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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 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 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 favored by foreigners to acquire direct property ownership in Thailand, as they can be hold 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 principal “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 terminate 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 lessor 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 lessee with a Power of Attorney to allow 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 common accepted method to use a Thai Limited company as a vehicle for holding freehold land and all other 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 relative simple procedure and with low setup costs.

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, Thai company, 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 upon 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 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 hold 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 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 hold 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 has 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 upon 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 hold 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 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 3.3% 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

If a condominium freehold title is hold 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 has 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 relates to houses and land controlled through a Thai company. The transfer procedure and tax consequences upon sale of freehold property are different for the three forms of ownership of freehold property. Below is outlined the consequences upon 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 poses 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 hold through a Thai company the taxation depends on whether the land and/or buildings is 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 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 of 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 poses is structures built on land which usually means houses

If a freehold title is hold 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 has 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 3.3% 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, Thai company, 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%.

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