Buying Land+house

[NotaNutter]

My circumstances. . .

1. British male

2. PR applied for, no problems, should have it later this year (but I know this is no use for buying land)

3. Married to a Thai for 4 years, stable relationship

4. Thai Work permit and Visa continuously for 10 Years

5. Want to buy a new house (from somebody like "Land & House").

6. I know already that aliens can't buy land, and that a Company or Lease is often used.

7. Don't want to put the Land+House totally in the wife's name incase we ever separate.

Questions. .

1. Spoke to 2 lawyers already. one said, "use a company, don't consider a lease", the other said "use a lease, don't consider a company". Confused!!! The 1st lawyer said that a Company offered better protection. The 2nd lawyer said that a lease is totally legal, whereas a Company is a bit dodgy for tax returns, audit, etc. I don't know what to do anymore. Anybody know which is better? I want to be legal so I'm swinging to the lease option. From my experience it seems that Thai law firms recommend the lease, foreign managed firms tend to recommend a Company. Although leases seem very popular in Phuket (I'm in Bangkok).

2. Although I have the money to buy the property outright I prefer a mortgage for about 80% of the value, a Thai bank has already offered to lend me the money for 7 years if I use a Company to buy the proporty (extended to 20 years when I get PR), with me as the "guarantor". But if I go the lease route I'm not sure if they can somehow lend the money using the lease. The person at the bank didn't really understand the lease option I think. If my wife owns the land then perhaps we could get a joint mortgage. Anybody know if a mortgage is possible with the lease option?

3. If I use a lease, who owns the land normally. My wife?

Business is business, and I'm wondering if the lawyers prefer the Company route as they get yearly income from doing the tax returns and audit. Whereas if they do a lease for you it's a one off.

By the way, I'm not too tight to go to a lawyer, it's just that they are giving me conflicting information. Thanks in advance.

[acerhodes]

I have just bought a house & I had to consider the same issue.

I have no doubts that the company route is the best one & everone I have spoken to that buys has used this route.

For one thing the practicalities of selling up & returning the funds to the UK is much easier.

The process is not dodgy or illegal as far as I know.

I am a charterd Accountant in practice in the UK & the use of a share transfer form signed in blank by the Thai shareholders is used in the UK a lot its completely legal here as well.

As for the costs its peanuts.

Your Anthony Rhodes FCA

[NotaNutter]

Thanks for your comments acerhodes. I had almost decided on the Company route, in fact I had already set up the company over a year ago and was short listing houses. But then a friend of mine who has had this arrangement for about 10 years suddenly got a letter from the Tax Office asking him to visit to explain what the ###### this company was doing with assets of xMillion but with no apparent function.

I showed my Company Registration Docs and "Audited Accounts" to our Thai Finance manager (who has a masters degree in finance, ex PWC, etc.) and she was horrified, not because the accounts were wrong, just that it was obviously dodgy. Let's face it, it is a bit dodgy. For example, what do you declare are the operations of the Company, no. of employees, tax, etc. etc. By the way. I have no business to put through the company, so it would be just a shell.

On the other hand, the fact that a respected bank offered to loan money to me knowing full well the purpose/arrangement makes me think that the authorities may be turning a blind eye to this.

Here's what I'm thinking. We buy the land+house in the name of my wife, then she leases it to me for 30+30 years with the usual safeguards in the lease agreement. We get a mortgage (must be in her name as she owns the land I guess), with me as the guarantor. If we happen to break up in the next few years then there would still be a large portion of the mortgage to pay off, so I guess this is a safeguard against me being thrown out. Anybody gone this route? All comments appreciated.

[acerhodes]

I think you will find that there is no requirement for a company to trade it can just hold assets just like in the UK.

All companys face potential random enquirys from the authorities just like the Uk.

Tell me precisely what is dodgy?

What happens in Thailand could be repeated exactly in the UK & it would be entirely legal.

Ask your expert What is dodgy?

I have spent sometime checking this out & I do not see any problem it is completely legal.

The only problem that could arise would be if you lost the signed share transfer forms.

If you rented the property strictly the income should go through the company.

[ProThaiExpat]

My guess is that the vast majority of farang buying residential property do so through the lease approach, as I did.

