Nor Sor. Land Purchase and Lease in Thailand
The land title deeds in Thailand
- Sor Kor 1. This document means that land occupants are occupying or making use of certain land plots, whose ownership has not been claimed by any entity. The document does not indicate legal possession of the informer so one cannot transfer the ownership of the property to any one else. The Sor Kor 1 is rare now as the government's land ownership legislation has covered most area of the country.
- Nor Sor 2 states the government's permission for person or legal entity to make use of land temporarily. Need to utilize at least three-quarters of the land plot within three years after the document issuance. This right is non transferable. At the finish, land occupants can seek the right to demand higher privileged title deed.
- Nor Sor 3 is a governmental letter certifying a utilization of certain land plot by certain people and that the plot of land has been surveyed and its official map created.
- Nor Sor 3 A is similar to the Nor Sor 3 certification. The only difference is the map survey of the land plot based on an aerial-viewed photograph of the land.
Note: Nor Sor documents are issued to show the possessors' exploitation of the land. Though these documents do not provide ownership rights, as do Title deeds, they can still be registered for transfer of the lands for which they are issued.
- Ownership Title Deed or Chanote (Nor Sor 4) is the ultimate certification of land ownership. Holders of the title deed have full rights to transfer or sell the properties and to bar other parties from violating their rights over the land protected by the ownership title deed law. These title deeds must be registered at the Land Department in the province in which the land is located. It should also be noted that a parcel of land may be commonly held by several individuals. A person whose name appears on a Chanote, or Land Title Deed, has all the legal rights to that land, can produce the deed as evidence of ownership to Government officials.
Purchasing and ownership of land by foreigners in Thailand
Ownership of land is governed by the Land Code BE 2497 (1954), the Civil and Commercial Code, Land Reform for Agriculture Act BE 2518 (1975) and the regulations set forth by the Ministry of the Interior. Under strict application of the existing law it is officially prohibited for foreigners, including both individuals and juristic entities (e.g., companies or partnerships), to own land in Thailand. However, the Land Code has been amended with Section 96 bis providing that since January 19th, 2002, a foreigner is allowed to purchase land in Thailand for residential purpose and the land to be purchased shall be not exceed 1 Rai in area, and the following rules and conditions must be met:
- No less than 40 million baht is remitted into Kingdom of Thailand for investment and maintaining the investment not less than five years;
- Permission is granted by the Minister of Ministry of Interior;
- Money brought into the Kingdom shall be invested in one of the following businesses or activities;
3.1 to purchase bonds of Thai Government, bonds of Thai National Bank, bonds of State Enterprise or bonds which the Ministry of Finance secures the capital or interest,
3.2 an investment in a property mutual fund, a property mutual fund or a mutual fund for resolving financial institution problems established under the law on Securities and Stock Exchange,
3.3 an investment in share capital of a juristic person who is granted permission of investment under the law on promotion of investment, 3.4 an investment in an activity as declared by the Board of Investment to be an activity eligible to be granted promotion of investment under the law on promotion of investment;
- the land to be acquired shall be located in Bangkok Metropolis, Pattaya City, or Tessaban (Municipality), or in the area specified as residential zone according to the law on Town and Country Planning and shall not be located in a military safety zone according to the law on Military Safety Zone;
A foreigner, who is granted permission, shall utilize the land only for residence for his/herself and the family in a way that is not contrary to the local custom or good living of the local community;
If a foreigner, who is granted permission to acquire such land, does not comply with the rules and conditions specified, he/she shall disposes of such land in the portion of his/her possession within the period of time specified by the Director General of the Department of Lands which shall be not less than one hundred eighty days and not more than one year. If the time limit elapses, the Director General shall have the power to dispose of such land;
If a foreigner, who is granted permission to acquire such land, does not utilize the land for residence within two years as from the day the registration for land acquisition is made, the Director General shall have the power to dispose of such land
Besides the aforementioned rules and conditions, a foreigner may acquire land by inheritance as statutory heir, in this instance, the land devolved when combined with the land already acquired shall not exceed that specified by law, for example, land for residential purpose not exceeding 1 Rai per household, commercial purpose not exceeding 1 Rai, industrial purpose not exceeding 10 Rais and land for agricultural purpose not exceeding 10 Rai per household.
