February 1, 2007
Pridiyathorn says existing firms unaffected by new rules
source: The nation
Finance Minister Pridiyathorn Devakula said Wednesday that proposed changes to the its investment law would have little effect on businesses already operating in the country.
The comments were the latest effort in damage control by Thailand's post-coup government, which has frightened investors with a series of abrupt policy changes in the last two months.
Pridiyathorn told a seminar organised by the Export-Import Bank of Thailand that proposed changes to the nation's investment law would apply mainly to new ventures.
"After the amendment, foreign investors can still hold more than 49 per cent in Thai companies if they inform the Commerce Ministry," he said.
In announcing the changes to the Foreign Business Act earlier this month, officials had said that new and old businesses would be barred from holding more than 49 per cent of the shares and the voting rights of companies in Thailand.
The amendments aimed to close a widely exploited loophole in Thai law that had underpinned much foreign investment in the country but sparked fears that the firms would have to sell off large amounts of shares to comply.
But on Wednesday, Pridiyathorn insisted that the amended law would only impose a reporting requirement on most existing businesses, to allow the public to understand what has been a murky legal area.
New companies coming into the country would, however, have to comply with the cap.
"The revised draft is to acknowledge the facts around what was already happening in Thailand for a long time but (which) was previously not clear to the public," Priduyathorn said.
"The 30 per cent reserve rules were imposed in order to help exporters to survive. It doesn't mean that Thailand doesn't welcome foreign investors," Pridiyathorn told the seminar.
"I have talked to foreign investors about how they can manage the withholding rules in order to make their new investments. If the baht gets too strong, their profit margin (from Thai operations) would be lessened."
_________________
Existing companies not affected?
And a related report from the Bangkok post:
Thursday February 01, 2007
PROPERTY / FOREIGN OWNERSHIP
British chamber waits for clarity
source: Bkk Post
Members of the British Chamber of Commerce in Thailand say they are still waiting for clear explanations of the recent changes in capital controls and nominee laws from the Thai government.
''Investors have delayed decisions. Confidence was lower previously but we believe it will come back after everything is clearer,'' said Gregory White, a BCCT director and a national director for corporate solutions of the real estate company Jones Lang LaSalle.
He made the comment yesterday at a BCCT seminar on the Thai property market and recent events affecting foreigners, which attempted to create a better understanding among British investors of changes in local rules.
Mr White said any unexpected change in policy creates concerns for investors and lack of continuity increases uncertainty going forward.
He said these concerns were possibly being further compounded by the lack of confidence as to when the proposed changes will be finalised, as further revisions are anticipated during the forthcoming legislative approval process.
Simon Landy, managing director of the property management firm Primo Co Ltd, suggested some property rules should be eased.
He proposed 99-year leasehold terms as in China and Vietnam, compared with 30 years in Thailand.
''Though the rule allows leasehold contracts to be extended twice at 30 years each, it would be more secure for both property lessee and lessor if it was a 90-year period,'' he said.
He also suggested a relaxation of rules governing foreigners buying residential units in Thailand. Currently, a foreigner who invests at least 40 million baht in authorised securities may buy one rai of land for residential purposes, subject to Industry Ministry requirements
''An investment of 40 million baht is too high. There should be permission to buy a luxury-priced unit under a condition that requires residential use only,'' said Mr Landy.
Nicholas St Johnston, general manager of GS Property Management Co Ltd, said two issues of concern were the Bank of Thailand's capital controls and amendments to the Foreign Business Act (FBA).
''Capital controls will not affect long-term investment but the FBA would have an impact on additional investment and opportunity for future investment,'' he said.
Another seminar participant said he was more concerned about the political situation than changes in the rules. He said the country faced a big challenge in drafting a constitution to restore Thailand's image internationally.
Peter Mewes, a member of the chamber's property and infrastructure committee, said the 100 or so participants at the seminar showed not only concern about the current situation but also their love of Thailand and desire to continue living and working here.
''I must, however, stress that we are not trying to tell those making the decisions what they should do,'' he said. ''However, we hope we can continue to contribute any thoughts, ideas or concerns to those deciding on our future involvement in Thailand.''
