Practical Guidance And Standard Of Investigation

[Sunbelt Asia]

VERY URGENT Ministry of Interior

No. Mor.Thor. 0515/Vor Asadang Road, Bangkok 10200

21st July 2006

Subject: Acquisition of Land by Juristic Persons with Foreign Shareholders

Attention: All Provincial Governors

Reference: Letter of the Ministry of Interior, Very Urgent No. Mor.Thor.0515/Vor.1562 dated 15th May 2006

Enclosure: 3 sets of examples of Investigation Report

The Ministry of Interior deems appropriate to set forth the standard practice in order that all investigations will be conducted in the same way with the following additional practical guidance:

1.) The practical guidance in the letter referred above shall be applicable to juristic persons (companies and partnerships) applying for acquisition of land with the objective to carry out a real estate business, i.e., buy, sale, rent of land, operation of hotel and resort.

2) The evidence for the investigation of each Thai shareholder on the occupation and monthly income will be a letter from a working entity certifying a position with employment period and monthly salary or other reliable evidence. The investigation will be furthermore on the source of money for the shareholder to buy shares which may come from savings, sale of land, inheritance or loan by showing the evidence, e.g., bank book, agreement to sell the land, evidence showing the inheritance or loan.

3) In case any shareholder is a juristic person with a Thai nationality (even the aforesaid juristic person has not any foreign shareholder or director), the investigation must be made on the source of money to buy shares by investigating the representative of the juristic person to ascertain the source of money by showing evidence which is a balance sheet. If the money to buy shares was borrowed from other person, the evidence being a loan agreement and minutes of meeting involved with the aforesaid matter must be produced.

4) In case a juristic person purchases the land with the price higher than the registered capital, for instance, the company has the registered capital of 500,000 baht but the company purchase the land for the price of 10,000,000 baht without mortgage, the investigation must be made to ascertain the source of money by showing the evidence. If the money was borrowed, minutes of meeting involved with the aforesaid matter with a loan agreement and the following related documents will be required :

4.1) If the loan is from a foreigner or foreign juristic person, the evidence showing the source of money, e.g., the evidence showing that the money is remitted from overseas or withdrawal slip of money from a bank account with minutes of meeting of the juristic person who is the lender.

4.2) If the loan is from a Thai individual or juristic person (even the aforesaid juristic person has not any foreign shareholder or director), the evidence proving the source of money, e.g., balance sheet, withdrawal slip of money from bank account with minutes of meeting of the juristic person who is the lender must be produced.

You are hereby informed for your further compliance with the examples of the investigation report for your practice.

Sincerely yours,

Mr. Suraat Thongniramol

Deputy Permanent Secretary of Ministry of Interior

Chief of Internal Security Group

____________________________________________________________________________

The Thai government is trying to cut down on money laundering and foreign developers. With the motto "show me the money used to buy the property” this will help accomplish this goal.

www.sunbeltasiagroup.com

[Khun Jean]

The practical guidance in the letter referred above shall be applicable to juristic persons (companies and partnerships) applying for acquisition of land with the objective to carry out a real estate business, i.e., buy, sale, rent of land, operation of hotel and resort.

This is the 2nd reference i see to a partnership applying for aquisition of land.

Is it a seperate juristic entity?

Can you enlighten me why a limited company is prefered over a 'partnership'. Especially in a situation for a foreigner with a thai wife who want to own some land and a house?

Thank you.

[Lazy Sod]

What if the company is 51% owned by my wife, and 49% by me, but the wife is not working. In other words, I'm thinking they could ask how the wife got the money to buy her 51%. Can we simply say the money to buy the 51% was a gift from me (which actually is true)?

[Sunbelt Asia]

What if the company is 51% owned by my wife, and 49% by me, but the wife is not working. In other words, I'm thinking they could ask how the wife got the money to buy her 51%. Can we simply say the money to buy the 51% was a gift from me (which actually is true)?

Does your wife have the same last name?

If she does, no matter want you do on the shareholdings(even if it was her own money) it won't fly because the two of you are consider as one shareholder making it a alien company when your shares and her shares make 50%+ shareholdings.

