Only new companies with foreign shareholding who apply for land ownership are effected.

The Circular Letters of the Ministries of Interior and Commerce affecting Foreign Ownership

“Modus Operandi” of the two Musketeers to Investigate Thai Nominee Shareholders in Foreign Jointly Owned Companies

“Dossiers” which should not be “Secret” for all Property Buyers in Pattaya

The letter dated 15th May 2006 of the Ministry of Interior creates panic for many foreign property buyers in Pattaya to barter their last castles for horses. The destiny of this retreat city always depends upon rumor mongers who even said that Thai laws can be changed over night to expropriate land from all foreigners. The laws and regulation should not be retroactive to existing companies already owning land before this letter. If the government deems these existing companies violate the restriction under the Land Code, these companies will be legally forced to sell their lands in question. All monies from the sale lands will be returned to these foreigners

Under the Thai Constitution, nobody can be deprived of their property without fair compensation. If the government implements such a draconian policy, it will be the “apocalypse” not only for all foreigners but also many Thais residing in Pattaya.

As we say “the exception proves the rule”, the letter dated 15th May 2006 is applicable only to all new companies with foreign shareholding who apply for land ownership. These foreign jointly owned companies will have to prove that all Thai shareholders are not only nominees. Acting as a “nominee” for foreigner to own land is punishable under Section 113.- of  the Land Code (1954). The land registrar will investigate all Thai shareholders about their financial status. Some foreigners see the loophole to set up companies with 100% Thai nominees. The Land Office may overlook these 100% Thai companies and not investigate Thai shareholders. Some Thai nominees will afterwards transfer shares and directorship back to foreigners.

However, once they apply with the Commercial Registration Office in Chonburi to change the shareholders from Thais to foreigners, all Thai shareholders may  be investigated by the Ministry of Commerce about the source of funds. Form 15th August 2006, all Thai shareholders in companies with foreign directors or shareholders of at least 40% will have to show their bank statements of at least 6 months backwards to prove that they have enough money to buy shares.

The investigation of the Ministry of Commerce is separate from the Land Office. It is a real “Double Jeopardy” or “Dilemma”!

Foreigners not be affected by this “Double Legal Jeopardy” are the ones having no suspicious minds who buy properties under the name of their Thai spouses or partners. They may seek a proper legal protection by many legal mechanisms not to be worried from the old say “Hell hath no fury than a woman scorned”.

On 21st July 2006, the Ministry of Interior circulated once again the letter to all provincial governors to instruct all land offices under their jurisdictions to follow the practical guidance for their investigations. We will read this letter together to find out the appropriate solutions.

VERY URGENT                                                                             Ministry of Interior
No. Mor.Thor. 0515/Vor                                                         Asdang Road, Bangkok 10200

21st July 2006

Subject: Acquisition of  Land by Juristic Persons with Foreign Shareholders
Attention: All Provincial Governors
Reference: Letter of the Ministry of Interior, Very Urgent No. Mor.Thor.0515/Vor.1562 dated 15th May 2006
Enclosure: 3 sets of specimen Investigation Report

The reference is made to the practical guidance of the Ministry of Interior in relation to acquisition of land by limited companies, limited partnerships or registered partnerships (except public limited companies or juristic persons permitted to acquire land under other laws) having objectives to engage in real estate business and having foreign shareholders or directors, or there is a reason to believe that Thai nationals hold shares on behalf of foreigners whereby all Thai shareholders must be investigated about their incomes.

The Ministry of Interior deems appropriate to set forth the standard practice in order that all investigations will be conducted in the same way with the following additional practical guidance :-

1)       The practical guidance in the letter referred above shall be applicable to juristic persons (companies and partnerships) applying for acquisition of land with the objective to carry on a real estate business, i.e., buy, sale, rent of land, operation of hotel and resort.

2)       The evidence for the investigation of each Thai shareholder on the occupation and monthly income will be a letter from a working entity certifying a position with employment period and monthly salary or other reliable evidence. The investigation will be furthermore on the source of money for the shareholder to buy shares which may come from savings, sale of land, inheritance or loan by showing the evidence, e.g., bank book, agreement to sell the land, evidence showing the inheritance or loan.

3)       In case any shareholder is a juristic person with a Thai nationality (even the aforesaid juristic person has not any foreign shareholder or director), the investigation must be made on the source of money to buy shares by investigating the representative of the juristic person to ascertain the source of money by showing evidence which is a balance sheet. If the money to buy shares was borrowed from other person, the evidence being a loan agreement and minutes of meeting involved with the aforesaid matter must be produced.

4)       In case a juristic person purchases the land with the price higher than the registered capital, for instance, the company has the registered capital of 500,000 baht but the company purchase the land for the price of 10,000,000 baht without mortgage, the investigation must be made to ascertain the source of money by showing the evidence. If the money was borrowed, minutes of meeting involved with the aforesaid matter with a loan agreement and the following related documents will be required :-

4.1)              If the loan is from a foreigner or foreign juristic person, the evidence showing the source of money, e.g., the evidence showing that the money is remitted from overseas or withdrawal slip of money from a bank account with minutes of meeting of the juristic person who is the lender.

4.2)              If the loan is from a Thai individual or juristic person (even the aforesaid juristic person has not any foreign shareholder or director), the evidence proving the source of money, e.g., balance sheet, withdrawal slip of money from bank account with minutes of meeting of the juristic person who is the lender must be produced.

You are hereby informed for your further compliance with the specimen of investigation report for your practice.

Sincerely yours,

Mr. Suraat Thongniramol
Deputy Permanent Secretary of Ministry of Interior
Chief of Internal Security Group