He said that in the coming months these concerns could be allayed and British businesspeople could continue to assist in the growth of the Thai economy.
Thursday February 01, 2007
PROPERTY / FOREIGN OWNERSHIP
British chamber waits for clarity
source: Bkk Post
Members of the British Chamber of Commerce in Thailand say they are still waiting for clear explanations of the recent changes in capital controls and nominee laws from the Thai government.
''Investors have delayed decisions. Confidence was lower previously but we believe it will come back after everything is clearer,'' said Gregory White, a BCCT director and a national director for corporate solutions of the real estate company Jones Lang LaSalle.
He made the comment yesterday at a BCCT seminar on the Thai property market and recent events affecting foreigners, which attempted to create a better understanding among British investors of changes in local rules.
Mr White said any unexpected change in policy creates concerns for investors and lack of continuity increases uncertainty going forward.
He said these concerns were possibly being further compounded by the lack of confidence as to when the proposed changes will be finalised, as further revisions are anticipated during the forthcoming legislative approval process.
Simon Landy, managing director of the property management firm Primo Co Ltd, suggested some property rules should be eased.
He proposed 99-year leasehold terms as in China and Vietnam, compared with 30 years in Thailand.
''Though the rule allows leasehold contracts to be extended twice at 30 years each, it would be more secure for both property lessee and lessor if it was a 90-year period,'' he said.
He also suggested a relaxation of rules governing foreigners buying residential units in Thailand. Currently, a foreigner who invests at least 40 million baht in authorised securities may buy one rai of land for residential purposes, subject to Industry Ministry requirements
''An investment of 40 million baht is too high. There should be permission to buy a luxury-priced unit under a condition that requires residential use only,'' said Mr Landy.
Nicholas St Johnston, general manager of GS Property Management Co Ltd, said two issues of concern were the Bank of Thailand's capital controls and amendments to the Foreign Business Act (FBA).
''Capital controls will not affect long-term investment but the FBA would have an impact on additional investment and opportunity for future investment,'' he said.
Another seminar participant said he was more concerned about the political situation than changes in the rules. He said the country faced a big challenge in drafting a constitution to restore Thailand's image internationally.
Peter Mewes, a member of the chamber's property and infrastructure committee, said the 100 or so participants at the seminar showed not only concern about the current situation but also their love of Thailand and desire to continue living and working here.
''I must, however, stress that we are not trying to tell those making the decisions what they should do,'' he said. ''However, we hope we can continue to contribute any thoughts, ideas or concerns to those deciding on our future involvement in Thailand.''
He said that in the coming months these concerns could be allayed and British businesspeople could continue to assist in the growth of the Thai economy.
This really gets frustrating, even for an old timer like me. One day one official says and publishes one thing and the next day, another official contradicts it. What the F!
Perhaps the current plan is to divide and conquer, confuse and re-confuse...send the farangs screaming from the house never to be seen again?!
Pete
Perhaps the current plan is to divide and conquer, confuse and re-confuse...send the farangs screaming from the house never to be seen again?!
Pete
That's all I can say about that. It really pi**es me off that some people talk the market up, when it's obvious to all and sundry that your money is better left at home - for the time being.prcscct wrote:This really gets frustrating, even for an old timer like me. One day one official says and publishes one thing and the next day, another official contradicts it. What the F!
Perhaps the current plan is to divide and conquer, confuse and re-confuse...send the farangs screaming from the house never to be seen again?!
That's all I can say about that.
And BTW, there was no need for change in legistlation. It's always been there. The interpretation of it does vary though.
Rant over.
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Guess
- Deceased
- Posts: 3470
- Joined: Fri Jul 22, 2005 3:01 pm
- Location: BangSaphan. Laurasia. Sub thumb
This could be true and so could Johnny's suggestion a but later but my cynical mind thinks that is is no plan. Planning does seem to be a Thai strong point.prcscct wrote:
Perhaps the current plan is to divide and conquer, confuse and re-confuse...send the farangs screaming from the house never to be seen again?!
