• Market Insight: Thailand. Published in THE ADDRESS Magazine issue 10, November 2011.

Avoiding the pitfalls in acquiring real estate in Thailand

By Jiraporn Thongphong, Attorney at Law at Chaninat & Leeds Limited

Thailand has become an attractive option for many people interested in acquiring a second home, as well as those in search of a permanent residence or a retirement home. Blessed with warm weather year round, modern health care, a developed infrastructure, safe streets and a fascinating culture, Thailand competes favourably with other destinations around the globe. In addition, Thailand’s growing spa and hotel industries provide opportunities for savvy investors seeking real estate opportunities.

However, foreigners considering acquiring real estate in Thailand need to be aware of the potential pitfalls to ownership. As in any country, there are those ready to take advantage of a foreigner’s lack of knowledge concerning local property law and customs.

Here are the most common risks a property buyer ought to be aware of before signing a real estate transaction in Thailand:

There is no government-mandated licensing process for estate agents. Buyers should never place undue trust in anyone representing themselves as a real estate agent in Thailand before thoroughly checking them out.

Secondly, language and culture barriers exist. Most foreign buyers enter the Thai real estate market without speaking Thai. Moreover, the Thai legal system, as it involves real estate, title deeds and related issues, is likely to be very different to the system a foreign purchaser may be accustomed to.

Finally, many real estate purchasers in Thailand become interested in buying a second home here after having experienced the beauty of Thai nature and culture during a holiday. In many cases, people become infatuated with Thailand and make emotional decisions without hiring qualified legal counsel or conducting due diligence and negotiation.

For the careful investor, however, Thailand provides excellent opportunities for acquiring that dream holiday home, investment property, permanent residence or retirement home.

The risks on the horizon

The types of problems foreign purchasers may walk into are numerous but are, in most cases, preventable.

Perhaps one of the most publicised instances of Thai real estate fraud took place in 2006 on the island of Koh Samui. Government investigations into land companies on the island revealed that thousands of plots of land had been illegally issued title deeds. Deeds for measurements of land exceeded the amount of land on the entire island, and encroachment and development of state-protected reserves was revealed.

Similar cases have occurred elsewhere in Thailand, usually involving land that borders national parks and mountainous areas. Most cases of land fraud are on a smaller scale, however, and usually involve a purchaser or investor not performing proper due diligence, or not demanding basic contractual safeguards.

Less dramatic cases of real estate misrepresentation and fraud can involve foreign clients discovering that their purchased property lacked promised (and paid for) amenities, including water pipes and sanitation systems. There are also cases where buyers have discovered that the title deeds for the property they believed they had purchased were simultaneously sold to another party, leading to lengthy lawsuits. In other cases, overseas buyers have found agents or business partners had suddenly become unresponsive, or disappeared altogether after receiving large deposits.

Know the laws, understand your rights

The basic premise of Thailand Land Law as it concerns foreigners is, unfortunately, often downplayed in real estate brochures and advertisements. The most important point is that Thai law prohibits, with very limited exceptions, foreigners from purchasing freehold land in Thailand.

The Thai law does, however, allow long-term leases and the freehold purchase of condominium units in designated areas. Thai law also allows foreigners to own buildings (but not land) and allows foreigners real estate rights that do not amount to full ownership. In general, it is advisable to be wary of agents who promise outright ownership of freehold land or the use of complicated company “nominee” structures as a way to avoid the prohibition on freehold ownership by foreigners. Most importantly, prospective investors should obtain qualified, independent legal counsel and execute a thorough due diligence.

The safest, and recommended, option for foreigners acquiring legal rights to real estate in Thailand is to use the widely recognised options for land acquisition that do exist. Such options include acquiring land leases, condominiums and land rights such as usufructs and habitation rights.

