies are Thai.  Foreigners are not buying land.  If there is a law that says that these preference structures (not foreign ownership of land) is illegal, provide a cite.  The two are as different as chalk and cheese.  Don't simply say its illegal because it violates some mystical blood and soil feature of Thai law.  Instead, provide a specific cite that expressly says these structures are illegal.  I think I have asked this question at least a half a dozen times, and instead of providing a cite to support the claim about this "overarching" provision of Thai law, the tendency is to dodge that question by ginning up non-existent provisions of Thai law to claim that the company's are "bogus" (post #536).

 

2.   If the Thai shareholders are bona fide and bought the shares with their own money and the company complies with corporate formalities, the company is not bogus.  And because it is Thai, it can buy land.  I keep hearing that they are bogus because they don't have employees.  But there is no requirement that a Thai company have employees. If there is, provide a cite?  These and other fictions are used to claim that preference share companies are bogus and its therefore illegal for them to buy land, but, again, no real support is provided for this circular argument.

 

3.  Rent paid on the land is revenue and can be used to pay dividends.  But I admit there is a legitimate point about paying dividends.  Perhaps the suggestion about using a premium on capital is the best way to address this.  As for funding the acquisition, Thai banks still provide funding. I just checked.  Why would they do that so if the structures were illegal?  Their security has no value.  

 

4.  The big danger with these structures and doing business generally in Thailand are its vague laws which are subject to near unfettered discretion and sometimes change.  That creates a swamp where the issues discussed here fester. Its the "C" word (for some reason I can link to an article about Departments where this problem is particularly present (try "corruption" "business" "portal" "Thailand" to access the cite I just looked at), but the Land Department is number 3 on that site. I have not blown this horn a half dozen times because it seems irrelevant, but its seems to carry some (unjustified) weight here, so I will let you in on another secret: I am Thai.  That doesn't make me an expert.  But I am embarrassed and disappointed by the protectionist and xenophobic response of other Thais to this issue.  I am embarrassed  and disappointed by the repeated failure to address the real problems here.  I can't cite to it here for some reason, but look at Transparency International's latest CPI rating of Thailand.  If you want to talk about real problems with investing in Thailand, that is the number one real problem.

[xylophone]

34 minutes ago, Horace said:

If the Thai shareholders are bona fide and bought the shares with their own money and the company complies with corporate formalities, the company is not bogus

But that is not how the farang/company set up is structured...………..the "Thai shareholders" are fake. Can you not see that?????????????????? Read my previous post again and give an answer to it PLEASE

 

37 minutes ago, Horace said:

A Thai is are buying land. These companies are Thai.  Foreigners are not buying land.  

They are not Thai companies in the description I gave, they are sham companies set up to look like Thai companies to facilitate foreign ownership.

 

41 minutes ago, Horace said:

Rent paid on the land is revenue and can be used to pay dividends

So the farang who has just paid 5 m baht (for example) for his property/land plus lawyers fees, is then going to pay a 10% dividend/interest payment to the "Thai shareholders" who would have supposedly invested just under a million baht each in this venture (which equates to around 250,000 b per annum)?????

 

Ridiculous and it just doesn't happen because in the majority of cases the "shareholders" are only names with nothing invested.
.

[mogandave]

The issue is that with the “legitimate” Thai own company being described, the cost of providing enough upside benefit to the Thai owners is excessive.

It would also be difficult for the average guy to find enough affluent Thai shareholders to participate, even if paying great rates.

The heavy tax load alone would make it unattractive.

So while it could well be legal, it does not seem to be economically viable.

Seems like it would be easier to get a Thai to buy a property, and sell the foreigner a front-loaded long term lease.

[Dogmatix]

1 hour ago, OldSiamHand said:

Yes, rental is collected from the owner of the home.  the company will have to produce some income eventually or else risk an audit by the revenue department.  I'm not sure what happens to companies that are merely set up to hold property but do not generate any income, but it's not an advisable structure.

 

the amount of dividends paid on the preference shares would be minimal.  if set up properly, and if using a holdco/opco structure, these could amount to THB 5,100 per year.   Foreigners would be more than happy to pay this amount to ensure use of their home and access to the company's property.

