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."
Bangkok Post Thursday December 21, 2006 –
Property firms seek clarity on foreign buying
Excerpt from an article by NINA SUEBSUKCHAROEN
Sally Ann Lefley, an associate at the Bangkok-based firm McEvily
& Collins, said that investors should simply look to lease
land because the government has been enforcing regulations that
restrict foreigners from setting up companies to buy land.
''Just totally forget about trying to buy land through a Thai
company,'' she said. ''Things have taken place since the coup;
it got very, very strict thereafter. So if a Thai company wants
to buy a piece of land now, if it's 100% Thai, it's no problem.
But if there is a foreign shareholder or director then the Land
Office will investigate that company and check if the Thai shareholders
are actually nominees for the foreign director or shareholder.''
The maximum term of a lease in Thailand is 30 years and Thai law
allows one renewal of 30 years.
''You can still buy a house or a villa; it's just the land that
you can't actually buy,'' Ms Lefley said. ''So you can choose
to lease the house as well as the land or you can choose to buy
the house outright.''
However, she cautioned that once the lease expires, the house,
unless the lease agreement says otherwise, would actually become
the property of the landowner.
''So whereas before sellers and buyers were concentrating more
on freehold aspects, it seems that the sellers now are really
getting to grips with leases and putting in more provisions, not
only to protect themselves but also to protect the lessees,''
she said.
Even so, Ms Lefley noted that foreigners are not shying away from
buying land and houses as her law firm had feared.
''It seems more and more are quite accepting of the option to
lease. They don't seem too concerned about owning a freehold so
that they can pass it on to their family when they die; it seems
a lot are looking at using the property for themselves and not
looking to pass it down.''
Asia Property Report – Excerpt from an article on December
20, 2006 - Thai property immune from Baht regulations
The Thai property industry is breathing a collective sigh of
relief
following an announcement by the Bank of Thailand that property
– including
land and condominiums – is exempt from the new reserve requirement
on
short-term capital inflows.
The announcement was posted on their website Wednesday, clearing
up some of
the confusion surrounding the Bank’s measures.
This means foreign purchasers of condominiums can bring funds
into Thailand
to purchase condominium property. According to a major local bank,
foreign
condominium purchasers should clearly state the project name and
unit number
when remitting funds.
Ms. Aliwassa Pathnadabutr, managing Director of CB Richard Ellis
Thailand
said, “We welcome this clarification which means that foreign
property
purchasers are not affected by the new regulations. We believe
that this
will reassure existing and potential property purchasers.”
Repercussions of the
May 15th Land Department directive requiring greater scrutiny
of land purchases by companies with foreign investors.
Excerpt from an interview with Cynthia Pornavalai, Partner and
Head of Banking and Finance Group, Tilleke & Gibbins. Cynthia
M. Pornavalai is a partner in the Commercial Department of Tilleke
& Gibbins International Ltd. She specializes in Banking and
Finance, Mergers and Acquisitions, Construction and Property,
and Corporate Restructuring, and has written many articles and
made presentations on these subjects. She occasionally lectures
in Business Law at Thammasat University and Schiller-Stamford
International College in Bangkok.
A few of months have passed since the regulation was
announced, what do you think the impact has been?
Because there was so much confusion the initial reaction of the
land office was not to register the titles of land of companies
that had any foreign shareholding at all. They didn’t know
how to apply those regulations. Later on, on July 15, there was
a clarification as to how this regulation should be applied and
what document threshold was required from the applicant. That
clarification was actually not publicly noted. It says that if
it is for less than one rai, it is all right for foreigners to
own up to 49%, which is like it used to be. When the May 15 regulation
came out, the general interpretation was that foreigners couldn’t
be part of companies that own land. The July clarification says
that for less than one rai and if the land is going to be used
as a residence for the company’s director, then that’s
fine and will not be subject to the so much scrutiny.
Why do you think the clarification was issued? Was there
pressure from somewhere?
There could have been. I don’t know the inside story of
it, but it could have been pressure plus the confusion. The land
office didn’t know what to do at that time. For fear of
that they might break the law, they either applied strict interpretation
of the regulation, or simply sent everything back to the land
department in Bangkok.
So the message is that it is OK for a small private investor
to have a house in Thailand, but a property developer must have
active Thai involvement?
Even with smaller investors they want to see active Thai involvement.
It’s just the level of scrutiny that’s different.
Has your business been affected?
It was for a very short period. We learnt about the second clarification
in August – the other land offices were not aware of this
clarification until the second week in August – and we were
actually the ones trying the educate the officers. Whether business
has been affected or not? We haven’t actually seen any impact
because it was a very short period. We had clients who were trying
to transfer titles and their transactions had to be put on hold
when the notification came. At that time, my advice was to ‘wait
and see,’ until the dust settles. Some were quite anxious
and restructured their companies at a high cost.
Do you realistically see the crackdown widening?
