The new zero tolerance policy of the Land Department for foreign ownership

Don’t panic to barter your last castle for a horse!

The quote of Shakespeare “My kingdom for a horse” becomes contemporary in Pattaya where most foreigners are currently in the stage of shock with the new policy of the Ministry of Interior to investigate all buyers who are companies with foreign shareholders. As we are aware, many foreigners in Pattaya set up companies with 51% shares held by Thai nominees to buy land. From now, the land registrar will investigate all Thai shareholders to ascertain if they are real shareholders or just nominees. This policy is to crack down Thai nationals who act as nominees for foreigners to acquire the land. The word “Nominee” seems to be popular amongst politicians who clandestinely run their business empires through their maids or drivers. Some lawyers in the popular resort island hold shares in 300 companies. These lawyers must make the huge billable hours to be able to buy 51% shares in 300 companies.

The circular letter dated 15th May 2006 was signed by the Deputy Director General of the Ministry of Interior who is in charge of the internal national security. The letter arrived in Pattaya on 25th  May 2006 instructing all land registrars to investigate companies with foreign shareholders who apply for registration of ownership or conveyencing. The investigation is focused on the status of Thai shareholders if they are real shareholders or just nominees. If the Thai shareholders are only nominees, the application for registration will be rejected and the legal action will be probably taken against all nominees. We are going to read the contents of this letter together to analyze the consequence of this new policy.

“Whereas, the Ministry of Interior and Land Department have set forth the regulation for the compliance of all authorities in relation to the acquisition of land by a juristic person with foreign shareholders.

Whereas, the Ministry of Interior has been reported that there are many foreigners either with Thai nationals or hire Thai nationals to register a company to carry on the business of buying and selling real properties whereby the house and land will be purchased in the first stage as residence or office and afterwards the objective will be changed to sale or subdivision of land for sale to foreigners which is contrary to the law.

The Ministry of Interior deems fit to have the additional practical guidance to prevent the evasion of law or purchase of land for benefit of foreigners according to Section 75 paragraph two of the Land Code as follows :-

In case any limited company, limited partnership or registered ordinary partnership applies for acquisition of land with the objective to carry on real estate business (except public company or juristic person permitted to acquire land under other laws, life assurance and loss insurance, Section 27 of the Investment Promotion Act 1977 or Section 44 of the Industrial Estate Act 1979 or a mutual fund for real estate of a commercial bank, a bank established by a specific law, finance company, security company and insurance) and it is found out there being foreign shareholder/s or director/s and there is a reason to believe that the Thai nationals hold shares on behalf of foreigners, the authorities must conduct the investigation into the income of all Thai shareholders to ascertain the occupation and number of working years and monthly salary upon production of the evidence. If the Thai shareholders borrowed money from other person to buy the shares, the evidence of loan must be produced. After investigation, if it is deemed that the application for registration of right and juristic act (converyancing) is legally evasive or purchasing the land for benefit of a foreigner under Section 74 paragraph two of the Land Code, the authorities will investigate into details and send the matter to the Land Department to further seek the order of the Minister”

As we said in our article “Dieu et Mon Droit Part II”, the practice of having Thai nominees is illegal. However, nobody can find the right answer for the degree of illegality. In Pattaya, you may see many sign boards “Foreigners Can own Properties in Thailand”. They should take out these sign boards and become more discreet like Swiss bankers.

We may see that this letter is just a regulation not law. It is a practical guidance for all land registrars to make the executive order. If the executive order prejudices your right, you may file the appeal and petition to the Administrative Court. You may see the government loses many cases.

Literally speaking, this new regulation will not affect the existing companies who have already owned land before this regulation. The government will dare not act like Hugo Chevez of Fidel Castro to check all the existing companies. The land registrars have the power only to reject or deny the new application for acquisition of land. If you buy land from the existing company, you may acquire the shares and take over the directorship in the existing company and automatically own land. The transfer of shares and change of directorship is not involved with the land office.

The real joint venture companies with the real Thai shareholders not nominees will not be affected by this regulation.

The 100% Thai companies are not under this regulation and some foreigners may see the loophole that there is no restriction for Thai shareholders to sell share to foreigners. All projects may transfer their houses into Thai companies before transferring shares and directorship to their buyers.

To act as a nominee for a foreigner is punishable under the Land and Penal Code of Thailand. It is a matter of fact if you can justify. To cope with this crisis, you must be more sophisticated to create the proper and justifiable transaction.

Section 113 of the Land Code imposes the maximum imprisonment of two years for any Thai national acting as a nominee for a foreigner to own land. In addition, the Penal Code for false information to the authorities can be also applied if the nominees provide the false information to the authorities once they are investigated.

How about the foreigners using Thai nominees” We cannot find any laws imposing punishment on these foreigners. If anybody finds these laws, please let us know.

This regulation is only for the land not condominium over 49% which practically sold to foreigners by companies. However, you must have double check with the relevant authorities and consult your real lawyer. The real lawyer should be willing to show you his or her lawyer license.

Some foreigners may change their minds to put the properties in the names of their Thai ladies. However, they have to be aware that “Hell hath no fury than a woman scorned”. If you have a suspicious mind, you may still protect yourself by either mortgage or 30-year lease agreement.

Don’t be miserable in the land of smiles! We know you don”t want to ride a horse back to your country where you have to wait for a retirement pension at the age of 65. “Don”t panic to barter your last castle for a horse!”