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NEWS - IMPORTANT INFORMATION

CONDOMINIUM FOREIGNER OWNERSHIP IN THAILAND
Foreigners may own an apartment unit in Thailand provided that the current criteria of 49% foreign ownership are not exceeded. However, non-nationals buying a condominium in Thailand must meet all prerequisites for outside proprietorship under Section 19 of the Thailand Condominium Act. Foreign freehold ownership in Thailand states that:

 

Not more than 49% of the total unit floor space in a building can be owned in foreign name, the remaining 51% must be purchased by Thai nominee or juristic persons (i.e. should a condominium development consist of 100 identical units then no more than 49 of those units can be sold in foreign name).

 

When purchasing in a foreign name the buyer must comply with Section 19 of the Condominium Act. This intimates having brought into Thailand foreign currency it must be exchanged at a conversion rate proportionate to the purchase price of the property and having exchanged this entirety into Thai baht inside Thailand.

 

In the case, that the foreign ownership ratio in a development is sold out, the remaining units in the Thai percentage of the building may be provided to foreigners under a leasehold understanding. Other than purchasing a condominium in foreign ownership there are no other regulations pertaining to foreigners leasing a condominium. Leasehold gives the right of use and responsibility for a unit for a set term. Legally the lease of a condominium in Thailand is best portrayed as a conventional tenure, the inhabitant does not get the title to the unit nor would they have the capacity to offer the unit, nor will he have co-proprietorship in the normal scopes of the apartment, nor voting rights in the juristic matters of concern. At the point when the set period in the lease ends the lease can be reestablished by both lessor and lessee or possession of the unit must be given over to the actual owner. A condo lease understanding is as an agreement in accordance with the Section hire of property in the Civil and Commercial Code (see under article 4) and as a hire of property subject to a ‘rental fee’ which is always passed on to the tenant in the lease agreement.

LAND OWNERSHIP IN THAILAND
Foreigners do not have the right to land ownership as it currently stands in Thailand, nonetheless, a non-national may own land not exceeding 1 rai (1600 square meters) in identified zones for private purposes approved by the Board of Investment regulation (Section 96 bis Land Code Act) which stipulates despite the land itself, purchase a 40 million baht venture into Thailand in nominated holdings or government bonds helpful to the Thai economy. On the off chance approved, it is under strict conditions and the land located in designated areas and obliges backing of the Minister of Interior. Additionally, it may not be inherited by heirs, thus confined to the life of the individual and for private use only. In practice, although possibly exceedingly wealthy, this is not really a suitable option. Other than this one exception owning land in Thailand is strictly exempt for foreigners.

Foreign companies with huge ventures benefiting the Thai economy may receive some leniency for land possession conceded under Section 27 of the Investment Promotion Act, Section 44 of the Industrial Estate Authority of Thailand Act or Section 65 of the Petroleum Act. However, only for their duration of business in Thailand. The foreign controlled Thai organization with a dominant part Thai shareholding (in the number of shareholders and rate of shares) is predominantly the primary way open for non-nationals to control their speculation in land in Thailand.

Regardless of the way that land possession by a foreigner (currently standing at 49%) foreign owned Thai companies are not unlawful under Thai land laws, however, it does remain questionable although presently not illegal. The Thai government since 2006 has been seen to clamp down on the abuse of the system. According to Section 93 of the Land Code Act, a non-national who inherits the land by legacy as statutory beneficiary can have proprietorship in such land upon an assent of the Minister of Interior. Note that Section 93 applies for land ownership by foreigners under a settlement (segment 86) and not via inheritance from a Thai life partner. There is currently no regulation in place allowing non-nationals to own land in Thailand, therefore, no foreigner will be given approval by the Minister of Interior. They can inherit the land as a statutory beneficiary, yet cannot register ownership, therefore, must sell the land within one year of receipt.

FOREIGNER MORTGAGE IN THAILAND
Wanting to buy a house or villa in Thailand but need finance? Foreigner mortgage for your holiday home in Thailand.

