All About Residence: Phuket Property Agent & Property Management Services in Nai Harn
FAQs
- What can foreigners own in Thailand?
- What is the safest way to purchase land?
- Should I buy freehold or leasehold?
- What are the different types of Title Deed and documents of ownership?
- What is a Condominium unit title?
- When and how should I set up a Thai company?
- What fees, duties and taxes will I need to pay when purchasing the properties in Thailand ?
- Can I get a mortgage or other financing in Thailand?
- What are the main building regulations in Thailand?
- Should I build my own home independently or buy into a development?
- What are the main ownership structures offered by the developers in Phuket?
- What visas or work permits will I need to stay in Thailand?
- Can I leave my property to my chosen heir in my will?
- What fees, duties, and taxes will I need to pay when selling properties in Thailand?
What can foreigners own in Thailand?
The good news is foreigners can effectively and legally own land, villas or condominium, apartments either as an individual or by setting up an appropriate legal, entity and operating within the parameters of Thai law. And many, many thousands have done so easily and successfully !
However, like in any country, there is plenty of complex legislation to understand first. A reputable legal professional, operating in your native language, should definitely be engaged early in the process.
The law states that:
- Foreign individuals could not own land freehold.
- The majority of issued shares in a Thai company must be owned by Thai national
So foreigners have several options available:
- Buy freehold ownership of a Condominium title (see Condominium unit title details below) for a building with a proportional or strata interest in common land.
- Obtain long term and transferable lease right to land and buildings (90 years by registering a 30 year lease and 2 options to renew).
- Take freehold ownership of all current or future buildings on leased land.
- Also take an option to purchase land (but which could not be exercised by a foreigner, unless the law changes).
- Or set up, be a director of , and effectively control a Thai company which can own both land and buildings (as long as the company could demonstrate separate, economic activity).
Depending on the size and type of investment, any one, or a combination of these options may be the best solution
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What is the safest way to purchase land?
The safest way to buy land is to work with reputable property consultant and legal professional to:
- Thoroughly check the title’s category, veracity, history, access rights and utility supplies, development plans in the area, building permits/regulations and true size of the plot.
- Review any contracts carefully in your own language and query any clause that you do not understand.
- Work with your lawyer to establish an appropriate legal and controllable entity that could safely purchase and own the land.
- Understand clearly what fees and taxes will be applicable.
Should I buy freehold or leasehold?
Sometimes as a foreign individual you do not even have the option to buy freehold, for instance if you would like to buy only land, or if you are buying a unit in development that does not offer freehold purchases.
But often buyers are faced whit this choice, and there are advantages and disadvantages in both approaches.
- Freehold ownership gives many buyers a stronger sense of security, and they feel they have something more valuable to resell. It also might be easier to obtain financing with freehold ownership, and to pass on to your heirs. However, freehold ownership will require more paperwork in terms of setting up a Thai company and managing some small but ongoing costs of administering the company.
- Buying leasehold will be faster and simpler and could give you secure, effective ownership for up to 90 years, but may feel less valuable to some, and may be less attractive to future buyers.
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What are the different types of Title Deed and documents of ownership?
There are several ‘grades’ of land title deed in Thailand, with the higher and more valuable grades being more accurately surveyed and granting owners the rights to sell, lease and mortgage the land. The following table describes each, starting with the most valuable:
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Special Category:
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What is a Condominium unit title?
Many developers now apply for Condominium status, and offer their buyers, as either individuals or companies, a choice of freehold or leasehold ownership. Under the Condominium Act, at least 51% of the total area of the units must be owned by Thai nationals. As most Phuket buyers are foreigners, this often creates a ‘race’ to buy the first half of the units, as most prefer the freehold option.
Some useful points to note:
- If there are no ‘foreign freehold’ unit remaining in a Condominium, buyers still have 2 strong options: to purchase freehold through a Thai company, or to take a secure, long-term lease on the unit as an individual (or company).
- The freehold option only applies to the building, and not the land.
- The owners (majority Thai individuals or companies) commonly own the land and the common assets (e.g. pool, stairwell, lobby, etc) which is governed by a juristic entity or body corporate set up by an owner’s body.
- The title should state both the floor areas of the private apartment and the common land, and the percentage interest (and thus voting interest) accorded to the owner.
- Foreigners generally need to provide evidence that funds have come from abroad, so freehold buyers should check with the developer first before transferring and funds, to make sure they get the correct exchange forms. There are some exceptions to this.