  • Land leases: While Thai law prohibits non-Thai nationals from owning land in the country, foreigners may hold a 100% interest in a Thai land lease for a maximum of 30 years, with the possibility of renewal for additional 30-year periods. Depending on the type of land lease, title deeds may be transferred and inherited, and leases may be negotiated so that the holder has the right to build on, or develop the land in question.
  • Usufruct or right to habitation: Under Thai law, a usufruct is essentially a right to use real estate owned by a Thai national for a time period that can be extended until the demise of the usufructuary. Traditionally, a usufruct is used for agricultural purposes. A “right to habitation” under Thai law provides similar rights as the usufruct, but applies to habitation purposes. While usufructs and habitation rights are appealing due to the option to extend them for lifetime periods, they are inferior to leases in a number of ways. Unlike leases, usufruct rights may not be inherited and do not allow holders an absolute right to develop land.
  • Company Ownership: Purchasing shares in a Thai-registered company has previously been a common means by which foreigners may obtain property rights in Thailand. In the past, and under certain circumstances, a foreigner may own up to 49% of shares in a Thai limited company that owns land. This method has come under increasing scrutiny. In many cases, this structure is not allowed due to concerns that it may be an attempt to circumvent the prohibition on foreign land ownership by use of Thai nominee shareholders.
  • Investments and BOI (board of investment) approval: Another means by which foreign nationals may own land in Thailand is through an investment approved by the Thailand Board of Investment (BOI). Through an investment of 40 million TBHT for 5 consecutive years, foreigners may buy a limited amount of land, provided that the land is used for residential purposes. Foreign companies, alternatively, may request the approval of the BOI to purchase land for a limited time period.
  • Condominium Purchase: Foreigners may purchase condominium units in designated projects in Thailand. This is an attractive option for many, as a foreigner may possess outright ownership of condominium units under Thai real estate law. Legally, non-Thai nationals may purchase condominiums in approved locations and projects throughout Thailand, provided that foreign ownership in the building does not exceed 49% of the total floor area.
    Foreigners who wish to purchase condominiums in Thailand may do so without a Thai residence permit, provided that they can show proof that funds for the purchase came from outside of Thailand. Foreigners possessing legal Thai residence permits are not required to show evidence of funds from abroad at the time of a condominium purchase. Like many title deeds under land leases, condominiums may be inherited by either Thai or non-Thai nationals.

A final, but ill-considered, method of acquiring land, that has gained notoriety, is using a Thai national to purchase real estate in their own name on behalf of a foreigner. The Thai national may then execute an agreement saying that the land is held for the benefit of a foreign client. This method of land purchase is illegal under Thai law, as it is unlawful for a Thai citizen to act as a nominee for a foreigner in the purchase of real estate. There are a number of problems and risks in following this method.

Due diligence

A thorough due diligence by a qualified attorney offers potential purchasers a good measure of protection from real estate fraud and misrepresentation.

Due diligence is a customary legal investigation based on documents provided by the seller, the legal review of these documents, and then inquiries and investigations based on said documents, all with the aim of providing the purchaser with the maximum amount of information and transparency on the property he or she wishes to acquire. The procedure can also reveal important issues regarding the value of the property.

Due diligence can be extensive or minimal, depending on the property under review. A wide variety of documents may be requested for review, including, but not limited to:

  • Copies of the title deed;
  • Copies of the ID cards and signatures of the owners;
  • Copies of insurance policies covering the land in question;
  • Descriptions of lawsuits a land owner might have been involved in;
  • Copies of land leases;
  • Should the property in question include a business or enterprise, copies of assets owned by the company, and employee names and their salaries;
  • Copies of mortgages registered against the land.

Due diligence normally also involves enquiries to the Government Land Department as well as inspection of the land involved. Most law firms will provide a detailed report that outlines potential risks and considerations.

Investment in Thai real estate can still be secure

Acquiring a second home in Thailand is an attractive option for many people. Thousands of foreigners successfully and securely acquire properties in Thailand each year. However, due care must be taken. Prospective investors should retain a qualified law firm and complete the necessary due diligence and not sign anything, or deposit funds, until potential risks have been either eliminated or minimized. The extra time, effort and expense involved in hiring a qualified attorney to oversee the purchasing process is well worth the payoff of the carefree enjoyment of a residence in one of the most beautiful countries on earth.

Feature provided by Chaninat & Leeds Limited, an international law firm
based in Bangkok, Thailand. Specialising in Thai real estate law, Chaninat & Leeds
is managed by a licensed U.S. attorney and staffed by licensed, bilingual Thai attorneys.

Chaninat & Leeds has authored several publications on Thai real estate laws
and is the official editor of the Thailand Land Law Act and
Thailand Condominium Act translations.

Chaninat & Leeds has been assisting foreigners in acquiring real estate
in Thailand since 1997. More information is available at
www.chaninatandleeds.com

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  • Market Insight: Malta. Published in THE ADDRESS Magazine issue 8, February 2011.

Why living and doing business in Malta make business sense

by André Zarb and John Ellul Sullivan, KPMG, Malta

Malta

In international tax planning circles, Malta is often referred to as one of Europe’s best kept secrets, and people are still surprised when they first hear about the benefits of living and doing business there.

