LEASEHOLD VS FREEHOLD PROPERTY OWNERSHIP FOR FOREIGNERS
Are you a foreigner considering purchasing a property in Thailand, either a free standing house, a condominium unit or other structure? As active real estate agents in Hua Hin, we meet people from all over the world who have different cultural and socioeconomic backgrounds, and each person has his/her own reasons or desires for moving to Thailand. Some choose to move here for retirement because their pension affords them a more comfortable (and sometimes luxurious) lifestyle in Thailand than in their home country. Others move here because they have work or careers requiring them to relocate in Southeast Asia, and Thailand is a good location to travel from. Thailand is considered a very safe country by many westerners, and it’s a great place to raise families. Some buyers want a holiday or vacation property to escape the miserable winters in their home countries. Whatever your reason for moving to Thailand and purchasing a home, it’s essential to understand your choices for property ownership here in this wonderful Southeast Asian country.
For a condominium purchase, you should know that foreigners are allowed to own condo units in Thailand freehold in their own names, as long as the condominium development has allocated at least 51% of the building for Thai ownership. If the foreign quota of 49% is full in a specific condominium development, the only other option would be to own the condo unit via leasehold or via a Thai company, but this generally defeats the advantage of condo ownership.
Regarding land ownership, only Thai citizens are allowed to own land freehold in their own names. A house or structure can be owned by a foreigner, but not the land. Foreigners have two avenues to choose from for land ownership:leasehold via a legally recognized registered lease agreement at the land office; or freehold via a Thai company holding the land as a registered asset. Both methods of land ownership have pros and cons that need to be carefully considered before deciding which method best suits you and your property needs.
Backing up just a bit, if you have a Thai spouse or Thai family member who you trust, the obvious choice would be to register the land in your spouse or family member’s name. In the case of a spouse, a married couple is not legally allowed to register a lease agreement for the land. For a married couple, the Thai spouse can own the land in his/her name, and the foreign spouse can jointly own the house with the Thai partner. In the case of another Thai family member who is not a spouse, a land lease agreement can be registered at the regional land office.
If you don’t have a Thai spouse, Thai children or other Thai family members or friends who you trust, then you will need to carefully consider which method of land ownership is right for you. Currently, the most common is leasehold. In this scenario, the land on which your house (the physical structure) sits, is owned in the name of a Thai citizen or Thai entity. Upon purchasing the property at the land office, you and the land lessor will register a 30 year lease on the back of the land title deed, or “Chanote” in Thai. This lease agreement is recognized by the Thai government as a guaranteed right and prevents the land lessor from trying to negate, cancel or otherwise interfere in your rightful occupation of the land during the lease period.
Typically, most lease agreements will allow for a total of 90 years’ occupation of the land. At the time of this writing, the Thai law only recognizes a 30 year lease as the maximum lease period that can officially be registered at the land office. This initial 30 year lease is a guaranteed right by the Thai government, and the land lessee is the rightful occupier of the land, and cannot be denied access or occupation rights. The remaining 2 x 30 year lease terms (60 years) are contractual obligations in a legal contract agreed upon by both the lessee and Thai lessor. These 2 additional 30 year periods are not officially guaranteed by the Thai government until they are re-registered at the beginning of each subsequent new 30 year term. That said, statistically, most home owners do not own properties for 30+ years; the average ownership period is about 5 years. Therefore, it is likely that you’ll sell your home before the first 30 year lease period expires. Three questions often asked are:
- Will my property value decrease as I get closer to the end of my 30 year lease?
- Will the buyer of my house get a brand new 30 year lease?
- Can I sell my home to a Thai buyer?
The answers to the questions above depend on how your lease contract was structured originally, and that is why it’s really important to hire a good, trustworthy lawyer and real estate agent to ensure that your lease agreement is the most beneficial as possible. In the best scenario, your lease agreement will allow for the following:
- If your buyer is a foreigner, your lease agreement should allow a new foreign buyer to re-register the lease with a new 30 year period (a non-rundown lease). This ensures that the value of your property does not diminish as you get closer to the lease expiration period.
- Your lease agreement should allow a Thai buyer to purchase the house and land freehold. This would entail the cancellation of the lease contract and transfer of the land to a Thai buyer (individual or Thai company).
If you are a foreigner who prefers to own a house and land freehold, there is the option to purchase the land freehold via a Thai company. The way this works is that a lawyer or bookkeeper will create a Thai company with you as the majority shareholder and managing director of the company. Foreigners are allowed to own up to 49% of a company with the remaining 51% of the company shared between a minimum of at least 2 Thais. A foreigner can still have majority ownership and can act as the managing director a sole signatory of the company, which provides the foreigner control over the company. A lot of foreigners prefer the company ownership route, as they feel it provides better protection than a land lease and gives actual ownership rights. As a company, however, you will be required to file annual taxes and prepare a balance sheet, which an accountant or bookkeeper must provide for you. This will cost anywhere from 12,000 – 20,000 THB annually. It is recommended not to trade on this company, as it will complicate the tax situation if/when you decide to sell the property.
PROPERTY TAXES IN THAILAND
Which brings us to the next topic: taxes. Owning a property via a Thai company can be advantageous for taxes only if your new buyer agrees to purchase your property with the Thai company intact. This means that the buyer purchases your shares of the Thai company and replaces you as the majority shareholder. Essentially, the property does not transfer out of the company, so there is technically no transfer of ownership at the land office. Therefore, taxes and transfer fees for the house and land would not apply. This can save a significant amount of money, but again, this would only apply if the buyer of your property agrees to purchase the house and land within the structure of your existing Thai company.
If you own the property via a Thai company and your buyer does not wish to purchase the company, then taxes and transfer fees for the house and land will apply, as in any sale transfer from one entity to another. However, if the seller is an individual, the taxes are calculated at a progressive rate; which means that the longer an individual owns the property, the lower the taxes will be. This is advantageous for an individual who has owned a property for 5 years or longer, as the Special Business Tax (3.3% of the assessed property value) is no longer applicable.
If the seller is a Thai company, regardless of the length of ownership, the Special Business Tax will always apply. This means that if a buyer purchases a property owned via a Thai company but does not want to take over the company ownership, the tax burden will be higher for the seller. For a more comprehensive explanation of Thai property taxes, please see our article about Thai taxes here: https://www.executive-homes-huahin.com/thailand-property-taxes-and-transfer-fees/ or https://siamsociety.com/thai-property-taxes
In conclusion, there are pros and cons to both leasehold and freehold ownership. Each method has its benefits and drawbacks with regard to security and risk. Speaking with an experienced real estate agent and a lawyer is the best way to gather reliable information that will help you make an informed decision that will best suit your specific needs. Executive Homes Hua Hin is always available to discuss ownership questions with potential buyers. Please feel free to contact us anytime, and we are happy to share our knowledge and experience with you.