BUYING & OWNING PROPERTY IN THAILAND
Buyers Guide for Property Investment in Thailand
Buying property in Thailand is safe and easy as the applicable laws are quite clear and well settled. However, a property purchaser should always conduct a due diligence on the property prior to entering into contractually binding agreements in order to safeguard and protect his or her interests.
Such due diligence should be provided by a professional legal advisor. We can introduce you to reliable and professional local or international law firms possessing solid backgrounds and experience in this specific field. Your legal advisor will help you to understand the different ownership structures, and will undertake all the necessary acts required to make your property purchase sound, solid and fully legal. Your legal advisor will undertake the necessary due diligence on the property to assure that it is safe and appropriate for purchase; he will draft or review the required legal documents needed to facilitate the transaction and registration of the property being purchased which will allow you to buy with peace of mind.
Whenever a person considers purchasing property in Thailand, an understanding of the basic legal principles in this regard is advised. Also, a basic knowledge of the individual ownership structure underlying the target property should be acquired. Your real estate agency in cooperation with your lawyer can provide you with the essential knowledge crucial to ensure the chosen property fits the your interests and is a safe, sound purchase under the law.
I. Ownership Structures
Freehold ownership is the most comprehensive and complete interest in property that a person can possess. Freehold ownership allows the owner full ownership rights to the property to the extent permitted by law. This is similar to the full ownership rights a foreigner would have if he were to buy and own property in his own home country. However, the first thing all foreigners must understand is that foreign buyers, with limited exceptions, cannot acquire freehold interests in land in Thailand. Nevertheless, several ownership structures have been developed and exist in Thailand which fully allows foreign buyers to purchase property in Thailand whether for residence or investment. A summary of these property structures follows:
1) Condominium Unit
A Condominium is a building that is comprised of separate and distinct units which are sold to individuals or entities as freehold. Each purchaser of a Condominium unit owns their respective unit freehold, and has a right to share, in common with the other purchasers of units in the Condominium building, the common areas of the Condominium including walkways, elevators, gardens, swimming pools, and clubhouse.
A Condominium Unit purchase is the most common and straightforward way to acquire property in Thailand and is relatively simple to complete. Currently, under the law, foreign buyers are allowed to purchase freehold up to 49% of the total area of units available in any particular Condominium building (with some specific exceptions), the remaining 51% of the units must be owned by Thai nationals or Thai companies. A purchase of a Condominium unit is generally paid for by remittance of the purchase price in foreign currency into the Thai Baht account of the seller in Thailand, and the submittal of relevant documentation evidencing such international money transfer to the Land Department on the day of registration of title transfer into the buyer's name.
Upon completion of the Condominium and registration of the project as such with the relevant authorities, every single buyer will receive a title deed evidencing his freehold title to his Unit.
Even though the foreign freehold quote of 49% may have been sold out in a particular Condominium building, a Unit forming part of the 51% Thai quota may be acquired by a foreigner through a long-term leasehold structure similar to an Apartment lease as described below, or through the incorporation of a Thai company by the foreigner which can itself purchase the particular Unit. In regard to use of such Thai company, it must be considered that this requires strict compliance with the applicable laws (same as under other jurisdictions) including but not limited to accounting, tax and legal regulations. Your legal advisor can explain this option more fully.
2) Apartment Lease
Another viable option for foreigners for property purchase in Thailand is an Apartment lease. Such leases are generally issued on a long term basis comprised of a 30 year lease period and two additional rights to renew for 30 years each. This provides a total of 90 years right to the Unit. Under the current laws of Thailand a lease may have a maximum of 30 years term and legally be registered with the relevant authorities. Therefore renew options giving additional 30 years plus eventual further extension(s) of term are offered and widely used in Thailand. Sophisticated developers have sweetened the deal and have implemented legal structures which allow Apartment lessees to acquire share interest in the land itself and to the company that owns the Apartment building. Under these structures, the holder of an Apartment lease together with the other lessees in the project, are in effect joint-lessors of themselves who can participate in the management of the Apartment building and assure renewal of the lease terms for additional 30 year periods upon expiration of the first term. For further information on the particulars of leases in Thailand please see below.