Malta offers the lowest effective corporate tax rate in the European Union (EU). While the corporate tax rate is 35%, upon the distribution of dividends to shareholders, the shareholders may apply for a refund of the Malta tax charge of the Malta Company, which will reduce the effective corporate tax burden to between zero and 6.25%.

There is also a favourable residents scheme for foreigners taking up residence, making Malta an ideal location for both businesses and individuals.

A well connected investment location right in the heart of the Mediterranean

With over 7,000 years of history, an average of 300 days of sunshine each year, an average annual rainfall of 550mm (about 21 inches), and no snow, fog or frost, Malta is a popular destination for many people seeking a relaxing destination with great weather and a healthy Mediterranean lifestyle.

Situated in the middle of the Mediterranean Sea, about 100 kilometres south of Sicily and 300 kilometres east of Tunis, the Maltese archipelago consists of five islands, having a total area of 315km², of which the larger ones — Malta, Gozo and Comino — are inhabited. The total population in the Maltese archipelago is about 415,000.

The official languages are Maltese and English, however English is the main medium of official documentation in banking and commerce. For instance, laws are published in English, traffic signs are in English, and the main newspapers are in English. Italian is also widely spoken in Malta.

Some of the different reasons people offer for settling in Malta and setting up a company there are that the country:

  • Has excellent communication links and transport networks with Europe and beyond;
  • Is an ideal hub for combining business and pleasure;
  • Has an enjoyable Mediterranean lifestyle with a diversity of restaurants, a good social life and quality cultural events;
  • Has a very attractive tax system for companies and individuals;
  • Uses the Euro and has a convenient time zone (Central European Time);
  • Is a politically stable country; and,
  • A wide variety of properties are available in all price ranges.

Having been a part of the British Empire for over 150 years, Malta inherited features of the British tax system and as a result, Maltese tax law is based on British tax principles. Malta’s tax system brings to charge income and certain capital gains. By virtue of Malta’s full imputation tax system, the double taxation of company profits in the hands of the shareholder is eliminated.

Residency and associated tax advantages

For over 20 years, the Maltese Government has adopted a residents scheme in order to encourage foreigners to take up residence in Malta. This scheme has proven to be very popular with people seeking a place to retire. An individual may take up residence in Malta by declaring his or her intention to do so and submitting the appropriate form within three months of arrival in Malta.

People taking advantage of this scheme benefit from a flat income tax rate of 15% on income received in Malta, with an annual minimum tax liability of €4,192 after double taxation relief. Malta’s wide treaty network currently covers over 50 double tax treaties.

For tax purposes, an individual is generally regarded as being resident in Malta for a particular year if, in that year, his or her stay exceeds 183 days. However, an individual may also be regarded as a resident of Malta when taking up employment in Malta.

Persons resident and domiciled in Malta are subject to income tax in Malta on their worldwide income and certain capital gains.

Persons who are ordinarily resident in Malta but not domiciled in Malta (commonly referred to as “non-doms”) are only taxed on income and certain capital gains sourced in Malta, plus income sourced outside Malta which is received in, or remitted to Malta. Foreign-source capital gains are invariably not taxable in Malta.

Expatriates may import their personal belongings to Malta free of VAT and import duties.

Favourable tax system for expats working in the investment services and insurance sectors

While being subject to the advantageous tax treatment applicable to non-doms as outlined above, expats working in the investment services and insurance industries, subject to certain conditions, may also benefit from a 10-year tax exemption on the following expenses incurred for the benefit of the expatriate, or of his immediate family, by the investment services company or insurance company of which they are an employee, or to which they provide services:

  • Removal costs in respect of relocation to and from Malta;
  • Accommodation expenses incurred in Malta;
  • Travel costs in respect of visits by the expatriate and their family to or from Malta;
  • The provision of a company car for the use of the expatriate;
  • A subvention of up to €600 per month;
  • Medical expenses and medical insurance;
  • School fees of the expatriate’s children.

In order to benefit from this exemption, the investment services expatriate must be employed or provide services to a company which is licensed as an investment services company in Malta, or is recognised as such, and the activities of which consist solely of the provision of management, administration, safekeeping or investment advice to collective investment schemes. The insurance expatriate must be employed or provide services to a company which is licensed to act as an insurance company, insurance manager or insurance broker.

Furthermore, the expatriate must not have been resident in Malta for a minimum of 3 years immediately preceding the year in which they started working or providing services to the company, and during these 3 years the expatriate should have been engaged in a similar position outside Malta.