 

The Thai investor would likely be someone familiar to the foreigner.  As mentioned, most Thais probably would be suspicious of ever getting a return on their investment under such a structure.  Having a Thai investor you are familiar with and who is willing to make such an investment is not illegal or necessarily evidence of a nominee relationship.

The Revenue Department doesn't confine its audits to companies that have no revenue. They audit all kinds of companies, many chosen at random and others chosen because there is something suspicious. Having no revenue or only a nominal amount of rental income and no operating income could equally attract an audit to see if income is being concealed. Even if you have a completely bona fide company with 100% Thai shareholders and directors, you can be subjected to an audit and some of the officers demand bribes to close the file without imposing a fine for something you haven't even done.  A revenue department audit is something every company owner should be prepared for. In my case they objected to the way foreign exchange losses had been deducted and came up with an arbitrary assessment that was totally absurd and unfair and had to be negotiated down. You can appeal their assessments but you need to pay a tax lawyer which would have cost more than the assessment. 

 

Since the Land Department will usually block companies with this type of structure from registering land due to obvious foreign involvement, the usual tack recommended by lawyers allied to property developers is to start the company with 100% Thai nominee shareholders and directors.  Thus the company is capitalised by the foreigner and buys the land with that plus a loan from the foreigner which may be disguised as a loan from a Thai shareholder, while the foreigner buyer skulks in the background. Once the land is registered, provided he is not being cheated by the lawyer and developer in league with each other, the company can issue new share capital that results in a structure where the foreigner owns 49% of the shares capital, while voting rights of the 51% Thai holding have been diluted by the issue of preference shares with diminished voting rights.  If done right, the Thai shareholders sign undated transfer forms, so their shares can be transferred to any other Thai by the foreigner at will.  A problem with this structure is that the sequence of events makes it obvious that it is a strategy employed with the deliberate intent to deceive government officials into not realising that the land is actually being purchased on behalf a foreigner.  This is an offence under Sections 137 and 267 of the Criminal Code, punishable by 6 months and 2 years in prison respectively.  The land office will keep a record of the compulsory interview that has to be conducted for all land transfers where they always ask what is the purpose of the purchase.  The untruthful answers given by the Thai authorized director could be used for prosecution.  In this context it's not going to matter much how much the Thai shareholders received in preference dividends, assuming the company generates retained earnings which is a prerequisite to paying any dividends. 

[xylophone]

9 minutes ago, mogandave said:

The issue is that with the “legitimate” Thai own company being described, the cost of providing enough upside benefit to the Thai owners is excessive.

It would also be difficult for the average guy to find enough affluent Thai shareholders to participate, even if paying great rates.

The heavy tax load alone would make it unattractive.

So while it could well be legal, it does not seem to be economically viable.

Seems like it would be easier to get a Thai to buy a property, and sell the foreigner a front-loaded long term lease.

Agree with what you say if such a setup were put in place.

 

But that was never my point because these setups are not what is commonly used to allow a farang to own property and land, and the setup is that as I have described in a couple of posts back and are clearly a sham for all to see.

 

Horace however wants to debate other points totally irrelevant to that which I have focused on.......... although I will have to admit to the mistaken inclusion of "Thai employees" because that's only necessary if the company owner decides to get a work permit. 

 

My error on that and totally off on a tangent, but the rest is how these companies are set up and are a sham.

[Dogmatix]

1 hour ago, Horace said:

 

OK, there is a great deal to unpack.  Some of its old arguments, but some of it involves new issues (fortunately - because I am getting tired of going over the same ground again and again).  To be clear, I am not advocating use of these structures.  I am simply saying that, as Thai law is written, these can be used to own land. That's all I am saying.  But there is another issue we haven't discussed that complicates their use, and I am surprised no one has brought it up.  Perhaps because it so delicate?

 

1.  I constantly see the claim that these structures are illegal because foreigners "fundamentally" cannot own land coming up again and again.  It's a red herring.  A Thai is are buying land. These companies are Thai.  Foreigners are not buying land.  If there is a law that says that these preference structures (not foreign ownership of land) is illegal, provide a cite.  The two are as different as chalk and cheese.  Don't simply say its illegal because it violates some mystical blood and soil feature of Thai law.  Instead, provide a specific cite that expressly says these structures are illegal.  I think I have asked this question at least a half a dozen times, and instead of providing a cite to support the claim about this "overarching" provision of Thai law, the tendency is to dodge that question by ginning up non-existent provisions of Thai law to claim that the company's are "bogus" (post #536).

