Foreign Investors & Land Acquisition by a Thai Co., Ltd.

Foreign land ownership in Thailand faces stringent legal restrictions aimed at safeguarding the country’s interests. The legal framework ensures that land ownership remains primarily in Thai hands to prevent what might be seen as a “sell-off” that could disadvantage Thai nationals.

As a result, direct land ownership by foreigners is nearly impossible, except under very specific circumstances, like the Condominium Act, bi-national agreements or respective BOI benefits.

1. Examples of restrictive Nature in other Legal Matters

The restrictive nature of Thai land law shows, for instance, if a Thai national, married to a foreigner, purchases property and documentation must be signed to certify that the funds originate solely from the Thai spouse. This measure ensures that, in the event of a divorce, the property remains with the Thai spouse. Moreover, it is mandatory to prove that the financial resources used for the property purchase are genuinely accessible to the Thai buyer or the shareholder of a company intending to acquire the land.

In cases of foreigners inheriting land, ownership must be approved under conditions set forth by Sec. 93 of the Land Act.

2. Corporate Considerations

Due to these and similar limitations on direct land ownership, many foreign investors establish a Thai company as a vehicle for property transactions. However, this adds an additional (corporate) layer to the topic.

Meanwhile, Thailand’s Land Act, only allows juristic persons (like a Company Limited) to wield the same rights as a foreigner, being a natural person, does.

In this light, Sec. 97 Land Act deems all juristic persons deemed to be “foreign” in cases which

• the registered shares held by foreigners by more than forty nine percent of the registered capital (share percentage) or
• foreign shareholders account for more than half of the total number of shareholders (head count), as the case may be.

a. Typical Risks

It is not uncommon for companies to initially limit foreign ownership to below 40% solely for land acquisition purposes, only to later increase the foreign shareholding. However, Section 100 of the Land Code mandates that if a company transitions into a “foreign” entity after the land acquisition, the restrictions on land ownership will still apply. This rule serves as a deterrent against using temporary ownership structures to bypass legal limitations.

Even if not intended, this risk (of Sec. 100 Land Act) might also materialize if Thai shareholders leave the company.

The same principle applies to holding constructions, in which one parent company/investor “turns” foreign. Sec. 98 safeguards that a foreign owned parent is also considered “foreign” as defined in Sec. 97 Land Act.

Attempts to establish a company with nominal Thai majority ownership to avoid land acquisition restrictions are generally ill-advised. Thai authorities are well-aware of such practices, and registrations with the Land Department often trigger scrutiny of the company’s ownership. For instance, the Mor. Tor. 0515 / Por 1562 directive issued on May 15, 2006, explicitly mandates thorough verification of the true ownership structure by government officials. Thai investors must prove their financial capability to fund the purchase of company shares, especially when foreigners are involved as shareholders or directors.

b. The Company Formation Process

Establishing a Thai limited company involves several legal and administrative steps. The incorporation process, while fairly straightforward, requires compliance with various regulations to ensure the company’s legitimacy and eligibility for land acquisition.

aa. Minimum Shareholders Requirement

Thai corporate law requires a minimum of three shareholders to register a company. Typically, this includes the foreign investor, their spouse, and an additional trusted individual.

bb. Memorandum of Association (MoA)

Following the registration of the company’s name, a Memorandum of Association (MoA) must be submitted to the Department of Business Development under the Ministry of Commerce. The MoA must include:

• The company’s name;
• The province where the company will operate;
• The business objectives (referred to as “Objects of the Company”);
• A declaration limiting the liability of shareholders;
• The registered capital;
• Names, addresses, occupations, signatures, and shareholdings of the founding shareholders (at least three).

The registration fee for the MoA is THB 50 per THB 100,000 of registered capital, with a minimum fee of THB 500 and a maximum fee of THB 25,000.

cc. Statutory Meeting

Once the company shares have been fully subscribed, a Statutory Meeting must be held. At this meeting, the company’s Articles of Association are formalized, addressing topics such as voting rights, director powers, and profit-sharing arrangements. While most of the provisions adhere to the Thai Civil and Commercial Code (CCC), shareholders have the discretion to adopt different terms. The company’s first director is appointed during this meeting, and the Articles of Association are then filed with the Ministry of Commerce.

The company’s shares must be fully paid, and registration with the Department of Business Development must occur within three months of the Statutory Meeting.

dd. Articles of Association

The Articles of Association, reflecting the company’s basic structure and operations, typically follow standard Thai commercial law principles. The articles include details such as:

• Company name;
• Location of the company;
• Business objectives;
• Limitations on shareholder and director liability;
• Registered capital;
• A list of founding shareholders.

Registration fees are calculated at 0.05% of the registered capital, with a minimum fee of THB 500 and a maximum fee of THB 25,000. An additional company registration fee of 0.5% applies, with minimum and maximum fees set at THB 5,000 and THB 250,000, respectively.

ee. Registered Capital Requirements

There are no upper limits on registered capital; however, a minimum capital of THB 15 is stipulated. For companies hiring foreign workers, a minimum registered capital of THB 2 million per foreign employee is mandatory. Furthermore, companies must employ at least four Thai nationals for each foreign employee. The registered capital must be fully paid to qualify for a work permit.

ff. Timeline for Incorporation

The process to incorporate a Thai limited company typically takes 2-3 weeks once the company name registration is approved. However, this requires all major decisions to be made, in order to execute the procedure.

2. Conclusion

Navigating land acquisition in Thailand as a foreigner involves overcoming several legal hurdles designed to preserve Thai ownership of land. Forming a company is a common route, but it requires careful compliance with various legal requirements to avoid complications. The Thai government exercises significant discretion in regulating foreign ownership, making thorough preparation essential for successful land acquisition.