Inheritance and capital transfer tax

There is no general inheritance tax system in Malta. However, upon the transfer or transmission (upon death) of:

  • Real estate situated in Malta or shares in a company owning mainly real estate situated in Malta, a duty of 5% is due;
  • Marketable securities (mainly shares) in Maltese companies, a duty of 2 per cent is due. Some exemptions apply.

Social security

Malta is subject to the EU regulation on the co-ordination of social security systems (EC Regulation 883/2004) and its social security charges are amongst the lowest within the EU.

Employed individuals contribute 10% of their weekly salary, with the employer contributing the same amount, subject to a maximum weekly contribution of €35.39. The maximum annual contribution is €1,840.28.

Self-employed and self-occupied individuals must contribute 15% of their weekly earnings, subject to a maximum weekly contribution of €49.37. The maximum annual contribution is therefore €2,567.24.

The Maltese property market

The Maltese property market has coped remarkably well during the global recession and a number of luxury developments are currently being built in sought-after locations, often with breath-taking views. Property within these special designated areas may be acquired by EU citizens and other non-residents, without restrictions or permits.

EU citizens who are resident in Malta for over 5 years may freely acquire the property they desire, even if this is situated outside the special designated areas. In the case of an EU citizen who does not satisfy this requirement, there is the possibility of purchasing such a property which is to serve as the primary residence.

Registering your yacht in Malta

Centuries-old Maritime tradition, its strategic location at the heart of the Mediterranean Sea, its natural harbours, and the entrepreneurial and maritime skills of its people have all contributed to establishing Malta as an international maritime service centre.

Malta prides itself in an attractive system for yacht owners and yacht leasing companies. There are currently 6 yacht marinas in Malta, with a further 13 planned. Malta is the port of call for a number of super yachts, including the Octopus, Pelorus, Indian Empress, Elena, Anastasia, Galaxy, GiVi and the Linda Lou. In addition, Malta offers an attractive tax system for yacht leasing companies that can reduce the VAT cost on the importation of a yacht into the EU to as low as 5.4%, based on the size and means of propulsion of the vessel.

Advantages of registering a yacht under the Maltese Flag include:

  • No restrictions on the nationality of the ship owner;
  • Low company formation and ship registration costs;
  • No restrictions on the nationality of the master, officers and crew;
  • No restrictions or taxation on the sale or transfer of shares of a company owning Maltese registered ships;
  • No restrictions or taxation on the sale and mortgaging of Maltese registered ships

The Malta flag also has the 2nd largest commercial fleet in Europe and the 8th largest worldwide. Malta is a flag of choice and quality, with no restrictions as to nationality or corporate owners. There are no restrictions in relation to the nationality of shareholders and directors of Maltese shipping companies.

Malta makes business sense

In today’s increasingly competitive global marketplace, Malta is striving, with considerable success according to some observers, in establishing itself as an EU business and financial centre of repute. In addition to Malta’s corporate tax system – with not more than a 5% effective tax rate — and the attractive tax system applicable to expatriates, Malta offers an enviable Mediterranean lifestyle with a Western European business climate, where English is the commercial lingua franca. The modern infrastructure and the “can do” attitude of the authorities and regulators, which provide industry with real-time efficient service and feedback, make doing business in Malta easy, efficient, and cost effective. As one of the many fund managers who has moved to Malta aptly put it, “Here, we do and achieve all that we used to in the City, at half the cost, 1/10th the tax, enjoying the sun, sea, sailing, the food, and the open air cafés.”

KPMG in Malta provides audit, tax and advisory services. Established in 1969, the company is one of the largest professional services firms in Malta today. With a balanced mix of international and local clients, their goal is to turn knowledge into value for the benefit of their clients, their people, and the capital markets.

www.kpmg.com/MT
tax@kpmg.com.mt

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  • Market Insights: Brazil. Published in THE ADDRESS Magazine issue 7, November 2010.

BRAZIL

Fantastic opportunities…spectacular potential

Brazilian women in traditional clothing

The word is spreading about Brazil, a place to which property investors and retirees alike are turning. Brazil, the world’s 5th largest country, the 9th largest economy and one of the largest democracies, has shown strong resilience during the global economic downturn. As one of the emerging “BRIC” countries – with Russia, India and China – Brazil is expected to show enormous economic growth in the near future.

The BRIC phenomenon, first defined in a 2001 report by Goldman Sachs, is based on the forecast that these nations have the potential to outstrip the current economic leaders over the next half-century, as a result of their huge workforces, abundant natural resources and improving economic strategies.

The Goldman Sachs report is just one indicator of Brazil’s enormous potential. There are many reasons to be optimistic for its economic future, including large infrastructure developments, a rapidly growing and active middle class and increased air connections.