A foreigner whose spouse is a Thai national either legitimate or illegitimate, that Thai national can purchase land but the foreigner spouse of that Thai national must give a joint written confirmation that the money which that Thai national will expend on purchasing the land is wholly the separate property or personal effects of that Thai national and not jointly acquired property (not the "Sin Somros").
Taxes and duties
The Board of Investment (BOI) may grant a foreign owned company permission to own land if the intended use of the land is for an activity promoted by the BOI. Prior to the purchase, the BOI must review the land and the plans for construction and agree that the land is suitable for the promoted activity. After purchase, the land may only be used for that activity and, in the event that the business conducting the activity is dissolved, the land must be sold within 1 year of that date. An additional benefit of this BOI promotion is that businesses granted the right to own land under these conditions may also be eligible to conduct business activities that would also be generally restricted to foreign individuals and juristic entities.
There are various different ways in which you can structure your affairs so that you can possess land, and still comply with existing Thai laws as follows:
A foreigner can use a Thai Nominee to purchase the house/land and have a 30 year lease with a 30 by 30 year option from the nominee. In order to be enforceable, any lease for a period of longer than three years must be registered, which involves payment of a registration fee and stamp duty based on a percentage of the rental fee for the whole lease term. The original registered lease remains in force and effect even if the property is sold. The drawbacks to a lease include the fact that the parties can contractually agree to renewals, but this right cannot be registered and is not effective against a purchaser of the property, and that the lessee cannot (without the lessor's consent) sublease, sell or transfer his or her interest.
A foreigner can use a Nominee to purchase the house/land and have a mortgage (registered with the appropriate land department office) on the property in your favour. However, in some circumstances the Thai courts have ruled that this was not a bona fide mortgage, but rather it was a mortgage contrived to circumvent the existing laws of Thailand prohibiting foreign ownership of land. It is important to note that only the owner of the land is entitled to mortgage the land; the lessee of land does not have the same privilege.
Usufruct Interest called in Thai that "Sidthi-kep-kin" , this right gives you temporary ownership rights to things on or arising from the land. In practice, a usufruct is limited to a 30 year maximum period; like leases, the agreement can be successively renewed. In contrast to a lease, a usufructury interest can be sold or transferred, although it expires upon the death of the holder of the usufruct and therefore cannot be inherited.
Purchasing property by Limited Liability Company is the most popular with foreign investors as the Articles of Association can be varied to allow greater protection for foreign minority shareholders where majority Thai ownership is required under the Alien Business Law. Thai law requires that 51% of the shares be held by Thai juristic persons, however, any company with more than 40% foreign interest that purchases land will be investigated by the Central Land Office in Bangkok (subject to Section 74 of the Land Code) to ensure that the company has not been organized in an attempt to circumvent the prohibition against foreign ownership of land.
This results in the foreign ownership of the company being limited at 39%, but with the recommended changes to the Articles of Association, the foreigner can be the only director of the company, and the only officer of the company who can commit or bind the company in any contractual dealings - effectively giving the minority shareholder control over the company.
Leasing of land by foreigners in Thailand
Long term leasing with rights to renewal:
Because of the barriers in place to the purchase of land by foreigners, the most effective way to acquire land that a building resides on is to purchase the land on a 30-year leasehold with an option to extend the lease for subsequent 30-year periods. Leases are limited to 30 years, except on land for industrial purposes, which may be established for 50 years. Similarly, lease extensions are capped at 30 and 50 years respectively. Possession of the land leased for an already owned building is protected by the fact that the building rests on the land; ownership of the building is separate from the land and cannot be seized by the lessor once the lease expires. Leases exceeding three years are enforceable for only 3 years unless they are registered with the Land Department. Therefore, a 30-year lease must be registered with the Land department. In addition, a lease continues to be valid even in the event the property on the land is sold.
Land Estimation and Valuations
Finding the exact estimate price for land is difficult, since there are generally three different estimate rates
- The government rate
- The estimate company's rate
- The rate which is considered to be fair market value of the land.
Over the last few years all of these rates have begun to come closer together.
Taxes and Costs of Purchasing a Property
On all purchase / sale of property in Thailand there is a stamp Duty 0.5% of valuation price, a transfer fee is 0.2% of valuation price .There is no Capital Gains Tax in Thailand, unlike many countries, and Income Tax (usually between 1.0 - 3.0%) on property is the comparable replacement.