As mentioned above, with limited exceptions, foreign buyers cannot acquire freehold interest in land in Thailand. However, the Thai government has brought laws into effect that allows also foreign nationals or entities to acquire freehold title to land under certain conditions and restrictions. Additionally, land can be purchased under the name of a Thai company having foreign shareholders and/or directors, provided that the applicable laws in this context have been strictly followed. Such land purchase through the use of a Thai company should be discussed with your legal advisor and may only be recommendable under certain conditions.
Freehold restrictions aside, a foreigner may acquire an interest in land through a lease, whereby such leases basically follow the same rules as the Apartment leases described above: maximum period of 30 years with renew options giving a total right of 90 years to the plot. Additionally, a purchase option can be agreed between the landowner and the lessee providing that the lessee shall have a right to demand title transfer upon change of the applicable laws allowing foreign national to hold freehold title to land.
Furthermore, a foreigner has the right to enter into a Pre-Purchase agreement for land in which stipulations are inserted under which the foreign buyer has the right to transfer or sell his contractual rights of this agreement to third parties at any time until the registration date of ownership transfer to the property into the name of the buyer or his appointee. This option allows a foreigner a contractual right to purchase land, but into the name of a third party designee to be identified later.
4) Villa or House
It's important to know that full ownerships rights to buildings can always be acquired by foreign buyers, although not to the land itself. This separation of ownership of building from the land is contrary to the methods of most of the western jurisdictions. However, in Thailand, the purchase of a long term lease of land (including purchase option) in combination with full ownership of the Villa or building sited upon it has been established as a popular ownership structure for foreign property investors in Thailand.II. Land titles A title search should be completed by your legal advisors prior to purchase of any interest in land. Such title search can be supported by a title search report which will identify whether the land has been encumbered by lien or mortgage, and to show if access to the land is secured. For a full description of the types of land titles in Thailand please see below.
Every property investment must be checked thoroughly in regard to its suitability and capability for a potential re-sale. Therefore, a long term lease subject to rental advance payments should be examined regarding the following points:
· Lessee friendly termination clauses;
· Unrestricted assignment and transfer rights for lessee;
· Protected right of renewals;
· Protected inheritance of lease rights;
· Secured access and use of common areas (if applicable)
· Proper building permit
The highest attention should be paid to the correct application and submission of Foreign Exchange Transaction For(FET) issued by the receiving bank upon remittance of foreign currency into a Thai Baht bank account in Thailand. At a minimum the FET should clearly designate the purpose of the transfer of funds into Thailand (e.g. Condominium Unit purchase, land and/or house lease and house purchase) and the name of the transferor/buyer. Such FET must be provided to the authorities in the event of Condominium Unit purchase, land and/or house lease and house purchase, and the FET can also be used as evidence as to the original source of monies to be later repatriated out of Thailand in case of re-sale, or as evidence for actual payment of the purchase price if any kind of interest shall be registered against the property with the relevant authorities. Additionally, all taxes and regulatory requirements should be considered to ensure that all funds occurring from a re-sale could be taken out of Thailand and transferred back to country of origin.
IV. Legal Documentation
Normally the real estate agent will introduce a buyer to his seller who will ask for the execution of a Reservation Agreement to secure the property. The main purpose of such Reservation Agreement is to reserve the chosen property for a certain period of time, usually 30 days upon signing, and the buyer giving commitment to the sale. Therefore, under such Agreements, payment of a reasonable monetary deposit is usually requested. Subject to the parties negotiations, such deposit can be refundable in the event the rendered due diligence has a negative outcome or the seller cannot provide reasonable main agreements to be entered into by the parties within the reservation period.