Property financing for foreigners in Thailand is possible. For buyers with less access to funding, financing is an indispensable vehicle they use to own that dream home. In this instance, Thailand is the same as any other country. Most of the financial institutions in Thailand provide loans for real estate purchases to local Thais and Thai companies based on similar criteria. However, the similarities do end there for most foreigners buying property in Thailand.

Foreigners mortgage properties in Thailand. Mortgage lending by local banks to foreigners was virtually unheard of in Thailand. Nonetheless, in recent years we have seen a slight shift in policies to allow foreigners limited access to financing. This was instigated, in part, by the Thai government’s eagerness to promote tourism and to encourage economic growth in Thailand. This was introduced during the high growth period of the past five years leading to Thailand’s current climate which can now be best described as moribund.

Despite this, the momentum gained from the past few years has meant that some Thai banks do offer financing services to foreigners but impose rather strict terms and conditions on their availability. The most important condition is that the property has to be held in the foreigner’s own name and the property has to be registered as a condominium under the Condominium Act since foreigners are restricted to purchasing only these types of properties in Thailand.

LOCAL LENDING IN THAILAND

Terms of the offer for loans in Thailand are dependent on the policies of the Bank of Thailand for each fiscal term. This also depends largely on each bank’s own business strategies which also vary year by year. Banks in Thailand normally provide personal loans to individuals and this includes credit card facilities, business loans, personal loans for education or medical treatment as well as personal loans for general use such as the purchase of a condominium, renovations, car purchases and so on. These facilities are, subject to each bank’s individual policy, available to foreigners who have lived and worked in Thailand for a number of years.

In order to obtain these personal loans for the purchase of a condominium, certain conditions must be met. First of all, it is important to note that these loans are generally granted on the fair market value of the property and this is usually based on the bank’s own valuation process.

The other important criterion is the qualification of the foreigner. These are set out below in the following:

– At least a 1-year work permit or a Thai resident permit.

– A letter of employment indicating their years of service in Thailand and their annual salary.

– Pay slips will usually be attached to this as well.

– The banks may also request for the employer’s company documents.

– The banks would also conduct credit checks on the foreigner.

– The applicant’s age combined with the loan period must not exceed 60 years.

– Applicants must have a stable and secure job.

– Applicants must have a fixed income three times higher than each instalment repayment.

– The aggregate amortization of loan must exceed 7 years (for some banks).

The applicant may also be required to submit the following documents to the bank upon application.

– Copies of passport including visa page, ID card or government official ID card

– Marriage certificate of the applicant and spouse (if applicable).

– Confirmation of income or salary, and copies of bank statements.

– Copies of land or unit title deeds, sale and purchase contracts.

The interest rates for these types of loan are typically based on the MLR or at a fixed interest rate depending on the bank offer at the time. It is also helpful to note that because these loans are offered locally, the interest rates are usually a bit more competitive and it does pay to shop around first.

EVERYTHING ABOUT PROPERTY IN THAILAND
BUYING COMPLETED PROPERTIES

GENERAL

Buying completed properties can be new properties purchased directly from a builder or developer or properties purchased in the secondary market, which have had previous owners and occupants.

Below will follow some general advice of what to pay attention to when buying completed properties in Thailand.

WHAT TO LOOK OUT FOR

OWNERSHIP STATUS

When buying property in Thailand it is fundamental to know the legal status of the property you are buying, i.e. is the property for sale on a leasehold or freehold basis.

LAND TITLE DEED

It is recommendable for foreigners only to deal with land that is “Chanote” or “Nor Sor Sam Gor” land.

STAND-ALONE PROPERTY OR PART OF A MANAGED DEVELOPMENT

The question of buying a stand-alone property or a property that is part of a managed development typically is only relevant when buying houses.

The main advantage of buying a property within a managed development is that of security, maintenance and upkeep of common areas.

When buying a stand-alone property the main disadvantage is the absence of security and similarly, there is no one at hand for maintenance and upkeep of gardens, pool cleaning etc. This is of particular relevance if the house is a secondary/holiday residence.

