Thai Majority Company Vs. 30 Years Lease

[GoFlames!]

Hello Everyone,

I'm looking to buy a house in Thailand as a vacation home. I am currently living and working in Korea and can see myself spending 2 or 3 months per year in Thailand. I have looked over my "ownership" options for property, namely leasing for 30 years and the majority thai owned company option. I have questions for both options and this forum seems to be an excellent place to ask, so here goes.

30 year lease with option to extend

I would like to try subletting the house when I am not there. If it is not possible to find someone willing to sublet thats fine, I'm not overly concerned. My question is do I have to make official registration to the government about subletting and if so how much does it cost?

Creating a majority Thai owned company

I've read that it costs between 10000 and 30000baht to set up a company. Does this include a lawyer fee or is it simply the cost of starting a company? If it doesn't roughly how much is a lawyers fee?

I've also read that it is not advisable to have a company that simply owns land but has no significant ongoing financial transactions, "inactive company." Would renting the house when I'm not there, if it is possible, constitute significant ongoing transactions?

Sorry about the long winded message everyone. If someone could give me the answers to a couple of these questions I'd appreciate it.

Cheers!

[Krub]

Hello Everyone,

I'm looking to buy a house in Thailand as a vacation home. I am currently living and working in Korea and can see myself spending 2 or 3 months per year in Thailand. I have looked over my "ownership" options for property, namely leasing for 30 years and the majority thai owned company option. I have questions for both options and this forum seems to be an excellent place to ask, so here goes.

30 year lease with option to extend

I would like to try subletting the house when I am not there. If it is not possible to find someone willing to sublet thats fine, I'm not overly concerned. My question is do I have to make official registration to the government about subletting and if so how much does it cost?

Creating a majority Thai owned company

I've read that it costs between 10000 and 30000baht to set up a company. Does this include a lawyer fee or is it simply the cost of starting a company? If it doesn't roughly how much is a lawyers fee?

I've also read that it is not advisable to have a company that simply owns land but has no significant ongoing financial transactions, "inactive company." Would renting the house when I'm not there, if it is possible, constitute significant ongoing transactions?

Sorry about the long winded message everyone. If someone could give me the answers to a couple of these questions I'd appreciate it.

Cheers!

Easy answer : use the search function.......

I will try to answer on the 30 years lease as it is the only one I have experienced myself.

1. The 30 years lease is for the land and is registerred at the land office. The lease contract sets conditions but typically you 'own' the land for the 30 years lease and whatever is on it to use as you please and this includes builing property on the land, renting the property, etc. without further official fees or registration.

2. If you rent a house this is another game and then it might be more difficult to sublet but I do not think that is what you have in mind.

[Web_Director]

Hello Everyone,

I'm looking to buy a house in Thailand as a vacation home. I am currently living and working in Korea and can see myself spending 2 or 3 months per year in Thailand. I have looked over my "ownership" options for property, namely leasing for 30 years and the majority thai owned company option. I have questions for both options and this forum seems to be an excellent place to ask, so here goes.

30 year lease with option to extend

I would like to try subletting the house when I am not there. If it is not possible to find someone willing to sublet thats fine, I'm not overly concerned. My question is do I have to make official registration to the government about subletting and if so how much does it cost?

Creating a majority Thai owned company

I've read that it costs between 10000 and 30000baht to set up a company. Does this include a lawyer fee or is it simply the cost of starting a company? If it doesn't roughly how much is a lawyers fee?

I've also read that it is not advisable to have a company that simply owns land but has no significant ongoing financial transactions, "inactive company." Would renting the house when I'm not there, if it is possible, constitute significant ongoing transactions?

Sorry about the long winded message everyone. If someone could give me the answers to a couple of these questions I'd appreciate it.

Cheers!

As a local lawyer, I would simply say that if you let out a immovable property more than 3 years, such lease must be registered at the land office.

For the cost to establish a company in Thailand, the cost would be vary depending on the registered capital of the company. The registration fee is in the range of baht 5,000 - 250,000 depending on your capital as mentioned.

In respect of the service fee charged by lawyer, I think that you could find from the range of Baht 3,000 - 100,000 depending on the liability of each lawyer. Normally such service shall be exclusinve of registration fee. The time period for setting up a company is about 2 weeks.

My recommendation is that the cheaper legal service fee you pay, the more risk you must take. Cheap lawyers will not tell you about the consequences of the assignment, whereas a big firm will give you a better quality of service.