[color=blue][size=134]Care in the community success story.[/size][/color]
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Wanderlust
- Legend
- Posts: 2862
- Joined: Wed Aug 04, 2004 12:27 pm
- Location: Hua Hin
I think you may have missed out a little word there Guess? Correcting your typo it becomesGuess wrote:This could be true and so could Johnny's suggestion a but later but my cynical mind thinks that is is no plan. Planning does seem to be a Thai strong point.prcscct wrote:
Perhaps the current plan is to divide and conquer, confuse and re-confuse...send the farangs screaming from the house never to be seen again?!
Planning does not seem to be a Thai strong point.
Re: Existing companies not affected?
[quote="Jockey"]February 1, 2007
Pridiyathorn says existing firms unaffected by new rules
source: The nation
Finance Minister Pridiyathorn Devakula said Wednesday that proposed changes to the its investment law would have little effect on businesses already operating in the country.
_________________[/quote]
Pridyathorn has consistently tried to talk up the concept that the new FBA will not affect existing companies for PR reasons. Of course it will have a big impact on existing companies. They have not clarified what type of filing will be required but, if you report that you are actually an alien company, that will probably mean applying for an alien business licence to comply with existing law. For Annex 1 businesses this is impossible. For Annex 2 businesses it means getting Cabinet approval and for Annex 3 it means getting approved by a committee at the Ministry of Commerce. These applications require a huge amount of documentation and five year financial projections etc. The decision is purely discretionary and they will look at capital to be invested, number of Thai employees, technology transfer. In other words, this might be feasible for subsidiaries of multinationals that have genuine Thai shareholders. They will be able retain control through preference shares, if approved for an alien business licence. At best it might be a formality to issue the alien business licence for these firms as for American treaty companies. However, if they own land, they will have to sell it first and, if they admit they had nominees before, they could be prosecuted.
So it is not likely to be very simple for any companies to get grandfathered. This is just PR bs from this grossly incompetent, dishonest xenophobe.
Pridiyathorn says existing firms unaffected by new rules
source: The nation
Finance Minister Pridiyathorn Devakula said Wednesday that proposed changes to the its investment law would have little effect on businesses already operating in the country.
_________________[/quote]
Pridyathorn has consistently tried to talk up the concept that the new FBA will not affect existing companies for PR reasons. Of course it will have a big impact on existing companies. They have not clarified what type of filing will be required but, if you report that you are actually an alien company, that will probably mean applying for an alien business licence to comply with existing law. For Annex 1 businesses this is impossible. For Annex 2 businesses it means getting Cabinet approval and for Annex 3 it means getting approved by a committee at the Ministry of Commerce. These applications require a huge amount of documentation and five year financial projections etc. The decision is purely discretionary and they will look at capital to be invested, number of Thai employees, technology transfer. In other words, this might be feasible for subsidiaries of multinationals that have genuine Thai shareholders. They will be able retain control through preference shares, if approved for an alien business licence. At best it might be a formality to issue the alien business licence for these firms as for American treaty companies. However, if they own land, they will have to sell it first and, if they admit they had nominees before, they could be prosecuted.
So it is not likely to be very simple for any companies to get grandfathered. This is just PR bs from this grossly incompetent, dishonest xenophobe.
Sorry. I forgot to mention the other sting in the tail for existing companies. The amnesty period of 90 days after the law is enacted for Thai nominees to report themselves is obviously designed to get Thais to shop foreigners they are fronting for in order to claim their stake of the companies assets on paper. Undated, pre-signed transfer forms will not help you, if this happens. The Thais legally own 51% or whatever share you have assigned them on paper. But, if the comany is loaded up with debt preferably from a third party, it may help as shareholders are only entitled to their share of assets less liabilities.
Re: Existing companies not affected?
If as stated List 3 of the FBA is excluded from this new regulation, then all our companies set-up to purchase property are not affected by the above.
I think it only affects a relatively small amount of companies doing business under List 1 and 2, the more restricted activities.
Pridiyathorn Devakula, the finance minister and deputy prime minister, said: "Overall, only 1,337 companies are expected to have to restructure, with only 15 being companies listed on the Stock Exchange of Thailand"
The 50-per cent cap will only apply to companies that deal with areas considered important to national security, or that have an impact on natural resources or Thai culture, he said.
Burger
I think it only affects a relatively small amount of companies doing business under List 1 and 2, the more restricted activities.