If she was one of the shareholders of a Thai limited Company and you were not the shareholder of this company., depending on the land office, you would be able to lend money to her (Some land offices feel your loan would have to be lower than the other Thais investment and other Land depts. are not concerned as long as this memo is followed. Others say “a loan is a loan and is not capital under the Foreign Business Act and is allowed")

If you signed away your rights that it was a gift. Most simply won’t believe it. If the deposit was on a Birthday or New Years...it could be more likely to be allowed, it just depends on the discretion of the officer, as well if the company has the objective of a real estate related business in any of its objectives.

The easiest route in your case. She buys the land with you stating it was a gift. You get a right of habitation in your name as well as you owning the house as a foreigner. You have the right of habituation of your dwelling no matter what happens for 30 years. She leaves up to one rai of your land in her will to you which you can inherit if the Ministry of Interior grants it to you.

www.sunbeltasiagroup.com

[JimmyGreaves]

Would really like to know if there is any precedent when a ltd company is found to have used 5 share holders from the law firm who set-up the company, 1 shareholder the gf and 1 the falang with 49%. What will happen to the companies assets (land 400 Sq M) when the company is deemed to be illegal?

Edited August 7, 2006 by jflundy

[~G~]

What will happen to the companies assets (land 400 Sq M) when the company is deemed to be illegal?

Well, the assets have to obey the Thai law. The ground will be dissolved, it will simply dissapear in space.

[Sunbelt Asia]

Would really like to know if there is any precedent when a ltd company is found to have used 5 share holders from the law firm who set-up the company, 1 shareholder the gf and 1 the falang with 49%. What will happen to the companies assets (land 400 Sq M) when the company is deemed to be illegal?

The Land Dept states they would give one year to find other true Thai shareholders or sell the land at auction and the money given to the company.

As for other lawyers and forums, I have heard every possible outcome. Until I hear different, I'll go with the Land Dept viewpoint.

www.sunbeltasiagroup.com

[Charma]

It may initially sound reassuring to hear that an opportunity would be given to sell the land. But can you imagine if these "investigations" force large numbers to do this over a short period of time (6-12 months). What would the effect on land value be? There just are not enough "bone fide" Thai investors around.

I would be interested to know how many foreigners would be prepared to go ahead with a purchase using one of your more complicated "cutting edge" solutions Sunbelt. Is all this not going to scare them away?

[Ollie]

So if you're not one of these:

1.) The practical guidance in the letter referred above shall be applicable to juristic persons (companies and partnerships) applying for acquisition of land with the objective to carry out a real estate business, i.e., buy, sale, rent of land, operation of hotel and resort.

And buying the land through the Co. route for the simple pleasure of living there, they're not interested in you - is that right?

Happy to be shot at to get clarification.

[Sunbelt Asia]

I would be interested to know how many foreigners would be prepared to go ahead with a purchase using one of your more complicated "cutting edge" solutions Sunbelt. Is all this not going to scare them away?

With real estate, it wouldn't be "cutting edge" More straight forward of "Show me the money of the Thais" at the Land Office.

The biggest step is you have to have a real business, not just formed to hold land.

And buying the land through the Co. route for the simple pleasure of living there, they're not interested in you - is that right?

The concern with a number of land officers is if the objective of real estate is listed. You still may have a hurdle in the years ahead, if it pertains to all objectives. Hence we advocate to go with the most conservative approach possible, to be safe.

If you are exporting, you simply list that objective and can register the land for the house/office of the MD. You then need to be doing exporting every year.

www.sunbeltasiagroup.com

[Khun Jean]

Shoot!

Not only read point 1. Also read 2, 3, 4, 4.1 and 4.2.

The company is not the problem it are the Thai shareholders you need. You will NEVER find Thai shareholders for a company that is only formed to own land. That is why everybody is using nominees to do it. And that is why it is illegal.

A house should be left out of it as you can own it without restrictions already.

Also don't wonder if it ever will be enforced, that is not the point. EVERY law will be enforced. Maybe not now or in the near future, but it will be when you least expect it. Maybe when you just finish your dream house. As i said somewhere else the only ones that profit from this lack of enforcement at the moment are the ones that buy and sell quick! And those same people will be the ones that will force the government to enforce the already existing laws. As is happening now.

If it is for "simple pleasure of living" the only thing simple is renting/leasing.