 

2.   If the Thai shareholders are bona fide and bought the shares with their own money and the company complies with corporate formalities, the company is not bogus.  And because it is Thai, it can buy land.  I keep hearing that they are bogus because they don't have employees.  But there is no requirement that a Thai company have employees. If there is, provide a cite?  These and other fictions are used to claim that preference share companies are bogus and its therefore illegal for them to buy land, but, again, no real support is provided for this circular argument.

 

3.  Rent paid on the land is revenue and can be used to pay dividends.  But I admit there is a legitimate point about paying dividends.  Perhaps the suggestion about using a premium on capital is the best way to address this.  As for funding the acquisition, Thai banks still provide funding. I just checked.  Why would they do that so if the structures were illegal?  Their security has no value.  

 

4.  The big danger with these structures and doing business generally in Thailand are its vague laws which are subject to near unfettered discretion and sometimes change.  That creates a swamp where the issues discussed here fester. Its the "C" word (for some reason I can link to an article about Departments where this problem is particularly present (try "corruption" "business" "portal" "Thailand" to access the cite I just looked at), but the Land Department is number 3 on that site. I have not blown this horn a half dozen times because it seems irrelevant, but its seems to carry some (unjustified) weight here, so I will let you in on another secret: I am Thai.  That doesn't make me an expert.  But I am embarrassed and disappointed by the protectionist and xenophobic response of other Thais to this issue.  I am embarrassed  and disappointed by the repeated failure to address the real problems here.  I can't cite to it here for some reason, but look at Transparency International's latest CPI rating of Thailand.  If you want to talk about real problems with investing in Thailand, that is the number one real problem.

 

It is legal for a Thai company to own land but is it legal for the authorized director to lie to the land officer by not disclosing that the land is actually being bought on behalf of a foreign, when asked the reason for the purpose, as they always do?

 

How would a share premium account help to pay dividends, if there are no retained earnings? A share premium is generated by issuing shares at a premium to par value.  It cannot be distributed to shareholders in the form of dividends without a capital reduction first. You would be using a costly sledge hammer to crush a nut by using complicated restructuring techniques like this for an inactive company just to pay preference dividends which would not convince DSI investigators that the structure was a sham anyway, if it has real business.   

 

I am also Thai but I have been through the sham company phase before I got Thai nationality and before the government started to get more hostile towards foreign land ownership and sham companies.  I am a free trader at heart and believe that foreigners should be allowed to own land in Thailand and their own businesses on a reciprocal basis, as in the former treaties, with the exception of certain zones of land and a small number of specified business sectors.   That means that most farangs would be allowed to own land but Chinese, Vietnamese etc would not be able to own land because no one is allowed to own freehold land in their countries where all land is owned by the communist state.  That would at least keep the Chinese hoards out of the legal land market.

 

My point is that the old way of foreigners owning land through sham companies that have no real business is no longer prudent, even though you can easily come up with legal arguments to justify it, since the government has been signalling for 12 years that it is not going to put up with it.  The DSI has a number of criminal provisions at its disposal that it can use to take action against the foreign land buyers and their nominees.  If they do decide to make an example of you, you might even win your case eventually with the help of some clever and expensive lawyers, but your quiet life in your Thai house will have been shattered and your savings depleted.   

 

  

[Dogmatix]

I think we can summarise this thread for those who don't have time to read it all.

 

1. Despite several attempts over the years to amend it by eliminating the ability of foreigners to control their majority Thai owned businesses through preference shares with diminished voting rights for Thai shareholders, the 1999 Foreign Business Act still does not prohibit these structures. Unless the Act is amended in future it is still fine for foreign investors intending to run real businesses to establish companies with this type of structure, provided the Thai shareholders are people of substance who are able to demonstrate they had the wherewithal to invest in the shares using their own funds. It is also fine for these companies to own land needed for their businesses.

 

2.  In a grey area are companies established purely for the purpose of foreigners owning land with no intention of ever doing any real business and using Thai shareholders who are unable to demonstrate they had their own sources of funds to invest in the company.  Technically you can argue that they are also in compliance with the bare bones of the FBA and the Land Code because foreigners own less than 50% of the share capital which technically makes them Thai under the FBA and thus eligible to own land under the Land Code.  However, land officers have been instructed not to register land to companies with foreign shareholders or directors since 2006. So the only way to be reasonably sure of using these shell companies to buy land nowadays seems to be to establish them with 100% Thai shareholders and directors in the first instance and allow the foreign land buyer to acquire 49% and join the board as an authorised director, if desired, after the land registration is complete. 