Pridiyathorn Devakula, the finance minister and deputy prime minister, said: "Overall, only 1,337 companies are expected to have to restructure, with only 15 being companies listed on the Stock Exchange of Thailand"
The 50-per cent cap will only apply to companies that deal with areas considered important to national security, or that have an impact on natural resources or Thai culture, he said.
Burger
Re: Existing companies not affected?
[size=9][quote="Burger"][quote]They have not clarified what type of filing will be required but, [b]if you report that you are actually an alien company[/b], that will probably mean applying for an alien business licence to comply with existing law. For Annex 1 businesses this is impossible. For Annex 2 businesses it means getting Cabinet approval and for Annex 3 it means getting approved by a committee at the Ministry of Commerce. These applications require a huge amount of documentation and five year financial projections etc.[/quote]
You would only have to report that you were an 'Alien' company if you held more than 49% of the shares though. As our companies set up to purchase property are majority Thai owned, shares wise, we are Thai companies and do not have to apply for the Alien Business Licence.
Obtaining an Alien Business Licence only applies to companies who want to have more than 50% of the shares under foreigners names.
Burger[/quote][/size]
Yes, it is a bit of a smokescreen to make it seem they are being very lenient and grandfathering a lot of companies. But most of the problems are actually in the existing FBA law not the amendments and won't be grandfathered. Even large foreign companies with less than 50% foreign shareholding but more than 50% voting rights cannot simply go and register for exemption. Nearly all of them have nominees holding the low voting right pref shares. There will be very few cases where they can get in real Thai investors to replace the nominees and take 51%, who are willing to allow the foreigners more than 50% voting rights. Those that do will probably need to apply for alien businesses licences, possibly making it not worth the hassle.
You would only have to report that you were an 'Alien' company if you held more than 49% of the shares though. As our companies set up to purchase property are majority Thai owned, shares wise, we are Thai companies and do not have to apply for the Alien Business Licence.
Obtaining an Alien Business Licence only applies to companies who want to have more than 50% of the shares under foreigners names.
Burger[/quote][/size]
Yes, it is a bit of a smokescreen to make it seem they are being very lenient and grandfathering a lot of companies. But most of the problems are actually in the existing FBA law not the amendments and won't be grandfathered. Even large foreign companies with less than 50% foreign shareholding but more than 50% voting rights cannot simply go and register for exemption. Nearly all of them have nominees holding the low voting right pref shares. There will be very few cases where they can get in real Thai investors to replace the nominees and take 51%, who are willing to allow the foreigners more than 50% voting rights. Those that do will probably need to apply for alien businesses licences, possibly making it not worth the hassle.
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tuktukmike
- Guru
- Posts: 728
- Joined: Mon Apr 18, 2005 1:02 am
Foreigners Warned on Land. Bangkokpost January 29 2007 : Foreign investors holding property through shell companies using Thai nominees have been warned to restructure their holdings or face prosecution. The Commerce Minister Krirk-krai Jirapaet told foreign journalists at a dinner talk on Friday: 'Foreigners using shell companies to buy housing across the country are violating two laws. One, the Land Act that forbids foreigners from holding land and two, the Foreign Business Act by using nominee structures. I recommend that they restructure'.
Q - Can you explain what the Minister means with restructure and what actually changed that foreigners now need to restructure?
A – The main change under the amended FBA will be that companies controlled by foreigners would be classified as foreign, even if their direct shareholdings are in a minority. The minister could mean that foreigners operating certain businesses and/ or holding land must comply with the new foreigner definition when this becomes law and give majority voting rights and control to the Thai shareholders within a certain period of time. It is uncertain if this will include requirements to have a specific number of Thai or resident directors in the company (there are currently no general restrictions on the nationality of directors of a Thai limited company). The final version of the amended FBA is still under consideration.
It is not clear if the minister means that shell companies holding land must comply with the new foreigner definition irrespective their business objectives. It is also not clear what the government will do with the illegal nominee shareholding structures or shell companies in general. If the government would investigate these companies and Thai nominee shareholders irrespective voting rights in these companies, foreigners could be ordered the termination of the illegal nominee shareholdings or face procecution and companies may be closed down and removed from the register for companies. Both under the FBA and the Land Code there are serious penalties for the foreigner who uses nominees and shell companies to circumvent the FBA or the Land Code.
