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 Samui Diamond Properties
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Buying Land and Property in Thailand - FAQ
Can a foreign national buy land in Thailand?
The answer straight out is No. Furthermore, they cannot own more than 49% of the shares in a Thai company that owns freehold land. Recent press reports concerned certain parties who tried to find loopholes in this system: loopholes that it is expected will be closed in the future.
Can a foreign national own a building in Thailand?
Yes! A foreign national is allowed to own a building distinct from the land which, coupled together with a renewable registered 30 year lease, is regarded by many as being as good as owning the freehold land itself.
Why should I leasehold land?
If you want to buy a house - buy the house outright, in your own name, then lease the land. This way you do not need to open a Thai company. Please make sure that the lease agreement allows for freehold transfer, if and when the law permits. Leaseholds can be registered at the local land office, to give absolute protection. At present, 30 years is the maximum length for a legally permitted domestic lease and 50 years is the maximum for commercial leaseholds. Renewals are at the discretion of the land owner or his/her heirs. What this method allows is a period of thirty years to await a law change on foreign ownership or, your decision to open a Thai limited company, and take the option of the freehold. It may also be possible to further extend your lease for another 30 years, but this is not guaranteed in Thai law. Registered Leaseholds are safe, uncomplicated and easy to setup.
How can I secure freehold land ownership in Thailand?
You need to set up a Thai company, of which you can own no more than 49%. For those of you who are not comfortable with Leasehold, the Freehold method of ownership means that the Thai company that you control owns the property.
The Land Code of Thailand along with the Foreign Business Act (FBA) prohibits foreign control (voting and management) of a Thai majority owned company that owns land in Thailand. Therefore, it is of paramount importance that a proper legal structure is adopted to retain effective control over a Thai majority owned company whilst at the same time avoiding anti-agency and anti-nominee provisions.
What are the safeguards of owning freehold land, and what are the responsibilities?
As an additional safeguard, you may set up a company to control the freehold land which you, as an individual, then lease. Further, you may also have the company register a mortgage over the land in your favor.
If you choose to purchase your property Freehold you should consult with professionals who will adopt the proper legal structure to protect your interests and who are able to explain the same to you in detail, in your own language or at least in a language that you understand well.
There are legal responsibilities and tax implications with respect to the owning and running of a Thai company.
If choosing the Freehold method of ownership and control you should appraise yourself of these costs, responsibilities and implications by consulting a professional lawyer.
What is the best way of paying for land and property in Thailand?
If you are purchasing property in Thailand and you want to pay in Thai Baht, ensure that your funds are transferred into Thailand in foreign currency and converted to Thai Baht here.
The reason for this is that the receiving bank will issue a Thor Tor 3 Certificate confirming the transaction.
The relevance of the Thor Tor 3 Certificate is that it is one of the documents you will need in the future if you wish to repatriate funds without incurring tax penalties.
Also, please be aware that banks will only issue Thor Tor 3 Certificates for individual inward transfers exceeding 10,000 US$.
Repatriation of investment funds and repayment of overseas borrowing in foreign currency can be remitted freely upon submission of supporting evidence.
One of these documents would be the Thor Tor 3 mentioned above, or in respect of a foreign currency loan, the loan contract. Remittance of funds without proper documentation could be regarded as income and become liable for tax.
Most real estate agents and property developers on Koh Samui prefer to simplify the process by allowing you to purchase your property in foreign currency. Your money is usually transferred directly into one of their offshore accounts. They will setup the freehold or leasehold for you directly on remittance of this money.
When the time comes that you wish to sell your property you simply sell it on in foreign currency.
Which property taxes will I be required to pay in Thailand?
There are two different types of Tax levied on property in Thailand. They are called:
Land Tax
and
Structures Usage Tax.
Land Tax is a very small tax levied on land ownership equivalent to just a few Baht per Rai per year. This amount is so small that the land office rarely bothers to collect it and if they do, they may wait a few years before the amount is worth the effort of collecting. In any commercial sense this tax can be largely discounted.
Structures Usage tax is applicable at the rate of 12.5% on the actual (or assessed) gross rental value of the property. Lessees are not subject to this tax but may be required by the Developer to pay an "annual ground rent" instead.
Which are the official land title deeds in Thailand?
True land title deeds are officially called Nor Sor 4 Jor or more commonly "Chanote" and are issued by the Surat Thani Provincial Land Office. Land held under Chanotes are accurately surveyed and GPS plotted in relation to a national survey grid and marked by unique "numbered" marker posts set in the ground.
When scouting around expect to find many land documents in the form of Nor Sor 3 or Nor Sor 3 Gor which are in the strictest interpretation of the law, certificates of land utilization. They are to all practical purposes equivalent to land title deeds because they allow the land to be sold, leased or mortgaged in the same way as land held under a Chanote Title.
The difference lies in the fact a Nor Sor 3 certificate is less accurately surveyed than the Chanote. Nor Sor 3 boundaries are recorded in relation to its neighboring plots and therefore there may be survey errors in length and land area. The newer Nor Sor 3 Gor is in general a much more accurately surveyed title as each plot is cross referenced to a master survey of the area and a corresponding aerial photograph.
Which land papers should I avoid when buying land in Thailand?
There are a host of "land papers" which we advise all serious investors not to give any credence to. They are in essence a form of claims to possessory rights which have been filed with the district land office and upon which a small tax fee has been paid. The land held under these papers cannot be dealt with by way of sale, lease or mortgage. Legal acts cannot be carried out to the property and most importantly, you cannot apply for and obtain approval to build on the land.