 

3. Despite the fact that shell companies technically comply with the letter of the FBA and the Land Code viewed from the perspective of the less than 50% foreign shareholdings alone, the Land Department makes clear on its website that it views corporate structures designed to allow foreigners to own land as illegal.  It cites its authority under the Land Code to prevent registration, if it suspects the purchase is on behalf of a foreigner and its authority to force the sale of the land retroactively in cases where land has already been registered on behalf of a foreigner.  In support of its view it cites Sections 111, 112 and 113 of the Land Code that provide for criminal penalties for individuals and companies that acquire land on behalf of foreigners.  It also cites Sections 137 and 267 of the Criminal Code which provide criminal penalties for lying to and providing false information to government officials, presumably at the point when the Thai nominees tell the head of the land office registration section what is the purpose of the acquisition in compulsory interview for all land buyers. 

 

4. Responsibility for policing the FBA has been given to the DSI which posts a warning notice on its website that it is engaged in extensive investigations into the various strategies employed by foreigners to get around the FBA and own and control their own businesses.  The raid on DFDL's offices was clearly part of this process.  It is not yet known whether this was just a one-off that will be "settled" privately or whether it is the start of a wide ranging process, as apparently implied on the DSI's website.  Even if it dies down for now, this type of thing could crop up again at any time.

 

5. The situation regarding foreign business ownership and land ownership is unsatisfactory both for foreign investors and the Thai government and general public, which is by and large vehemently opposed to foreign land ownership.  Thailand remains stuck in the past has so far been unable to see its way clear to bite the bullet and introduce a foreign investment code that is competitive with countries such as China, Vietnam, Laos, Cambodia and Burma.  It is inevitable that one day this will come and it will probably involve opening out general service sectors to 100% foreign ownership, while at the same time amending the law to define as "foreign" any company where foreigners have effective management control, in order to protect sectors deemed as still needing protection, which would probably include land ownership and businesses dealing in and developing land.  

 

Anyone considering setting up a shell company to buy land today has got to think long and hard about whether this structure, which seemed to work perfectly well before 2006, is going to be a viable option for owning Thai land which they might want to own for 10, 20 30 years and might want to pass on to their heirs.   

[xylophone]

24 minutes ago, Dogmatix said:

I think we can summarise this thread for those who don't have time to read it all.

 

1. Despite several attempts over the years to amend it by eliminating the ability of foreigners to control their majority Thai owned businesses through preference shares with diminished voting rights for Thai shareholders, the 1999 Foreign Business Act still does not prohibit these structures. Unless the Act is amended in future it is still fine for foreign investors intending to run real businesses to establish companies with this type of structure, provided the Thai shareholders are people of substance who are able to demonstrate they had the wherewithal to invest in the shares using their own funds. It is also fine for these companies to own land needed for their businesses.

 

2.  In a grey area are companies established purely for the purpose of foreigners owning land with no intention of ever doing any real business and using Thai shareholders who are unable to demonstrate they had their own sources of funds to invest in the company.  Technically you can argue that they are also in compliance with the bare bones of the FBA and the Land Code because foreigners own less than 50% of the share capital which technically makes them Thai under the FBA and thus eligible to own land under the Land Code.  However, land officers have been instructed not to register land to companies with foreign shareholders or directors since 2006. So the only way to be reasonably sure of using these shell companies to buy land nowadays seems to be to establish them with 100% Thai shareholders and directors in the first instance and allow the foreign land buyer to acquire 49% and join the board as an authorised director, if desired, after the land registration is complete. 

 

3. Despite the fact that shell companies technically comply with the letter of the FBA and the Land Code viewed from the perspective of the less than 50% foreign shareholdings alone, the Land Department makes clear on its website that it views corporate structures designed to allow foreigners to own land as illegal.  It cites its authority under the Land Code to prevent registration, if it suspects the purchase is on behalf of a foreigner and its authority to force the sale of the land retroactively in cases where land has already been registered on behalf of a foreigner.  In support of its view it cites Sections 111, 112 and 113 of the Land Code that provide for criminal penalties for individuals and companies that acquire land on behalf of foreigners.  It also cites Sections 137 and 267 of the Criminal Code which provide criminal penalties for lying to and providing false information to government officials, presumably at the point when the Thai nominees tell the head of the land office registration section what is the purpose of the acquisition in compulsory interview for all land buyers. 