The problem with holding land through shell companies is that even if you would restructure the share structure or change your business objectives to comply with the FBA, the Land Code has its own rules prohibiting the use of shell companies for land purchase. Even if a shell company complies with the restrictions under the FBA, still the Land Department could deem the company foreign or prohibit the use of nominees or deem the company as the owner in place of the foreigner or the legal set up an attempt to circumvent the laws against foreign land ownership and therefore illegal. Under a strict interpretation and implementation of the law foreigners could be forced to dispose of the land within a certain time frame or the title deed could be corrected.
Q - In the same article the minister is quoted, 'if the investors cannot observe one or two laws that are similar to those in other civilised countries, then we should not care about them' and ‘look around you, all the land in Samui, Phuket and Koh Chang is in the hands of foreigners. They cannot take the land away but there's a sense of nationalism and therefore they should restructure'.
Would this not be extremely unfair for the thousands of foreigner, who often in good faith bought villas as second or retirement homes in Thailand, to ask them to restructure when this is practically impossible?
A – Firstly, it is foreign land ownership we are talking about and this is prohibited under Thai law, as is the use of Thai nationals as nominees or shell companies to circumvent the law. This is not new. Together with the 'sense of nationalism' the minister refers to, foreigners owning properties through shell companies should be worried at the moment. Restructuring to comply with the law may be practically impossible under the announced enforcement of the expanded definition of nominees and foreign. Some foreigners now want to sell their freehold ownership, however, prices are based on foreign investments and there are simply no foreign buyers at the moment and Thais are not paying the current prices.
An example how Thai businessmen exploit the current fear among foreign property owners is the private VIP scheme, or the Thai property Long-stay program or Samui Vacation Investment Program. They advertise with slogans like ‘breaking news, your property is at risk', meaning, give us your property for free and we give you for a rip-off fee a 30-year lease in return. I would advice foreigners owning properties not to panic and the best advice would be to wait and see, certainly not to get involved with these kinds of schemes, as this is not approved by the government and is illegal. Wait and see is the best advice. It would be a big scandal for the Thai government if foreigners who bought property in good faith would be denied rights to the land or would be forced to dispose of the land. There are too many legal and political complications and this problem is simply too difficult for this temporally military government to solve. The current situation is in the first place created and allowed by the previous government(s) and its local officials and other powerful Thais.
It is clear that the government wants to clear up the nominee problem. Recent attempts by the previous government, Land Office guidelines and business registration rules, to tackle the nominee problem have shown how difficult it is. Lawyers found ways to cheat these rules and powerful people (including Thai politicians) have manipulated the application of the rules at the local level for their own benefit. Local officials have even explained to foreigners how to circumvent the rules.
Q - Why would 'powerful people' manipulate the rules at the local level for their own benefit?
A - In Thailand powerful people can manipulate the law or enforcement of the law for their self-interest. They have huge interests in land and property development in tourist areas like Phuket and Samui where based on foreign investment land and property prices skyrocketed the recent years. Prices in areas like Samui and Phuket are based on foreign investment and they are simply trying to protect their investments.
There is an additional risk, as it has become common practice for these people to invest in title-lese land. Influential Thais know how to cheat the rules and have the connections to get such land upgraded. If needed documents are created or adjusted. The administration of land is a mess, the documentation is confusing and the scale of corruption and financial interest is huge. Converting land from title-less to properly-titled is one of the easiest ways to make a lot of money fast. Powerful Thais get the cooperation of the local officials by one means or another. As a result large areas have been illegally upgraded or encroached on reserved forest land. The Samui Land Department is blamed for ignoring land encroachments. In Samui thousands of rai has been illegally issued title deeds. Worthless land, often mountain land, became worth millions and is sold to foreign investors who now may face legal problems for a- illegal possession or b- unlawful foreign ownership. Just take as an example the recent land scandal around the Peak project. It is corruption and self-enrichment of powerful Thais, including leading members of the Thai Rak Thai party and local politicians and officials that is to blame for the current problems.
