The aim of the article is to explain to readers the basic land and tax laws that affect all expatriates in the area of property ownership in the Kingdom of Thailand. But a word of warning – Thai laws and government practises are evolving all the time, particularly as to taxation. Therefore, I strongly urge that you use competent lawyers and accountants to keep abreast of all such important matters.
Measurements
Thai land measurements are fairly simple – being a combination of “imperial” and metric measurement systems. Starting off with a Wah, which is taken as being 2 metres. This is squared to produce 1 sq wah which is called a “Talang Wah” = 4 sq metres. 100 of these = 1 Ngan (400 sq m). 4 Ngan = 1 Rai (1,600 sq m = 400 Talang Wah). So when you see measurements of say 2 Rai – 3 Ngan – 35 Talang Wah, that is 3200+1200+140=4,540 sq metres. 1 Acre (4,047 sq m) = approx 2.53 Rai and 1 Hectare (10,000 sq m) = 6.25 Rai exactly.
Land tirling
Apart from Condominium ownership and erecting buildings on leased land (both covered below), land titling can be quite complicated for the uninitiated. There are various levels of land titling – from a simple right of possession through to a full title as we know it in the Western world. This full land title deed is called a “Chanut” and is backed by such as being recorded by government using GPS to record both the area and boundaries. The Chanut paper itself is one or more sheets of heavy paper and shows a surveyed plan of the land, various registration numbers, previous owners and mortgage history. You should check that numbers shown on the marker posts positioned on the land match the numbers shown on the title document. Beware of photocopies and make sure that official chops, notations and the Garuda (the official Government authority crest) are all clear and readable. This is an extremely valuable document – just like title deeds in Europe and losing it will give all sorts of problems.
Fortunately, most land and property that is traded on the Eastern Seaboard has Chanut title. However, there will still be cases where a lesser title is only available – such as Nor Sor Saam and Nor Sor Saam Gor – usually in undeveloped areas in the countryside. These two may even be accepted by banks as collateral and they usually fully transferable, and may even be upgraded to Chanut over time. However, if you are looking at developing such-held land for other than a single dwelling, complications may arise. Although land prices should be lower for lesser titles (but there is a cost to convert them to Chanut), it may well be prudent to discount any property without Chanut title. There are other weaker types of title, but these should be avoided. This is all a very specialised area and it is essential to seek legal advice in these cases.
Buying land for subdivision is a specialised area and involves many local and central government departments, building codes and suchlike. Again, an area for experts, but one that could well affect the normal buyer. Should you be buying a newly-subdivided plot (with or without house) – which is the case for the majority of new housing developments – bear in mind that this could take some time before the new titles are issued. Should the developer not be able to obtain such a subdivision, it would appear that a sales contract would be null and void due to basic non-performance.
This would be a rarity with any competent large developer but to protect yourself, ask the right questions at an early stage and make sure that it is clear that all monies paid would be returned in this unlikely scenario. There have been some rumours in the recent past of foreigner-led developments involving subdivision – as to their ability to get the needed Lands Department approval to subdivide. Therefore, it is essential to involve your lawyer at an early stage.
Condominiums are looked at below under Ownership By Foreigners. Erecting buildings on land not owned does happen and this is often fashioned into a long lease (usually 30 years plus renewals) – see Practical Solutions below.
Ownership by foreigners
Basically, Thai law does not currently allow a foreigner to own land in Thailand in their own name, although they can own the buildings thereon. This appears to be a major drawback for newcomers, but it is not – there are several ways to confidently “own” property here and these are outlined below. Anyway before that, there are two notable exceptions to this strict law. Firstly, where a foreign company has Board of Investment (“B.O.I.”) approval and the land is part of the project (usually manufacturing). Even then, the ownership is very much tied in with the overall B.O.I. terms. Secondly, a recent law (Land Code Section 96, 2002) allows an Alien to buy up to one Rai for his or her residential purposes in metropolitan areas such as Bangkok or Pattaya providing they also invest at least 40 million Baht for five years in such as government bonds, recognised property mutual funds or B.O.I. projects. Permission for this needs to be obtained from the Interior Ministry and the ownership is monitored by the Lands Department.