- Under special circumstances, some Condominiums may allow 100% foreign freehold ownership.
When and how should I set up a Thai company?
As a foreigner, in order to own land or to buy a Condominium freehold that is not part of the foreign allocation (49%), you will need to purchase via a Thai majority-owned company.
First you should engage a legal professional, working in your native language, to help you set up an appropriate legal, entity and operating within the parameters of Thai law. The company will normally be a Limited Liability Company. The process is fairly simple and inexpensive, and your lawyer is likely to have been through it many times before.
Your lawyer will give you more details, but here are some highlights of the process:
- The process should take less than a month and involves 3 steps.
-The first step is Name Reservation, which is free and can be done online in a day or two.
-The next step is filing the Memorandum of Association, which includes the name, location, objectives, registered capital, number of securities and the par value. Most importantly , the MoA includes the signatures and details of at least 7 ‘ promoters’ of the company, 4 of whom need to be Thai nationals, and the number of shares subscribed to by each. Your lawyer will advise you on this.
-The third step is Registration of Incorporation of the Company, and involves issues such as the appointment of directors, adoption of articles of association, establishment of preferred shares (if any) and appointing auditors.
- Effective control of the company can be established by the types and the number of shares issued. One common approach is for foreign shareholders to hold ordinary shares with higher privileges (e.g. voting right and access to asset surplus) whilst other shareholders hold preferred shares with limited privileges.
- Another common measure is for foreigners to keep their shareholding at a maximum of 39%, because a shareholding above this obliges the land officials to investigate the company shareholder structure (looking for illegal Thai ‘nominee’ shareholder holding share on behalf of foreigners). Thai can be adjusted at a later date, although foreigners can never own than 49%.
- Foreigners can act as directors of the company, and need not even be shareholders. Directors can also appoint foreign or local ‘authorized directors’ to sign document on behalf of the company.
- Registered capital of the company should not be less than the purchase price of the land. However, it is common for companies to set it at a nominal amount of 1 million baht, and for any difference between these two amounts to be made in the form of a loan to the company from a foreign director.
- In terms of ongoing responsibilities, the accounts of the company must be kept updated, and audited once a year and filed with the Revenue Department and Commercial Registration.
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What fees, duties and taxes will I need to pay when purchasing the properties in Thailand ?
Foreigners are usually pleased to discover that actual fees, duties and taxes are low by international standards. Although the prices method of calculation is complex, typically the combines payments will amount to 2-3% of the property market value, and the seller may pay part of this.
The main payments to consider are:
Leasehold
- Land leasehold registration fee – 1.1% of land lease premium
Freehold
- Land transfer fee – 2%* of minimum excesses value
- Stamp Duty – 1% of selling price
- Corporate income tax – also know as withholding tax (variable, see below)
- Specific business tax – 3.3% of selling price (not applicable in all situations, depending on usage of property)
*Calculations are generally made using ‘declared’ or assessed’ value, which is often significantly lower than actual market value.
Some helpful points to note:
- There are not fixed rules for whether the buyer or buyer or seller pays these, so it is important that you clarify this clearly during any negotiations process. Often they are split.
- There is no Capital Gains Tax, but there is an income tax (also known as withholding tax) which operates in a similar way, and is paid upon transfer. Put simply, there is a sliding scale formula, and the longer the property has been owned, the more income tax will be incurred. However, this tax will be backdated over the period owned, and income tax will be apportioned for each of those years, which effectively reduces the total sum. Typically this will amount to a few percent of ‘declared‘ property value, which may represent and even lower percentage of actual value.
- There is no annual property tax, or ‘rates’, as long as the property is being used as a private home. If the property is being used for commercial purposes, then owners are supposed to also pay a ‘Structure usage’ tax, which is calculated as 12.5% of the national rental value of the property (often significantly below the actual market rental value).
- Developers often simplify this process for buyers, by making the appropriate payments and consolidating the cost into their customer’s payments.
- Transferring shares/ownership of a company that owns property to a foreign buyer is likely to incur less transaction costs than transferring the property between companies, or individuals.
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Can I get a mortgage or other financing in Thailand?
Historically it has been very difficult for foreigners to get mortgage to finance a property purchase in Thailand. The situation seems to be slowly changing, but it is expected to take time.
However, for buyers who do not want to use 100% cash, there are several financing options that might be available:
- The most common route is for buyers to take cash out of a non-Thai property to use for their purchase. Refinancing in your home country can be fast, simple and have lower interest rates than in Thailand. You can contact us for examples of this.