[astral]

Sunbelt

In your expert opinion, is this just for new companies,

or likely to be used to investigate exisiting ones?

[Sunbelt Asia]

Sunbelt

In your expert opinion, is this just for new companies,

or likely to be used to investigate exisiting ones?

Have heard both sides will they or won't they investigate. Lots depends on the election in October. Sorry I just don't know right now what will happen.

Best to be conservative and clean up a company owning land if you have nominees. It is possible to clean up a company to pass, before a investigation happens. The key is the Thais have to have more money invested and proof of this. That is where most companies would fail on a test.

Easiest solution.

Lend a Thai friend money who then lends it to the Thai shareholder to pay for the shares in the company bank account. You keep all proof of this transfer.

Then make sure you are filing your tax returns and the company is trading.

www.sunbeltasiagroup.com

[Khun Jean]

Then make sure you are filing your tax returns and the company is trading.

Make that REAL trading and not some fake invoices with fake income.

That is also illegal, and yes of course it will also be investigated and enforced.

I bet most companies setup for land/house aquisition have no real trading. Just another nail in the company for land/house ownership coffin.

[Charma]

Sunbelt

In your expert opinion, is this just for new companies,

or likely to be used to investigate exisiting ones?

Have heard both sides will they or won't they investigate. Lots depends on the election in October. Sorry I just don't know right now what will happen.

Best to be conservative and clean up a company owning land if you have nominees. It is possible to clean up a company to pass, before a investigation happens. The key is the Thais have to have more money invested and proof of this. That is where most companies would fail on a test.

Easiest solution.

Lend a Thai friend money who then lends it to the Thai shareholder to pay for the shares in the company bank account. You keep all proof of this transfer.

Then make sure you are filing your tax returns and the company is trading.

www.sunbeltasiagroup.com

I think this will make uncomfortable reading for the large number foreigners who have bought property using a company that DO NOT trade in any way. They have just bought a place to retire in. If they do not have a Thai partner, what would you advise them to do? If the Thai auhtorities really do push this through (and that is a somewhat big if) then there could be a lot of properties on the market soon!

[Sunbelt Asia]

I think this will make uncomfortable reading for the large number foreigners who have bought property using a company that DO NOT trade in any way. They have just bought a place to retire in. If they do not have a Thai partner, what would you advise them to do? If the Thai auhtorities really do push this through (and that is a somewhat big if) then there could be a lot of properties on the market soon!

If someone has a one million Bahr reg company and 500K, then its easy to clean up a company to make the company legal as you only need 500,000 Baht on the Thai side as the foreigners capital was 390,000 or 490,000 Baht. This money goes in the bank account of the corporation, its not simply lost in space. The Thais then would have more capital than the foreigner. The transfer can be given to the Thais in front of you while it leaves your hand going into the corp bank account at the same bank. ( Your risk is someone running out of the bank with your personal loan to them and not paying for the shares)

What if the director ( being the foreigner) made a loan to the company if the land was 3 million Baht? This has two different sides voicing if this is money capital or a asset minus a liability. The key point with existing companies that they will be looking at is share capital. Was this paid up and how?

Make it a real loan to the Thai shareholders with proof and you should be ok as the director loan to the company has controversy if it should be counted as money capital as it has the liability. If you have 2 million more available, to be even more safe, better yet give that as a personal loan with it going to the corporation bank account as a loan from the Thai shareholder. The Thai shareholders must have voting rights but they can be lower with a preferred share stucture. Have a real company as well trading.

If the Thai auhtorities really do push this through (and that is a somewhat big if) then there could be a lot of properties on the market soon!

If you do sell now, you need to show proof it was legal in the first place with proof from the Thais of money.

www.sunbeltasiagroup.com

[Charma]

What would a retiree who just wants to own a house and relax do to show his company is "Trading"?

[Lazy Sod]

What if the company is 51% owned by my wife, and 49% by me, but the wife is not working. In other words, I'm thinking they could ask how the wife got the money to buy her 51%. Can we simply say the money to buy the 51% was a gift from me (which actually is true)?

Does your wife have the same last name?

If she does, no matter want you do on the shareholdings(even if it was her own money) it won't fly because the two of you are consider as one shareholder making it a alien company when your shares and her shares make 50%+ shareholdings.

