Global Investments
International Limited

	August 2006 - Issue 56	Previous Issues
The Global Investor is a monthly newsletter that covers global investment opportunities and insurance for the expatriate community. This monthly newsletter's goal is to inform the reader of what can and cannot be done in the investment arena when living and working in a foreign country. Whether it's personal pension plans or disability insurance to protect your income - Global Investments has the expertise to handle all the expatriate investors' needs.
The following article appeared recently in The Bangkok Post. This may well be of interest to existing & potential expatriate home owners resident in Thailand. FOREIGN PROPERTY OWNERSHIP THE RIGHT WAY No single structure will fit all cases When foreigners consider structures for real estate investment in Thailand they should work out the costs and benefits, because normally this only pays off for property of substantial value, according to Paul Ashburn, a senior partner of BDO Richfield Advisory Ltd. Structuring is normally worthwhile only for property worth 20 million baht or more, since it costs money to maintain such structures during the period one holds the property. "That's just a rule of thumb, in each case you require an analysis to see whether it will be worthwhile to think about placing an entity between yourself and the property", he said. Foreigners who consider buying free-hold land would have to do so through a Thai company that complies with the Land Code, because one cannot use an offshore entity to buy land. The common use of the latter is to buy a condominium or lease the land but actually own the house that is built on it. Mr. Ashburn explained that an offshore investment could be structured in such a way that there is no requirement under the law to pay taxes on rents. However, if you use a Thai company there is an assumption that the company has bought the property for commercial purposes, so even if it is actually your own residence, it is really a company that owns it and it is not your own property, so under the law if you don't pay rent to the company the authorities can assess this rent. "Some foreign investors may get the impression they can easily set up a Thai company and then just forget about it but the company is a separate person from yourself, so if you bought property as your residential home in a Thai company, you have to be aware that the company should be given a reasonable rent and return." Mr. Ashburn added and one cannot operate them as if they were shell companies. "What will happen is it will be registered just like any other company; you have to prepare proper accounts and have them audited, file tax returns, so you will be registered with the authorities. And from our experience now when you are setting up companies the Revenue Department will very likely visit you early on to make sure you're aware of your obligations under the Revenue Code." The structure a foreign buyer may consider will be determined in part by the legal structure adopted by the developer. Mr. Ashburn said that a visit he paid to a recent property show revealed that few exhibitors were talking in detail about the financial structures of the developments displayed there. "When you're structuring an investment in Thai property it is going to be determined partly by how the developer has structured the sale because you have to look at all the laws involved, especially the restrictions on foreigners owning land, so often it's not a straight deal. You may be faced with several contracts to sign, which is common." "So on the surface it may look like another property deal but when you get behind it, each deal can be quite different and you need a lawyer to guide you through it if you want to understand what you're contracting for and the risks involved." This especially applies to Phuket because there are very few big developers there, with much smaller developments being the norm and these can all be structured differently. Mr. Ashburn pointed to the key advantage that leasehold has over free hold in that there are no restrictions on foreigners taking out a lease in Thailand, which could be in their own name or a foreign company's name. With a Thai company one definitely has to pay tax, which aside from the rental tax includes property tax at 12.5% per year, depending on the circumstances, but it may be that a foreign corporate entity could collect rent tax-free on leaseholds. He advocates foreign property buyers perform appropriate legal and tax due diligence on leasehold structures because there are a number of contracts involved and sometimes the buyer actually receives a shareholding interest in the company that owns the land being leased. For example, 20 lease buyers might have equal shares in the land holding company so they can end up with joint control of it. As they control the company that owns the leases there should be less risk that their leases, which are 30 years with developers generally promising two 30-year extensions, will not be renewed. It is possible for a Thai company that complies with the Land Code to just hold the land and rent it out. The payments received by the company for the lease of the land will be taxable. The assets of the company that owns the land would be the land itself plus perhaps common area facilities and improvements made to the land the developer owns originally, but typically the developer wants to get out. Mr. Ashburn advises foreign buyers to beware of any tax liabilities they might assume as a result of a purchase because if they end up owning shares in a Thai company they have to make sure that it is clean, so that when they take it over they do not face tax liabilities incurred by the developer prior to the transfer. "I don't know how many investors really consider this point... it's just something that one day may be of concern in a future tax audit of the company. My general impression is that developers are aware of this issue." Some foreigners might say that it would be safest to buy a condominium within the 49% quota allowed to foreigners in a building, but Mr. Ashburn is of the opinion that acquiring land leases, especially in Phuket, is safe if structured correctly with appropriate protection built into the contracts and structure. "I don't think one is necessarily better than the other. (It depends) what you are in the market for and how well the deal has been structured and documented." However, he said it would be helpful if the authorities made it clear what land holding structures with foreign interests are acceptable, and if officials also ensured that the guidelines were applied equally around the country. Bangkok Post - Monday, 24th July 2006 Please contact Global Investments for more information on Tel. (+66-2) 662-2009 or e-mail at info@globalinv.org.