Published on and written by Cyril Jarnias
In a world where investment diversification becomes essential, investing in the booming country of Thailand through a Real Estate Civil Partnership (SCI) may seem like an enticing opportunity. This mechanism, well-known for its advantages in asset management and transfer, can prove particularly interesting within the dynamic context of the Thai real estate market.
However, investors must be aware of potential pitfalls they might face, such as country-specific legal and tax complexities.
This article thoroughly explores the strategic advantages and hidden pitfalls that accompany this investment avenue, thereby enabling you to navigate confidently through this promising yet complex environment.
Optimizing Legal Structure for Successful Investment in Thailand
Legal Framework for Foreign Investments in Thailand
Foreign investors in Thailand are subject to a strict legal framework, particularly regarding land ownership. Generally, a foreigner cannot directly own land outright. However, there are several legal mechanisms allowing investment in real estate, among which is the creation of a Real Estate Civil Partnership (SCI) adapted to the local context.
Constraints and Opportunities of Thai Legislation
- Foreigners can own up to 49% of the total floor area of a condominium building.
- Recent reforms plan to increase this ceiling to 75%, thereby expanding opportunities for direct apartment acquisition.
- Real estate purchases must be financed by funds transferred from abroad.
- For land, direct ownership remains prohibited for foreigners; the most common solution involves a 30-year land lease, potentially renewable, which could be extended to 99 years under ongoing reforms.
- Any structuring of indirect ownership (via SCI or Thai legal entity) must strictly comply with foreign ownership legislation to avoid any reclassification or penalties.
Structuring an SCI in the Thai Context
- The French-style SCI does not exist as such in Thailand. However, it is possible to use a Thai company (such as a company limited or partnership), in which foreigners hold a maximum of 49% of the shares, with the balance held by Thai partners.
- The company must have a corporate purpose related to real estate and be properly capitalized.
- Governance and voting rights distribution must be carefully drafted to secure the interests of foreign investors while respecting local legislation.
Tax Benefits and Tax Obligations
- Creating a real estate company allows for optimizing tax management of rental income and capital gains upon resale.
- Companies are subject to corporate tax in Thailand, with rates varying according to revenue.
- Dividends distributed to foreign shareholders are subject to withholding tax.
- Structuring through a company may also allow benefiting from exemptions or specific tax advantages under regimes promoted by the BOI (Board of Investment), but pure real estate is generally excluded.
Administrative Procedures for Creating and Managing an SCI
| Step | Description |
|---|---|
| Registration | Filing of the articles of association with the Department of Business Development (DBD) |
| Capitalization | Payment of share capital, with a minimum required based on the chosen structure |
| Governance | Drafting a clear shareholders’ agreement, organizing meetings, appointing managers |
| Account Opening | Opening a bank account in the company’s name |
| Obtaining Licenses | Potential applications for specific licenses depending on the activity (real estate, management, leasing) |
| Accounting Obligations | Regular bookkeeping, filing of financial statements and tax returns |
Practical Tips
- Selection of Local Partners: It is crucial to choose reliable and involved Thai partners, both for legal compliance and effective operational management.
- Consultation with Experts: The complexity of Thai real estate law requires engaging a local specialized lawyer, as well as an accountant familiar with the tax and regulatory specifics of the sector.
- Compliance with Rules: Any attempt at abusive circumvention (nominee arrangements, fictitious structuring) exposes to major risks of nullity and penalties. Transparency and compliance should be prioritized.
- Legislative Updates: The legal framework is evolving rapidly; it is recommended to stay informed of the latest reforms and anticipate potential regulatory changes that could impact the chosen structure.
Local legal support and a tailored structure are essential to optimize the security and profitability of any real estate investment in Thailand via a Real Estate Civil Partnership.