 

4. Responsibility for policing the FBA has been given to the DSI which posts a warning notice on its website that it is engaged in extensive investigations into the various strategies employed by foreigners to get around the FBA and own and control their own businesses.  The raid on DFDL's offices was clearly part of this process.  It is not yet known whether this was just a one-off that will be "settled" privately or whether it is the start of a wide ranging process, as apparently implied on the DSI's website.  Even if it dies down for now, this type of thing could crop up again at any time.

 

5. The situation regarding foreign business ownership and land ownership is unsatisfactory both for foreign investors and the Thai government and general public, which is by and large vehemently opposed to foreign land ownership.  Thailand remains stuck in the past has so far been unable to see its way clear to bite the bullet and introduce a foreign investment code that is competitive with countries such as China, Vietnam, Laos, Cambodia and Burma.  It is inevitable that one day this will come and it will probably involve opening out general service sectors to 100% foreign ownership, while at the same time amending the law to define as "foreign" any company where foreigners have effective management control, in order to protect sectors deemed as still needing protection, which would probably include land ownership and businesses dealing in and developing land.  

 

Anyone considering setting up a shell company to buy land today has got to think long and hard about whether this structure, which seemed to work perfectly well before 2006, is going to be a viable option for owning Thai land which they might want to own for 10, 20 30 years and might want to pass on to their heirs.   

Wonderful info Dogmatix, which I will copy and keep on file (no copyright I hope!!).

 

Thanks for taking the time to research this area and for your knowledge and wisdom.

 

Xylo

[Dogmatix]

45 minutes ago, xylophone said:

Wonderful info Dogmatix, which I will copy and keep on file (no copyright I hope!!).

 

Thanks for taking the time to research this area and for your knowledge and wisdom.

 

Xylo

You're welcome.  No copyright. It's a topic that interests me from many years of trying to find the best ways for foreign employers and myself to do business and invest in Thailand. 

[mogandave]

Are there any good real estate funds on the SET?

[xylophone]

3 hours ago, Dogmatix said:

You're welcome.  No copyright. It's a topic that interests me from many years of trying to find the best ways for foreign employers and myself to do business and invest in Thailand. 

You will have seen from my posts that I am very vociferous (if not stubborn!) on the subject of farangs buying property/land through sham companies and there is a reason for this.........

 

First of all, I saw how it affected my friend who, as I understand it from him, has lost his villa because he bought it through the company route and when it was sold from under him by a rogue lawyer, the judge ruled that he had no right to it in the first place because it was bought "illegally" (I'm not sure if that was the actual word used).

 

He was devastated because he had lost his monetary investment, and his retirement villa, not to mention the fact that he was unbelieving of the amount of corruption/deception involved in the whole process, so much so that it all took a visible toll on him.

 

Then of course there are the other stories, a couple of links of which were posted on this thread, which make one shudder when one reads how easy it is for one's property investment to be taken from them one way or another.

 

And just today I was helping a friend who was trying to sell his house, but who had come up against all sorts of obstacles in doing so. First of all was the fact that the company set up by the lawyer was using the names of associates and charging him on an annual basis, so he was a few hundred thousand baht in arrears with her, which he hadn't anticipated.

 

Then it seems the owner of the land, after he sold/leased the houses on it, subsequently borrowed heavily against it and the titles to this land are now with some sort of moneylender (and this is big money) and no one knows how to access these, which will become a problem if the "owners" wish to renegotiate their leases, not only on the land, but on the access roads.

 

He is at his wits end trying to sort out the many problems associated with this and this has been going on for some time.

 

Then of course there are the other stories one reads about, but those I have had no interaction with, however those much nearer to home do make me shudder, which is why I have posted on many threads that I do not believe investing in property in Thailand is a good investment.

 

And that brings into play other elements such as derelict condo buildings, developers disappearing with funds and the list goes on..............

 

Thanks once again for your enlightening posts.

