Seven ways to improve and secure existing Thai property investments

Foreign Investment in a Thailand Villa

Foreign Investment in a Thailand Villa

Secure your villa in paradise – strengthening and protection of Thai property investments

After the property investment is done: Foreign property investors frequently acquire undeveloped land or land with a completed villa or land with a villa construction contract as a package. This covers the market knowledge and business advice of the experienced real estate agent and the legal advice from a recommended local law office. The legal fees are not significant, giving the buyer the feeling that there can’t be serious legal considerations involved, but just the filling out of some registration papers.

The day after: Sooner or later, after reading in the local newspapers about crashed villa investments of others, about the current enforcement of existing laws and the threatening activities of law enforcement agencies in the future, the investor starts thinking. Is the investment really sufficiently secured in the long term and future-proof? Should more time, money and effort have been put into a better structure? Would it make sense to seek external advice from outside the local, interwoven society? #closinghangover

Seven ways to improve existing Thai property investments

#1. Ownership structure: As is well known, foreigners cannot acquire property in Thailand. Less well known but legally equally true is that foreigners cannot acquire ownership of buildings. One of the two exceptions is the condominium unit. The involvement of a Thai wife, a Thai business friend, or a Thai lawyer is typically only of temporary harmony. If an inheritable legal position and a real investment, not based on continued dependency, is desired, only the establishment of one’s own Thai company is a meaningful approach. PUGNATORIUS Ltd. advises and assists in such upgrade procedures.

 

#2. Corporate structure: A Thai limited company can be cheap and easily set-up in a few days, based on document templates and the help of two or more Thai co-shareholders, acting as nominees to get the deal done. This requires closed-eyed trust and is not suitable for everyone. From a legal and economic point of view, the investor gives away 51% or more of his investment and takes over the unsecured position as a minority shareholder. Contrary agreements are ineffective and the foreigner should never consider using such illegal papers in a Thai court case. PUGNATORIUS Ltd. advises and assists in the implementation of veto and protection rights of minority shareholders in the company’s bylaws.

#3. Shareholding structure: To use the Thai spouse as a majority shareholder, has to take Thailand’s family asset laws into consideration. The Thai business friend might have unknown creditors who seize his shares. The Thai lawyers are obviously nominees by profession and an easy catch for law enforcement agencies. It is pretty obvious that such weak, fragile, vulnerable, even dangerous investment structure is not appropriate for a high-value villa investment in one of the preferred touristic locations on Thailand’s islands and coasts. “With the Chanote in her hand, she waves you goodbye” The most solid solution would be a Thai holding company in the full control of the foreigner, and that’s what PUGNATORIUS Ltd. recommends and carefully implements under the term “two-tier structure”. To secure the property investment, the minimum standard is to grant to Thai shareholders who do not bear their share of the total investment shares with limited rights (preference shares or preferred shares). Such restructuring has been done by the law firm frequently in the past but has its particularities and legal requirements.

#4. Land use rights: Even an improved corporate and shareholder structure has a risk profile greater than zero. All this is water-protected in the rain, but not in a storm. Double hedging, accepting perhaps redundant components, should at least be seriously considered. If the foreign investor is not even aware of the various possibilities, he cannot make an educated decision. This is especially true in special cases where the circumstances of the individual case recommend a “belt plus suspenders principle”. Typical case are projects in which the repair of the corporate and shareholding structure is for certain reasons not possible. PUGNATORIUS Ltd. advises and assists on usufruct, superficies and lease protection schemes.

#5. Villa structure: In Thailand’s property industries, 99% of the villas do not legally belong to the foreign investor, although less than 10% of these foreigners are aware of this. PUGNATORIUS Ltd. explains the legal background and the consequences under different scenarios. The law firm advises on superficies structures and other ways and means to protect the villa investment.

#6. Tax structure: The structure is often designed with the short-term view of making the acquisition as tax-efficient as possible. An essential element in this respect is to manipulate value information downwards. This does not solve the problem sustainably but shifts it into the future. PUGNATORIUS Ltd. provides support in long-term tax planning over the entire life cycle of the investment. This includes the subsequent sale of the land and the possible separate sale of the villa, each with separate tax consequences. The advice takes into account the fact that Thailand’s tax laws are likely to be applied more in the future and that there is a ten-year time limit for taking up the tax problems of the past. Cross-border tax planning and asset protection make the structure complete

#7. Legal compliance: The investment in a valuable Thai corporation can be neglected over a few years without any apparent disadvantage. With regard to the real estate investment, the documentation can be waived for a time. Afterward, the failures of the past catch up with the investor. He will then wish he had better knowledge of the requirements and had taken compliance to heart. PUGNATORIUS Ltd. takes care of the ongoing and one-time compliance obligations on a consistent basis as company secretary, or as a problem fixer of small issues which threaten to grow up into huge problems. 

Professional corporate and property legal services from Bangkok for foreign investment at Thailand’s coastal areas and islands

PUGNATORIUS Ltd. is the Bangkok-based specialist provider of legal services and tax advice on foreign investments in Thailand’s manufacturing and service industries as well as property acquisitions and developments. Sophisticated solutions in a complex legal environment. Serious legal and tax advice in the land of smile.

Professional services: Assignments on real estate investments are one of the core business activities with a particular competence, long-standing experience, and unique market reputation of the law firm. For existing property investments or during the villa construction phase, PUGNATORIUS Ltd. offers to review the seven aspects as mentioned above and to provide the foreign investor with a legal opinion on the appropriateness of the investment structure and the possibility to subsequently improve, secure and consolidate the company, shareholder structure, land and buildings, and tax structure.


Disclaimer: A little knowledge is a dangerous thing. This low-resolution high-level outlook constitutes neither legal advice nor an attorney-client relationship. Avoid your closing hangover in paradise.

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