Among the positive signs: Brazil will host the 2014 World Cup and the 2016 Summer Olympics; domestic oil production has drastically reduced its dependence on expensive imported fuel; and it is currently discussing a deal with the United States to export bio-fuel manufactured from sugar cane. Already in Brazil, 8 out of 10 new cars run on this non-fossil fuel.
Eeconomic growth, coupled with rising wages, falling unemployment rates and significantly lower inflation levels, have recently generated robust overseas investment in Brazil.

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  • Market Insights: France. Published in THE ADDRESS Magazine issue 6, May 2010.

Buying a French Leaseback Property

What is it, how does it work, is it something for you?

View of French village

Investors around the world are looking to French leaseback properties, or, as they are known in France, ‘Residences de Tourisme’. Leaseback properties offer a hands-off, stable investment with tax benefits and guaranteed rent, while providing the opportunity for personal use, too.

Leaseback is extremely popular with French investors who account for the majority of all purchasers of leaseback properties in France. French residents benefit from a range of tax advantages beyond the VAT rebate, hence the reason for their popularity but there are reasons why leaseback are increasingly popular among international investors as well as lifestyle buyers.

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  • Market Insights: Cayman Islands. Published in THE ADDRESS Magazine issue 6, May 2010.

Cayman Islands – The Investment Argument

Cayman Islands

Cayman Islands are fast attracting the eyes of global discerning property investors. Where else in the world does anyone do a better job of combining safe, vibrant luxury living in such stunning surroundings, together with a world-class financial industry?

Cayman Islands boasts political stability, excellent transportation and communications and the highest per capita income and standard of living in the Caribbean region.

On the financial side, Cayman Islands has the 10th most valued currency in the world, its own stock exchange, no taxes on profits, capital gains or income and no withholding taxes. Together, it spells an attractive return on investment.

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  • Market Insights: Published in THE ADDRESS Magazine issue 5, Feb 2010

Why you want to invest in Mauritius

The island nation of Mauritius, already a top destination for tourists thanks to its exceptional range of lifestyle benefits and high levels of security, is carving a niche for itself as the leading business and finance hub of the Indian Ocean Rim.

Despite a poor global economy, Mauritius continues to attract both capital investors and businesses to its shores, reaping the benefits of radical policy changes. Moves to introduce a range of investor and business benefits, including low corporation taxes of 15%, an attractive 15% personal income tax rate and a bonus of no capital gains tax, have fuelled Mauritius’ success as an emerging market over the past few years. Mauritius is also fast becoming a major centre for offshore banking – already more than 400 financial institutions are represented here – boosting investor confidence.

The island nation continues to rank high in global polls measuring both business climate and quality of life. As Mauritius’ economy grows and more tourists discover its charms, everything from shopping malls and restaurants to state-of-the-art medical centres and private schools are being developed across the island.

Ranking high on the global stage

One-by-one, Mauritius is earning global awards across a range of fields – from business to politics to tourism – strengthening its position as the power hub in the region. Here are just some of the recent honours bestowed on the island:

Easiest place to do business in Africa: The World Bank Doing Business 2009 rankings place Mauritius No. 1 in Africa and second only to Singapore among small island developing states. Mauritius was rated Africa’s top regional reformer in a report that recognises governments which have carried out the most business reforms over the last five years. The World Bank report moves Mauritius up to 24th out of 181 countries measured on investment climate and the ease of doing business.

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  • Market Insights: Published in THE ADDRESS Magazine issue 5, Feb 2010.

10 places to invest 2010

With locations offering established or emerging overseas investment property markets, there are many attractive options. Here we give you the top 10 places to invest in 2010.

Many factors need to be taken into account when choosing your property investment location. The most important factor is supply and demand and their drivers over time. Over or under-supply will affect both the capital appreciation potential and the rental yield you might expect. Other key considerations include ease of purchase for international buyers, political matters, accessibility and infrastructure, the economy, tourism, access to finance and foreign investment.

Investors are inevitably drawn to the current investment property hotspots, where property can be secured at comparably low prices. These areas often offer high capital appreciation, as tourism is attracted and re-development is undertaken to maximise rentals and the resulting returns.

However, the world’s established property markets, such as Portugal and France, have maintained a consistent level of interest over the last 12 months. The key is the diverse selection of buyers who look to purchase in these destinations, from second home owners to those relocating for retirement to investors. This provides a constant supply of purchasers, ensuring a solid demand.

Where are the best places to invest in property in 2010?

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