If she was one of the shareholders of a Thai limited Company and you were not the shareholder of this company., depending on the land office, you would be able to lend money to her (Some land offices feel your loan would have to be lower than the other Thais investment and other Land depts. are not concerned as long as this memo is followed. Others say “a loan is a loan and is not capital under the Foreign Business Act and is allowed")

If you signed away your rights that it was a gift. Most simply won’t believe it. If the deposit was on a Birthday or New Years...it could be more likely to be allowed, it just depends on the discretion of the officer, as well if the company has the objective of a real estate related business in any of its objectives.

The easiest route in your case. She buys the land with you stating it was a gift. You get a right of habitation in your name as well as you owning the house as a foreigner. You have the right of habituation of your dwelling no matter what happens for 30 years. She leaves up to one rai of your land in her will to you which you can inherit if the Ministry of Interior grants it to you.

www.sunbeltasiagroup.com

Thanks for the reply Sunbelt, but. . .

My wife has the same surname as me. But one thing doesn't add up. When we purchased the house a few years ago the combined shareholding of my wife and I was exactly 50% (with 50% held by other Thais). I've double checked the old shareholding today to verify this.

A few weeks after buying the house we changed the shareholding to 51% my wife and 49% me (because I decided that I trusted my wife more than the "other" shareholders).

This contradicts what you state in your reply above, "the two of you are consider as one shareholder making it a alien company when your shares and her shares make 50%+ shareholdings", because at the time of purchase we jointly held 50%. Is there a written law stating that the foreign husband and Thai wife's shares are all classed as foreign? Surely it is wrong to class the Thai spouse's shares as foreign just because they are married to a foreigner, by the same logic the foreign spouse's shares could be classed as Thai because they are married to a Thai (I realise logic doesn't come into it, but I think you get my point).

[Mister Doom]

If you do sell now, you need to show proof it was legal in the first place with proof from the Thais of money.

www.sunbeltasiagroup.com

Are you saying that if a farang owns a house through a 49/51 company using Thai nominees, that he would have a problem if he wanted to transfer that house to a Thai person (probably his wife) and that the company would be investigated and he couldn't complete the transfer without first "cleaning up" his nominee shareholders?

[Sunbelt Asia]

What would a retiree who just wants to own a house and relax do to show his company is "Trading"?

Exporting hand goods back to your home country could be a possibility. But you would need a work permit if you were doing it yourself as you need a import export card to ship under your companies name. Problem if you have a retirement visa and then you have lots of hassles unless you hired a mgr to do it for the company.

How bout doing a Internet site and have google adwords? You could do this out of your home.

Doing translations over the Internet for clients overseas. I Know a guy in Pattaya that translates Japanese to English and does very well.

Are you saying that if a farang owns a house through a 49/51 company using Thai nominees, that he would have a problem if he wanted to transfer that house to a Thai person (probably his wife) and that the company would be investigated and he couldn't complete the transfer without first "cleaning up" his nominee shareholders?

The land dept would be ok if it was all Thai but to get to that stage, you would need to change yourself to a Thai shareholder. The understanding we have now is the MOC will check any changes after August 15th. If you did this tomorrow, it would not be a problem. After August 15th we will know if this will in fact be enforced.

This came from a VIP today" The giant woke up because of Koh Samui. He needs to be awake for three months then he tired and go back to sleep" The giant has been awake in the past and then went to sleep. But for right now he is wide awake and is hungry.

My wife has the same surname as me. But one thing doesn't add up. When we purchased the house a few years ago the combined shareholding of my wife and I was exactly 50% (with 50% held by other Thais). I've double checked the old shareholding today to verify this.

Depends on the Land office but if you had say 20% and your Thai wife had 30% then I could see how some would let it slide.

A few weeks after buying the house we changed the shareholding to 51% my wife and 49% me (because I decided that I trusted my wife more than the "other" shareholders).

This contradicts what you state in your reply above, "the two of you are consider as one shareholder making it a alien company when your shares and her shares make 50%+ shareholdings", because at the time of purchase we jointly held 50%. Is there a written law stating that the foreign husband and Thai wife's shares are all classed as foreign? Surely it is wrong to class the Thai spouse's shares as foreign just because they are married to a foreigner, by the same logic the foreign spouse's shares could be classed as Thai because they are married to a Thai (I realise logic doesn't come into it, but I think you get my point).