I went a little farther than most and had a penalty provision placed in the lease, actually a liquidated damage provision, that if my quiet enjoyment is disturbed by the owner of the property or relatives upon the owners death, five million baht damages were due.

Likewise I obtained a mortgage from the owner to whom I loaned the money to to buy the property and the mortgage payments equate to the rental called for in the lease. All monies due upon the expiration of the lease.

Thus anyone who tries to disposses me is faced with the penalty provison and an upaid mortgage for the entire value of the property. On the back of the title deed appears both the lease and the mortgage.

A lease is done do often at the land office that the staff there know how to do it for farang, have a form lease and no lawyer needed. The staff there explained to my lawyer how to do it and he appeared like an idiot in their hands. His fee was a waste of my money, except perhaps for the mortgage.

In your case, you will have so little money tied up in the property if you borrow 80% of the value, your last post seems like a good way to go for you. Husband and wife have joint interest in the property, so if you split, you will get half value in the divorce, from what I have heard.

The company route does involve many rules, autdits, annual taxes, etc. etc. etc.

It seems a lot more complicated way to go and my guess is that your wife will have some claim on the property anyway, as you will be paying for the house during the marriage on a monthly basis. If you decide to buy the house outright, be sure and get a pre-nuptial agreement for your assests including your house.

The negative aspects of a pre-nuptial agreement are ameliorated by you providing a monthly stipend to the wife in the event of divorce, thereby assuring her of security after the split and the agreement provides that.

[Sumitr Man]

the use of a share transfer form signed in blank by the Thai shareholders

And your Thai lawyer(s) told you this was was both legal and enforceable? I suggest that you seek a second opinion on this; and this time, don't ask what the market practice is, ask what the law actually says on this issue.

..just out of interest, what did your Thai lawyer(s) advise you would be the case where one of your shareholders [whom I've assumed to be natural persons rather than juristic entities] dies? IOW: to whom does the share(s) go (and do you have control over that person)?

[Digger]

perhaps the question needs to be more focused on the practicalities in hand.

If your financing the houses, the bank will be far happier with a company owning the property and they then lend money to the company to buy it, however its you they are credit checking not the company as they understand that it is you that you make the repayments. The bak then holds the chanot and has total security over that property.

As I understand it in Thai law, you are merely a partial shareholder and sole signing director of a company that quite legally owns ahouse and land. To be a director you do not need to have a work permit. Thousands of companies have directors that are foreign that do not hold work permits (i.e every multinational in Thailand). The issue of tax has arisen with me recently and we showed the tax office fully audited accounts showing income from rental of said property and they were completely satisfied. When I quizzed my lawyer more as to why they would investigate it, he advised that its common in Chonburi (where I live) for this to happen.

The one area of contention is the practice of nominee's however as I understand it, all smart law firms are getting the shareholders to sing a declaration stating that they have paid in their respective capital and that its being held by the director. In reality they have not paid in anything but seemingly this is considered sufficient.

Is it 100% watertight - who really knows but from my own experience, the key is to submit fully audited accounts for the company (showing items such as property expenses and notional income e.g rent from yourself, albeit on paper and that the company shows a small profit each year on which you pay corporation tax. My accounts have been accepted by the tax dept. every year and approved on this basis. I also asked my lawyer if he has ever known of a company that has had its asset taken by the government in this kind of scenario. His answer was no (and its pretty much all he does), and that for the government to take an asset is difficult and very expensive for them. He said that if anything like that were to happen, due to a company not submitting a return and then being investigated, that in almost every scenario he could imagine, that the tax office would give the company the opportunity to bring up to date their tax affairs and likely levy some fines but not go down the route of confiscating the property which would be in his words, too much hard work for the tax officers.

[stevehaigh]

i am about to do the lease thing with my TG in a couple of weeks. from my understanding, talking to many farangs who have done this and a lawyer in Chiang Mai who has done several leases, the lease process is rock solid.

if my TG and I split up, i have control of the land for 30 years and can kick her out. the "rent" for the lease is pre-paid so the mortgage idea is unnecessary. BTW, she simply agrees that the rent is pre-paid, no money actually changes hands.

however, if we do split up, we may choose to sell the propoerty. In that case, i have a separate agreement with her that i get 90% of the proceeds from the sale and she gets 10%. that way she is motivated to agree to the sale vs. hang on for decades so her kids can inherit it.

once the lease is registered at the land office, i have absolute control of the land for 30 years. The 30 year option to extend is a bit dodgy i am told and i am not counting on it. i may still be alive in 30 years and that could be a problem, but i'm not going to sweat it now. i figure it's likely we will have sold the place before then anyhow.