PAYING FOR YOUR PROPERTY

Due to the currency exchange controls in Thailand and the requirements related to the purchase of property by foreigners some specific procedures for remitting money to pay for the property needs to be followed. To follow the specific requirements outlined below is highly important as it influences the ability to transfer money out of Thailand upon resale.

Foreigners which are not residents in Thailand need to bring foreign funds into Thailand by either transferring into a bank account in Thailand or use a foreign credit card to withdraw money in Thailand. When transferring foreign currency into Thailand it is important to state the purpose of the transfer “to purchase property in Thailand”.

When foreign currency is remitted to Thailand for the purchase of property, the primary evidential document is the “Foreign Exchange Transaction Certificate” which is issued by the receiving bank for transfers exceeding 50,000 USD.

For further information please call or email us.

BUYING OFF-PLAN PROPERTY GENERAL

Off-plan property is a property that has yet to be built as opposed to buying a completed property. This basically means buying a promise of a property. It is common for property developers to commence construction of a project and still refer to the property as off-plan.

Off-plan property can consist of both condominium and house developments. However, the condominium market is by far the biggest in the Pattaya region at the time being. For this reason, the information below relates to buying an off-plan condominium unit.

BENEFITS OF BUYING OFF-PLAN PROPERTY

The principal benefit of purchasing an off-plan condominium unit is that you get a brand new condo just by signing a contract and without further involvement in the construction process.

Another benefit is that off-plan condos typically are sold at a discounted price to the market value of already completed condominium units. It is common practice that property developers increase the price of the units during the construction period.

The initial capital required to secure an off-plan condo is relatively low. Even that the payment plans vary from developer to developer it is standard to only pay a reservation fee and a small deposit upon contract signing. The remaining payments become due according to the construction stages. The optimal payment plans have the largest amount due upon completion.

RISK OF BUYING OFF-PLAN PROPERTY

All forms of investments come with a certain degree of market risk. The primary risks described below as well as tools to mitigate these risks.

Market risk is the risk of market prices are going to fall. The primary driving force of the property prices in the resort areas of Thailand are related to foreigners and the development in the global economy. Though Thais has been increasing there investments in the resort areas, especially in the Pattaya area.

When buying an off-plan property the basic risk stems from the fact that, due to the nature of off-plan, that you enter into a contract without having been able to view and evaluate the finished product. The decision to buy an off-plan property is often based on advertised perspectives in magazines and on the internet. According to the Condominium Act property developers are obligated not to misrepresent the condominium, wherefore the Condominium Act offer purchasers of an off-plan condominium unit some consumer protection.

However, the main risk of buying off-plan property lies in the risk of non-completion. Non-completion covers the situation where the developer is not able to complete the property due to inadequate capitalization of the developer. The risk of non-completion is to some degree present for all off-plan investments regardless of the size of the developer. However, the risk of non-completion is much lower for larger enterprises with a solid track record than for a first-time developer.

As mentioned the risk of non-completion relates to inadequate capitalization of the developer. From the view of the property developer selling an off-plan property before construction has commenced is a way to finance the construction. This means that the capital requirement for the developer is significantly reduced. Further, they will often be able to present the sale record to a bank to borrow money. In fact, many developers advertise that a project is “backed” by commercial banks. When buying into an off-plan property in Thailand it is also worth considering the currency exchange rate risk.

When buying off-plan property the first payment is paid when making the reservation and the last payment when the construction is completed. The construction period for condominiums often takes 2-3 years. In this period the exchange rates can fluctuate a lot and can affect the final purchase price in Thai Bath.

MITIGATING RISKS

Above has the main risks of buying off-plan properties in Thailand been outlined. Below follows a description of how the risks can be mitigated. Summarized the risks are:

• Market risk

• Completed property differ from expectations

• Risk of non-completion

• Currency exchange rate risk

MARKET RISK

Ideally, everyone wants to invest when the property prices are expected to rise. In reality, it is impossible to predict the future price development with a high degree of certainty. When considering the market risk it is important to keep in mind that people investing in resort areas mainly buy properties as a second home, vacation property or rental property. Baring in mind that most investors are foreigners the markets depends to a large degree on the development in the global economy rather than the Thai economy.