Company ownership is not illegal per se and the local officials could argue that they did nothing illegal when they registered land into a partly foreign owned company. The foreigner broke the law, they followed the official process. However, section 74 of the Land Code states '.... If there is reason to believe the recording of such rights and legal acts is an evasion of the law or there is reason to believe the purchaser is purchasing on behalf of an alien, instructions shall be asked of the Minister whose word shall be final'. The use of shell companies for land purchase is an evasion of the law and the company is purchasing on behalf of the foreigner. It is clearly illegal, however, no minister yet had the guts to issue instructions how to deal with this problem.
Q - Do you expect this military government to tackle foreign land ownership?
It is anybody's guess what the government will do. Based on the Commerce minister's comments the situation is very uncertain and anti foreign. The question is also what the Land Department will do. Certain is that the amendments in the FBA will directly affect companies operating (or having objectives to operate) businesses on List 1 and 2 of the FBA. Shareholding structures in these businesses will face close scrutiny by the government and will have to restructure their indirect foreign ownership or will face legal problems. This includes partly foreign owned companies developing and selling land and villas to foreign buyers.
I expect for the short term that there will remain some form of status quo when it concerns foreign land ownership through shell companies. These companies must comply with the new foreign definition under the FBA and the situation will be ignored again. In the longer term, maybe the next elected government will have to change the law and allow foreigners to own land (unlikely) or find a reasonable solution for the current problem or continue to ignore the problem until they worked out what to do with this problem. One solution could be that there will be some kind of amnesty for foreigners who bought property through shell companies, where the land will be owned by say the Treasury Department and the foreigners in return will receive a 30-year lease.
Q - If these shell companies have always been illegal, why has this become such a common practice?
A - If a lie is told often and long enough and the law not enforced it becomes the truth. The same with land holding companies. Foreign purchasers believed these companies were a recognized and legally sound method for foreigners to 'own' land. In fact it has always been illegal and based on a non-enforcement of the law.
The current announced shift in law enforcement is not an unforeseen development for legal specialists as the laws prohibiting the use of nominees and shell companies have always been there. The law was not enforced by the previous government, though the risk of future law enforcement was always there.
Q - How about the lawyers who adviced these structures?
A - As the minister said, foreigner holding property through shell companies using Thai nominees are violating two laws. As it has always been illegal the property lawyers provided advice and substantial assistance to the foreign client's breach of the law and supplied the means to do so, while the client often in good faith thought he was entering into a legally sound, accepted and recognized method for land purchase.
I believe statistics showed there were about 1200 new companies registered in 2005 in Samui alone and there are huge profits to make as long as these property law firms play the game with the real estate agents and local government. I guess if foreigners were properly adviced about the illegal aspects and risks and concerns involved in company ownership 80% would have pulled out of the deal. How many 'law firms' are there currently on a small island as Samui? Thirty? Forty? There is a fierce competition for the legal work and they obviously do not explain the legal risks and concerns to foreign purchasers, because then they would be out of work in no time. All these firms use illegal nominees structures and holding vehicles to set up dodgy companies for land purchase and assist foreigners in violating the law for their self-interest. This company ownership structure is not something they would sell to their friends and family or they would use themselves. The property firms knowingly misled and ill-advised foreigners for their self-interest and they could be held accountable for their negligence and sometimes even criminal acts. They are liable for their professional conduct that is impermissible and, if found guilty, for committing an offence aiding and abetting the commission of an offence under the Land Code and the FBA.
There are several groups to blame for the fact that all the land in Samui, Phuket and Koh Chang is in the hands of foreigners. Lawyers, Thai government, politicians, local officials, powerful Thais, however, not foreigners who in good faith bought villas as second or retirement homes in Thailand.
Q - Can you explain what the Minister means with restructure and what actually changed that foreigners now need to restructure?
A – The main change under the amended FBA will be that companies controlled by foreigners would be classified as foreign, even if their direct shareholdings are in a minority. The minister could mean that foreigners operating certain businesses and/ or holding land must comply with the new foreigner definition when this becomes law and give majority voting rights and control to the Thai shareholders within a certain period of time. It is uncertain if this will include requirements to have a specific number of Thai or resident directors in the company (there are currently no general restrictions on the nationality of directors of a Thai limited company). The final version of the amended FBA is still under consideration.