In conclusion we recommend that any foreigner wanting to buy land should consider only those held under a Chanote or Nor Sor 3 Gor. Remember, whenever in doubt, please consult a professional. We are happy to assist you in recommending a lawyer.
Do you have any further questions on buying land and property in Koh Samui, Thailand? Get in touch here:
How do I save on Capital Gains Tax when I sell a property?
When it comes to tax planning, and investment in Thailand’s residential market, an important aspect to consider is how to minimise the tax payable on capital gains when selling your property.
Far too many real estate owners involved in property disposal simply pay the capital gains tax because they are unaware of the provisions in the Thai tax code that allow for exemption.
Since early 2003, the Thai government has been granting a tax break to homeowners and residential condo owners who sell off their property and then purchase another to be used as their primary residence. The tax break ultimately allows the individual tax payer a tax-free property exchange in which he or she walks away with the profits of the sale without owing any capital gains tax to the Thai Revenue Department.
The policy behind this tax-free exchange aims to encourage expansion of the real estate business in Thailand as well as provide tax relief for residential property owners who wish to move on to a new property commensurate with their standard of living. Unlike US Section 1031 tax exchange (like-kind exchange or starker deferred exchange), the tax free exchange under Thai law does not require the use of an intermediary professional.
Pay attention to certain conditions
How a tax fee property exchange is accomplished can be complex as there are a number of conditions the real estate owner should be aware of before committing to any sale-purchase transaction.
First, the seller must live in the existing property as the primary residence and have registered the household in his/her name for a period of at least one year from the date of acquisition. The tax break does not apply to properties held solely for business or investment purposes, where the regular capital gains rule applies.
Second, such sellers must purchase a new property within one year prior to, or one year after, the sale of the existing property. In addition, the new property must be used only for residential purposes.
The amount of exemption is calculated by reference to the official estimated price of the property at the time of sale, which may be lower or higher than the market value, but must not exceed the price of the new property. The types of property that qualify for capital gains tax exemptions are house structures, houses with land, structures with land and residential condos. The exemption does not apply to vacant land.
Therefore with some prudent planning, it is possible to make some gains from the property exchange tax exemption.
Our examples below cover some typical situations that illustrate just how the exemption applies in practice.
Case 1
Mr. Smith, a western expatriate, arrived in Thailand two years ago and has been living in a Bt7m condominium unit he purchased in the Sukhumvit Road area of Bangkok. Immediately after buying the condominium, he managed to register the unit in his name.
Two years have now passed since he first settled in Thailand and Mr. Smith is keen to make a move to a new luxury low-rise condo recently completed in the prime Sathorn-Silom business district.
Taking advantage of the tax-free exchange scheme, Mr. Smith can now sell his Sukhumvit condominium and purchase the new condominium in Sathorn-Silom without the need to pay any personal income tax on the capital gains derived from the sale of his first condo.
Given the official estimated price of the Sukhumvit condo of Bt8m, under the tax break, Mr. Smith can save up to Bt146,000 of his personal income tax liability, which under normal circumstances he would otherwise need to pay in the form of income tax.
Mr. Smith enjoys not only the tax-exemption on his condo sale, but the increase in value of his property, because his Sukhumvit condo is being snapped up for Bt10m – thanks to the strong demand for condos in the Sukhumvit area.
The questions is then raised, whether it is possible or not for a non-permanent resident alien to register his name in the household registration when purchasing a condominium unit in Thailand.
The answer largely depends on the type of immigration visa the person holds and the discretion of the officials of the District Office. Therefore, even for foreigners who do not hold permanent residence in Thailand, it is still possible to register a household in their name.
Case 2
When Mr. Ryan came to Thailand he decided life outside the city suited him better and consequently moved to Pattaya where he purchased a long-stay villa near Mabprachan lake, east of the resort town.
Due to restrictions on foreign ownership of land, Mr. Ryan needed to enter into a land-lease deal offered by a local developer who owns the land, which features a 30-year initial leasehold with the option of renewal for another 30 years. Under this lease agreement, Mr. Ryan has the right to sell the lease for the remaining years of the leasehold whenever he wishes to do so.
Mr. Ryan then went on to hire a contractor to build a Thai-Bali style four-bedroom, two-storey pool-villa complete with a tropical landscaped garden and an automatic gate. Upon obtaining the household registration – a yellow book – Mr. Ryan registered his name in the book, and so he has now been the registered owner for almost 5 years.
One day while strolling along Pattaya beach, a new luxury beach-front condominium caught his eye, and he decided to reserve one unit facing the beach as his future primary residence.
With the help of a real estate broker, Mr. Ryan managed to sell his remaining 25 year leasehold (plus options to renew for another 30 years inclusive of the house) to another expatriate for Bt14m. When the official estimators priced the property at a mere Bt10 Million, Mr. Ryan was told by his tax advisor that he would be required to pay a personal income tax of Bt355,000, unless he opted to follow the tax-free exchange under the Thai Revenue Code – which he promptly did.
Within a year of selling his old property and the leasehold, Mr. Ryan reinvested all the proceeds into the new condo and managed to transfer the ownership of the new condo. All this was done without incurring any tax liability on the capital gains of his property sale.
Making use of this tax-free exchange can lead to some very significant yet lawful tax savings. Of course, careful attention must be paid to all the terms and conditions of these rules. Failure to follow them can result in your tax- free exchange being challenged or even disallowed by the Revenue Department. Your tax advisor should therefore work with you to try and capitalise on the potential gains of this truly beneficial text exemption.
Samui Diamond Properties,
45/37 Moo3
Tambon Maenam,
Koh Samui,
Suratthani,
84330
Thailand
Mobile: 0878954132
info@samuidiamondproperties.com
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