COMPLETED PROPERTY DIFFER FROM EXPECTATIONS

As mentioned above the developers of the condominium are bind by the Condominium Act to deliver the promises made in marketing materials. However, it is often worth the time of paying attention to material specifications to make sure that the quality will live up to the expectations. The level of material specifications differs from developer to developer. High-end developers will usually emphasise the quality of the materials. It might also be worth the time viewing a developer’s other projects to assess the quality.

RISK OF NON-COMPLETION

The risk of non-completion is the most significant risk with the highest economic impact. Non-completion can be due to multiple reasons such as; inadequate capital, poor financial planning, poor management, failed compliance with building regulations and insufficient sales.

Therefore it is recommendable to perform due diligence of the developer and the project before signing the purchase contract. A thorough due diligence includes an assessment of; the developers’ financial position, reservations and sales statistics, the track record of completed projects in Thailand, the developers’ advisors, land titles and ownership structures.

EXCHANGE RATE RISK

As currencies fluctuate on a daily basis the risk is that the currency in which you hold money weakens against the Thai Bath during the construction period. The simplest way to avoid the risk is by transferring the full amount to a Thai bank account. Further, all banks offer financial instruments to “lock” an exchange rate.

PAYING FOR YOUR PROPERTY

Due to the currency exchange controls in Thailand and the requirements related to the purchase of property by foreigners some specific procedures for remitting money to pay for the property needs to be followed. To follow the specific requirements outlined below is highly important as it influences the ability to transfer money out of Thailand upon resale.

Foreigners which are not residents in Thailand need to bring funds into Thailand by either transferring funds into a bank account in Thailand or use a foreign credit card to withdraw money in Thailand. When transferring foreign currency into Thailand it is important to state the purpose of the transfer “to purchase property in Thailand”.

When foreign currency is remitted to Thailand for the purchase of property, the primary evidential document is the “Foreign Exchange Transaction Certificate” which is issued by the receiving bank for transfers exceeding 50,000 USD.

For further information please call or email us.

LEGAL MATTERS – OWNERSHIP

OWNERSHIP STRUCTURES

GENERAL

It is often heard from foreigners in Thailand that Thai property law is complicated but in reality, Thai property law is quite clear in regards to foreign ownership. Foreigners can own “freehold condominiums”, buildings and structures (such as houses). Foreigners cannot own land but can take leases on land.

Where things get complicated is in understanding the different methods and legal structures used by lawyers to get around the strict foreign ownership regulation. Beneath will follow a description of the different methods employed to get around the foreign ownership regulation, but let us first get the general terminology defined:

• “Freehold” – Freehold is the ultimate ownership interest that can be held in property and represents absolute ownership.

• “Condominium” – A condominium is a building that is divided into units where each unit represents a condominium unit. Ownership of a condominium unit gives a co-ownership of the common property (condominium). It is in this way that the expressions “condo” and “apartment” differs in Thailand. When referring to an apartment in Thailand it generally means that there is no co-ownership of the common property.

• “Condominium freehold” – Condominium freehold is an expression used to refer to the 49% of a condominium building that can be owned in the foreign name.

• “Leasehold” – Leasehold is an interest in land or any type of property but where the ownership is not transferred.

LEGAL PROPERTY OWNERSHIP

CONDOMINIUM FREEHOLD

Buying a condominium freehold unit is the easiest and most favoured by foreigners to acquire direct property ownership in Thailand, as they can be held directly in foreign name and the process of buying is clear and straightforward.

A condominium is regulated by the Condominium Act and according to the Condominium Act, 49% of the registrable area of a condominium can be allocated to foreign purchasers.

FREEHOLD

Thai property law does not allow for foreign individuals or foreign companies to own freehold interest in land, except for a few exceptions which will not be described here as they are not relevant for the usual investors in Thai property. Foreigners can get indirect ownership of the land through a Thai company or through leasehold ownership. These two forms of ownership are described below.

