Most people know that Thai law prohibits landed property ownership by foreigners. This means neither plots of land, nor landed houses or villas may be titled in the name of a foreign national.
But the law has not deterred everyone from the pursuit of their dream house, and the most common way foreigners attempt to get around the law is by setting up a Thai limited company.
As a Thai entity, a company is allowed to own the property, and if done properly it perfectly permissible. Unfortunately, the correct boxes are not always ticked, and the foreigner winds up with a potential legal hot potato.
There are no issues with foreigners setting up a company in Thailand; it is done every day, and the government welcomes in the inflow of capital into the country. A foreigner may even be a director, but their share ownership will be limited to 49%.
For a company, especially one with foreign directors, to purchase a property, there a few criteria which must be observed:
it should be a legitimate business, and actually generate income;
it should file audited accounts, pay taxes and abide by Thai company law;
it must hold board meetings and have minutes of those meetings; and
it must have proper Thai shareholders.
The most important thing to understand is that the company is the legal owner of the house/villa – not the foreigner. They may be a director, and they may live in the villa, but they do not own it (more on this point below).
The approach most foreigners take is to establish a Thai limited company with the sole and express purpose of buying a villa. Using Thai nationals as “straw men” (nominee shareholders), who satisfy the 51% Thai shareholding requirement, but with whom the foreigner has zero future relationship.
Such structures run into trouble for two main reasons, both of which are easy for the authorities to verify. First, Thai law does not recognise holding companies, so establishing a company for the sole purpose of buying landed property is against the law. Second, the use of nominee shareholders is illegal.
Thai shareholders should ideally have some interest in the company’s success (e.g. as investors). If ever investigated, the authorities would have no trouble identifying sham shareholders, and this would place not only the foreign director, but also the Thai nationals in legal trouble.
So, let’s assume you’ve ticked all the boxes – legitimate business, generating revenue, filing accounts, paying taxes, board meetings with minutes, proper Thai shareholders – there is still one more thing to be aware of: let’s return to the foreign director living in the company-owned villa.
This is perfectly acceptable, but please be aware that it is both a “benefit in kind” to you and “revenue in kind” to the company. In other words, the villa is a perquisite, and you should be declaring the market value of the rent as taxable income. Furthermore, the company should be paying taxes on the presumed rental income.
Even people trying to do everything correctly often forget this part.
If you have an experienced lawyer in Phuket they can advise you on setting up everything exactly as it should be. Be wary of short cuts. If you do things the right way, you can enjoy a lovely Phuket villa – your own slice of paradise – without the fear of legal repercussions which hangs over those who cut corners.
This article appeared in The Phuket News.