What Foreigners Should Know Legally About Buying Property in Thailand Through Setting Up a Thai Company
Foreigners interested in purchasing property in Thailand often consider setting up a Thai company as a method to navigate the legal restrictions on foreign land ownership. Here’s a comprehensive guide on what foreigners need to know about this process:
1. Legal Framework and Restrictions
Thai Land Code Act
– Foreign Ownership: Under the Thai Land Code Act, foreigners are generally prohibited from owning land in Thailand. However, they can own buildings or structures on the land.
– Company Ownership: Foreigners can set up a Thai company to purchase land, but the company must be majority-owned by Thai nationals.
Understanding the Board of Investment (BOI) in Thailand
The Thailand Board of Investment (BOI) is a government agency under the Office of the Prime Minister. The BOI is responsible for promoting and facilitating foreign investment in Thailand. It offers a range of incentives and benefits to attract investment in key industries and regions, thereby driving economic growth and development in the country.
Key Roles and Functions of the BOI
1. Investment Promotion
– Incentives and Benefits: The BOI provides a variety of tax and non-tax incentives to encourage investment in targeted sectors.
– Facilitation Services: The agency assists investors with information, advisory services, and administrative support to streamline the investment process.
2. Policy Development
– Economic Strategy: The BOI helps shape Thailand’s economic policies to create a conducive environment for investment.
– Regulatory Framework: It works on improving the regulatory framework to reduce barriers to entry and enhance the business climate.
3. Sector Focus
– Targeted Industries: The BOI promotes investments in sectors such as technology, automotive, electronics, agriculture, healthcare, and tourism, among others.
– Innovation and Sustainability: Emphasis is placed on projects that promote innovation, sustainable development, and environmental protection.
Benefits and Incentives Offered by the BOI
1. Tax Incentives
– Corporate Income Tax Exemption: Eligible projects can receive up to an eight-year exemption from corporate income tax.
– Import Duty Exemption: Exemption from import duties on machinery, raw materials, and essential materials used in production for export.
– Double Deduction: Double deduction of public utility costs and transportation, electricity, and water supply expenses.
2. Non-Tax Incentives
– Land Ownership: Foreign investors may be allowed to own land for their promoted project.
– Work Permits and Visas: Streamlined procedures for work permits and visas for foreign employees.
Read more about Visa and Work Permit here: Expat Documentation need for renting and how to obtain
And about how to obtain Visa and Work Permit here :How to Get working Visa & Work Permit
3. Infrastructure and Support Services
– Industrial Estates and Zones: Access to well-developed industrial estates and special economic zones with ready-to-use infrastructure.
– Business Matching: Assistance in finding local partners and suppliers through business matching services.
– Training and Development: Support for workforce training and skill development programs.
Application and Approval Process
1. Project Proposal
– Preparation: Investors must prepare a detailed project proposal, including business plans, financial projections, and technical specifications.
– Submission: Submit the proposal to the BOI for review and evaluation.
2. Evaluation
– Criteria: The BOI evaluates projects based on criteria such as the potential for technology transfer, employment generation, environmental impact, and alignment with national development goals.
– Approval: Approved projects receive an investment promotion certificate outlining the granted incentives and conditions.
3. Implementation and Monitoring
– Compliance: Investors must comply with the conditions specified in the promotion certificate to retain the benefits.
– Reporting: Regular reporting and audits ensure ongoing compliance with BOI requirements.
Strategic Importance of the BOI
1. Economic Growth
– Investment Attraction: By providing attractive incentives, the BOI plays a crucial role in attracting foreign direct investment (FDI) to Thailand.
– Job Creation: Promoted projects contribute to job creation and skill development for the local workforce.
2. Technological Advancement
– Innovation: Encouraging investments in high-tech industries and research and development (R&D) fosters innovation and technological progress.
– Industry Upgrading: The BOI’s focus on advanced industries helps upgrade Thailand’s industrial base and enhances global competitiveness.
3. Sustainable Development
– Environmental Protection: Promoting eco-friendly and sustainable projects aligns with global environmental standards and contributes to sustainable development.