Foreign individuals and foreign companies can hold freehold ownership of condominium units, as described under Condominium freehold and building and structures on land, such as houses.

LEASEHOLD

A leasehold agreement is a legal interest that can be registered as a lien on the property title deed and secures an exclusive possession and use right. There is no restrictions on the foreign ownership of a lease hence it is possible for foreigners to register the lease directly in a personal name, or in the name of a Thai or foreign company.

The Land Department in Thailand currently only allows leases with a maximum period of 30 years to be registered. However, they do allow for private agreements to contain renewal options for another 30 + 30 years so it, in fact, becomes a “90-year lease”.

The renewal clauses are governed by the legal principle “privity of contract” and hence only binding for the parties who signed the contract. This could raise a potential problem if the freehold land is sold or transferred and the Supreme Court of Thailand has ruled that only the legally registered leases will transfer and follow the title deed to the new owner.

Due to the potential problems that can arise if the freehold land is sold or transferred it is important to create a protective leasehold structure.

Further, it should be noted that lease contracts are personal in nature, which means the contract terminates upon the death of a lessee. Therefore it is important to include a succession clause stipulating that lessee’s rights and obligations will be assigned to the lessee’s heirs.

LEASEHOLD WITH OPTION TO PURCHASE THE FREEHOLD LAND

Due to the fact that only the first 30-year lease of the 30+30+30 year leasehold structure is registrable on the title deed a leasehold agreement with an option to purchase the freehold provides the purchaser with a greater security and control over the freehold land.

With a clause to purchase/transfer the freehold land the purchaser has the ability to control who becomes lesser and therefore will be able to transfer the freehold land to himself should the Thai ownership regulation change in the future or to any entity over which he has control.

In practice upon entering into the leasehold agreement the lessor hands over the title deed to the lessee and provides the lessee with a Power of Attorney to allow the lessee to transfer the freehold land ownership to any entity designated by the lessee at any time.

THAI LIMITED COMPANIES

As Thai law does not allow foreigners to own a direct freehold interest in land it has been a commonly accepted method to use a Thai Limited company as a vehicle for holding freehold land and all another kind of properties in Thailand. The reason why this is possible is that a Thai Limited company commands the same legal rights as a Thai citizen.

However, it is not possible for foreigners to hold more than 49% of the registered capital of a Thai limited company and there must be more Thai shareholders than foreign shareholders. Therefore it is important to understand the crucial difference between ownership and control.

The Thai shareholders will own the majority of the registered capital (51%) but the foreigner will control the company through voting rights. Technically this is done by dividing the company’s share capital into two different classes which each has different voting rights and where the foreigner holds the preference shares. By doing this it is possible to get 100% control over the company.

By having 100% control over the company also means that the controlling shares have superior rights in relation to dividends and distribution upon liquidation of the company.

The setup procedure of a Thai Limited company is a relatively simple procedure and with low setup costs.

LEGAL MATTERS – TAXATION

GENERAL

It is the fewest people that consider taxation upon sale when investing in property in Thailand. However, while Thailand doesn’t technically have a tax on “capital gains” it is taxed like any other form of income. Depending on the ownership structure capital gains are taxed through personal or corporate income taxes.

Therefore, as some ownership structures are more tax efficient than others upon sale you risk giving up a significant part of any capital gains in taxes. It is advisable to ensure professional advice already at the acquisition stage.

In the following is described the taxation upon sale which is based on the interplay between legal ownership (leasehold, freehold, condominium freehold) and the ownership structure (personal name, a Thai company, a foreign company).

TAXES UPON SALE OF LEASEHOLD PROPERTY

The transfer procedure and tax consequences upon sale are different for the three primary forms of leasehold ownership. Below is outlined the consequences of sale for the ownership forms; personal name, Thai company and foreign company.

PERSONAL NAME

A lease is considered sold/transferred when the lease is registered in the name of the new owner. Upon transfer of ownership the land office will collect 1% in the registration fee and 0.1% in stamp duty. The fees are calculated based on the appraised value and not the sale price. The appraised value is a government assessed value which is used to determine the tax amount that must be paid. The appraised value is often lower than the actual sale price.

