This article deal with the real estate development business by foreigners in Thailand. I would like to focus particularly on Thailand’s position: as to how Thailand welcomes foreign investments and commerce, and what the legal requirements are in order to set up a base in Thailand in terms of tenure or the purchase of land and property. Foreign investors may take into consideration the legal implications of the applicable laws mentioned below :
1. Statutory acquisition of right to the land for the foreign investors.
2. Development or investment in the real estate business with respect to land.
3. New draft law relating to the land and building taxes, which is expected to be in force in B.E. 2560 (A.D. 2017).
4. Securitization of the company’s assets, which are real estate or right in the real estate, to be securities under the category of instrument for distribution to the general public through the establishment of the Real Estate Investment Trust (REIT).
1. Statutory acquisition of right to the land for the foreign investors
Acquisition of right to the land for the foreign investors for running the business in Thailand, is divisible into two categories, namely the ownership right, right to possession and utilization in the land from the land lease.
The right to use the land may be secured by virtue of the following legal rights.
1.1 Land Code and The Civil and Commercial Code of Thailand (“CCC”)
The foreign persons are entitled to joint investment with Thai partners in order to establish the juristic person. The foreign investors can hold shares not more than 49% of the number of total shares
In the case where the foreign investors desire to personally invest may seek permission to own the land by relying on the legal rights under Clauses 1.5 or 1.6 or 1.7.
1.2 The CCC
Likewise the CCC accords rights to lease the land, of not more than 30 years, under a requirement to register the leasehold with the competent
1.3 Hire of Immovable Property for Commerce and Industry Act, B.E. 2542 (A.D. 1999)
Foreign investors in large-scale investments with a long investment period can lease the land for a period of 50 years under the said Act.
1.4 The Foreign Business Act, B.E. 2542 (A.D. 1999)
This is a law prescribing the category of businesses reserved for Thai nationals and those concerning national security, unless approval is granted by the Minister of Commerce or the Director-General of the Business Development Department.
1.5 Investment Promotion Act B.E. 2520
The Board of Investment has the authority to consider and grant investment promotion to the company. The company can apply for permission to be the land owner.
1.6 Industrial Estate Authority of Thailand Act B.E. 2522
The Governor of the Industrial Estate Authority of Thailand (“IEAT”) has the authority to allow the foreign investors to become owners of land in an industrial estate for the business operation.
1.7 Petroleum Act, B.E.2514
The Minister of Energy, with approval granted by the Cabinet, is empowered to grant concession to petroleum exploration companies or producers of petroleum.
2. Development or investment in the real estate business with respect to land
For development in the real estate business, there are the following key laws:
2.1 Town Planning Law
The Town Planning Law restricts a right to use a property, under which the land utilization in each of the areas shall be prescribed differently in order to suit the environment, geography, social and economic conditions in each of the localities.
2.2 Construction Control Law
The Construction Control Law, it is a law defining a statutory minimum standard for authorizing construction, with the intent of protecting the safety of the building’s users and those in the surrounding areas whom are susceptible to an impact from construction of the building.
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2. Environmental law |
Environmental law is a law that sets a standard as to the threshold level of pollution, whether it is from sewage, polluted air or noise pollution. However, for engaging in a certain kind of business with a high risk of causing environmental pollution will require the preparation of a report on environmental impact assessment (EIA). Moreover, for the business which could have a serious impact on the environmental quality, natural resources and health to communities, a report on Environment and Health Impact Assessment (EHIA) shall be prepared as well.
2.4 In addition to the main laws stated above, there are other laws that must be considered in a particular case, as follows.
1) Engaging in the plant business
For the plant business, it shall receive prior permission for engaging in the plant business from the government.
2) Engaging in the hotel business
For the hotel business, if engaging in any business in a manner similar to the hotel business shall receive permission from the competent official of the state.
3) Condominium
Pre-sale and post-sale administration of the condominium shall comply with the minimum standard set by the underlying principle of the condominium law.
4) Land appropriation by investors for residential, commercial or industrial purposes
Land appropriation for residential, commercial or industrial purposes, has a rule, condition and stipulation under the Land Appropriation Act.
5) Establishment of the industrial estate and performing business operation in the industrial estate by the investors
Establishment of the industrial estate is a cooperative between the investor who has founded the industrial estate and the IEAT under the Industrial Estate Act.
For operation within the industrial estate shall receive more convenience from the state agency concerned than an operation outside.
The IEAT will be the sole agency empowered to consider the application for permission, conduct examination and grant permission under the provisions of related laws.
6) Construction of structures in the security and safety zone of the country
For the construction in the security and safety zone of the country, such as construction in the air navigation of a commercial airport or the Royal Thai Air Force must receive permission from the Department of Civil Aviation or the Royal Thai Air Force before proceeding with construction. Whether to authorize construction depends on the consideration under the reference criteria of ICAO-Annex14.
3. New draft law relating to land and building taxes expected to be in force by B.E. 2560 (A.D. 2017) (superseding the current building and land taxes, and local administration taxes)
Levying of the present property tax from the holding of building and land connecting the buildings, since B.E. 2475 (A.D. 1932) until now. The tax base prescribed is the rentable price, which provides discretion to the competent state official to assess the tax base value may give rise to unfairness or impartiality. Moreover, there are plots of wasteland in Thailand owned by major investors or capital groups. At present, a low rate of taxes has been levied for said wasteland. The current government thus has a policy to alter an approach and impose a new rule for levying the property tax so that it is at the highest sustainable level and best used.
The main essence of the new draft law anticipated is in order to resolve the said issue. The tax base in accordance with the appraised land and building value as well as adjust the appraised value every four years and impose the tax rate for the wasteland by increase the tax rate in each year.
4. Securitization of the company’s assets, which are the real estate or right in the real estate, to be securities under the category of ‘instrument for distribution to the general public’ through the establishment of the Real Estate Investment Trust (REIT)
In the past, Thailand has given a right to securitization from the right in the real estate into instruments, earned from bringing the exploitation of real estate, in the form of a rent, as the underlying asset through a property fund public offering (PFPO). However, at present, a right to establish the PFPO has been prohibited, and a right to establish REIT has been granted instead; having a custodian as a holder of the right in the real estate, and a REIT Manager performing administration of the property in bringing the right to the real estate for exploitation for the benefit of the Trust Certificate Holders, which is the same principle as the CIS of REIT employed by many nations currently.
The Trust Certificate Holders are not shareholders of the company and there is no restriction for foreign investors on investment by holding the trust units. The investors gain a tax incentive exceeding investment in the company’s shares. A net profit from exploitation by REIT is tax-exempted under Thai law, and a share of profits from REIT, paid to the Trust Certificate Holders, shall be taxed (a withholding tax) at the rate of 10 percent of the profit sharing amounts. With respect to the investment in the shares, after the company pays the corporate income tax, the dividends paid to the shareholders shall be subject to a withholding tax at the rate of 10 percent of the received dividends.
At present, there is the ASEAN CIS Framework. Its aim is to provide a privilege on the legal limits to an inter-party offer to sell the investment units among the member countries. The said agreement shall trigger an expansion and also increase the development of future investment in the real estate business in Thailand.