– Social Responsibility: Encouraging corporate social responsibility (CSR) initiatives ensures that investments benefit local communities and society at large.
Conclusion
The Thailand Board of Investment (BOI) is a pivotal agency that facilitates foreign investment in Thailand through a range of incentives and support services. By understanding the benefits and application process associated with BOI promotion, investors can effectively leverage these opportunities to establish and grow their businesses in Thailand, contributing to the country’s economic development and modernization.
To understand the The Thailand Board of Investment (BOI) and how it can help you please read here: Blog: What is BOI and how it is important
2. Company Structure and Ownership
Shareholding Requirements
– Majority Thai Ownership: At least 51% of the company shares must be owned by Thai nationals. Foreigners can hold up to 49% of the shares.
– Nominee Shareholders: Using Thai nominees (i.e., Thai nationals who hold shares on behalf of foreigners) is illegal and can lead to severe penalties. Ensure that Thai shareholders have genuine financial involvement and control.
Company Formation
– Register the Company: Register the company with the Department of Business Development (DBD). This includes submitting the memorandum of association, company statutes, and registration fees.
– Directors and Management: Appoint directors, who can be both Thai and foreign nationals. The company must have at least three directors.
3. Financial and Tax Considerations
Capital Requirements
– Minimum Capital: The company must have sufficient registered capital, generally starting at around 2 million THB for a company with majority Thai ownership.
– Foreign Business License: If the company has significant foreign ownership, it might need a Foreign Business License (FBL) to operate legally in Thailand.
Taxation
– Corporate Tax: The company will be subject to corporate income tax on its earnings. Ensure compliance with Thai tax laws and regulations.
– Property Tax: The company must pay any applicable property taxes on the land and buildings it owns.
4. Property Purchase Process
Due Diligence
– Title Search: Conduct a thorough title search to ensure the property has a clear title and is free of encumbrances.
– Legal Advice: Engage a reputable lawyer to assist with the due diligence process and ensure all legal aspects are covered.
Purchase Agreement
– Drafting the Agreement: Have a lawyer draft the purchase agreement, detailing the terms of the sale, payment schedule, and responsibilities of both parties.
– Payment: The company must pay for the property through a Thai bank account, and all funds must be documented properly.
5. Ongoing Compliance and Management
Company Operations
– Business Activities: The company must be a genuine operating business, not just a shell entity for holding property.
– Annual Reports: Submit annual financial statements and reports to the Department of Business Development.
Property Management
– Maintenance and Upkeep: The company is responsible for maintaining the property and ensuring it complies with local regulations.
– Leasing and Usage: The property can be leased to generate income, but the company must ensure compliance with lease regulations and proper documentation.
6. Risks and Challenges
Legal Risks
– Nominee Structures: Using nominee shareholders can result in legal penalties, including the potential loss of property and fines.
– Regulatory Changes: Changes in Thai property and business laws could impact the company’s ability to hold and manage property.
Financial Risks
– Capital Requirements: Meeting the capital requirements and maintaining an operating business can be financially demanding.
– Tax Compliance: Ensuring compliance with Thai tax laws can be complex and may require ongoing legal and financial advice.
7. Practical Steps and Advice
Legal Assistance
– Hire a Lawyer: Engage a qualified lawyer with experience in Thai property and corporate law to guide you through the process.
– Due Diligence: Conduct thorough due diligence on both the property and the proposed company structure.
Business Operations
– Genuine Business Activity: Ensure the company engages in genuine business activities to avoid legal scrutiny.
– Regular Audits: Conduct regular financial and operational audits to ensure compliance with Thai laws and regulations.
Long-Term Planning
– Exit Strategy: Have a clear exit strategy in place, including potential sale or transfer of the property and company shares.
– Heirship and Succession: Plan for the potential transfer of the property and business to heirs or successors.
By understanding these legal considerations and taking proactive measures, foreigners can navigate the complexities of purchasing property in Thailand through setting up a Thai company effectively and within the bounds of the law.