Any capital gains based on the government assessed value is subject to personal income tax, which currently is taxed at a rate ranging from 0% – 37%. A standard deduction for expenses is allowed against the appraised value with a maximum of 50% for ownership of 8 years more.

THAI COMPANY

If a lease is held through a Thai company the taxation depends on whether the lease is sold by selling the property out of the company or the shares in the company holding the lease is sold.

If the lease is sold by transferring the controlling shares to the purchaser the transfer fees are limited to 0.1% stamp duty. However, the seller of the shares is subject to personal income tax at a rate ranging from 0% – 37%.

If the lease is sold out of the company the transfer fees applicable to the lease will apply. This means 0.1% stamp duty and 1% registration fee has to be paid at the land office. Since the seller is the company any capital gains will be subject to corporate income tax, which is taxed at a rate ranging from 0% – 20%

FOREIGN COMPANY

If a lease is held through a foreign company the taxation depends, as for a Thai company, on whether the lease is sold by selling the property out of the company or the shares in the company holding the lease is sold.

If the lease is sold by transferring the controlling shares to purchaser no taxable events have taken in place in Thailand.

If the lease is sold out of the foreign company a taxable event has taken place in Thailand which means 0.1% stamp duty and 1% registration fee has to be paid at the land office. Further, the foreign company is subject to 15% withholding tax.

TAXATION UPON SALE OF CONDOMINIUM FREEHOLD

The transfer procedure and tax consequences upon sale are different for the three forms of ownership of “condominium freehold”. Below is outlined the consequences of sale for the ownership forms; personal name, Thai company and foreign company.

PERSONAL NAME

When a condominium freehold title has been transferred to a new owner a 2% registration fee will be collected by the land office. Further either a Specific Business Tax of 3.3% or stamp duty of 0.5% is payable. The Specific Business Tax is payable if the “condominium freehold” has been transferred within the last 5 years and stamp duty is payable if it has not been transferred within the last 5 years and if the property has been used as the sellers residential home. Specific Business Tax is an assessment tax calculated over the registered sale value or the government appraised value of the property, whichever is higher.

In addition, any capital gain based on the government assessed value is subject to personal income tax, which currently is taxed at a rate ranging from 0% – 37%. A standard deduction for expenses is allowed against the appraised value with a maximum of 50% for ownership of 8 years more.

THAI COMPANY

If a condominium freehold title is held through a Thai company the taxation depends on whether it is sold by selling the property out of the company or the shares in the company holding the condominium freehold title is sold.

If the condominium freehold title is sold by transferring the controlling shares to the purchaser the transfer fees are limited to 0.1% stamp duty. However, the seller of the shares is subject to personal income tax at a rate ranging from 0% – 37%.

If the condominium freehold title is sold out of the company the transaction fees applicable to the condominium freehold will apply. This attracts a 2% transfer registration fee, 1% withholding tax (as the seller is a company) and 3.8% Specific Business Tax. In addition, the Thai company will be subject to corporate income tax on capital gains, which is taxed at a rate ranging from 0% – 20%

FOREIGN COMPANY

If a condominium freehold title is held through a foreign company the taxation depends, as for a Thai company, on whether the condominium freehold title is sold by selling the property out of the company or the shares in the company holding the condominium freehold title is sold.

If the condominium freehold title is sold by transferring the controlling shares to purchaser no taxable events have taken in place in Thailand.

If the condominium freehold title is sold out of the foreign company a taxable event has taken place in Thailand which attracts a 2% transfer registration fee, 1% withholding tax (as the seller is a company) and 3.3% Specific Business Tax. Further, the foreign company is subject to 15% withholding tax.

TAXATION UPON SALE OF FREEHOLD PROPERTY

With regards to foreigners, the most common forms of freehold relate to houses and land controlled through a Thai company. The transfer procedure and tax consequences upon a sale of freehold property are different for the three forms of ownership of freehold property. Below is outlined the consequences of sale for the ownership forms; personal name, Thai company and foreign company.