Upon signing of the Reservation Agreement, your legal advisor will be provided with the main agreements as well as other important documentation i.e. building permit, master plan, licenses if applicable or company documents of involved corporate bodies.
The provided legal documentation should be reviewed by the buyer and its legal advisor within the reservation period, and due diligence shall ideally be completed prior to the expiration of the reservation period. However, a seller should not object to reasonable extension of the reservation provided that issues have occurred which justify such extension and the delay has not been caused by the buyer.
V. Taxes and Fees
Property transactions in Thailand may be subject to payment of certain taxes and fees, however, the individual responsible for these taxes and fees is subject to negotiations between buyer and seller.
Registration of transfer of ownership rights to buildings, land, and Condominium Units may be subject to several taxes (i.e. income tax, withholding tax, specific business tax) and transfer fees as well as stamp duties, whereby the detailed amounts can be verified prior to closing with the relevant authorities by your legal advisor. Registration of lease interest or mortgage against land is also subject to registration fees.
Also note that property ownership itself as well as the income generated therefrom i.e. rental proceeds may be subject to annual and ongoing taxes and fees payable to the authorities. Your legal and/or tax advisor will also assist you in this matter.
Whenever purchasing property under a foreign jurisdiction, the same basic commercial and legal principles that apply to every reasonable property investment anywhere in the world should be considered, i.e. a comprehensive due diligence completed and a broad market analysis undertaken, fair and balanced contracts, and the consummation of a successful transaction and a promising investment assured.
Further Information Regarding Leases
Pursuant to the Civil & Business Code of Thailand a maximum of 30 years (50 years on commercial property) lease can be registered at the land-registration office. The law states, that every contract with more than 3 years lease has to be registered, otherwise this contract is just valid for 3 years. The registration means, that on the actual land-title (on the backside) the contract with the leasehold interest and identification of the Lessee will be inscribed and noted.
A contract may have the provisions extending this contract for another 30 years as an option with additional payment. Provisions contained within the Lease contract that promise an additional 30 years extension(s) is a common feature in many lease contracts in Thailand.. Each extension of the lease term beyond the initial 30 year term would need to be registered at the land-registration office by issuing a new 30 year (or maximum allowed by Law at that time) contract agreement. Each time a Lease is registered, fees and taxes of about 1.1 % (currently) will have to be paid plus service charges.
Each registered Lease Agreement (30 Years) is binding against any third party who purchases or makes a claim on the land. However, a Land lease including Land and building lease, cannot be passed on to the hires of the Lessee. But, this could be written as an option to take the lease on for a minimal fee.
The extension though is not binding to the hires of the Lessor or any third party.
The risk on a 30 years lease with extensions is that after 30 years, in the case the Lessor dies, is bankrupt, has any court order against his assets or problems with the Revenue Department, the Lessee might not be able to get the extension.
Land Titles and Related Documentation
The following is a brief description of the types of land titles in use for property in Thailand and/or land title documentation that is currently in use in Thailand:
Sor Kor 1
Sor Kor 1 is not a land title per se, rather it is a notification form for possessed land. The occupier or party in possession of land files with the relevant governmental authority a notice that he is in occupancy of the land and that he possesses superior rights to the land as against any other persons. This is a certificate to claim the right to the land, and this maintains existing rights of the occupier (if any). Notification of Sor. Kor 1; on December 1st 1954, the government advised all occupants of land to notify such possession to the government as per form Sor. Kor 1. After it was proven that such an occupant had possessed the land legally and used the benefit of the land, then the government would issue document "Nor. Sor 3" or "Nor. Sor. 3 Gor" as evidence. Nor. Sor 3 and Nor. Sor. 3 Gor are legal certificates providing that any name shown on the title is a person who has the right to the land (according to the principle law). This right will be recognized by the law and can be used as evidence in any dispute with an ordinary person or the government.