It is not clear if the minister means that shell companies holding land must comply with the new foreigner definition irrespective their business objectives. It is also not clear what the government will do with the illegal nominee shareholding structures or shell companies in general. If the government would investigate these companies and Thai nominee shareholders irrespective voting rights in these companies, foreigners could be ordered the termination of the illegal nominee shareholdings or face procecution and companies may be closed down and removed from the register for companies. Both under the FBA and the Land Code there are serious penalties for the foreigner who uses nominees and shell companies to circumvent the FBA or the Land Code.
The problem with holding land through shell companies is that even if you would restructure the share structure or change your business objectives to comply with the FBA, the Land Code has its own rules prohibiting the use of shell companies for land purchase. Even if a shell company complies with the restrictions under the FBA, still the Land Department could deem the company foreign or prohibit the use of nominees or deem the company as the owner in place of the foreigner or the legal set up an attempt to circumvent the laws against foreign land ownership and therefore illegal. Under a strict interpretation and implementation of the law foreigners could be forced to dispose of the land within a certain time frame or the title deed could be corrected.
Q - In the same article the minister is quoted, 'if the investors cannot observe one or two laws that are similar to those in other civilised countries, then we should not care about them' and ‘look around you, all the land in Samui, Phuket and Koh Chang is in the hands of foreigners. They cannot take the land away but there's a sense of nationalism and therefore they should restructure'.
Would this not be extremely unfair for the thousands of foreigner, who often in good faith bought villas as second or retirement homes in Thailand, to ask them to restructure when this is practically impossible?
A – Firstly, it is foreign land ownership we are talking about and this is prohibited under Thai law, as is the use of Thai nationals as nominees or shell companies to circumvent the law. This is not new. Together with the 'sense of nationalism' the minister refers to, foreigners owning properties through shell companies should be worried at the moment. Restructuring to comply with the law may be practically impossible under the announced enforcement of the expanded definition of nominees and foreign. Some foreigners now want to sell their freehold ownership, however, prices are based on foreign investments and there are simply no foreign buyers at the moment and Thais are not paying the current prices.
An example how Thai businessmen exploit the current fear among foreign property owners is the private VIP scheme, or the Thai property Long-stay program or Samui Vacation Investment Program. They advertise with slogans like ‘breaking news, your property is at risk', meaning, give us your property for free and we give you for a rip-off fee a 30-year lease in return. I would advice foreigners owning properties not to panic and the best advice would be to wait and see, certainly not to get involved with these kinds of schemes, as this is not approved by the government and is illegal. Wait and see is the best advice. It would be a big scandal for the Thai government if foreigners who bought property in good faith would be denied rights to the land or would be forced to dispose of the land. There are too many legal and political complications and this problem is simply too difficult for this temporally military government to solve. The current situation is in the first place created and allowed by the previous government(s) and its local officials and other powerful Thais.
It is clear that the government wants to clear up the nominee problem. Recent attempts by the previous government, Land Office guidelines and business registration rules, to tackle the nominee problem have shown how difficult it is. Lawyers found ways to cheat these rules and powerful people (including Thai politicians) have manipulated the application of the rules at the local level for their own benefit. Local officials have even explained to foreigners how to circumvent the rules.
Q - Why would 'powerful people' manipulate the rules at the local level for their own benefit?
A - In Thailand powerful people can manipulate the law or enforcement of the law for their self-interest. They have huge interests in land and property development in tourist areas like Phuket and Samui where based on foreign investment land and property prices skyrocketed the recent years. Prices in areas like Samui and Phuket are based on foreign investment and they are simply trying to protect their investments.
