Alien Ownership Under The Land Code

[Nadia 2]

For those who are interested. What does the Land Code say about alien ownership and what are the risks and concerns under the Land Code? The below is NOT about the alternative risks and concerns under the CCC and FBA and only a brief introduction.

1) Section 86; 'Aliens may acquire land by virtue of the provisions of a treaty giving the right to own immovable properties and subject to the provisions of this Code'. Since 1970, Thailand has no longer made any treaty with any country.

2) To circumvent the Foreign Business Act and the Land Code the landholding TLC is set up as Thai majority owned company. One problem that is skipped over is the fact that the TLC set up by the foreigner to purchase land can be deemed 'alien', even though the capital shares are held by a majority of Thai nationals. There are a several regulations related to how a juristic person is deemed to be 'alien' in Thailand, but where it comes down to is if the majority of the value of the capital (meaning share capital and assets of the company) was invested by the foreigner the company would be deemed to be foreign and therefore, under present law, not allowed to own land.

3) The current practice of the Land Department (it is only a practice and no rights can be concluded) is to look only at the shareholders proportion or capital shares held by foreigners when they register a land transfer, but this does not change the fact that within Thai law an alien has unlawfully acquired land and therefore shall, pursuant to section 94 of the Land Code, be forced (this could be enforced at any time) to dispose of the land (the government will have no consideration for foreigners who have breached the law - the whole set up is illegal and not only under the Land Code). Section 94 of the Land Code; 'All the 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......'

4) An alternative concern lies in section 96; 'When it appears that any person (including a juristic person) has acquired land as the owner in place of an alien or juristic person under the provisions of Section 97 and 98, the Director-General shall have the authority to dispose of such land and the provisions of Section 94 shall apply mutatis mutandis'. It is evident that the majority of these companies are set up to circumvent the law and the company's only purpose is the purchase of land in place of the alien.

5) Under the Civil and Commercial Code the whole set up is void – should this be challenged the Thai courts will without doubt uphold this argument - section 61 of the Land Code; 'When it appears that a title deed has been issued or rights and legal acts with regard to land have been recorded or documents of record have been communicated to any person mistakenly or unlawfully, the Director-General shall have the power to have the title deed or documents of record corrected or cancelled'.

6) The whole land speculation is based only on a current practice (not on a Official Policy or Ministerial Announcement or the Law) and the LD could at any time and under present law take measures to correct the current illegal situation and prevent the use of TLCs by foreigners, which will also affect companies who have already registered land prior to the policy change.

7) The various local Land Offices should enforce section 74 of the Land Code; 'In recording rights and legal acts by the competent authority under Section 71, the competent authority shall have the power to interrogate the parties and summon persons concerned to give oral testimony or send relevant written evidence as may be necessary and then proceed as may be appropriate under the circumstances. If there is reason to believe the recording of such rights and legal acts is in evasion of the law or there is reason to believe the purchaser is purchasing on behalf of an alien, instructions shall be asked of the Minister whose word shall be final'. (no instruction issued yet)

Land purchase through TLC is like investing in a chain letter, it works as long as you are able to resell and the government does not start enforcing the law in the meantime. Thus, you must be lucky enough that the Land Department (maybe under a new government) does not start enforcing the law - and get around the fact that 1- the company is deemed to be alien under present law (section 94 LC), 2 - the company has not purchased land in place of an alien (section 96 LC), 3 - the company cannot be deemed void (section 69 LC and 150 CCC) and 4 - section 74 LC, the LD will not impose regulations requiring real estate transactions to undergo close scrutiny before registration in a Thai company's name is approved (thus making it impossible to resell the property in the future)….

And the above are ONLY risks under the Land Code....

[billd766]

My wife owns our land and house and I trust her more than any lawyers or governments.

[Morden]

My wife owns our land and house and I trust her more than any lawyers or governments.

Same here! Previous threads on this subject led me to believe that we were very much in the minority but the continuing poll in another thread suggests otherwise.

[solo siam]

Yep I agree and will be putting future real-estate purchases in the wifes name.