Por. Bor. Tor 6
Por. Bor. Tor 6 is a document issued by the relevant government authority evidencing the issuance of a tax number to a parcel of land for the purpose of tax identification and to facilitate the payment of tax imposed for the use and benefit of the land. The person's right to possess such land has not yet been established by the government. In the event that there is no title for the land, then it may be land in a conserved forest, public land or land which exists under Sor Kor 1, Nor. Sor 3, Nor. Sor. 3 Gor or a Title Deed. Any of these titles must have a Por. Bor. Tor 6 issued as tax must be paid, the same as any land without a title. Purchase of such land is possible by handing over the possession of the land to the buyer along with the tax number. The right to land under Por. Bor. Tor 6 cannot be used as evidence in any dispute with authorities.
Sor. Por. Gor 4-01
Sor. Por. Gor 4-01 is an allotment of land from the land reformative committee, and under no circumstances may this land be bought or sold. It may be transferred to heirs only.
Nor .Sor. 3
Nor .Sor. 3 is an instrument certifying the use of land and is issued by the government to the occupier of land and is more than a mere claim of possessory title, i.e. it is confirmed by law that a person holding Nor. Sor 3 has the legal right to possess the land. This land title can be used as a legal document or to use the benefit of the land as an owner. Nor Sor 3 is a floating map with no distict parcel points. It is issued for a specific plot of land and is not connected to other land plots. This causes problems in verifying the land area. Any legal acts must be publicized for 30 days.
Nor. Sor. 3 Gor
Nor. Sor. 3 Gor is a legal land title with the same legal basis as Nor. Sor. 3. The difference being that Nor. Sor. 3 Gor has parcel points on the map, and is set by using an aerial survey to set the points and the land area. It is possible to verify a nearby land area. It always uses the same scale of 1:5000. There is no need to publicize any legal acts, and it is possible to partition ( divide ) the land into smaller plots.
Chanode Land Title Deed - Nor. Sor. 4 Jor or Nor. Sor. 4 or Nor. Sor. 4 Ngor
Chanode Land Title Deed - Nor. Sor. 4 Jor or Nor. Sor. 4 or Nor. Sor. 4 Ngor is a certificate for ownership of land. A person having their name shown on the deed has the legal right to the land, and can use it as evidence to confirm the right to government authorities. The title deed has been issued by using GPS to set the area and boundaries of the land, which is a very accurate method. Any legal acts may be done immediately, as per the right of ownership. Land partition of more than 9 plots must be carried out according to the Land Allotment Law, Section 286.
Condominium title deed can be owned by a foreigner with ownership registration on the land-title if the foreign total held ownership is not over 49 % (with some exceptions) from the total square meters of the building. In this case, the foreigner has to send the funds to Thailand from abroad in foreign currency in order to obtain a F3 form from the bank with the remark 'to purchase a condominium.
Transfer and Other Fees on Buying and Selling Land
This table sets out the general taxes and fees applicable, which may be shared between the buyer and the seller.
|Type of Tax||Tax Rate |
|Tax Rate |
|Person who is responsible for tax|
|Land Registration Fee||2% on the official assessed value of the property||(Same as individual seller)||Seller and Buyer unless otherwise stipulated in the contract|
|Withholding Tax||5-37% (subject to special deductions allowable to individuals) creditable against income tax at year end||1%, creditable against corporate income tax at year end||Seller|
|Special Business Tax||3.3% based on the selling price or the officially assessed price, whichever is higher (maybe exempt if held as residence for over 1 year.)||(Same as individual seller)||Seller|
|Stamp Duty||0.5% based on the selling price or the officially assessed price, whichever is higher, but exempted if SBT is payable||-||Usually Seller and Buyer|
For investment properties there is a structure usage tax of 12.5% on the gross rental value of the property, however appropriate lease arrangement can reduce this tax.
The above is for general informational purposes only, and may not apply in all cases. You should consult a legal professional if you are purchasing or leasing property.