I’ve spoken with some policy makers and it is not a crackdown
they are focusing on, but more of the abuse of the law by certain
sectors. I think the policy trend now is to come up with amendments
to the law. Maybe not as far as we would want, with foreigners
being allowed to directly hold land, but probably amendments allowing
foreigners to get involved in certain sectors that have been closed
up until now – like the service sector, for example. With
respect to the land, I think it will stay the same, because it’s
very close to the Thai people and a very political issue.
The
coast with the most. Is Krabi taking off ? Excerpt from an article
written by Steven King
It was the addition of the international section of Krabi Airport
that finally opened up the region in the minds of developers.
International flights to Sweden and Singapore have helped raise
the profile of Krabi as well as bring in an estimated 4,200 extra
tourists per month. Further international destinations are expected
to be added for the next high season including Hong Kong, Malaysia
and some European capitals. There are also a large number of domestic
flights available from Bangkok or Phuket through Air Asia, Thai
Airways and Tiger Airways that have added to Krabi’s growing
number of visitors.
In 2005, Prime Minister Thaksin Shinawatra created the “Andaman
Paradise” strategy that aimed to revive tourism and development
in the tsunami-hit southern provinces of Phuket, Phang Nga and
Krabi. Krabi was especially highlighted as a “charming and
tranquil eco-tourism centre.” Property developers seem to
have heeded this emphasis as a method of not only development
but also of marketing.
“Krabi is one of the least developed Thai resorts, yet
benefits from an international airport, excellent infrastructure
and fantastic scenery and ocean views. It is not overdeveloped
and has retained much of the original charm of Southern Thailand,”
Savills´ Collins said.
Concept seems to be key for developments in Krabi with the surroundings
being almost equally as important as the actual buildings themselves.
Pavilions, Gordon Oldham’s Hong Kong-based boutique hotel
and property development group, has turned its focus to Krabi
as the sight of their next “Intimate Escape”. The
success of Bali Pavilions in Sanur and Phuket Pavilions in Bang
Tao Bay led the group to what they see as an up and coming destination.
Pavilions Sales & Marketing Director Karie-Ann Carpenter,
explained how Krabi fitted into the Pavilions concept: “Pavilions
Resorts chose the Krabi region for its pristine and unique landscape.
The surrounding cliffs, jungle, powdered white sand and crystal
water are four elements that our architects have mirrored in the
design of the resort. I would describe the innovative design of
Krabi Pavilions as ‘landform architecture.’”
Fuelled by the success of Bali and Phuket Pavilions, there is
already considerable market interest in the project which they
are currently preparing to begin construction on. It should be
completed by late next year although it is doubtful that by that
time any of the residences will remain on the market. Carpenter
said units will become available for sale by the end of July and
interest is expected to be high.
The largest of the current developments is Asian Tropical Home´s
“The Cove at Krabi”. The 177-acre project is expected
to include over 325 Villas, 240 apartments and a 250-room resort
hotel as well as containing over a kilometre of beach. There will
also be four swimming pools, a tennis court, gym, driving range,
full-sized football pitch as well as a number of restaurants,
bars, shops and a supermarket.
“Initially the project was to be on a smaller scale but
sheer demand forced us to rethink and expand the development,”
Andrew Hyde, Regional Sales Manager for Asian Tropical Homes said.
“Despite being one of the largest developments on plan in
Krabi we are committed to maintaining a strong emphasis on the
environmental attraction of the province.”
“With relatively low property values, we expect Krabi will
become one of the fastest growing new Thai markets,” Robert
Collins said. “There is a lot of land available and demand
may be expected to skyrocket over the next few years. As Phuket
and Samui land and villa values are exhibiting such aggressive
upward trends it is only expected that Krabi will follow.”
Excerpt
from an interview with Robert Collins, Managing Director, Agency
and Investment Services, Savills (Thailand) Limited
Where do you think is the best place to buy purely from an investment
perspective?
Each market has its gems. Krabi is the emerging market, arguably
with the nicest environment, the best natural surroundings, a
fantastic airport, very good infrastructure and it provides an
idyllic destination for a quiet holiday home in Thailand. Values
have only just started and the level of development is negligible.
If you are touring around Krabi, you won’t see any agent
signboards. It’s clearly the next market that is about to
hit the big time.
Samui has quite a large number of interesting projects dotted
around, which will continue to see strong capital growth and perform
very well on resale. Pattaya in particular has a few very good
investment grade properties coming online, that will not only
rise in value quite quickly from the launch, but will also achieve
strong rentals as soon as they are completed. Each of the markets
has its own plus points, but there is definitely clear evidence
that each market also has projects that don’t work and don’t
perform well. So it’s important for buyers to really do
their due diligence and take the time to tour the markets and
understand what they are looking at, because there are developments
that have not got good title, or construction permits aren’t
clear enough and people really do need to do their homework.
Could Krabi develop to be a superior property investment location
to Phuket?
