Sap-Ing-Sith – the disruptive foreign property investment structure
Outlook for the future of foreign land, building and condominium investments in Thailand
Thailand created out of the blue an independent utilization real estate right. This is a new 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.
The Sap-Ing-Sith Act (aka. Bill on Sub-Ing-Sithi) is designed to provide the foreign property investor with a solid investment structure which 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 a not-existing lease legislation in Thailand.
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, as other laws in the past which are deemed to protect (foreign) investors.
The Sup Ing Sithi Act has been published in the Royal Gazette on April 26, 2019, and will become effective 180 days later, on October 27, 2019. The following describes in a very tentative and provisional manner some of the important legal and business aspects of the new legislation.
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. Three (3) Sap-Ing-Sith certificates will be issued for the land office, the landowner, and the beneficiary.
The maximal 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 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. 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 the local land offices have there own leeway how to interpret the new law.
#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.
#5. Tax structuring: 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.
#6. Costs: 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.
#7. Conversion: The corporate ownership structure as well as the so-called heasehold structure can be restructtored to utilize the change in law. Details are explained at the linked article:
High time to restructure the Thai property investment? https://t.co/1uitVUEZXq
— Bangkok Lawyer (@bangkoklawyer) September 12, 2019
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
- 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.
#Thailand‘s new #SapIngSith legislation allows the merging of #PropTech and #FinTech innovations by the creation of a Sap-Ing-Sith Token which complies with #SEC and foreigner legislation requirements in the land of smile. Would you like to know more? #PUGNATORIUS #tokenization
— Bangkok Lawyer (@bangkoklawyer) September 21, 2019
With respect to real estate transactions, PUGNATORIUS Ltd. typically provides these seven services:
- Investment structures for foreign property acquisitions
- Property due diligence examination
- Leasing transactions, protected lease schemes, sap-ing-sith models,
- Industrial estates, resorts, factories
- Hotel and hospitality projects
- Property tax structuring
- Legal opinions and property investment reviews
Details are described at “Legal services and tax planning for real estate acquisitions and property developments.”