PERSONAL NAME

As Thai law contains no provisions for foreigners to own freehold land, the only freehold property, with the exception of “condominium freehold” that foreigners can pose is structures built on land which usually means houses.

When a freehold title has been transferred to a new owner a 2% registration fee will be collected by the land office. Further either a Specific Business Tax of 3.3% or stamp duty of 0.5% is payable. The Specific Business Tax is payable if the “condominium freehold” has been transferred within the last 5 years and stamp duty is payable if it has not been transferred within the last 5 years and if the property has been used as the sellers residential home. Specific Business Tax is an assessment tax calculated over the registered sale value or the government appraised value of the property, whichever is higher.

In addition, any capital gain based on the government assessed value is subject to personal income tax, which currently is taxed at a rate ranging from 0% – 37%. A standard deduction for expenses is allowed against the appraised value with a maximum of 50% for ownership of 8 years more.

THAI COMPANY

If a freehold title is held through a Thai company the taxation depends on whether the land and/or buildings are sold by selling the property out of the company or the shares in the company holding the freehold title is sold.

If the property is sold by transferring the controlling shares to a purchaser the transfer fees are limited to 0.1% stamp duty. However, the seller of the shares is subject to personal income tax at a rate ranging from 0% – 37%.

If the property is sold out of the company the transaction fees applicable to the freehold property will apply. This attracts a 2% transfer registration fee, 1% withholding tax (as the seller is a company) and 3.3% Specific Business Tax. In addition, the Thai company will be subject to corporate income tax on capital gains, which is taxed at a rate ranging from 0% – 20%

FOREIGN COMPANY

As Thai law contains no provisions for foreign companies to own freehold land, the only freehold property, with the exception of “condominium freehold” that foreign companies can pose is structures built on land which usually means houses.

If a freehold title is held through a foreign company the taxation depends, as for a Thai company, on whether the freehold title is sold by selling the property out of the company or the shares in the company holding the freehold title is sold.

If the freehold title is sold by transferring the controlling shares to purchaser no taxable events have taken in place in Thailand.

If the freehold title is sold out of the foreign company a taxable event has taken place in Thailand which attracts a 2% transfer registration fee, 1% withholding tax (as the seller is a company) and 3.8% Specific Business Tax. Further, the foreign company is subject to 15% withholding tax.

TAXES ON RENTAL INCOME

Rental income from property situated in Thailand is taxable income, but the level of taxes payable depends on the property ownership structures. Below is outlined the tax implications for the different ownership forms; personal name, a Thai company, a foreign company.

PERSONAL NAME

All rental income is taxable, regardless of nationality, residence status or whether rent is received within or outside of Thailand. The net rental income is subject to personal income tax at a rate ranging from 0% – 37%. Property owners are permitted a standard 30% deduction for expenses against rental income or claiming actual expenses incurred.

If a property is rented out to a company a 5% withholding tax shall be deducted from the rental receipts. There is no withholding tax if the property is rented to a person.

THAI COMPANY

All rental income is taxable and the rental income is subject to corporate income tax at a rate ranging from 0% – 20%.

If the property is rented out to another company a 5% withholding shall be deducted from the rental receipts. There is no withholding tax if the property is rented to a person.

FOREIGN COMPANY

Whether the rental income is taxable in Thailand depends on whether the company is carrying out business in Thailand. A foreign company is carrying out business in Thailand if the foreign company has an employee, a representative or go-between to manage the property in Thailand.

If a foreign company is not carrying out business in Thailand the tax payable is 15% of the gross income. If the company is carrying out business in Thailand the foreign company is subject to corporate income tax of a rate ranging from 0% – 20%.

TITLE DEEDS

GENERAL

Knowledge of title deeds and land ownership laws is fundamental when buying property in Thailand. Land titles are the most common evidence to prove land ownership, rights of possession and other interest in land. Land titles only serve as evidence for the rights to the land and do not serve as evidence of ownership of the structures and buildings on the land. Foreigners can be registered as the holder of certain rights such as lease, usufruct, superficies etc., i.e. foreigners can control buildings and structures on the land (houses).