- Some developers formally offer financing themselves. Typically they will offer 5 to 10 years financing, at an interest rate marginally above prime lending rate. For details of these developers, contact us.
- Other developer s may consider similar arrangements on an ad hoc basis, and it’s always worth asking.
- Under certain circumstances it is possible to get a loan from local Thai banks. It is likely to be up to a maximum of 50% loan over8
years. All of the following should increase your chances:
- If you buy a condominium, or other, freehold unit.
- If you buy via a legitimate Thai company.
- If you have been introduced to an open-minded bank manager by a friend with a good f inancial reputation.
- If you can easily demonstrate other wealth/assets, outside or inside Thailand.
What are the main building regulations in Thailand?
There are several building codes which define limits to the location, height and density of properties. Two of the main groups are:
Oceanfront Zones
Starting from the oceanfront, there are (with some exceptions) designated zones each with different parameters.
- Zone 1 extends from the mean high line back 50 meters.
No building may be constructed in the first 20 meters. In the remaining 30 meters, structures may only be up to 6 meters in height, which may occupy up to 25% of the titled area. - Zone 2 then extends back a further 150 meters. Here buildings may be up to 12 meters height a occupy 70% of the available land.
- Zone 3 runs as far as the base of the hills allows buildings up to 16 meters in height.
Hillsides
- No buildings on land over 80 meters above sea level.
- For safety reasons, if you build on hillside land (i.e. land more than 40 meters above the sea level) then 8 meters building limit applies.
- This is measured from the original grade level so terraced homes can be built whose total height, bottom to utmost top exceeds this height.
Some helpful notes:
- Properties which appear to defy thee codes may have been build prior to the introduction of these laws.
- Apart from knowing the regulations for their property, buyers should also know what is allowable beside and in front of them.
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Should I build my own home independently or buy into a development?
It really depends on your personal goal and lifestyle. Going it alone might be cheaper, give you more freedom and may fulfill you personal ‘creative’ dream. However, by being part of a development you can benefit from shared costs and ‘hassle’ for legal administration, upkeep and management, swimming pool, utility supply, garbage, rental marketing, etc. for those seeking both the design flexibility and the ‘shared’ benefits, there are also developments which offer a form of compromise, selling land plots off-plan, and allowing a greater degree of design and architectural freedom.
What are the main ownership structures offered by the developers in Phuket?
Because of the unique Thai laws concerning land and company ownership, and because every project size & type is different, developers tend to work with their lawyers to create an ownership structure that balances security, simplicity and administrative costs.
Some of the main themes and features are as follows:
- Often within a development, there will be different ownership options for different types of building. For instance, a block of apartments may be eligible for Condominium status, while villa plots may not, and may be sold freehold or leasehold.
- Condominium units often come with strata titles, which means buyers receive a title deed issued by the Land Department as proof of ownership. For long-term leases, developers typically offer a ‘life-time’ leases of 90 years, made up of one 30 years lease plus 2 options to renew written into the contract.
- Some developers offer further security to buyers, by including ‘prepayment’ of the renewal cost in the sales price and/or by allowing buyers to purchase the land freehold after a period of time (e.g. after first 30 years).
- Other developers actually relinquish control of the land to the owners, by passing the land to a Thai company that the owners control, to ensure the lease arrangement is fixed
- Some developers, usually for more expensive villa-projects, also create an off-shore ownership structure (typically a BVI company) whereby owners are one-step removed from the Thai company by company which owns the land. This structure is usually promoted to be tax-efficient and simpler for future resale transactions.
- There is typically also an Owners’ Association created, which enables owners to control their investment according to certain rules, and certain voting rights determined by size of unit.
- In terms of ongoing estate management, maintenance and rental systems
- The developers may appoint an estate management company, to provide maintenance for communal areas and facilities, at a fee. This might cover security, pool, landscaping, pest control, garbage and common area utility costs. Owners pay according to the square meter of their unit (e.g. 30 baht/sq.m per month). There will be a mechanism for Owners’ Association to re-elect or changer this company after the initial contract has expired.
- Owners will also contribute to a sinking fund, for major future works.
- Owners are normally responsible for the upkeep of their own unit, but would be given the option to use a recommended contractor at commercial rates.
- Often there is also a proposed rental/letting system, whereby owners can submit their unit into a rental pool for an agreed number of months per year. The rental/letting management company will do marketing, collect rent, pay expenses and taxes, and provide owners with a regular income. Some developments even provide a one or two-year rental guarantee.