Good luck

Edited February 2, 2006 by Web_Director

[johnnyk]

Hello Everyone,

I'm looking to buy a house in Thailand as a vacation home. I am currently living and working in Korea and can see myself spending 2 or 3 months per year in Thailand. I have looked over my "ownership" options for property, namely leasing for 30 years and the majority thai owned company option. I have questions for both options and this forum seems to be an excellent place to ask, so here goes.

30 year lease with option to extend

I would like to try subletting the house when I am not there. If it is not possible to find someone willing to sublet thats fine, I'm not overly concerned. My question is do I have to make official registration to the government about subletting and if so how much does it cost?

Creating a majority Thai owned company

I've read that it costs between 10000 and 30000baht to set up a company. Does this include a lawyer fee or is it simply the cost of starting a company? If it doesn't roughly how much is a lawyers fee?

I've also read that it is not advisable to have a company that simply owns land but has no significant ongoing financial transactions, "inactive company." Would renting the house when I'm not there, if it is possible, constitute significant ongoing transactions?

Sorry about the long winded message everyone. If someone could give me the answers to a couple of these questions I'd appreciate it.

Cheers!

There has been extensive discussion here on these points over the past few weeks.

You need to show a bit of initiative and UTFSE as people don't want to go over it all again.

Note a couple of the sponsors of thaivisa.com also.

Edited February 2, 2006 by johnnyk

[expatgaz]

The 30 year lease sounds good but can anyone say that they have tested it ? who has actually re-newed for the next 30 ? Seems strange to me as if I had land 30 years ago , say beach front Samui and rented it out on a 30 year lease, I would certainly want a shit load more money for the next 30 years, value increase etc, and then if a nice house had been built on it ...well... think abt it ?

[Dragonman]

The 30 year lease sounds good but can anyone say that they have tested it ? who has actually re-newed for the next 30 ? Seems strange to me as if I had land 30 years ago , say beach front Samui and rented it out on a 30 year lease, I would certainly want a shit load more money for the next 30 years, value increase etc, and then if a nice house had been built on it ...well... think abt it ?

It is extremely unlikely that anyone has renewed a lease yet, as this is normally the route followed by foreigners with thai wives( although recently thai nominees are being considered). Since thai women married to foreigners could not purchase land up to 7 years ago this scenario rarely arose. You can include in the option, any inflationary rent increases, or in fact no rent increase. However as I have stated previously, anyone in Thailand will be extremely lucky to have a lease renewed on beneficial terms to the leaseholder.

[johnnyk]

The 30 year lease sounds good but can anyone say that they have tested it ? who has actually re-newed for the next 30 ? Seems strange to me as if I had land 30 years ago , say beach front Samui and rented it out on a 30 year lease, I would certainly want a shit load more money for the next 30 years, value increase etc, and then if a nice house had been built on it ...well... think abt it ?

It is extremely unlikely that anyone has renewed a lease yet, as this is normally the route followed by foreigners with thai wives( although recently thai nominees are being considered). Since thai women married to foreigners could not purchase land up to 7 years ago this scenario rarely arose. You can include in the option, any inflationary rent increases, or in fact no rent increase. However as I have stated previously, anyone in Thailand will be extremely lucky to have a lease renewed on beneficial terms to the leaseholder.

Bang on, IMO.

30 years is a very long time.

For sure its a major consideration that if the land increases in value, which it will if its in a desirable location, then there is strong incentive to get you off the land.

That was the major factor in my own decision to go the company route.

The law apparently says the landlord can't knock down your building when the lease is up.

Can you imagine the legal wrangling about your house on his land when the lease is up?

I wouldn't want to know.

Things can also happen in the dead of night or when you're not around.

[Nadia 2]

Few answers;

The Lease term

Section 540 Civil and Commercial Code: 'The duration of a hire of immovable property cannot exceed thirty years. If it is made for a longer period, such period shall be reduced to thirty years'. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal'. Any lease of immovable property for a longer duration than 30 years may be made by renewal of the lease contract upon its expiration.

Regardless of what others tell you, the max lease term in Thailand is 30 years (non commercial). The renewal options will merely be a contractual obligation of the lessor and thus (if enforceable and the lessor still alive) difficult to enforce in Thailand.

Sub-lease

Section 544 CCC: 'Unless otherwise provided by the contract of hire, a hirer cannot sublet or transfer his rights in the whole or part of the property hired to a third person'.