[NotaNutter]

Tell me precisely what is dodgy?

From talking to respected Thai corporate lawyers (not ones involved in buying houses for us ferlangs, and therefore biased) I understand that the following are the dodgy points.

1. As I understand it, it is illegal for a Thai to hold shares in a "Thai" company on behalf of foreigners. I believe this law was passed here a few years ago.

Normally the small law firms we are dealing with will have an arrangement with a few people they know to be shareholders, but it's illegal. Try asking a more respected law firm to help you with that. If you have a different shareholding arrangement please let me know (honestly, I'm looking into all options).

2. The Thai majority shareholders can vote you out as the MD, then takeover the Company. They "own" the majority of the Company, you are just managing it with a minority shareholding.

2. The audited accounts we are signing every year are false at the end of the day (in most cases I know of, perhaps your's is different as you are an accountant).

3. Any Company which is suspected as being a shell for a foreigner to buy land is supposed to be investigated.

[NotaNutter]

Thanks everyone for your contributions so far. It is almost like my visit to see the lawyer(s): half suggest the Company route, the other half ssuggest the Lease route.

I'm still undecided. Keep 'em coming please. Anybody have a strong argument for either option? Perhaps through personal experience? All comments sincerely welcome.

[acerhodes]

There is nothing illegal about the company route.

The Thais do not own "on behalf of Foreigners" they actually own 51% of the shares outright.

This is perfectly legal also in the UK, France etc

The point is because you have a blank undated share transfer document signed you would transfer the shares to another Thai if a particular Thai did not want to vote in accordance with your wishes. If the Thai died you do the same thing.

In practice there are no meetings & no invovement of the Thai shareholders.

I am a Chartered Accountant & this process is often used in the UK Its legal here as well.

I have done this with my property in Hua Hin.

Anthony Rhodes FCA

[Sunny Valentine]

I have no personal experience so far, so the following comments should not be considered as factual information, rather a suggestion to ask your lawyer Questions.

I have made research on the Company issue myself. I came across the following no-nos:

Some law (I think it is called Thai Foreigner Act 1999, but not sure, clearly states that it is illegal for a foreigner to partake in a company for the sole or major reason of circumventing applicable Thai laws. Now in my eyes a company doing nothing but holding a house, andrenting it for a (nominal) fee to the signing director, does indeed look and smell like a circumvention of this law.

There is also some mention in this law concerning the illegality of a Thai National (Shareholder) to partake in the same affair.

Also I have been told that a Thai Shareholder might be asked by the authorities to expalin the Origin of the money used (on paper) to buy stakes in the Company he is holding shares. And I guess this might be a question very hard to answer: "So, you work in this Office for 6000 Baht a Month?" "Yes". "And you bought 8% shares of this 4 Million Baht registered company?" "Yes". "So, where did you get this money?" "No understand?"

Again, these issues still make me think that the company might be a bad idea. All lawyers I talked about gave me (the usual) differnet answers to these questions, mostly in the sense of "The Authorities will not investigate", "Don't worry, they have never done this" and so on.

But: In a country where a law exists that does allow Persons over 18 Years to work in certain establishments, and another law exists that does allow Persons over 20 Years to visit certain establishments, and this Dilemma is solved by fining all guests of these Establishments that are under 20, but over 18 Years, and not working there, is not a Country I trust on sticking to the routines they follow now, forever and all time. I would not risk my Money in this case just because one (or ten) lawyers tell me "Don't worry, the authorities never check this!")

But: I came across the following Company Structure:

39% owned by foreigner.

60,9% by one Thai Person (Wife springs to mind)

0,1% owned by relatives, friends, secretaries and the like, in order to have the required Number of 6 Thai Shareholders.

These Individuals hold such a small share (a few hundred Baht) that they should easily explain that they have the money.

Now the 60,9% shareholder: This persons signs a mortgage given by the farang. Say for 30 Years, annual interest paid, the full sum is due at the end of this Period. And he/she gives the voting rights for the shares as a collateral.