Concerns When Setting Up a Thai Company to Purchase Property
When setting up a Thai company to purchase property in Thailand, there are several concerns and potential risks that foreigners should be aware of. Here are the key concerns:
1. Legal and Regulatory Risks
Nominee Shareholders
– Illegality: Using Thai nominees to circumvent the foreign ownership restrictions is illegal and can lead to severe penalties, including fines and imprisonment.
– Government Crackdown: The Thai government has been known to investigate and crack down on companies suspected of using nominee shareholders to bypass land ownership laws.
Compliance with Thai Laws
– Frequent Changes: Thai laws and regulations can change, which may affect the company’s ability to own and manage property.
– Strict Enforcement: The authorities strictly enforce property and business laws, and non-compliance can result in penalties, loss of property, or deportation.
2. Financial Risks
Capital Requirements
– Significant Investment: Establishing and maintaining a Thai company requires significant financial investment, including registered capital, operational costs, and taxes.
– Operating Costs: The company must engage in genuine business activities, which adds to the ongoing costs and financial obligations.
Taxation
– Corporate Tax: The company will be subject to corporate income tax on its earnings. This requires accurate accounting and timely tax payments.
– Property Taxes: Property ownership incurs taxes, which the company must pay annually.
3. Operational Risks
Genuine Business Activities
– Business Operations: The company must conduct real business activities, not just serve as a vehicle for property ownership. This requires proper management, employees, and business operations.
– Scrutiny: Authorities may scrutinize the company to ensure it is genuinely operating and not merely a front for property ownership.
Management and Maintenance
– Property Management: The company is responsible for maintaining the property, ensuring it meets local standards and regulations.
– Financial Management: Proper financial management is crucial to avoid legal issues and ensure the company remains solvent.
4. Shareholder Risks
Majority Thai Ownership
– Control Issues: Since Thai nationals must own at least 51% of the company, there is a risk of losing control over the company and property decisions.
– Shareholder Disputes: Potential conflicts with Thai shareholders can arise, affecting the management and ownership of the property.
Trust and Reliability
– Reliable Partners: Finding trustworthy Thai partners is essential to ensure the company operates smoothly and complies with all legal requirements.
– Shareholder Interests: Ensuring that Thai shareholders have genuine financial and operational involvement in the company is crucial.
5. Due Diligence Risks
Property Title
– Clear Title: Conducting a thorough title search is essential to ensure the property has a clear title and is free from encumbrances or legal disputes.
– Legal Advice: Engaging a reputable lawyer to assist with due diligence can mitigate the risk of purchasing problematic properties.
6. Exit Strategy Risks
Property Sale
– Market Conditions: Selling property can be challenging, especially if market conditions are unfavorable.
– Legal Restrictions: The process of selling property owned by a company may involve additional legal and regulatory hurdles.
Company Dissolution
– Complex Process: Dissolving the company, if needed, is a complex process that requires legal assistance and can be time-consuming.
– Tax Liabilities: Ensure all tax obligations are settled before dissolving the company to avoid legal issues.
7. Cultural and Language Barriers
Communication
– Language Issues: Language barriers can complicate legal and business processes. Hiring bilingual professionals can help mitigate this risk.
– Cultural Differences: Understanding and respecting Thai business culture is essential for smooth operations and effective communication with Thai partners and authorities.
8. Risk Mitigation Strategies
Engage Professional Help
– Legal Assistance: Hire a qualified lawyer with experience in Thai property and corporate law to guide you through the process.
– Financial Advisors: Consult financial advisors to ensure proper financial management and tax compliance.
Conduct Thorough Due Diligence
– Property Verification: Verify the property’s title and legal status thoroughly before purchase.
– Partner Vetting: Carefully vet Thai shareholders and partners to ensure reliability and genuine involvement.
Regular Compliance Checks
– Ongoing Audits: Conduct regular financial and operational audits to ensure compliance with Thai laws and regulations.
– Stay Informed: Keep abreast of changes in Thai property and business laws to ensure ongoing compliance.
By understanding and addressing these concerns, foreigners can better navigate the complexities and risks associated with setting up a Thai company to purchase property in Thailand.
