Opening A Thai Company To Buy A House

[Paul B]

I'm looking for advice from the people who have done this. I'm thinking of buying a house in Samui through the company/30 Year lease route with a view to renting it out initially and for holidays, then retirement a few years down the line. My questions are

1 what are the tax implications in Thailand on this rental income

2 are there any known pit-falls using this route

Any advice or experience would be appreciated

[Digger]

I'm looking for advice from the people who have done this. I'm thinking of buying a house in Samui through the company/30 Year lease route with a view to renting it out initially and for holidays, then retirement a few years down the line. My questions are

1 what are the tax implications in Thailand on this rental income

2 are there any known pit-falls using this route

Any advice or experience would be appreciated

You can file a tax return on the company showing the income generated and then paying corporatio tax (20% I recall) on the profit, less your expenses as you would with any other company. The amount of rental declared is up to you however you may need to show the rental agreement in any investigation. I have never fully understood why rental agreements are split 3 ways (rent, furnishings and service charge) however it might have something to do with this.

Given that with a company ownership, you must file a return and show the company is trading, rental income is an easy way to prove you have a real business and not just a shell company owning your residence if anything was to get sticky on this subject in the future.

Any known pitfalls ? - so far it would seem that this is the safest way of a foreigner having control of the property and land. No direct experience with the 30 yr leases - I have only ever bought freehold. Common sense would indicate looking closely at the company/individual leasing the land to you i.e what is the liklihood of them being around in 10 years, 20 years etc to keep everything going and maintained.

Hope this helps.

[penelope]

I read somewhere that if the company is setup solely as a front for buying land, then at any time the governement may confiscate the land, no quesitons asked.

[Digger]

I read somewhere that if the company is setup solely as a front for buying land, then at any time the governement may confiscate the land, no quesitons asked.

Your probably right however I do not see any signs that this is likely to happen in the near future. Also, there would be a need to get you on a technicality particularly a warning always told to me was the importance of filing a company tax return every year. If you dont file returns, then the govt can close down the company and sieze any assets if they so desire. However if the company is following the law and filing correctly audited returns, as I understand it, your not breaking any laws. There is a hyperthetical issue of using nominee shareholders, however I have yet to see this ever being tested in law for a number of reasons:

1. Every major multinational company operating in Thailand is set up the same way, unless they are in a true JV with a Thai company - however these seem to be few and far between these days. Any legal challenges on these lines will cause potential large scale harm to inward investment, just at a time when Thailand is fighting hard for investment against China in particular. I just dont see any eagerness to rock the boat on this issue.

2. The nominees are considered in law to be just as guilty as the farang who buys the house.

3. How can they prove they are nominees? very difficult if the company just chooses not to pay any dividends and holds correctly stated annual meetings (albeit that nobody chooses to turn up).

All in all, I still believe that this is the safest way for a correctly set up Thai company to own property, albeit that the only directors able to exert control happen to be farang even if they hold the minority (but lawful) amount of shares.

[opalhort]

I read somewhere that if the company is setup solely as a front for buying land, then at any time the governement may confiscate the land, no quesitons asked.

very true!

don't set up a Co just for the purpose of landownership!

If you have a Co already registered in Thailand doing legitimate business (export for example) the Co can own land/house if the majority of the Co is owned by Thais.

any rental income is of course corporate income and has to be reported in the anual tax returns (ภ.ง.ด. 50)

opalhort

[Paul B]

In the development I'm looking at some people have been there over a year and part of the annual fee covers the filing of the company returns. So I feel they are trying to keep inside of the cerrent laws. As for the future...Thats a risk I'll have to take. Appreciate your help

[teelac888]

buying the house is one thing, leasing it is another.

anybody can lease a house or a building. i have leased several buildings in thailand with my signature. if the owner demands additional things - work permits or whatever - then that is negotiable between you, but not a legal requirement.

since a farang cannot own land, the only way to buy is by creating the famous 51% thai - 49% farang JV that has 7 owners, the majority of which must be thai.

those minimum 4 thai owners will always control the majority of transactions unless you have them sign an affadavit after company registration AND land/building purchase that absolves them of any say or responsibility in the company.

the cops have been known to start picking on/blackmailing farangs and lawyers that abuse the above arrangements. i know of one lawyer that made hundreds of JVs with the same 5 thais and got blackmailed big time by the cops.

[Bobcat]

"since a farang cannot own land, the only way to buy is by creating the famous 51% thai - 49% farang JV that has 7 owners, the majority of which must be thai."