In the case this Thai is also nominally, at the same amount as the interest paid, active in the company, it might be no circumvention anymore. Here is a Company with one (non-dodgy) major shareholder (Thai), receiving a salary for work (Keeping the books, looking after the house); this person can explain the Origin of Investment (registered mortgage), and a few other minor shareholders. Plus a Minority-holding Farang, renting the house from this Company, paying a rent.

The company receives rental income, the farang pays rent and recieves interest, and the company pays a Salary to the major shareholder for part-time work.

I really like to hear what the lawyers here say about this?

Sunny

[acerhodes]

"andrenting it for a (nominal) fee to the signing director"

You do not do this its not necessary!

[lovecam]

if i could make a couple of comments. within going into the correct wording etc etc my father in law is a lawyer in bangkok and previous to that worked for the land registry.

the best and safest route to protect your interests are to lease the land. therefore your partner or wife cannot kick you out and vice versa you cannot kick her out.

you can get 2 extensions and this will give you a total lease period of 90 years.

there is a lot more i could mention on this topic however i wont go into too much detail unless it is requested.

the company approach means the company (and once again the correct wording and terms may not be right) must be active etc etc. you cannot have a dormat company.

[NotaNutter]

Hi Lovecam, you mention that you can provide much more detail if requested, and I would really like to see the detail. Thanks.

It's noteworthy that nobody to date has questioned the legality of the lease option, but there are lots of legal concerns posted about the Company option. The only legal issues with the lease seem to be;

1. The 30 year renewal option has not been tested by law to date (according to the lawyer I spoke to). It's just a paper theory at the moment. If whoever owns the land decides to contest the renewal apparently it could get messy. But this is 30 years away and I'm not sure I care too much about this. The foreigner land laws may have changed by then.

2. What happens if the land is owned by the wife and she dies?

3. Who normally owns the land? (both if you are married to Thai, and if you are not married to Thai)

4. How can I sell the land+house if it is leased? I guess the lease is cancelled, but how is that done. Anybody any experience of selling after using the lease option?

Thanks everyone. Hopefully we'll get to the bottom of this, or as close as we'll ever get.

[lovecam]

ok

with regards to owning land. even if you are married to a thai person you will never actually own the land, as i stated before. if unfortunately your partner dies (who is thai) the land will go to a member of their family. once again though you will have the protection of the lease.

if you really do not trust her family then you should really consider buying a condo in your own name

[dr_Pat_Pong]

I think you will find that there is no requirement for a company to trade it can just hold assets just like in the UK.

All companys face potential random enquirys from the authorities just like the Uk.

Tell me precisely what is dodgy?

What happens in Thailand could be repeated exactly in the UK & it would be entirely legal.

Ask your expert What is dodgy?

I have spent sometime checking this out & I do not see any problem it is completely legal.

The only problem that could arise would be if you lost the signed share transfer forms.

If you rented the property strictly the income should go through the company.

If the Thai Government suspects that an inactive company has been formed just to avoid foreign ownership laws it will turn nasty. Talk to the lawyer about this before deciding.

[Sumitr Man]

^ yes. And, whilst I do understand that the structure would be such that the company is Thai, under Section 93 of the Land Code, Thai nationals who act as agents of Aliens with the purposes of acquiring land on behalf of the Alien are subject to, potentially, both a monetary fine (Bt. 20k) and imprisonment (not exceeding two years).

There are also similar punishments where it comes to holding shares as an agent of an Alien for the puposes of avoiding Thai law.

Considering Alien acquisition of land is prohibited by a number of Thai laws, including Annex 1 to the Foreign Business Act, if you are a Thai national assisting a foreigner in this manner, a visit to your lawyer to ask for a suitably worded indemnity letter may well be in order!

[NotaNutter]

Obviously each option has advantages and disadvantages, but for me the lease is ahead as it seems to be totally legal, whereas the Holding Company with nominee Thai shareholders is quite simply against the law.

The only problem with the lease is that I don't know if I can get a mortgage (whereas I'm sure I can get one with the Company route). Anybody know if/how I can get a mortgage with the lease option?

[Sunny Valentine]

Concerning the lease: We probably all agree that 30 (+30 + 30) Years should be sufficient to the end of our lifes. But, as has been stated before, the extensions are only on paper at the moment (noone ever gone through the process). And 30 Years we probably all hope to live on.