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What visas or work permits will I need to stay in Thailand?
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Can I leave my property to my chosen heir in my will?
If you die intestate (i.e. do not have a will in place) in Thailand, probate will be slow, but eventually your assets would normally be deemed to pass to your spouse in their entirely, or if they had predeceased you to your surviving children in equal portions.
What fees, duties, and taxes will I need to pay when selling properties in Thailand?
Many individuals who invest in property in Thailand are often unaware of the tax liabilities that may arise on either buying or selling the property.
Typically foreigners have invested in property either through buying a condominium unit which they hold in their own name or have taken out a lease on a landed property.
As our analysis shows below, an individual or other legal structure will always be subject to taxation on the sale of the property. The general tax rates (excluding company or individual personal tax which may also apply eventually) are shown below. Surprisingly, perhaps, for an individual selling a property the taxation system is actually very complex.
General Tax Rules with Regard to Buying and Selling of Property
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Transfer Fee This cost is often borne equally by the seller and buyer but this needs to be agreed by both parties. The transfer fee is based on the official appraised value irrespective of the contracted sales price.
Lease Registration Fee This is paid on the total rental payable over the lease term. This cost is often borne equally by the Lessor and Lessee but this needs to be agreed by both parties.
Specific Business Tax (SBT) SBT is payable by companies and those individuals that hold the property for less than 5 years. It is base on the official appraised value or the contracted price whichever is the higher.
An individual is also exempt from SBT if the property has been used as a principal place of residence of the seller whose name must also appear in the household registration certificate for at least one year.
Stamp Duty This fee is only payable where SBT is not applicable and in the case of a sale of property of it is based on the official appraised value or the contracted price whichever is the higher. Where leasehold land is being transferred, stamp duty is payable on the remaining value of the lease.
Withholding Tax (WHT) WHT is remitted bye the buyer (on behalf of the vendor) from the proceeds of sale. Where the vendor is a company, the WHT on the sale of property is calculated at 1% of the official Land Department appraisal price or the contracted sales price whichever is greater. Where the vendor is an individual, the WHT is based on the individual’s marginal tax rate (except that the first 100,000 baht is taxed at 5% instead of allowing the tax-free threshold) after deducting from the official appraisal price a standard deduction based on the number of years of ownership.
All of the taxes and fees outlined in the table above with respect to the sale of property (including the lease of land) are payable at the Land Department. WHT payable in respect of a non-resident vendor is normally a final tax. The 1% WHT liability of a resident Thai company can be used as a credit against final income tax payable upon lodgment of an annual tax return. A resident individual seller of property can, however, elect to treat the WHT as a final tax or lodge an annual return by declaring the actual gain on sale in order to obtain a refund of any overpaid tax. In practice, however, this method is rarely used.
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SALE OF A PROPERTY
Withholding tax sample calculation for sale of a condominium unit
In the situation where the Seller is a company, both Thai and foreigner:
- The Seller will be subject to with holding tax at the rate of 1 percent of the selling price or the official appraisal price of the unit whichever is greater, upon the registration of transfer of the unit.
In the situation where the Seller is an individual, both Thai and foreigner:-
The Seller will be subject to withholding tax at the rate calculated, based on the official appraisal price of the unit (irrespective of
whether the contractual price is higher than the official appraisal price) as follows:-
( i ) The official appraisal price of the unit is obtained.
( ii ) A standard deduction for expenses is allowed against this appraisal price based on the number of years in possession (see Schedule A)
( iii ) This resulting calculation is then divided by the number of years in possession (maximum of 10 years).
( iv ) Initial tax is then calculated on this gain in accordance with the Personal Income Tax Schedule (see Schedule B)
( v ) This initial tax calculation is then multiplied by the number of years in possession.
The result of the calculation shall be the amount of total withholding tax payable.
For Example
If the Seller sells the unit within 2 years of acquisition, and the official appraisal price is Baht 3,000,000, the withholding tax will be:-
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Notwithstanding the calculation in the method above, the total withholding tax payable shall not exceed 20% of the total price.
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Schedule A
(Resale of Unit) Standard Deduction for Expenses
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Schedule B
(Resale of Unit) Personal Income Tax Schedule
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Sample:
Tax Calculation Assuming a 10 million baht sales price and assessed value of 10 million baht
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* Depending on the wording in the contract, this fee is often split between buyer and seller.
Property Tax Payable
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