Sap-Ing-Sith 2019/2021 – the disruptive foreign property investment structure
Thailand’s new super property right is foreigner’s Land Code 2.0
2021: The return of Thailand’s Sap-Ing-Sith in the post-pandemic world: The Sap-Ing-Sith Act had been implemented in 2019 but has been put in an operational mode only 2021. Foreign investment opportunities under the Sap-Ing-Sith are a clear signal and game-changer to help Thailand’s struggling real estate industry back on its feet. Unreasonable investment structures of the past such as lease/rentals, the unprotected minority stake in a real estate holding company, as well as the various nominee structures have an uncertain future more than ever. A fundamental strengthening of foreign land investment would, therefore, be for Thailand not only a nice-to-have.
Don’t call it a new lease: The Sap-Ing-Sith is not really an advanced lease structure, but a new type of fractional ownership. The Sap-Ing-Sith holder has a slice of legal ownership, based on a special certificate. The land document is named “Certificate of Rights Deriving Property”, it does not mention the term “lease” and this is nothing to be registered on the backside of the Chanote. The Sap-Ing-Sith Act should not be mistranslated as Rights over Leasehold Assets Act.
The game-changer of a new asset class: Thailand created in 2019 out of the blue an independent utilization real estate right. This is a new intangible asset class that might disrupt the property industry in Phuket, Samui, Pattaya, Hua Hin, and other preferred coasts and islands for foreign property investments. This post provides a constantly updated overview of the Sap-Ing-Sith legislation, regulations, procedures, and market developments in 2021.
SAP-ING-SITH 2021: THE ZOOM CONFERENCE
Thailand’s new fractional ownership investment structure for foreign property buyers in the land of smile. The regulatory framework, the areas of application, the work-flow. #sapingsith #thailand https://t.co/YC44J7QeGk
— Bitcoin Lawyer (@bangkoklawyer) February 2, 2021
Zoom video conference: Friday, February 26, 2021, 14.00 ICT
A “rights deriving property” in the making: The Sap-Ing-Sith Act (aka. Bill on Sub-Ing-Sithi) is translated as “property relying right” or “rights deriving property” and designed to provide the foreign property investor with a solid investment structure that avoids the necessity to set-up a Thai company with majority Thai shareholding. Also, it is an overdue reaction to the no longer hidden fact that the typical foreign leasehold investment bases on non-existing lease legislation in Thailand.
The legislative background: The pretty disruptive Sap-Ing-Sith Act consists of 17 sections. At a later point in time, this legal framework might be included in Thailand’s Civil & Commercial Code. It is currently unforeseeable whether the new law will gain significant importance or remain without relevance, like other laws in the past that are deemed to protect (foreign) investors.
Effectiveness: The Sup Ing Sithi Act had been published in the Royal Gazette on April 26, 2019, and became effective 180 days later, on October 27, 2019. It can be practically utilized starting February 2021. The following describes in a very tentative and provisional manner some of the important legal and business aspects of the untested new legislation as of 2019/2021.
Seven legal aspects of the #SapIngSith as a new asset class
#1. Agreement and registration: The Sap Ing Sith can be created by the landowner (or condominium unit owner) and, subsequently, be transferred to a beneficiary. The new intangible right represents tangible land ownership. Three (3) Sap-Ing-Sith Certificate of Rights Deriving Property will be issued for the land office, the landowner or condominium unit owner, and the beneficiary.
The maximum length is 30 years without an extension option. During this term, the Chanote can’t be subdivided into several parcels or merged into one Chanote. Thailand’s land offices – or whoever will be in charge of the Sup-Ing-Sith handling – might develop an individual registration policy depending on the local viewpoint in the different provinces.
#2. Landowner vs. holder rights: The Sap Ing Sith gives the right to utilize the land, building, and, as the case may be, the condominium unit. According to a statement published by the Ministry of Finance, Fiscal Policy Office, the Sap-Ing-Sith is not designed as a right-in-rem (object right) but as a personal right. As a general concept, the beneficiary holds the costs, burdens, and benefits, while any transfer of legal ownership keeps the Sap Ing Sith right intact. Whether land and building can follow separate Sap Ing Sith arrangements, is currently one of several open areas.
Compared with a 30-year lessee, the holder has much more flexibility to alternate the property without the need for consent from the landowner. He has to return the land in an as-is condition, if not agreed otherwise.
#3. Foreigner legislation: Sap Ing Sith can be held by foreigners. This might avoid the necessity to set-up a Thai Co., Ltd. to hold the land. The implications under Thailand’s nominee land owner legislation have to be carefully analyzed. Circumvention of the law is a vague and flexible term and Thailand’s authorities have their own leeway on how to interpret the new law.
Another aspect of nominee land ownership is the naked land ownership on Sap-Ing-Sith-ed real estate. If Thai authorities act consequently, Thailand’s Land Code rules on the ban of nominee ownership are applicable. Therefore, the easy structuring to let a Thai spouse or lawyer take care of the land title during the 30 year Sap-Ing-Sith period is not an easy solution.
#4. Superficies and usufructs: Superficies in the building and a usufruct in the land are traditional tools and modules to strengthen foreign property investments in the land of smile. For new as well as for already existing sophisticated property structurings, it has to be carefully evaluated whether the Sub-Ing-Sithi makes an adjustment advisable.
The fact that it can take away any participation and co-determination rights from Thais, might not make it a darling of Thailand’s public opinion as described in “Sap-Ing-Sith – Real estate investments without Thais“.
#5. Accounting, audit, taxation, costs: Under the lease concept, the land can be owned by a Thai Co., Ltd., while the villa is not shown in the company’s balance sheet but (economically) owned by the foreigner. Whether this concept can be realized under the Sap-Ing-Sith, time will tell. Another question is whether the intangible right will follow the tangible land ownership with respect to qualification as fixed asset and depreciation.
The costs involved in the registration of the Sap-Ing-Sith are still unpublished. Governmental fees of 1% of the face value might be expected.
#6. Conversion: The new regulatory framework seems to be too good to be true. The corporate ownership structure, as well as the so-called leasehold structure, can be restructured to utilize the change in the law. Details are explained in the LinkedIn article “Sap-Ing-Sith – Up or down, is it worth it?“
#7. Future developments: The Sap-Ing-Sith is barely legal. Additional regulations and supporting announcements will be required before the first Sap-Ing-Sith can be registered. Starting in February 2021, monthly roundtable events will update on the latest developments, the fine-tuning of the regulatory framework, and the actual government policy.
Professional service offer from Bangkok
PUGNATORIUS Ltd. is the Bangkok-based specialist provider of transactional legal and tax advice on foreign investments in Thailand. Real estate transactions, combined with secured corporate structures and tax-efficient cross-border transactions, are one of the main activities of the law firm. New legal developments require expert advice. 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.
Under the new Sap-Ing-Sith regulatory framework, PUGNATORIUS Ltd. offers all over Thailand the following seven services:
- Upgrade of an existing leasehold investment into a Sap-Ing-Sith investment structure for land building and condominium
- The downgrade of an existing corporate ownership structure into a Sap-Ing-Sith investment structure for land, building, and condominium
- Acquisition of land, buildings, and condominium units through the Sap-Ing-Sith investment structure
- Structuring, developing, and drafting of Sap-Ing-Sith property developments
- Structuring, developing, and drafting of real estate tokenization projects under the use of Sap-Ing-Sith
- Professional advice and legal opinions on Sap-Ing-Sith projects.
Details are described at “Legal services and tax planning for real estate acquisitions and property developments.”