The above statement is somewhat misleading and I think requires clarification. Under the Alien Business Law, there are certain activities that foreigners cannot do in Thailand. One of those things is owning land (please note, however, that there are exceptions to this general rule). So, in order to overcome this restriction, many foreigners opt to establish a Thai company. In order to be a Thai company, you require a minimum of 7 shareholders and the majority of the share capital must be owned by Thai persons or entities. There is no longer a requirement that the majority of the 7 shareholders must be Thai. This used to be the case but until the law was changed in 2001 (or thereabouts). Therefore, you can have a Thai company with one Thai and six foreigners as long as the one Thai shareholder holds 51% or more of the shares. Please note, however, that under the Land Code the Land Department has the authority to investigate these sorts of arrangments where a foreiner holds more than 40 % of the shares. It is , therefore, advisable that the foreigners hold 39% only.

"those minimum 4 thai owners will always control the majority of transactions unless you have them sign an affadavit after company registration AND land/building purchase that absolves them of any say or responsibility in the company."

As stated above, you only need one Thai owner, not 4. There are ways to ensure the Thai owner has no effective control over the company by using a two different classes of shares - ordinary shares and preferred shares. The foreigners will hold the preferred shares and the Thai the ordinary shares. You can then set up the company to give the preferred shareholders more voting power - say 100 votes per preferred share while giving the ordinary shares one vote per share. This ratio method can also be used in the distribution of dividends. Another method is to have the shares owned by the Thai shareholders subject to a pledge arrangement - whereby the shares are pledged to the foreign shareholders as security for a loan for the subscription monies for the shares of the Thai shareholder. The share certificates, together with signed transfer forms, may also be taken into custody as additional security.

Hope some of that is helpful to someone. If you have any questions, I suggest you consult a lawyer.

Bobcat

[eyespan]

Bobcat, according to you the law changed in 2001 for the minimum number of Thai shareholders in a company. What about the minimum number of Farang shareholders? Can it be only one?

[Khutan]

It will be more interesting in a few months when Australians can hold up to 60% (I Think) of a Thai Company under the FTA.

[manfromoz]

If you are going to set up a Company for the sole purpose of owning things (ie, land) it is better that you set up a holding company. This way you get around the possibility of the government repossessing your land as the company is doing exactly what it is set up to do, holding assets. It also has tax implications.

The costs and procedure are the same, but now you have a company designed to operate the way you want it too.

However, if you are planning on using the property as an income producing asset (rental income) then this wont work, you will need a typical "co., ltd" setup and pay taxes every month.

You can transfer the asset to a holding company later on when you decide to live in it which will involve a cost (not sure how much), but this will protect your house and be legal and ligitimate until someone changes the rules again.

Hope this helps.

[Bobcat]

"Bobcat, according to you the law changed in 2001 for the minimum number of Thai shareholders in a company. What about the minimum number of Farang shareholders? Can it be only one? "

The basic principle is that you need a minimum of seven shareholders AND in order for a company to be a Thai company, more than 50% of the shares must be held by a Thai person or entity. Therefore, you need at least one Thai shareholder to hold those shares. As long as you have the one Thai shareholder holding more than 50%, the other 6 can be either Thai or foreign. Of course, there are any number of combinations - two Thais holding the 51% plus 5 farangs holding 49% - 1 Thai and 6 farangs, 4 Thai and 3 farangs etc. Bottom line - need at least one Thai holding more than 50%.

[eyespan]

Thanks Bobcat. Is it a common practice as such? I mean, is there any other way to set up a legitimate thai co. I don't need to be in thailand anyways and have been trading with the LOS for quite sometime now.

[Tangoman]

Hello All

Any suggestions/advice for the following for a non-o visa holder.

I currently have an un-used 1m Ltd company set up for the purpose of purchasing property, but is their a limit on the purchase price of the property, i.e. can I purchase a 10M property using my "off-the-shelf" 1M Thai company?.

Or even a preferred min xM company which Thai authorities are happy that a foreigner can operate under.

Thanks in advance

[Bobcat]

It doesn't matter that your registered capital is less than the price of the house as long as you can show the company has the money to buy the house. There are basically two ways to get money into your non-operating company - by increasing its capital by an amount equal to the valaue of the house you are going to buy or by making a loan to the company. I have purchased many houses with a Thai company with a registered capital significantly lower than 1m Baht.

[Bobcat]

Forgot to ask, what is the foreign shareholding in your Thai company. If it's more than 40% the Land Bureau will likely investigate any land purchase to check whether you are only using a Thai company to get around the law. If possible, lower foreig ownership to 39%.

[Tangoman]

Thanks Bobcat for your valued infomation, my share hold is at 39%, the lawyer did mention the Land Bureau to which I had to believe him at the time, so thanks again for making me sleep easy.

Cheers Tangoman

[Bobcat]

It sounds like you're all set. Good luck with the search for a house.