The reson that you could do this is because the MOC allowed at that time any transfer you like. They were not aware you held land. As far as they knew you wanted to be a foreign company and had permission. At the land dept they would or should say something then. For sure if you would want to sell the land.

Is there a written law stating that the foreign husband and Thai wife's shares are all classed as foreign?

Thailand, in its laws regarding marriage, is very similar to what common Law countries refer to as a “Community Property Jurisdiction”.

With some exceptions, all property acquired during the course of the marriage becomes what is known as sin somros and belongs equally to the spouses.

In the Civil Commercial Code

Section 1533. Upon divorce, the Sin Somros shall be divided equally between man and woman.

Section 1474 Sin Somros consists of

(1) property acquired during the marriage

(2) property acquired by either spouse during marriage through a will or gift made in writing if it is declared by such will or document of gift to be Sin Somros.

(3) fruits of Sin Suan Tua

In case of doubt as to whether a property is Sin Somros or not it shall be presumed to be Sin Somros.

That is why the foreign spouse of the Thai national must give a joint written confirmation that the money which that Thai national will expend on purchasing the land is wholly the separate property or personal effects of that Thai national and not jointly acquired property (not the "Sin Somros").

www.sunbeltasiagroup.com

[billd766]

On the other hand you could always let your wife own 100% of everything because if the government really cracks down you may lose everything "you" own. If your wife divorces you you will lose it anyway.

Ergo if you bgive it all to your wife you have no hassle with limited companies, lawyers, the Land Department etc chasing you and it is cheaper in the end.

Of course you should trust your wife 100% because if you don't then why did you marry her in the first place?

Everything I paid for is in my wifes name and if she dies before me then it all goes to our son and in the separate wills I will become his legal guardian and still live in the house that I paid for.

[Lazy Sod]

On the other hand you could always let your wife own 100% of everything because if the government really cracks down you may lose everything "you" own. If your wife divorces you you will lose it anyway.

Ergo if you bgive it all to your wife you have no hassle with limited companies, lawyers, the Land Department etc chasing you and it is cheaper in the end.

Of course you should trust your wife 100% because if you don't then why did you marry her in the first place?Everything I paid for is in my wifes name and if she dies before me then it all goes to our son and in the separate wills I will become his legal guardian and still live in the house that I paid for.

Nowadays divorce is a part of modern life, people change and/or grow apart, and nobody can predict how things will turn out. You can trust your wife 100% and still end up getting divorced for lots of different reasons. Many of the guys on this forum have used their retirement savings to buy a house here, and many have already been through painful and costly divorces back in their home countries (from wives they once trusted 100%). Having said all that, I'm not against putting the house in the wife's name, I'm considering it myself, but I realise why many guys are reluctant to.

[Lazy Sod]

Sunbelt, are you absolutely sure that because the Company is now 51% owned by my Thai wife, and 49% by me, that it is now classed as "foreign" (which I know means it can't hold land, period). The Company shareholders register clearly states that 51% of the shares are "Thai", and 49% "Foreign". Nowhere does it indicate that the Company is now foreign.

I've never seen a law stating that a Thai spouse's shareholdings in any company are automatically classed as foreign. This would have huge implications for any Thai married to foreigner who is a shareholder in any business, or any Company that happens to have a major Thai shareholder who later marries a foreigner.

Edited August 11, 2006 by Lazy Sod

[Mister Doom]

Nowadays divorce is a part of modern life, people change and/or grow apart, and nobody can predict how things will turn out. You can trust your wife 100% and still end up getting divorced for lots of different reasons. Many of the guys on this forum have used their retirement savings to buy a house here, and many have already been through painful and costly divorces back in their home countries (from wives they once trusted 100%). Having said all that, I'm not against putting the house in the wife's name, I'm considering it myself, but I realise why many guys are reluctant to.

Excellent summary - couldn't have put it better myself

Life is life, and people change, and in a divorce situation a farang is in a much stronger postion if he has 'control' over the house. The wife may still end up with 50% - but not 100% as might otherwise be the case.