In Thailand, there are various forms of land titles where the most common in the Pattaya area is the “Chanote” Below is outlined the different forms of land titles.

CHANOTE

A Chanote land title is the most secure land title you can hold in Thailand. Land with a Chanote that has been accurately surveyed using the global positioning system (GPS) to set the area and boundaries of the land and plot them against the national land survey grid.

Nor Sor Saam Gor

A Nor Sor Sam Gor land title is the second most secure land title you can hold in Thailand and is known as a “Confirmed Certificate of Use”. This type of land has been plotted against the national survey grid but has not been surveyed using the global positioning system (GPS). There are no restrictions on this type of land at the title deed may be sold, leased and used as mortgage collateral.

NOR SOR SAAM

A Nor Sor Saam land title is the third most secure land title you can hold in Thailand. This title deed is basically the same as Nor Sor Saam Gor, but the land borders must be confirmed with neighbouring plots. Nor Sor Saam titles do therefore not provide a clear-cut ownership right. The land title can be leased and used as mortgage collateral, however, if sold it is subject to a 30-day public notice period to allow anyone to contest it.

OTHER LAND TITLES Aside from the three most secure land title deeds described above there are various other land titles existing in Thailand. Each of these confers various rights associated with the land. These types of title deeds can potentially be upgraded; however, most of these do not give the owner a right to build, or a right to apply for planning permission to build. To avoid unnecessary risks it is recommended only to deal with the three most secure land titles, i.e. Chanote, Nor Sor Saam Gor and Nor Sor Saam. Especially when dealing with Nor Sor Saam land it is advisable that any transaction is undertaken under the supervision of a lawyer.

LAND MEASUREMENT

Around the world land area is generally measured in acres, hectares or square meters. While square meters are used to measure floor areas of houses and condos in Thailand, the unit used for measurement of land is “Rai”. The converting of the Thai measurement units is outlined below:

• 1 Rai = 1,600 Square Meters (or 4 Ngan)

• 1 Ngan = 400 Square Meters (or 100 Wah)

• 1 Wah = 4 Square Meters

• 1 Rai = 0.395 Acre

• 2.53 Rai = 1 Acre

• 1 Rai = 0.16 Hectare

• 6.25 Rai = 1 Hectares

• 1 Rai = 17,107 Square Feet

• 1 Ngan = 4,277 Square Feet

• 1 Wah = 42.7 Square Feet

CURRENT MARKET SITUATION

Up until about 4 years ago, the property market in Pattaya and on the Eastern Seaboard was booming. It has since then slowed down considerably due to first political turmoil and later the military coup which has hold foreign investors that is new to Thailand back from investing. During the booming years, the major investors were Russians but the Russian ruble dropped from July 2014 to January 2015 with more than 60% against the Thai baht which has further increased the crisis. Since January 2015 the Russian ruble has recovered some but is still far from the July 2014 level.

Because of this many investors have found themselves in a situation where they cannot pay for their condo investments and in many cases are willing to sell at pre-launch prices or in some cases even below prelaunch prices. This means that it is possible to purchase condos with up to 30% savings compared to developers selling prices.

The Russian investors have mainly invested in the low and middle-end market while the high end of the market generally is unaffected of both the political situation and the Russian currency drop as these projects are in prime locations and also attracts affluent Thais.

OUTLOOK

We expect the market to recover to the level as off four years ago within 1-2 years. We are now experiencing increased interest and investments from Chinese and Indian property investors. Thailand has already seen a boom in tourists from China. This is expected to continue as well as with investments into the property market.

Thailand, Bangkok and Pattaya as the nearest resort destination from Bangkok, is expected to be a hub within the Eastern Economy Corridor (EEC).

The rental return in the Pattaya area is about 7.5% but it is possible to achieve about 10% on carefully selected properties. Combined with a total market recovery within 3-4 years the Pattaya area should be very attractive for smart investors.

Despite the current situation on the property market, Pattaya will remain a highly visited holiday destination due to its many offers.

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