There is an additional risk, as it has become common practice for these people to invest in title-lese land. Influential Thais know how to cheat the rules and have the connections to get such land upgraded. If needed documents are created or adjusted. The administration of land is a mess, the documentation is confusing and the scale of corruption and financial interest is huge. Converting land from title-less to properly-titled is one of the easiest ways to make a lot of money fast. Powerful Thais get the cooperation of the local officials by one means or another. As a result large areas have been illegally upgraded or encroached on reserved forest land. The Samui Land Department is blamed for ignoring land encroachments. In Samui thousands of rai has been illegally issued title deeds. Worthless land, often mountain land, became worth millions and is sold to foreign investors who now may face legal problems for a- illegal possession or b- unlawful foreign ownership. Just take as an example the recent land scandal around the Peak project. It is corruption and self-enrichment of powerful Thais, including leading members of the Thai Rak Thai party and local politicians and officials that is to blame for the current problems.
Company ownership is not illegal per se and the local officials could argue that they did nothing illegal when they registered land into a partly foreign owned company. The foreigner broke the law, they followed the official process. However, section 74 of the Land Code states '.... If there is reason to believe the recording of such rights and legal acts is an evasion of the law or there is reason to believe the purchaser is purchasing on behalf of an alien, instructions shall be asked of the Minister whose word shall be final'. The use of shell companies for land purchase is an evasion of the law and the company is purchasing on behalf of the foreigner. It is clearly illegal, however, no minister yet had the guts to issue instructions how to deal with this problem.
Q - Do you expect this military government to tackle foreign land ownership?
It is anybody's guess what the government will do. Based on the Commerce minister's comments the situation is very uncertain and anti foreign. The question is also what the Land Department will do. Certain is that the amendments in the FBA will directly affect companies operating (or having objectives to operate) businesses on List 1 and 2 of the FBA. Shareholding structures in these businesses will face close scrutiny by the government and will have to restructure their indirect foreign ownership or will face legal problems. This includes partly foreign owned companies developing and selling land and villas to foreign buyers.
I expect for the short term that there will remain some form of status quo when it concerns foreign land ownership through shell companies. These companies must comply with the new foreign definition under the FBA and the situation will be ignored again. In the longer term, maybe the next elected government will have to change the law and allow foreigners to own land (unlikely) or find a reasonable solution for the current problem or continue to ignore the problem until they worked out what to do with this problem. One solution could be that there will be some kind of amnesty for foreigners who bought property through shell companies, where the land will be owned by say the Treasury Department and the foreigners in return will receive a 30-year lease.
Q - If these shell companies have always been illegal, why has this become such a common practice?
A - If a lie is told often and long enough and the law not enforced it becomes the truth. The same with land holding companies. Foreign purchasers believed these companies were a recognized and legally sound method for foreigners to 'own' land. In fact it has always been illegal and based on a non-enforcement of the law.
The current announced shift in law enforcement is not an unforeseen development for legal specialists as the laws prohibiting the use of nominees and shell companies have always been there. The law was not enforced by the previous government, though the risk of future law enforcement was always there.
Q - How about the lawyers who adviced these structures?
A - As the minister said, foreigner holding property through shell companies using Thai nominees are violating two laws. As it has always been illegal the property lawyers provided advice and substantial assistance to the foreign client's breach of the law and supplied the means to do so, while the client often in good faith thought he was entering into a legally sound, accepted and recognized method for land purchase.
I believe statistics showed there were about 1200 new companies registered in 2005 in Samui alone and there are huge profits to make as long as these property law firms play the game with the real estate agents and local government. I guess if foreigners were properly adviced about the illegal aspects and risks and concerns involved in company ownership 80% would have pulled out of the deal. How many 'law firms' are there currently on a small island as Samui? Thirty? Forty? There is a fierce competition for the legal work and they obviously do not explain the legal risks and concerns to foreign purchasers, because then they would be out of work in no time. All these firms use illegal nominees structures and holding vehicles to set up dodgy companies for land purchase and assist foreigners in violating the law for their self-interest. This company ownership structure is not something they would sell to their friends and family or they would use themselves. The property firms knowingly misled and ill-advised foreigners for their self-interest and they could be held accountable for their negligence and sometimes even criminal acts. They are liable for their professional conduct that is impermissible and, if found guilty, for committing an offence aiding and abetting the commission of an offence under the Land Code and the FBA.
There are several groups to blame for the fact that all the land in Samui, Phuket and Koh Chang is in the hands of foreigners. Lawyers, Thai government, politicians, local officials, powerful Thais, however, not foreigners who in good faith bought villas as second or retirement homes in Thailand.