Good to Know:
For a successful real estate investment in Thailand via an SCI, it is crucial to understand the local legal framework, which imposes severe restrictions on foreign land ownership. One way to legally circumvent these restrictions is to integrate local partners into the SCI structure, ensuring that foreigners do not hold more than 49% of the shares. To optimize the legal structure, it is advisable to consult local experts to navigate the registration, capitalization, and governance formalities accurately. This also includes a thorough review of tax benefits, such as potentially favorable tax rates under certain asset holding conditions. Thailand indeed offers administrative procedures that are wise to master to avoid pitfalls and maximize investment profitability. Working with local professionals not only enhances legal compliance but also facilitates the selection of reliable partners, which is essential in the effective establishment and management of your SCI.
The Advantages of an SCI for Real Estate Purchase in Thailand
Facilitating Real Estate Acquisition for Foreigners
In Thailand, foreigners face significant restrictions regarding land ownership: they cannot directly own land, but only condominium units, up to 49% of the total floor area of a building. Creating an SCI (Real Estate Civil Partnership) can partially circumvent these obstacles by allowing non-residents to hold shares in a company that, in turn, owns the real estate property. Thus, even though the SCI must comply with local legislation (notably the limitation on foreign shareholding in a Thai company), it provides a structured legal framework for collective investment and securing the holding of real estate assets.
Potential Tax Benefits
An SCI, depending on its tax treatment (transparent for personal income tax or subject to corporate tax), can offer tax optimization opportunities:
- Optimization of Income Tax: Rental income received by the SCI can benefit from favorable taxation in Thailand, with the possibility to opt for a flat rate of 15% on rental income.
- Capital Gains Taxation: Upon resale, the taxation of real estate capital gains can be very competitive (approximately 1% of the sale price).
- Avoidance of Double Taxation: The Franco-Thai tax treaty allows avoiding double taxation and allocating taxing rights between the two states, which is particularly relevant for French or Thai tax resident investors.
Management Flexibility and Wealth Transfer
The SCI offers great flexibility for:
- Collective Management: Management decisions (leasing, maintenance, sale) are made collectively by the partners, facilitating the management of family or partner assets.
- Transfer: The partnership shares of the SCI are easily transferable, simplifying estate planning and allowing the organization of asset transfer without having to sell the real estate property.
Example of asset distribution via an SCI:
| Partner | Number of Shares | % of Ownership | Voting Rights | Transfer Possible |
|---|---|---|---|---|
| Investor A | 60 | 60% | 60% | Yes |
| Investor B | 40 | 40% | 40% | Yes |
Collective Management for Family or Partnership Investors
- The SCI allows several members of the same family or partners to jointly own one or more real estate properties in Thailand.
- Each partner holds partnership shares, allowing the adaptation of rights and obligations according to contributions and individual wishes.
- Collective management facilitates the distribution of expenses, income, and strategic decision-making.
Case Studies and Concrete Examples
- Expatriate Family in Thailand: A French family creates an SCI to purchase a villa in Phuket. Each parent holds 45% of the shares, with the remaining 10% distributed among the children. This setup allows for the gradual transfer of assets to the children while optimizing inheritance taxation.
- Partnership Investment: Two investor friends wish to acquire several apartments in Bangkok for rental purposes. By using an SCI, they pool funds, jointly manage the real estate portfolio, distribute profits, and can sell their shares separately if needed.
Key Strengths of the SCI for Real Estate Purchase in Thailand:
- Securing investment for foreigners despite local restrictions
- Tax optimization (income, capital gains, transfer)
- Collective and flexible management of real estate assets
- Ease of transfer of partnership shares
- Suited for family and partnership investments
Note: Structuring via an SCI requires in-depth analysis with advisors specialized in Thai and French law to guarantee compliance and optimization of the setup.