[NotaNutter]

Nadia, what if. . .

The TLC is owned 49% by the foreigner, and 51% by the Thai spouse. Considering that the TLC was established after they married then the share capital and assets of the TLC came from their joint marital property. The TLC rents out the house as a legitimate property rental business, and pays appropriate taxes. Anything wrong with that in your opinion?

Edited March 4, 2006 by NotaNutter

[sleepyjohn]

Nadia the only viable alternative to the company is the lease.

I consider the best way to run a lease deal would be to renew the whole thing every say five years, winding the clock back , and keeping any potential tricky nominee "owner" lessors at least 25 years away from their reward, thus discouraging trickery, especially if one is wiling to pay them something for their trouble right then.

I have found out that the lease tax is 12.5% of the rental.

This would make regular 5 yearly renewals very expensive.

Would it be possible to

1) get a rebate for the unused 25 years worth of rental tax? (I'm not hopeful but worth asking)

2) pay the rent, and tax on it, in shorter term periods, say five years at a time, although signing the lease for 30 years?

3) Anything else clever you could suggest?

Bearing in mind the same amount of tax will eventually be paid, albeit largely on the new lease.

Thanx in advance....Sleepyjohn

Edited March 4, 2006 by sleepyjohn

[Nadia 2]

Nadia the only viable alternative to the company is the lease.

I consider the best way to run a lease deal would be to renew the whole thing every say five years, winding the clock back , and keeping any potential tricky nominee "owner" lessors at least 25 years away from their reward, thus discouraging trickery, especially if one is wiling to pay them something for their trouble right then.

I have found out that the lease tax is 12.5% of the rental.

This would make regular 5 yearly renewals very expensive.

Would it be possible to

1) get a rebate for the unused 25 years worth of rental tax? (I'm not hopeful but worth asking)

2) pay the rent, and tax on it, in shorter term periods, say five years at a time, although signing the lease for 30 years?

3) Anything else clever you could suggest?

Bearing in mind the same amount of tax will eventually be paid, albeit largely on the new lease.

Thanx in advance....Sleepyjohn

You could make a deal with the lessor (say after 10 years) to terminate the old lease and register a new 30-year lease - but you have to terminate the old lease first.

I think you should accept that the lease term is 30 years. Should the lease not be renewed after 30 years, the then owner must (most likely) pay at his option either the price of the building or the sum representing the increase of value accruing to the land by reason of the building or the owner must allow the lessee to renew the lease the land at the market price.

Section 1310; 'If a person has, in good faith, constructed a building upon another person's land, the owner of the land becomes the owner of the building, but he must pay the constructor for any increase of value accruing to the land by reason of the building.

However, if the owner of the land can show that there was negligence on his part, he may refuse to take the building and require that it be removed by the constructor and the land put in its former condition, unless this cannot be done at reasonable costs, in which case he may require the constructor to buy the whole or part of the land at the market price'.

Section 1313; 'If the conditional owner of a piece of land has constructed a building on it and the land becomes afterwards the property of another person by effect of the condition, the provisions of this Code concerning Undue Enrichment shall apply'.

Lease registration fee shall be collected at the rate of 1% of the total rental throughout the lease term. 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 leases are registered at the Land Office for one-fifth of the actual lease price. Say you pay 1.5 million for a rai, the price registered at the local Land Office will be say 300,000 or less - you pay 1.1% X 300,000 = 3300 THB to register the lease. In addition 12.5% of the yearly rental according to the lease agreement or the annual value assessed by the Land Department, whichever is higher. Lease is the only legal option and it is still these cost are a lot less than the yearly accounting, auditing and reporting fees in case of ownership through a company (and then again maybe lease it from the company) and the tax you have to pay to make the company appear active...

Taking into consideration all the illegal and insecure aspects of freehold...

[Butterfly]

What about a lease with an option to buy back the building on the land at a given price ? would that be legal ?

Technically, any land purchase through a TLC could be voided if a Thai trying to take over your land has the right connection ?