The nation of Thailand, with its tropical paradise feel and all of its enchantments, is a place that a person may dream of retiring and moving to live out the rest of their lives. And in recent years, the country has made some updates to its real estate laws to give more room to foreigners who are interested in buying property and moving there.
What do you need to know about buying a property in Thailand as a foreigner? The most important thing you need to know as a foreigner is that other than a condominium or an apartment, a foreigner is not permitted by law to own land in Thailand in their name. However, there are ways around this.
The first option is to lease a plot of land for 30 years and then negotiate to construct a building on the land under your name and in your ownership. Alternatively, a foreigner may also choose to purchase the land through a limited company. However, because you are looking to purchase a property in a foreign nation, these methods may not be as straightforward as you think. Read on to get a more in-depth break down of the things you need to know about buying a property in Thailand.
Owning a Condominium or Apartment
Buying a condominium or an apartment in Thailand can be a worthwhile investment given the right conditions and circumstances. But before proceeding to purchase one of these spaces, you should be aware of the following: The law in Thailand only permits foreigners to buy condos in certain circumstances.
- First, foreigners may only own up to “49% of a single condo development” (Siam Legal). This number is found by finding the combined area of the condo’s units and finding what percentage of the units are owned by foreigners. If you are purchasing the condo from a second-hand source, first check with the development’s condo association office to ensure your purchase will not exceed the quota.
- Secondly, the foreign condo purchaser must pay for the purchase in a foreign currency that is then converted into Thailand’s currency, the Baht, within Thailand. This implies that if you plan to use a mortgage to finance the purchase of the condo, it does not qualify as a mode of payment.
You should also make sure that there is a record of your purchase. The money should either come from or be deposited into a foreign currency account with the buyer’s name before being paid outright. If you are paying with cash, you should get a receipt showing this from customs. Thai law “requires that a Foreign Exchange Transaction Form (FETF) be filed for larger foreign currency transactions” (Siam Legal).
It is also worth noting that a condo’s listed price may or may not include the added cost of taxes, which can make the cost of the purchase materially different. Ask about the taxes on the building before agreeing to finish up the transaction.
Buy from a Developer or Second-hand?
There are advantages and disadvantages to either buying a condo directly from a developer or getting it second-hand from a previous owner.
- When you purchase the condo or the apartment second-hand, your greatest advantage is that you know what you are purchasing because you can tour the condo and see it first before deciding to purchase it.
- When you purchase a condo from a developer, it is usually an unfinished building that is now being constructed. The developer may have a floor plan or demonstration units, but they cannot present you with a finished work so there is no guarantee that the unit you end up getting will meet the standard of the model.
If you are looking to purchase a property within a popular tourist destination within the country, however, a developer may be your only option. In tourist places, the 41% quota is met quickly, and the only other way to get a condo in such areas is to purchase one that is not yet finished being constructed.
If you purchase land from a developer, your best bet is to go with a developer that has a proven track record or a well-established name. Companies that are traded on the stock exchange are a good bet. First-time developers, as opposed to established companies, do not have the equivalent experience in complying with government regulations that their counterparts do. This may cause a problem for you down the line.
Banks are also reluctant to finance the projects of first-time developers, so construction could be stopped if the developer is not able to finance the completed work by pre-selling enough units to pay their bills.
Owning Land After a Long-Term Lease
Because a foreign national cannot own land in their name outright, many foreigners choose the option of purchasing a thirty-year leasehold on a property. The foreign tenant does not have any ownership stake in the land; but this can be a situation that is workable for a tenant because this is offset by the leeway the renter can still have within the law. If you are looking to take up this option, you should be aware of the following:
- If you lease a plot of land, you can build on that land in your own name. If the lessee is renting a piece of land (that is yet to be developed) on which he or she intends to build a structure, the ownership of the building must be specified in the original agreement. Otherwise, when the lease expires, the building will be considered the property of the landowner.
- Thai property law only permits a leasehold for a term of thirty years. If a lease is signed for a term longer than 30 years, it will automatically revert to the maximum (30 years) when it is being approved. The only exception to this is an industrial lease, which has a maximum period of 50 years instead of 30.
- For validity, any lease that is for a term longer than three years must be registered with the local land office in the area in which that land is located. It must also be documented on the back of the title deed or Certificate of Use for the land.
- Leases that are three years long or less can be initiated with a simple contract and do not need to be registered at the land office. However, registering the lease at the local land office helps protect the rights of the lessee, so it is often pursued.
- At the end of 30 years, the lessee may have the option of renewing their lease agreement for another period of time. A lease contract can contractually bind the leaser to agree to a second term of 30 years. However, this can only be enforced if the owner of the land and the tenant go to the land office and register for a second 30-year term.
- If the leaser refuses to renew the lessee’s contract for another 30 years, the lessee can take the landowner to court, given that both parties have already registered for a second term with the local land office. However, if that is not the case, the lessee has forfeited this right and will need to evacuate once the lease is up, and after the landowner refuses a renewal.