Apart from these two rare exceptions, both partnerships and companies also fall under the strict land ownership by foreigners prohibition – should the foreigners control too large a share (but there are ways to structure the company so as to have full control and still conform to the law). The Alien Business Law, which regulates the investment in land by foreigners, states that “land trading” is prohibited to foreigners. A foreign-controlled company is defined under Thai land law, and states that any Thai registered companies or partnerships with more than 49% of the company’s total capital, or more than half the shareholders being non-Thai, are considered foreign. It is often difficult for even a company with a 51% Thai/49% foreign ownership to purchase land – particularly if you are using an inexperienced lawyer.
Practical solutions to land ownership
1. Leasing the land – Currently, Thai law allows a maximum term of 30 years for a lease of land. It is usually possible to extend this lease each 30 years. Currently, at the end of each term, both the lessor and lessee (‘seller” and “buyer”) must register the renewal with the Land Department and pay government fees, and other expenses, such as stamp duty. This gives effective “ownership” of the land and has become a popular choice. The downsides include the Lessor not wishing to renew, any future law changes and the fact that you have invested capital into a very personal investment. Down the track, is buying a house with a diminishing lease easily saleable?
2.Nominee – all you need is a Thai national who is prepared to be the “legal” owner on your behalf. A matter of trust and not recommended. A well-known English writer living in Bangkok a few years ago bought a small condominium and placed it in the name of his long-term and trusted maid. After an extended holiday in Europe, he returned to find that she had sold the property as she was broke. At least she was not all bad – she held all his personal items (including a safe) for his return. Too much temptation.
3.Nominee with Mortgage – this interesting method was found on an obscure website. Get the maid or other person to sign as owner as above, but you take out a mortgage with yourself as the “lender”. There will be a small fee to pay to register the mortgage with the Land Office, but the property cannot be sold without your consent (i.e. you have not discharged the mortgage). Holding a blank transfer document signed by the Nominee would help with any future Nominee changes.
4.Company Ownership – This is the most popular method of property ownership and is common. This is normally done through a lawyer’s office and if structured correctly provides effective control. Being a company, there will be such as ongoing accounting and legal fees payable, but not much. Setting up the company does cost – but at a fraction of the purchase price. The company is normally sold as part of any on-sale (not attracting any further transfer fees as technically the property has remained in the same company ownership and only company shares have changed hands). Scott Malone of HomeHunters advises that there is an increased likelihood that the Revenue Department will ensure that companies owning property are paying the correct amount of taxes. Many forget that there is a legal requirement to have the company audited annually and all due taxes are to balance off. This either falls at year’s end (31st December) or on the anniversary of the company formation date, according to Scott. There have also been recent stories of the Thai nominee shareholders (normally staff of the lawyer’s office) being questioned by tax authorities as to how they “paid” for their shares. If true, this could become a real concern until Thailand relaxes the main issue of foreign ownership of property.
Condominiums
Major advances have been made on this front. The relatively new first condominium law that was created some 10 years ago allowed for up to 40% foreign ownership on new condo developments. That was then raised up to 49% of the units and was extended to cover most existing condo blocks. Then, to stimulate a slow economy, an unlimited ownership share was available for a limited period in cities such as Bangkok and Pattaya – providing the developments were more than 40 units and being built on no more than five Rai. This concession was a great success and ended as planned in 2004, meaning that a developer cannot now sell more than 49% of any condo development to foreigners. Thankfully, the Thai Government recognises that many condos sold during this concession period are now 50-100% sold to foreigners and this level is protected. So, as long as the new buyer is a foreigner, the level remains the same. The level is permanently reduced if a sale is to a Thai. So, check with your agent as to where any condo unit sits in this scheme. Digressing, condominium developers are obliged to set up a Juristic Person (body of owners) in order to run the ongoing condominium. This relates to managing the property, setting and collecting Management Fees, Health & Safety, etc.. This is often not done properly, management fees can be exorbitant, fire doors may be locked or you find that an Indian restaurant has opened next to you on the 23rd floor (and cooking with gas – that is not allowed in condominiums). Seriously, talk to a good agent and they will give you the true picture and help you pick the right condo unit for you. Bear in mind that major expenditures such as an external repaint and lift replacement in the future may come as a rude shock if they are an extra – should the developer not have created a sinking fund within the management charges structure.