[Horace]

20 hours ago, Dogmatix said:

think we can summarise this thread for those who don't have time to read it all.

 

1. Despite several attempts over the years to amend it by eliminating the ability of foreigners to control their majority Thai owned businesses through preference shares with diminished voting rights for Thai shareholders, the 1999 Foreign Business Act still does not prohibit these structures. Unless the Act is amended in future it is still fine for foreign investors intending to run real businesses to establish companies with this type of structure, provided the Thai shareholders are people of substance who are able to demonstrate they had the wherewithal to invest in the shares using their own funds. It is also fine for these companies to own land needed for their businesses.

 

2.  In a grey area are companies established purely for the purpose of foreigners owning land with no intention of ever doing any real business and using Thai shareholders who are unable to demonstrate they had their own sources of funds to invest in the company.  Technically you can argue that they are also in compliance with the bare bones of the FBA and the Land Code because foreigners own less than 50% of the share capital which technically makes them Thai under the FBA and thus eligible to own land under the Land Code.  However, land officers have been instructed not to register land to companies with foreign shareholders or directors since 2006. So the only way to be reasonably sure of using these shell companies to buy land nowadays seems to be to establish them with 100% Thai shareholders and directors in the first instance and allow the foreign land buyer to acquire 49% and join the board as an authorised director, if desired, after the land registration is complete. 

 

3. Despite the fact that shell companies technically comply with the letter of the FBA and the Land Code viewed from the perspective of the less than 50% foreign shareholdings alone, the Land Department makes clear on its website that it views corporate structures designed to allow foreigners to own land as illegal.  It cites its authority under the Land Code to prevent registration, if it suspects the purchase is on behalf of a foreigner and its authority to force the sale of the land retroactively in cases where land has already been registered on behalf of a foreigner.  In support of its view it cites Sections 111, 112 and 113 of the Land Code that provide for criminal penalties for individuals and companies that acquire land on behalf of foreigners.  It also cites Sections 137 and 267 of the Criminal Code which provide criminal penalties for lying to and providing false information to government officials, presumably at the point when the Thai nominees tell the head of the land office registration section what is the purpose of the acquisition in compulsory interview for all land buyers. 

 

4. Responsibility for policing the FBA has been given to the DSI which posts a warning notice on its website that it is engaged in extensive investigations into the various strategies employed by foreigners to get around the FBA and own and control their own businesses.  The raid on DFDL's offices was clearly part of this process.  It is not yet known whether this was just a one-off that will be "settled" privately or whether it is the start of a wide ranging process, as apparently implied on the DSI's website.  Even if it dies down for now, this type of thing could crop up again at any time.

 

5. The situation regarding foreign business ownership and land ownership is unsatisfactory both for foreign investors and the Thai government and general public, which is by and large vehemently opposed to foreign land ownership.  Thailand remains stuck in the past has so far been unable to see its way clear to bite the bullet and introduce a foreign investment code that is competitive with countries such as China, Vietnam, Laos, Cambodia and Burma.  It is inevitable that one day this will come and it will probably involve opening out general service sectors to 100% foreign ownership, while at the same time amending the law to define as "foreign" any company where foreigners have effective management control, in order to protect sectors deemed as still needing protection, which would probably include land ownership and businesses dealing in and developing land.  

 

Anyone considering setting up a shell company to buy land today has got to think long and hard about whether this structure, which seemed to work perfectly well before 2006, is going to be a viable option for owning Thai land which they might want to own for 10, 20 30 years and might want to pass on to their heirs.   

 

I have a few nits and terms I would disagree with, but this is close enough.  I am also too busy to argue more.  Too much work, and I'd rather spend my time looking for a beach front villa in Phuket or Koh Samui with an infinity pool I can afford (actually, that is a bigger waste of time, since I am seeing prices well over 100 million Baht, which is totally out of my price range for a second place).

 

[Dogmatix]

Interesting Xylo. I was only addressing the legal issues without taking into consideration the  risks one takes of being defrauded by nominees and lawyers.  When I did this (now unravelled) a couple of decades ago I just used the lawyer who used to do our company work permits and he was very straightforward.  But the lawyers who prey on foreigners in resort areas are a different kettle of fish.  You are particularly vulnerable if you have no close Thai friends and have to rely on lawyers and developers to find nominees for you. 

