A Thai land holding company is defined as a majority Thai owned limited company that owns real estate property on behalf of a foreigner. How legal is this structure?
Thai law generally permits the purchase of land through a legitimate partly foreign owned Thai company as long as the maximum foreign shareholding does not exceed 49% in percentage of shares and number of shareholders. Foreigners are under current legislation allowed to control a majority Thai owned company through the issue of preference shares and weighted voting rights in the company. Voting rights are written into the articles of association of the company.
Juristic persons (e.g. limited companies) incorporated under Thai law which are deemed ‘foreign’ entities are not allowed to own land, or condominium beyond the foreign ownership quota1.
Thai law: Foreigner definition of a Thai limited company:
1. Section 96 of the Land Code Act: Limited companies with more than forty-nine per cent of their capital owned by foreigners or more than half of whose shareholders are foreigners
2. Section 4 Foreign Business Act: Having half or more of the juristic person’s capital shares held by foreigners or a juristic person having foreigners investing with a value of half or more of the total capital of the juristic parson
3. Business Registration Rules and Land Office Guidelines aimed at preventing the use of Thai nominee shareholders by foreigners (a partly foreign owned company structured with Thai nominee shareholders is deemed a foreign company).
Nominee shareholders in a Thai company
Foreigners are prohibited from using nominee or Thai proxy shareholders (under 1, 2 and 3 above). The company can also not be incorporated as a land holding or special purpose company to hold real estate property on behalf of the foreigner. This has an illegal purpose under the Land Code Act and Civil and Commercial Code of Thailand. A dormant holding company or a company merely incorporated to circumvent foreign real estate ownership restrictions is not allowed in Thailand.
Not land holding but a business purpose
The company must have a business purpose, money should pass through the company so the company will be actively trading according to its business objectives, so the company will not be liable for a Registrar’s application to strike off the company from the register for being inactive. The foreigner will be a director of a running Thai Limited company and obliged to fulfill his duty as a director and comply with the Foreign Employment Act (work permit). The director(s) of a Thai company are required by law to cause an audited financial report to be prepared annually and to be filed with the Commercial Registration Department of the Ministry of Commerce before the first of May each year, irrespective if the company received any income or has been inactive.
Property investment through a Thai company
A property purchase through a Thai limited company is a legally weak investment structure because controversial legal basis and as it is insecure how the government will deal with limited companies set up by foreigners to circumvent foreign real estate ownership restrictions. Companies controlled by foreigners in terms of voting rights and/or majority foreign management (directors) could under possible future law be classified as foreign, even if direct foreign shareholdings are in a minority (e.g. foreigner definition under Foreign Business Act amendments).
- A Thai company must have a legitimate business purpose and actively trading. In case of foreign participation the company must comply with the Foreign Business Act.
- Foreigners a prohibited from using Thai nominee shareholders. Foreigners who circumvent the law with Thai nominee shareholders may be able to do so, but are liable for severe penalties.
- Possible future laws and regulations restricting foreign control in a Thai company will affect existing companies and would force foreigners to give up control in a Thai company.
- Note any company deemed foreign under the Land Code Act or Foreign Business Act is deemed a foreign company under the Condominium Act under section 19 [↩]
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