Care must be taken with bringing in the funds for the acquisition – following Thai banking procedure to the letter. This means creating a Foreign Currency Account in order to qualify for a “Tor Tor 3” certificate – issued by your Thai bank to verify that the originating funding came from outside Thailand in a currency other than Thai Baht. This certificate is needed by the Lands Department. It is commonly thought that this only applies to condominiums. As Scott Malone of HomeHunters also advises, always get this Certificate for any major money influx (including for land and house purchases). Therefore, any future return oversea remittance will be less affected in terms of tax and hassle – because you recorded the original remittance/s and these can be offset against profits.
Owning your own condo in your own name must be the safest way to own property in Thailand – although having a company-controlled ownership of any property is commonplace. Surely, Thailand must relax her land laws in due course – as many property experts are now predicting. That will be yet another positive for the Thailand property market – and will particularly help Pattaya as being currently Thailand’s leading foreign investment property market. But in the meantime, we urge that you always seek professional help. For example, if you plan to buy more than one condo under your own name, this may well not be technically allowable. The legalities of leasing out your condo unit must also be considered – if you are planning that.
Thai spouses
This is a difficult area and great care must be taken on marriage to ensure that any property elements owned by either party are correctly dealt with. The temptation to place property with the proposed local spouse prior to marriage should be avoided. The general rule is that Thai nationals who marry foreigners are not allowed to own land in Thailand, unless the foreign spouse signs a document which declares that the property is separate, and that he or she has no interest in the property in any way. The Thai spouse must also declare that the money to buy the property was his/hers in the first place. In addition, consideration must be given to the fact that you may outlive your spouse. What would happen to the property in this event? Do you even have the right to reside in the property? Have you made a last will and testament? If you have children and you and your spouse were to die at the same time, what happens to the property then? So, putting land into your Thai spouse’s name is difficult and fraught with difficulties. Legal help should be sought so as to protect all interests – including the rights of offspring of the marriage (such as their inheritance rights).
Mortgages
The chances of getting a mortgage within Thailand have historically been slim, but not impossible. Expatriate workers with a large local salary have been in the best position. Although most non-Thai property buyers will have enough funds to buy outright, it is interesting to note that the growing financial globalisation is leading to some interesting financial options. These include cross-border mortgages based on the surety of either/or income and property overseas. As banks and finance companies expand, property trusts become common and the financial services sector generally grows, we will see more and more ways on raising property finance all around the globe. Currently, there are several banks and similar making a push to become involved in Thailand’s expanding property market. bandwagon, there is more and more chance of having to satisfy environmental issues such as Environmental Impact Assessments for larger developments. If you get into the area of property development, you certainly need good help – in particular a good engineer and lawyer. Building codes exist within several governmental entities. In December 2005 it was reported that the small number of building inspectors responsible for the large area of Pattaya were being swamped by the huge amount of development. Many developers would have bashed on regardless and therefore it would be wise to check that any property that you are buying does not breach any code. We are really only talking about developments done by small developers and should you have any qualms, any good engineering or architectural company should be able to tell you of any breach.