Also: What will happen in the case the buyer (leaser) wants to sell the land (the lease)? Especially when the end of the lease comes nearer?

I guess there won't be much of a second-hand market for leases on Thai Land with a remaining first lease time of say 2, or 10 Years?

So, to me it looks as if the value of the "ownership" is constantly decreasing, not appreciating as it might be when ownership of land is concerned.

Any comments anybody!

Sunny

[LivinLOS]

Just to make a comment re death and property ownership.

I had read that if a Thai leaves you as a Farang land in thier will you could inherit land and own it upon thier death under a special clause. Similarly that if a wife has a child with you she can leave it to the child and you are the childs guardian until 18 (or whatever) and you have the control of the land until then (when hopefully your child does not throw you off !!!)..

Could anyone confirm or deny this.. I will try and find the place where I read this titbit.

[Sumitr Man]

^I've mentioned this several times before, but I'll repeat it here:

SECTION 93 OF THE LAND CODE

"The Minister shall permit the inheritance of land by an ALIEN who is the LAWFUL heir, but such acquisition, when added to that which is already held, my not exceed the amount which may be held under SECTION 87."

SECTION 87 OF THE LAND CODE

For residential purposes, an ALIEN may own 1 Rai.

In the event that you do NOT get the Minister's approval under SECTION 93, SECTION 94 comes into play.

SECTION 94 OF THE LAND CODE

"All land which an ALIEN has acquired unlawfully or without permission shall be disposed of by such ALIEN within the time limit prescribed by the Director-General, which shall not be less than 180 days, nor more than 1 year.

If the land is not disposed of within the time prescribed, the Director-General shall have the power to dispose of it."

Hope this helps.

SM

[NotaNutter]

Sumitr Man, thanks for your clear information. From your postings I guess you favour the lease route. Do you know a good lawyer for arranging the lease? You can PM me if preferable. Thanks again.

[Sumitr Man]

^I would not want to say that I'm in favor of the lease route, per se. However, I am against the incorporated company route - too many unresolved issues.

In a perfect world we would need this thread. That said, this is not the perfect world. As such, it really depends on your situation what best suits your needs.

Assuming you have all the cash in the world, and a Thai partner whom you love and want to have children with, I see nothing wrong with buying the house in her name. Of course, you hope one day your children will inherit - so, does it really matter that much whether you have the Land Title Deed or the other half?

OTH, a large number of expat men in Thailand don't entirely trust their wives - and for good reasons, there are a lot of horror stories out there. In such a case I would possibly suggest that they buy in the wife's name with a mortgage (which you guarantee) - that way she cannot sell the house without your prior knowledge as the bank would be obligated to tell you.

Failing which, I would most probably suggest that you let the wife buy the land and you buy the house. The land you then lease from the wife over a period of 30+30+30. BUT, there are problems with this. As some have alluded to, whilst there is not doubt (Supreme Court Decision) that the first renewal period is valid, and whilst there is no doubt that the leasee is entitled to full possessionary entitlements (Civil and Commercial Code), there is a question on the third + 30. Also, there is some debate as to how the income revenue your wife is paid can be amortized over the length of the contract [currently the Revenue Dept approach appears to be that income has to be amortized over 60 years, whilst expenses are over 90 years]. So it is by no means perfect. But then, with the system we have, no system is going to be perfect.

On the issue of lawyers, do you mind if I suggest you talk to Sunbelt. I know from reading their posts that they retain legal counsel and I do believe they have far more experience in this matter than I. Please don't take this the wrong way. In fact I don't really know what I'm talking about (professionally). Just so you know though, I have no connections with Sunbelt, nor have I ever used their services.

Alternatively, if you're not happy with that, PM me and we'll see what we can do.

Regards

SM

[NotaNutter]

SM,

I was sort of hoping you were working for a law firm as you have provided clearer and more researched answers to my questions than any lawyer I've met to date.

[NotaNutter]

I didn't mention this before as I didn't want it to influence the postings. But I know of a farlang guy who bought 2 Rai of land here using the company route. The majority shareholder of the Company was his Thai lawyer and his friends (as is often the case). In the crash of 97/98 the lawyer fell on hard times. . . and somehow sold it, and the farlang guy lost the lot. Not a rumour, believe me, it is true.