At this point in time Krabi could go two ways. If the local administration
maintains the control they have now and does not allow the hawkers
and umbrellas to control the beaches, it could put Krabi in an
amazing position. The road network is seemingly brand new and
if they can maintain that control and attention to detail then
Krabi could become the leading destination for high-end holiday
makers and investors looking for an environment where you genuinely
have nice beaches, fantastic views, good facilities and, right
now, a low starting point. The potential for capital growth is
enormous; it’s shades of where Phuket was 20 years ago.
When foreigners consider structures for real estate investment
in Thailand they should work out the costs and benefits, because
normally this only pays off for property of substantial value,
according to Paul Ashburn, a senior partner of BDO Richfield Advisory
Ltd.
Structuring is normally worthwhile only for property worth 20
million baht or more, since it costs money to maintain such structures
during the period one holds the property. "That's just a
rule of thumb, in each case you require an analysis to see whether
it will be worthwhile to think about placing an entity between
yourself and the property," he said.
Foreigners who consider buying freehold land would have to do
so through a Thai company that complies with the Land Code, because
one cannot use an offshore entity to buy land. The common use
of the latter is to buy a condominium or lease the land but actually
own the house that is built on it.
Mr Ashburn explained that an offshore investment could be structured
in such a way that there is no requirement under the law to pay
taxes on rents. However, if you use a Thai company there is an
assumption that the company has bought the property for commercial
purposes, so even if it is actually your own residence, it is
really a company that owns it and it is not your own property,
so under the law if you don't pay rent to the company the authorities
can assess this rent.
"Some foreign investors may get the impression they can
easily set up a Thai company and then just forget about it but
the company is a separate person from yourself, so if you bought
property as your residential home in a Thai company, you have
to be aware that the company should be given a reasonable rent
and return."
Mr Ashburn added and one cannot operate them as if they were
shell companies. "What will happen is it will be registered
just like any other company; you have to prepare proper accounts
and have them audited, file tax returns, so you will be registered
with the authorities.
"And from our experience now when you are setting up companies
the Revenue Department will very likely visit you early on to
make sure you're aware of your obligations under the Revenue Code."
The structure a foreign buyer may consider will be determined
in part by the legal structure adopted by the developer. Mr Ashburn
said that a visit he paid to a recent property show revealed that
few exhibitors were talking in detail about the financial structures
of the developments displayed there.
"When you're structuring an investment in Thai property
it is going to be determined partly by how the developer has structured
the sale because you have to look at all the laws involved, especially
the restrictions on foreigners owning land, so often it's not
a straight deal. You may be faced with several contracts to sign,
which is common.
"So on the surface it may look like another property deal
but when you get behind it, each deal can be quite different and
you need a lawyer to guide you through it if you want to understand
what you're contracting for and the risks involved."
This especially applies to Phuket because there are very few
big developers there, with much smaller developments being the
norm and these can all be structured differently.
Mr Ashburn pointed to the key advantage that a leasehold has
over freehold in that there are no restrictions on foreigners
taking out a lease in Thailand, which could be in their own name
or a foreign company's name. With a Thai company one definitely
has to pay tax, which aside from rental tax includes property
tax at 12.5% per year, depending on the circumstances, but it
may be that a foreign corporate entity could collect rent tax-free
on leaseholds.
He advocates foreign property buyers perform appropriate legal
and tax due diligence on leasehold structures because there are
a number of contracts involved and sometimes the buyer actually
receives a shareholding interest in the company that owns the
land being leased.
For example, 20 lease buyers might have equal shares in the land
holding company so they can end up with joint control of it. As
they control the company that owns the leases there should be
less risk that their leases, which are 30 years with developers
generally promising two 30-year extensions, will not be renewed.
It is possible for a Thai company that complies with the Land
Code to just hold the land and rent it out. The payments received
by the company for the lease of the land will be taxable.
The assets of the company that owns the land would be the land
itself plus perhaps common area facilities and improvements made
to the land the developer owns originally, but typically the developer
wants to get out.
Mr Ashburn advises foreign buyers to beware of any tax liabilities
they might assume as a result of a purchase because if they end
up owning shares in a Thai company they have to make sure that
it is clean, so that when they take it over they do not face tax
liabilities incurred by the developer prior to the transfer.
"I don't know how many investors really consider this point
... it's just something that one day may be of concern in a future
tax audit of the company. My general impression is that developers
are aware of this issue."
Some foreigners might say that it would be safest to buy a condominium
within the 49% quota allowed to foreigners in a building, but
Mr Ashburn is of the opinion that acquiring land leases, especially
in Phuket, is safe if structured correctly with appropriate protection
built into the contracts and structure.
"I don't think one is necessarily better than the other.
[It depends] what you are in the market for and how well the deal
has been structured and documented."
However, he said it would be helpful if the authorities made
it clearer what land holding structures with foreign interests
are acceptable, and if officials also ensured that the guidelines
were applied equally around the country.
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