Legal Issues Foreigners Face When Buying or Renting Real Estate in Thailand

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Foreign Ownership of Land

Contrary to popular belief, Thai law does not explicitly prohibit foreigners from owning land in Thailand. However, the conditions under which foreign ownership is allowed are not often fulfilled. For instance, the Thai Land Code allows foreign ownership where a bilateral treaty between Thailand and another country permits foreigners to own land in Thailand. However, no (!) such treaty exists. The Thai Land Code also allows foreign ownership where a foreigner obtains permission from the relevant authority after having brought not less than THB 40 MM into Thailand for investment. This, too, is hardly ever considered a practical solution for foreign individuals. Foreign entities on the other hand may legally own land in Thailand, if the Thai Board of Investment promotes their business and the area of the land is considered suitable for the promoted activity. This is an interesting option for foreign manufacturers and foreigners who intend to run a retirement home but it is not an option for individuals who would like to own land for residential purposes only.

While an individual who does not have Thai nationality is considered a foreigner, a juristic person, such as a company limited registered in Thailand, is considered foreign, if foreigners hold at least 50 % of its shares. This is why, many property agents suggest to their clients to purchase land through a company. Often property developers, agents or their lawyers set up Thai companies with Thai nominees holding more than 50 % of the shares. This is neither legal nor without risk. Though it is certainly true that there are structures that allow a minority shareholder to control a company, Thai law is very clear on the use of nominees:

Section 94 of the Land Code

All the land which a foreigner has acquired unlawfully or without permission shall be disposed of by such foreigner within the time limit prescribed by the Director-General which shall not be less than one hundred eighty days but not more than one year. If the land is not disposed of within the time prescribed, the Director-General shall have the power to dispose of it. The provisions on the forced sale of land in CHAPTER 3 shall apply mutatis mutandis.

Section 96 of the Land Code

When it appears that any person has acquired land as the owner for a foreigner or juristic persons pursuant to Section 97 or Section 98, the Director-General shall have the authority to dispose of such land and the provisions of Section 94 shall apply mutatis mutandis. 

While in my experience there are not many cases where foreigners lost their investment because Thai authorities identified Thai shareholders as nominees, there are plenty of cases where foreigners suffered immense losses because of problems caused by the nominees, regardless of whether such nominees were recommended by property agents, lawyers, family or friends.

Buying land in the name of a Thai spouse entails similar risks. Either a Thai spouse acquires land after getting married but using his or her birth name and pretending to be single. Where the Thai spouse discloses the marriage to a foreigner, the foreigner will have to declare that the land is acquired with funds the Thai spouse obtained before the marriage, i.e. personal property of the Thai spouse. The foreigner will also be required to confirm that he/she has no interest in the funds used to buy such land. This will often – though not always – have negative consequences for the foreigner in case of a separation of assets following a divorce.

Foreign Ownership of Buildings

Foreigners can legally own houses even though they do not own the land on which the house is built. For this purpose foreigners should apply for a construction permit in their own name or register a purchase agreement with the land office.

Leasehold of Land

A contract stipulating a lease term exceeding three years can only be enforced if it is registered at the land department. According to the Thai Civil and Commercial Code a maximum lease term of 30 years can be registered. Lease agreements often contain provisions entitling the lessee (foreigner) to extend the lease period for another 30 years. Though legal even this solution is not as secure as some developers and property agents make their clients believe. A registered lease gives the lessee a right that must be respected by everyone. A contractual provision that a lease term can be extended is nothing else than a claim against (only) the other party to the contract. The lessee has the risk to enforce this claim in the future and there is no guarantee the other party to the contract is still in the position to fulfil its obligation 30 years after the lease agreement is signed.

Apart from the lease term and the necessary registration it is recommended to consult an independent lawyer to ensure the rights to transfer or to sublet the lease to a third party, as well as to ensure the inheritability of the lease.

Foreign Ownership of Condominiums in Thailand

While foreign ownership of land is restricted, it is much easier for a foreigner to own a condominium in Thailand because Thai laws allow foreigners to have ownership in condominium units.

Foreigners who do not have permanent residence status in Thailand or did not enter the country under privileges granted by the Board of Investment must remit the funds used for the purchase of the condominium from overseas into Thailand in a foreign currency with the specific purpose of purchasing a condominium unit. When the ownership transfer is registered at the land department a Foreign Exchange Transaction Form (from the local bank in Thailand) must be furnished together with a letter of confirmation from the condominium’s juristic person the there are no unpaid expenses for maintenance, electricity or water and that the total area of foreign-owned units within the condominium project does not exceed 49% of the total area of all units within the project.

Due Diligence

Prior to the conclusion of an agreement to lease or purchase real estate, it is recommended to have a lawyer to conduct an ownership search at the competent land office to verify that the other party to the agreement is the lawful owner of such particular land or condominium. In case of a pre-construction purchase an additional research regarding the developer of the project is recommended.

If the result of the title investigation is satisfactory a lawyer should review all agreements or documents provided by the seller or agent. The lawyer of the buyer should also be present when the registration at the land office is done to finalize the transaction.

Fees and Taxes

Fees and taxes have often produced nasty surprises for buyers and sellers of real estate who were unaware of all applicable fees and taxes and/or their calculation. A foreigner is well advised to seek assistance from an independent person to get at least a rough estimate of the burden lying ahead.

There are traps lurking at every corner of the real estate transaction. For example, parties often decide not register the full amount of the sales price or lease amount in order to get away with lower fees and taxes. This backfires when (partial) refund of the sales price or the lease amount becomes an issue.

In a nutshell:

In case of the registration of a lease the Registration Fee amounts to 1% of the entire rent amount. In addition a Stamp Duty of 0.1 % of the entire rent amount is levied.

If a transfer of ownership of land, a building or a condominium is registered a Transfer Fee of 2 % of either the purchase price or the assessed value as announced by the government (whichever is higher) must be paid. (In particular the assessment of the value of a construction can prove difficult.) An additional Stamp Duty of 0.5% of the purchase price or the assessed value (whichever is higher) is levied. Instead of the Stamp Duty a Special Business Tax and a Local Tax of together 3.3 % will apply, if the seller is a company or an individual who obtained ownership less then 5 years before the sale.

The seller is also liable to pay personal income tax calculated in accordance with the applicable progressive tax rate taking into account several factors, such as the assessed value of the property or the sales price (whichever is higher), whether the ownership was obtained in a commercial transaction or, for instance, through inheritance, how many years ago the ownership was obtained and at what price, etc. In case the seller is a company or a juristic person, a withholding tax of 1% of the purchase price or official assessed value (whichever is higher) applies.

By Dr. Ralf Baumgarten / March 2012