The lease should include this option and the lease (written in Thai) must be registered at the Local Land Office (if the hire is for more than three years, section 538)

Fees

Lease registration fee shall be collected at the rate of 1% of the total rental throughout the lease term (or the annual value assessed by the Land Department). Stamp duty shall be collected on the register of the lease at the rate of 0.1% of the total rental throughout the lease term. It is common that the lease will be registered for a lower value than the actual lease price.

If you rent out the property, the tax is 12.5% per year on the annual rental revenue, which is why so many local rentors want the lessee to pay tax for them, as they don't want to lose 12.5% of their revenue. The annual rental value means the amount of money which the property may reasonably be gained from the lease out of a property for each year if the property is offered for lease.

Registering land in a company is possible but there are many legal drawbacks, insecurities and serious risks and is only possible because This government practices selective law enforcement at the moment. The foreign purchasers are very much at the mercy of the Thai government and how they will implement and enforce the law.

There is no way around the law and the chance you will be able to own land via a landholding company over 30 years is less than 1 per cent.

A landholding company is mostly set up for 2 million baht (USD 50,000), though no direct need to be paid up. Government fees approx 13,000 baht, legal fees for a simple landholding company should not be more than 20,000 baht.

Yes, among other requirements the company must be active not to risk being removed from the Registrar for companies (1246 (by the Registrar of companies) and 1237 (by the Court) - Commercial and Civil Code), but this is one issue of concern.

Sure some local lawyers will tell you it is possible to register land in a majority owned Thai limited company and there is nothing to worry about. Believe me they can't give one valid argument why it is possible! It is easily possible to give FIVE valid arguments why a landholding company it is not acceptable in law.

Good luck

[JimmyGreaves]

What about a land holding company that is doing minimal trading, say selling hot dogs on the soi?

[Nadia 2]

If there is no substantial activity the company could be closed down by the department of business (1246 CCC) or the Court (1237). Should the Thai Government start striking companies off the register due to failure to pay taxes, or because of inactivity, these companies will no longer exists as a juristic person and the land will be transferred, by law, to the shareholders, co-ownership irrespective preference or ordinary shares. The foreign shareholder will be commanded by the chief of the land Department to sell out his co-ownership of the said land within at least 180 days but no more than 1 year pursuant to article 94, 96 and 97 of the Land Code Act.

Do you have a work permit?

It is in Thailand illegal for a foreigner to 'work' without a work permit. The term work is defined very broadly, covering both physical and mental activities, whether or not for wages or other remuneration. The foreign director acting on behalf of a Thai company, like opening a company bank account or filing the balance sheet, MUST have a work permit (though it is not always asked for, however for opening a bank account in Bangkok every bank requires a work permit). Without a work permit any signed document could be rejected by the government agency involved and the acting foreign director could face criminal charges and deportation out of Thailand. Working, even for a day it is a criminal offense. Note: the Labor Department makes it practically impossible for a foreign director of barely active landholding company to apply for a work permit.

A lease is a common way to give activity, but offers no security to fall back on.

Is it enough when you sell hotdogs is a Soi? The risk is reduced one one side, but can you show the Labour Department a balance sheet with enough turnover to support a foreign director (minimum income requirement foreigners). However, still this does not protect you against the FBA and you may sell hotdogs but the company is still holding land (checked with the foreign business bureau in Bangkok, it is not allowed under the FBA).

Under the Foreign Business Act (www.dbd.go.th ) there are certain activities that foreigners (individuals or juristic entities) cannot do in Thailand. One of those things is owning land. A company must be allowed to own and invest in land in accordance with its objectives. Even though a company may have its capital shares held by a majority of Thai nationals, if the majority of the value of the capital was invested by a foreigner, the company would be deemed to be foreign and therefore not allowed to dealing in or developing land (see Section 4 under 4 FBA). Please note the penalties under the FBA, imprisonment!