Good to Know:
In Thailand, using an SCI (Real Estate Civil Partnership) constitutes an effective strategy to circumvent restrictions imposed on foreign land ownership, as although they cannot own land directly, they can own it via an SCI structured with local partners. From a tax perspective, the SCI offers advantages such as potential optimization of income tax and capital gains, because the entity itself, rather than the individual, is responsible for taxation, allowing for more effective tax management. Furthermore, for investors planning their succession, an SCI facilitates the transfer of assets by allowing a more flexible distribution of partnership shares among heirs, while avoiding the administrative burdens of a classic inheritance. The collective management of real estate assets through an SCI is particularly advantageous for family partnerships, offering clarity in the distribution of roles and responsibilities. Among concrete examples, some investors have been able to acquire and manage multiple rental properties harmonized under a single SCI structure, thereby maximizing their return on investment while maintaining simplified and centralized management.
Understanding Corporate Law in Thailand to Avoid Pitfalls
Corporate law in Thailand is primarily based on the Thai Civil and Commercial Code, the Public Company Act, and the Foreign Business Act. This framework defines both the available legal structures, registration requirements, and restrictions for foreign ownership.
Main Types of Structures Accessible to Foreign Investors:
| Legal Structure | Foreign Ownership Possible | Specific Requirements |
|---|---|---|
| Private Limited Company (Ltd.) | Max. 49% | Minimum 3 shareholders; mandatory articles of association |
| Public Limited Company (PLC) | Variable depending on activity | Minimum 15 shareholders, half must be residents |
| Unregistered Ordinary Partnership | Yes | Unlimited liability for partners |
| Limited Partnership | Yes | Limited liability for some partners |
- The Private Limited Company (Ltd.) form is the most common; it is similar to a French SARL.
- Foreign investors are generally limited to 49% of the capital in a standard Thai company. The remainder must be held by Thai citizens or entities.
- Certain activities listed in the Foreign Business Act require a special license if they are majority-controlled by foreigners or are completely prohibited to them.
Company Registration Procedure:
- Reservation of the company name with the Department of Business Development.
- Drafting and adoption of the articles of association in accordance with the Civil and Commercial Code.
- Deposit of the minimum required share capital.
- Incorporation meeting with official appointment of directors/shareholders.
- Official registration of the company with the competent authority, with payment of fees proportional to the declared share capital.
- Opening of a professional bank account.
Main Legal Requirements:
– Strict compliance with the minimum number of local shareholders according to the chosen structure type.
– Formal adoption of articles of association detailing internal operations, powers, rights/obligations of shareholders—these articles being binding on third parties.
Common Risks for Foreign Investors:
– Involuntary non-compliance with legal limits on foreign ownership, potentially leading to nullity or administrative penalties
– Hidden unfavorable clauses in shareholder agreements or commercial contracts not conforming to local standards
– Unscrupulous business partners using nominee shareholders in indirect violation of the Foreign Business Act
– Failure to adequately register or tax omission exposing to disputes or reassessments
Practical Tips to Secure Your Investment:
- Systematically conduct exhaustive due diligence on any local counterparty before contractual commitment
- Consult a lawyer specialized in Thai law from the preparatory stage (drafting articles of association, negotiating sensitive clauses)
- Prefer, as much as possible, effective control via internal agreements compatible with local law rather than resorting to dubious setups involving nominees
- Regularly verify legal/tax compliance post-creation via external audits
Good to Know:
Corporate law in Thailand provides several types of structures for foreign investors, including limited liability companies and representative offices. However, restrictions exist, such as the limitation of foreign ownership to 49% in certain industries. It is crucial to register the company with the Ministry of Commerce and comply with local legal requirements. Investors should be wary of non-compliance, misleading contract clauses, and unreliable partners. To avoid pitfalls, it is advisable to conduct thorough due diligence and consult specialized local lawyers. Ensure all contracts are clear and fair, and consider securing investment protection agreements. For example, conflicts can arise if a local partner violates tax regulations, which can be avoided by meticulous initial verification.
The success of an entrepreneurial project in Thailand requires rigorous legal anticipation, total contractual transparency, and constant support from local counsel mastering national regulatory specifics!