- Often, foreigners are told by sellers or developers that they can get additional renewals of up to two times (in addition to the original term of 30 years) guaranteed, but this is not legally guaranteed. Under the Civil Commercial Code, only the first term of the rent is considered valid and guaranteed for the tenant’s rights to the lease.
(Source: Sunbelt Asia)
Owning Land Through a Limited Company
The third option for a foreigner to own property in Thailand is for a purchase to be made through a limited company. Note that this practice has been misused in an illegal manner, and increased enforcement is cracking down on those fraudulently using this practice:
With the limited company, the idea is that a foreign national has a stake in a Thai corporation that buys the land on behalf of the company. If you wish to do this for legitimate business reasons, it is a practice that helps you get a space legally set up for the business.
However, some have taken this practice and instead pay native Thai friends to set up a dummy corporation that buys the land in the name of the corporation itself, but is actually meant to be in possession of the foreign nationals who paid for the transaction. Again, this is an illegal practice that is being cracked down on more often these days and is not advisable.
Buying Property Through an Offshore Company
Foreign condo buyers can choose to purchase condos or apartments through offshore companies. This is similar to the previous point but varies in that this is a legal and legitimate way for a foreign national to purchase a property. Two major benefits might make this the right choice for you:
First, you can avoid paying transfer taxes when you sell the condo because instead of selling a condo, this transaction will appear as a sale of shares of your company to the condo buyer. And, since the company is not incorporated in Thailand, it will not be subject to Thai taxation, and therefore, you will not be obligated to pay a transfer of ownership tax.
But the condo will be subject to an annual house and land tax regardless of whether it is rented out of “12.5% of either the actual or estimated annual rental income of the property, whichever is higher” (Siam Legal). You will also need to pay corporate maintenance fees as well every year, regardless of whether the company makes a profit or not.
On the other hand, the property will be easier to transfer to someone else in the event of the death of the owner or some other tragic loss.
Tips for Buying Property in Thailand
Ready to become a land or property owner? The following are a few tips you should keep in mind if you plan on purchasing a property in Thailand using any of the methods mentioned above:
Consult Professionals to Help You with Your Purchase
Since you are looking to purchase land in a foreign nation, you need the added touch of a local land expert and legal advisor to assist you in making the purchase.
- The legal advisor is necessary to help in navigating the legal proceedings of the purchase you wish to make. There are documents that come into play, such as the land title and the contracts that must be signed by the parties involved. Having legal assistance from someone who understands the law of the nation is of key importance for this reason.
- The local land expert will also help in making the purchase that will truly suit your needs. A local agent will be better at understanding key things you may not be able to like the geography of the area, the language spoken locally, and an in-depth explanation of the country’s currency.
- A property agent can be a great middleman between the lessee of the land and the landowner as they will have a continued relationship for as long as the property is being leased (in the case of leasing). You will not save more money buying land directly from a developer as opposed to passing through an agent first because good land is usually sold at a fixed price in Thailand.
Discuss Your Options
Once you have settled on a good representative, it is important for you to discuss your options with that individual to find out what would best suit your particular needs. If you are looking to own a building for personal reasons as opposed to owning it for business reasons, the best option for you may differ. There are also contractual aspects that have to be filled out that you will need some guidance in.
Check Important Paperwork for Yourself
After discussing all the logistic and legal aspects of this endeavor, also do a thorough examination of the title deed of the land recorded at the land department or the local land office of the area in question. This will be of great importance later on, so it is important that you do so.
The title will trace the land through all of its possessors, showing any registered interests in the land. It should also show you where you fall under in terms of rights to access the property. There are other details as well, but these are the most prominent to look for.
Registering the lease at the local land office will ensure that any potential third-party purchasers of the property is made aware of the rights that the lessee has allotted to himself or herself in leasing it. This gives the tenant protection of their rights for the remainder of the leasing term regardless of whether the owner of the land should change hands or not.
Understand the Taxes
If you plan to use any of the properties you own in Thailand as an investment, then it is also important to note that all rental properties are subject to a house and land tax equal to 12.5% the value of the annual rental income of the property.
The rental income is also subject to income tax. Thai income taxes are calculated using a progressive scale that ranges from 0 percent to 37 percent of the income made within the year.
If you own a property and rent it out to a company, the company will deduct 5% of their rent and use it to pay directly to the government as a prepayment of your income tax.
These taxes apply if you intend to rent out a space you own. But, if you are residing in the space as a foreign national that owns the space, you are not subject to any property taxes.
If you sell your accommodation to someone else, you will be required to pay transfer fees, document fees, and an arsenal of transfer-related taxes.
With all of these taxes, tax can significantly alter the value of a building or a property to you. If it is an investment, all three of these taxes could apply. If you rent or own it for personal use, the renter’s tax will still apply, and then the income tax could also be applicable as well. Hence, it is important to know what taxes apply to the property you have.
There are a lot of legal intricacies involved in owning or renting a property in Thailand as a foreign national. Here, we have discussed the numerous options available to you for property ownership there, regardless of if you wish to place some new roots, or if you just want some property to invest in. Either way, hopefully, this article has helped you take those first steps in becoming a legal home or landowner in the Land of Smiles.