Void? Every first year law student will understand that it is a void act for a foreigner to set up a Thai company with the sole purpose to purchase land and circumvent existing regulations against foreign land ownership (pursuant to sections 150 and 172 of the Civil and commercial Code). An act is void if it is expressly prohibited by law or is impossible, or is contrary to the public order or good morals (section 150 CCC). A void act can not be ratified, and its nullity may be alleged at any time by any interest person (Section 172 CCC). The Thai courts will uphold this argument and in any event, order that the land be given back to the Thai land owner. The return of the property arising from a void act shall be governed by the provisions in the Thai 'Undue Enrichment Code'

Knowing how a company is deemed foreign (no way around it) - under 94, 96 and 97 of the Land Code foreigners are prohibit from owning land in Thailand. The use of nominees under the Land Code and the FBA is illegal, and the foreigner and the Thai national risk serious penalties (like section 36/ 37 FBA). Both under the Land Code and the FBA the officials have the authority to investigate the Thai nominee shareholders to see if they are not nominees of foreign interest. In addition land department’s announcements could require close scrutiny of any company with foreign interest before registration is approved.

Though when it come to landholding companies there is morer to worry....

[GoFlames!]

Thanks everyone for the answers, especially Nadia 2. I appreciate them and will take them into consideration. To johnnyk, I did use the search engine quite a bit but did not find the answers that I was looking for and I'm fairly sure that the purpose of a forum is to ask and answer questions related to certain topics so until that changes I will ask as many questions as I see fit. Cheers everyone, thanks again.

[johnnyk]

Thanks everyone for the answers, especially Nadia 2. I appreciate them and will take them into consideration. To johnnyk, I did use the search engine quite a bit but did not find the answers that I was looking for and I'm fairly sure that the purpose of a forum is to ask and answer questions related to certain topics so until that changes I will ask as many questions as I see fit. Cheers everyone, thanks again.

No pompem, but you're not going to win the Cup this year!

[GoFlames!]

hahahahaha, nice one, we'll see in june

[sleepyjohn]

The Lease term

Section 540 Civil and Commercial Code: 'The duration of a hire of immovable property cannot exceed thirty years. If it is made for a longer period, such period shall be reduced to thirty years'. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal'. Any lease of immovable property for a longer duration than 30 years may be made by renewal of the lease contract upon its expiration.

Regardless of what others tell you, the max lease term in Thailand is 30 years (non commercial). The renewal options will merely be a contractual obligation of the lessor and thus (if enforceable and the lessor still alive) difficult to enforce in Thailand.

Thankyou for your great expertise Nadia.

I am right at the buying decision point now on a beautiful hillside outside Chiangmai, and am tending towards the lease, as at least it gives absolute security for 30 years (or a absolute as security can be in this existence).

Could one use a back to back deal where the money's paid, or even better loaned, by me, the property bought in the friend's name, with instant 30 year lease to me? The loan could be contractually repayable at any time at my request and there could even be a clause in the lease specifying payment by the lessor to the lessee for any building or improvement work done on the land....house, roads, water tanks etc.

Could one build in a "right to buy" by oneself, a company, or a friend.

To tighten things even further presumably the lease with these terms could be reissued every say five years, so that if one was going to have a problem with the lessor one would know 25 years in advance of any action they could take. The lessor would in fact be much less likely to make a problem knowing any benefit was 25 years in the future. Any failure to renew could be met with a demand for repayment of the loan.

I actually think 30 years is not long enough...if I live as long as my relatives I'll still be going strong in my eighties in 30 years. Also if one wanted to resell, then a limited time on the lease would reduce the value very considerably. Are two SEPERATE leases, one for now, the other pre-signed and also registered and starting in 30 years, possible?

I understand these might be difficult and thought consuming questions!!

I certainly don't like having to think in these suspicious ways but one is forced to here I'm afraid.

Where do you practise Nadia?

Thank you very much indeed!

Edited February 8, 2006 by sleepyjohn

[jitagon]

If there is no substantial activity the company could be closed down by the department of business (1246 CCC) or the Court (1237). Should the Thai Government start striking companies off the register due to failure to pay taxes, or because of inactivity, these companies will no longer exists as a juristic person and the land will be transferred, by law, to the shareholders, co-ownership irrespective preference or ordinary shares. The foreign shareholder will be commanded by the chief of the land Department to sell out his co-ownership of the said land within at least 180 days but no more than 1 year pursuant to article 94, 96 and 97 of the Land Code Act.

Just as a matter of interest, hands up all of those to whom this has happened, as opposed to those of you who's wife has given them the 'bum's rush' as soon as the builders are out? Not to mention those of you who thought their spouse was immortal, and now find themselves in the unenviable position of being the 'tenant' of their late beloved's family?

[Khun Bob]

Nadia 2 - web Director - same person ?