If you are planning any construction –such as building your own house, you will need professional advice from qualified people such as architects and engineers – so as to understand local planning codes and practices. Like Hong Kong and most other SE Asian countries, the principal engineer or architect “signs off” once a building is completed, taking responsibility that the building is sound and that it complies with the prevailing building codes. In the event of any failure or breach, that person is held liable. In the Western world, such professionals would carry adequate indemnity insurance to cover any claims against them. It might be a good idea to see what type of indemnity your selected “authorised person” carries – or whether he or she is financial enough not to do “a runner” in the case of a building collapse for example. Such an event is treated as a criminal act in the Kingdom and penalties can be very severe where there is loss of life. Anyway, choose your architect/engineer with care. You will find that the better ones will have a good reputation and a solid track record. I have found that there are many excellent Thai engineers.
Taxation
There is not a great deal of information readily available on this important issue and advice should be sought from recommended experts in the accountancy and taxation fields. They will be able to answer such as : How much Stamp Duty is payable on purchase/sale? What are the ramifications of owning a property through a company structure? The general combined Government taxes payable on a sale (Transfer Tax, Transfer Fee and Stamp Duty) are currently some 5.5% of the land value – as set by the Lands Office. Payment share of this is negotiable between the buyer and seller. On an ongoing basis, there appears to be two main taxes applicable on property owners in Thailand – Land Tax and Structures Usage Tax. The former is a very small tax levied on land ownership equivalent to just a few Thai Baht per Rai per year. Structures Usage Tax is applicable at the rate of 12.5% on the actual (or assessed) gross rental value of the property and is aimed at commercial property. Lessees are not subject to this tax but may be required by the developer to pay an “annual ground rent” instead.
There is currently talk of a new property tax based on 0.1% of capital value, presumably applied annually. This rate is doubled for undeveloped property – as an incentive to develop. However, at whatever level, we are talking small money – particularly so in a strong rising market.
Another tax is Withholding Tax – payable on most income streams earned in the Kingdom as a way to collect Income Tax early. Mainly applying to payers of income (i.e. employers) so as to capture tax at source, rents also fall under this category. This form of Income Tax may also apply to sales of immovable property if the sale is made for a commercial purpose and it is essential that such income must be included as assessable income. Nevertheless, from January 2003, gains from sales of residential buildings shall not be included as income if such gains are spent on purchasing a new home within one year before or after selling the primary residence.
Perhaps the most “forgotten” tax is that of capital gains made on sale of property. There is no Capital Gains Tax as such, but ALL PROFIT is assessed as Income Tax, whether a property is owned by either a company, a partnership or an individual. You must be prepared to share a part of a property gain in tax eventually, but this can be minimised with the right advice.
It is vital to assess the ramifications of taxation on buying and selling property, whatever method is used to “own” the property or properties in question. One website to view is the Revenue Department’s – www.rd.go.th. Another interesting page to view is www.holt-realty.com. This provides a deal of information on taxes.
Planning, building codes, construction
As a general term, planning has never been a strength in local minds. Reaction, discussion and compromise play a much bigger part in life. On the town and country planning front, there are several governmental and local bodies who all have generalistic schemes to help guide development. However, you will just not find a highly-considered and detailed town plan or similar as you would in Europe. Further, many planning initiatives (such as new roads) are just not released publicly in detail – as an attempt to foil speculation. Critics of this philosophy might argue that this way encourages corruption due to only a limited few government servants and consultants being “in the know”. Anyway, there are a few proclaimed guidelines such as building heights near the sea, set backs and fire regulation-based rules for developers to follow. As Thailand climbs further onto the environmental of this site have good information as well. We do not necessarily concur with all the views expressed on all such sites we look at – as everyone’s take on Thailand’s laws and taxes is different. Therefore it is essential to do your own research and seek that professional help. More and more agents’ websites are now starting to provide meaningful information. There are also more general sites to look at for good advice.
Wills
An often-ignored aspect of Thai property ownership is to register your Will here. Not doing so means huge problems for your Executors and Beneficiaries, even if you have created a cast-iron Will overseas. A good lawyer will ensure that your will created overseas will stand up in Thailand.
Summary
I have covered a broad band of legal and financial issues that affect real estate in Thailand. At first glance, they look quite complicated. In reality, they are not, being quite logical and heavily based on a simple system of land ownership.