Even the best of marriages are not allways a bed of roses, and there must be very few that can go through the years without having their difficult moments, serious arguments, and just plain rows. If the marital home is is owned by a Thai wife, every time the marriage hits a "rocky" spot, the farang would be worrying if things don't sort themselves he might end up with nothing, and the wife might be thinking that she has this 'hold ' over him.

OK not every marriage - but I'd warrant there are plenty that would fit this bill.

[Mister Doom]

If you do sell now, you need to show proof it was legal in the first place with proof from the Thais of money.

www.sunbeltasiagroup.com

Sunbelt, I'm sorry to keep pushing this point, and please forgive me if I'm being particularly dim.

But I believe this is absolutely fundamental and will cause huge panic amongst all the farangs who currently own houses through companies if what I understand you are saying is correct.

Are you saying that it will be impossible for these companies to dispose of their property - whether to a Thai, (their wife or whoever), without firstly cleaning up the company, and regularising the 'nominee' shareholders? You also seem to be saying that the farang should remove himself from the company and be replaced by a Thai, prior to the company selling the house.

So If I go to the land office with my 49/51 Company, and try to transfer my company 100% to a Thai person (not a company), they would refuse the transfer because my company would need to be investigated?

Is this correct?

[Sunbelt Asia]

Sunbelt, are you absolutely sure that because the Company is now 51% owned by my Thai wife, and 49% by me, that it is now classed as "foreign" (which I know means it can't hold land, period). The Company shareholders register clearly states that 51% of the shares are "Thai", and 49% "Foreign". Nowhere does it indicate that the Company is now foreign.

I've never seen a law stating that a Thai spouse's shareholdings in any company are automatically classed as foreign. This would have huge implications for any Thai married to foreigner who is a shareholder in any business, or any Company that happens to have a major Thai shareholder who later marries a foreigner.

Sorry but for land, the Land Dept will not allow you, in most all cases to register the land in a company if your wife and you have more than 50.01% of the shares as you are considered one person.( They will see you have the same last name on the shareholders list) Call the Land Dept and ask them if they will let the land be registered in this case.

www.sunbeltasiagroup.com

[Lazy Sod]

Nowadays divorce is a part of modern life, people change and/or grow apart, and nobody can predict how things will turn out. You can trust your wife 100% and still end up getting divorced for lots of different reasons. Many of the guys on this forum have used their retirement savings to buy a house here, and many have already been through painful and costly divorces back in their home countries (from wives they once trusted 100%). Having said all that, I'm not against putting the house in the wife's name, I'm considering it myself, but I realise why many guys are reluctant to.

Excellent summary - couldn't have put it better myself

Life is life, and people change, and in a divorce situation a farang is in a much stronger postion if he has 'control' over the house. The wife may still end up with 50% - but not 100% as might otherwise be the case.

Even the best of marriages are not allways a bed of roses, and there must be very few that can go through the years without having their difficult moments, serious arguments, and just plain rows. If the marital home is is owned by a Thai wife, every time the marriage hits a "rocky" spot, the farang would be worrying if things don't sort themselves he might end up with nothing, and the wife might be thinking that she has this 'hold ' over him.

Indeed Mister Doom. "Heaven has no rage like love to hatred turned, nor hel_l a fury like a woman scorned."

Edited August 11, 2006 by Lazy Sod

[Mrkisskissbangbang]

I'm sorry if this seems obvious to everyone but me , which is so often the case but.. Is not the best option for those with Thai wives, who haven't bothered to change their surnames to husbands, to give thier wives 100% share of the company so that then it is not subject to investigation? And then perhaps to write a will of sorts? Seems a bit of a last resort but if its do-able its cheap and provided you have had good relations with your wife until now could save you money in the long run.

[Cabana]

One idea I have...........gift the wife's shares to my children 50/50. They are both minors (both under 12 years old) but I understand it is perfectly legal to do this. Now the question is - as they have my surname is there a law that considers these shares to be owned by me the 49% shareholder as well in the same way as the wife's?

[Cabana]

Or............transfer the preference shares that the minority foreign shareholder owns to the children instead making it a true 100% Thai company. With habitation agreement. I presume anyone can be a Director and those positions are unaffected.