 

The pledging of the title deed to money lenders is another risk that is difficult to control.  This often applies to foreigners who buy land in the Thai wife's name and later find she has hocked it to pay her gambling bills.  The usufruct agreement is a useful way to guard against this because money lenders will not usually accept title deeds that are emcumbered with leases or usufructs as collateral.  As far as I know, the Land Office will not accept them for money lenders who want the Land Office to record an official mortgage or sale with the right of redemption on the deed, or would advise strongly against. 

[OldSiamHand]

7 minutes ago, Dogmatix said:

You are particularly vulnerable if you have no close Thai friends and have to rely on lawyers and developers to find nominees for you. 

 

You are particularly vulnerable even if you have close Thai friends who are willing to serve as nominees.  Whatever company you formed with them for whatever purpose would be a "sham".

[Horace]

OK, one comment on lawyers who prey on foreigners in resort areas.  They exist.

 

One problem (and probably not the only problem) I see with these characters is that they don't seem to understand what a conflicts of interest is.  I don't work in this area, but years ago I recall a foreign executive in our HQ who wanted help on money he had invested in a property project in Koh Samui.  The developer kept asking for more money and more money was supplied , but the developer was simply unable to complete.

 

As a favor, I had someone in our office call his lawyer in Koh Samui to figure out what was going on.  No names will be mentioned because I do not want to get sued for defamation.  But one lawyer was representing (a) the property owner; (b) the developer; (c) the contractor hired to build the project (d) numerous other parties with conflicting interests in the deal;  and (e) individuals who invested in the villas this project was supposed to supply.  When we asked for documents on his behalf, the lawyer in Koh Samui refused to provide them, saying it would undermine the interests of his other clients.  When the big cheese back in London hired a local lawyer here (from a big local firm), he also could not get documents from the lawyer in Koh Samui because that lawyer claimed it would undermine his obligations to his other clients. It never got to the point of FBA and Land Act issues.  The project just collapsed.

 

So, yes, investments in resort areas are risky, you should never trust property developers (that axiom also applies in the developed world, but its doubly important here) and make sure you don't use the lawyer recommended by the developer.  This is also a problem for people holding Thai nationality, like me.  I was serious about looking at resort properties (I am less serious now about actually buying a resort property after looking at the asking prices), and I have noticed on several sites that property brokerages will gladly provide a lawyer to help on the property they are trying to sell you.  Pretty ridiculous.  If they don't recognize the conflict of interest in making this "offer", what else are they missing?  

 

Meanwhile the internet search for a villa on the beach with an infinity pool at an affordable price continues.

[eisfeld]

2 hours ago, Horace said:

One problem (and probably not the only problem) I see with these characters is that they don't seem to understand what a conflicts of interest is

Because there is none. They serve their and only their own interest ?

[Horace]

20 minutes ago, eisfeld said:

Because there is none. They serve their and only their own interest ?

 

Agree.  This is a serious problem in Thailand.  In the US, at least, lawyers do get suspended, disbarred and imprisoned for their misdeeds. Not all of the time and  they are certainly not all angels, but US lawyers can and do suffer consequences when they act unethically or illegally.  Even jail.  You can even look up lawyers qualified (or disqualified) in some states on that state's bar site.  For example:  http://www.calbar.ca.gov/Attorneys I showed this website to a Thai qualified lawyer friend and he was horrified; he said this would be illegal in Thailand and, if anyone maintained such a site, they would go to jail for sure (here its the California State Bar itself that maintains the site).  

 

I also have never heard about any Thai lawyer being punished for anything.  Could it be that they never do anything wrong? ?

[OldSiamHand]

2 hours ago, Horace said:

 

I also have never heard about any Thai lawyer being punished for anything.  Could it be that they never do anything wrong? ?

 

Probably not, if there are no rules of professional conduct that Thai lawyers are required to follow and which could result in disbarment if they fail to do so.  Sticking with California (since it's the only state whose bar I'm a member of), there are extensive rules of professional conduct covering not just conflicts, but a whole bunch of other no-nos  http://www.calbar.ca.gov/Attorneys/Conduct-Discipline/Rules/Rules-of-Professional-Conduct/Current-Rules.  Lawyers in the US, and California in particular, get a bad rap, but when it comes to their rules of conduct and enforcement of these rules I'd say they are pretty top notch.