Tax Optimization: Leveraging an SCI in Thailand
A Real Estate Civil Partnership (SCI) is a legal structure allowing several partners to jointly own and manage real estate properties. In Thailand, the SCI operates on principles similar to those observed in Europe: at least two partners, individuals or companies, can constitute the SCI. Each partner holds a share of the partnership capital which determines their voting rights and liability, which remains unlimited towards creditors. The articles of association must be registered with the Thai Ministry of Commerce to guarantee their compliance with local laws.
Specific Tax Benefits of an SCI in Thailand
- Reduction of tax on real estate income through the application of bilateral tax treaties (for example between France and Thailand), which allows avoiding double taxation.
- Possibility to subject the SCI to corporate tax (CT) to benefit from a reduced rate on certain profit brackets.
- Capital gains generated from the transfer of shares or real estate assets can sometimes be optimized via allowances depending on the chosen tax regime.
- Non-immediate distribution of profits allows for a capitalization strategy without immediate personal taxation.
| Jurisdiction | Dividend Taxation | Capital Gains Taxation | Partner Liability |
|---|---|---|---|
| Thailand | Tax treaties; CT possible with intermediate rate; possible exemption if not distributed | Allowance under conditions; France/Thailand treaty applicable | Unlimited but allocated according to shares held |
| France | Direct taxation PIT/CT; holding period allowances | Progressive PIT taxation; holding period allowance | Unlimited |
| Luxembourg | Attractive CT rate for holdings; frequent exemptions | Exemption after minimum holding period | Limited |
Practical Tips to Maximize Tax Benefits:
- Carefully draft the articles of association to scrupulously respect Thai law and include all useful clauses concerning distribution/dividends and transfer.
- Judiciously choose between transparent regime or subject to CT according to your wealth strategy.
- Leverage applicable international tax treaties to optimize cross-border taxation.
- Limit any automatic distribution: prefer capitalization within the partnership as long as it is tax advantageous.
Specific Regulations in Thailand:
- Strict oversight by the Ministry of Commerce regarding filed articles of association
- Formal registration obligation
- Strict application of bilateral treaties in case of a foreign resident partner
Common Mistakes and Tax Pitfalls to Avoid:
- Neglecting official registration or inserting non-compliant clauses in the articles of association: possible rejection by the ministry.
- Forgetting that liability remains unlimited: a default can personally engage each partner.
- Poor international tax management: risk of double taxation if absence/deficiency in treaty application.
Summary List:
- Not respecting local rules during setup
- Poor tax anticipation on dividends/capital gains
- Negligence in drafting/customized articles of association
Current Tax Climate in Thailand & Reform Perspectives
The tax climate remains stable with a notable effort towards administrative simplification and international attractiveness. Reforms are regularly considered concerning:
- The applicable corporate tax rate;
- Enhanced framework against tax evasion;
- Increased digitalization of accounting reporting;
Any major modification could directly impact strategies based on an SCI. It is therefore essential to monitor any government announcement regarding preferential regimes granted to foreign investments or wealth restructurings via civil partnerships.
Good to Know:
A Real Estate Civil Partnership (SCI) in Thailand is a legal structure for organizing the holding of real estate assets, and it offers some notable tax benefits. By structuring investments via an SCI, one can benefit from specific tax reductions on dividends and reduced rates on real estate capital gains. Compared to other jurisdictions, Thailand offers distinct tax systems for SCIs, such as the absence of double taxation on dividends. To maximize these benefits, it is crucial to properly structure the SCI by respecting local tax laws, ensuring correct property registration, and carefully managing dividend distribution. Pitfalls to avoid include a poor understanding of capital distribution rules and tax reporting requirements. The current tax climate in Thailand is relatively stable, although reforms may emerge, potentially influenced by the country’s economic policies, which could modify the benefits associated with an SCI in the future.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
