Holt-Realty Newsletter, June 2006 -- Interior Ministry Update #2 of 3

Foreign Property Ownership Edict by Interior Ministry
THE DUST IS CLEARING
By Marc Holt

The dust is settling on the recent announcement by the Interior Ministry. (Thank you to Stefan and Noot for passing on the following announcement from the Phuket Land Office.) The announcement gives us a very good clue for avoiding any problems when registering a Thai company to buy property that includes a foreign investor. Basically, it boils down to this:
When you register a Thai company with a foreigner holding up to 49% of the shareholding, make sure that one of your Thai shareholders is appointed as Managing Director before going to the Land Office. The foreigner can also be a joint MD, and the Land Department will be very comfortable with this and (probably) not see the need to investigate the company.

To ensure that you encourage their comfort level as much as possible, you might want to set up the company like this:

Foreigner shareholding = 39% preferential shares, with voting rights of up to 100 votes per share. Thai shareholding = 61% ordinary shares, with voting rights of 1 vote per share.

You could still implement a loan agreement where the foreigner lends the Thai shareholders the money to buy their shares and they sign the loan agreement over to the foreigner as guarantee on the loan. Again, as long as the Thai MD is being paid a salary, there should be no problem. However, please consult a good property lawyer when setting up your company to ensure everything is done legally.

If you already own a Thai company to own property, then ask your lawyer to change the status of one of your Thai shareholders to make him/her Managing Director immediately if you plan to sell your property in the future. You may have to pay the Thai MD a small 'salary', but this should not present a problem. For example, if you make your gardener, maid, or your wife a shareholder and MD, then the money you give them each month for salary or expenses can be offset as the MD's salary. You can even claim it as a legitimate company expense to the tax department. By making the shareholder an MD now you will be able to establish credible evidence that the Thai has been benefiting from the arrangement and that he/she is not just a 'nominee' shareholder.

Another method that was suggested to me soon after the edict was issued was to register the company with all Thai shareholders at first, and then change the shareholding after the property has been bought. I didn't want to say anything about this method in my last newsletter because I didn't think it was such a good solution. The problem, as I saw it, was that no changes can be made to the shareholding until 28 days after registering a company. So, during that period the Thai directors would own the property that you paid for. Risky, to say the least.

Credenda Associates financial services, can provide MORTGAGES to expatriates looking to buy a Thai property. By using your existing properties overseas as security we can release up to 75% of the equity. We can agree a mortgage in advance of purchase, and guide you up to the point of completion. All our mortgages have multi currency options and are interest-only with no redemption penalties; a bank approved repayment vehicle is used whereby you save regularly to repay the loan at a pre-determined date. Loans may be repaid between 5 to 25 years. Visit our website at www.credendaassociates.com. Or email your enquiry to services@credendaassociates.com

Although the following announcement is from the Phuket land office, I am pretty sure all the other land offices in Samui, Bangkok, Chiang Mai and Pattaya will be doing the same.

Wednesday, June 7, 2006
Land Office moves to allay property bust fears

PHUKET: The Chief of the Phuket Provincial Land Office (PPLO), Supot Suwannachote, has moved to reassure businesspeople that the closer inspection of companies wanting to register land titles, as ordered by the Ministry of Interior, does not mean that transfers of ownership will be refused.

He stressed that he did not want to see a slowdown in Phuket's booming property industry. "If your company is genuinely 51% Thai-owned, then there is no problem."

K. Supot denied that all applications by companies with foreign shareholders are being put on hold, or that applications are being sent to Bangkok for examination.

"The first thing we do is check with the Provincial Business Development Office (BDO) whether the company has been properly set up, with foreigners owning no more than 49%.

"Where the company has a Thai MD [Managing Director] or has both Thai and foreign MDs, there is no problem. But when a Thai-registered company has a foreigner as its Managing Director, we check more carefully. For example, we check with the BDO whether the shareholding has changed so that the foreign share exceeds 49%.

"So far, we have not sent a single case up to Bangkok," he said. Details of some applicant companies with foreign shareholders might be sent to the BDO for further checks, he said, but these checks should not take more than a month to complete. Since the order was issued on May 15, however, no cases have been sent to the BDO for checking.

The PPLO receives between 100 and 120 applications for change of ownership of land every day, he said, though most of these are transfers from one Thai to another or people wanting to register loan or lease agreements.

Since the original uproar over the tightening of checks on land transfers, matters have gone rather quiet in the property community, with concern over the brakes being put on business having, apparently, abated. Stuart Reading, Assistant Vice-President of Finance at Laguna Resorts & Hotels (LRH), said that LRH was not particularly concerned as most of its sales were on a leasehold basis, and thus did not require a change in land ownership.

But, he added, "I'm not aware of any transfers we've done in the past week that have [run into problems]. From what I understood this was mainly aimed at foreign developers. We're a Thai company, so we are legally able to acquire and develop land, because we are a public company."

BDO Chief Veerachai Tantiwathanavallop denied that checks on companies would take a month, as suggested by K. Supot. "It will take only a minute or so," he said. "Just give me the name of the company and its registration number and I can tell you." He confirmed that he had, to date, received no queries from the PPLO.

He noted that when people apply to set up companies, he explains to them that in order to register a Thai company the foreign shareholding must be no more than 49%.

He said that, theoretically, a company could increase its foreign shareholding to more than 49% but that it would then have to be re-registered as a foreign company, which would limit it to just 49 areas of business, all effectively in exports. "I have never had a single application of this nature," he added.

The registration of new companies in Phuket continues apace. A total of 157 new limited-liability companies were registered in May. Of these, 50% were registered to do property business, and of those, 70% had foreign investors

DISCLAIMER: All information and opinions expressed in this newsletter have been be researched as thoroughly as possible. However, the author is not responsible for any actions readers may take after reading this document. Please consult a qualified lawyer to ensure you get the best possible advice.

Talking Frog

Two women were walking through the woods when a frog called out to them and said: "Help me, ladies! I am a real estate agent who, through an evil witch's curse, has been transformed into a frog. If one of you will kiss me, I'll be returned to my former state!"

One woman took out her purse, grabbed the frog, and stuffed it inside her handbag. The other woman, aghast, screamed, "Didn't you hear him? If you kiss him, he'll turn into a real estate agent!"

The second woman replied, "Sure, but these days a talking frog is worth more than a real estate agent!"

IT Services Holt WorldWide for website design, web ready graphics, search engine registration, Web & Business application programming, IT staff recruiting, and web hosting!

 Back to Top of Page