3 September 2008
The Ministry of Interior ("MOI") recently issued a new Notification No. Mor.Thor. 0515/Wor. 2227 dated 21 July 2008 ("Notification 2008") setting out the investigation procedures additional to those previously provided in Notification No. Mor.Thor. 0515/Wor.2430 dated 21 July 2006 ("Notification 2006"), concerning investigations into Thai shareholders of Thai entities which have foreign shareholders or directors and which intend to acquire land.
Under Notification 2006, land officials are required to investigate any Thai entity acquiring land for real estate development. Notification 2008 has broadened the grounds of investigation to include the acquisition of land for other purposes. In addition, if the Thai entity has a foreigner who is a promoter, director or shareholder, or controls the voting rights, or if the Thai shareholder does not have occupation related to investment, the land official is required to investigate the Thai shareholders and verify the source of funds raised or to be used by the Thai entity for the land acquisition. Furthermore, if a foreign company leases land or acquires the rights to possess the land for a long period, an investigation of the purpose of the lease or right is also required.
The MOI issued Notification 2006 ordering land officials to investigate, upon the registration of a land acquisition, the sources of funds of a Thai shareholder of a Thai entity (i.e. a Thai company, Thai limited partnership or Thai registered partnership) if (i) a foreigner is involved and (ii) the land is being acquired for real estate development. In order to affirm and emphasise the rules, the MOI recently released Notification 2008 affirming and providing new grounds for the land officials to consider.
Under the Notifications, the following events or circumstances will trigger an investigation:
- A foreigner is a promoter, shareholder, director or authorised person of a Thai entity;
- A foreigner holds preference shares with a majority of the voting rights of a Thai entity; and
- The occupation of the major Thai shareholder is not that of investment or any similar occupation, e.g. being a lawyer or a broker.
The land officials will investigate further if there is a ground to believe that the Thai shareholder is holding shares in the Thai entity for and on behalf of a foreigner or is the nominee of a foreigner, regardless of the purpose of the land acquisition.
The land officials shall investigate the occupation and the income of the Thai shareholders and the sources of their funds. The land officials may request the submission of an employment certificate, bank statement, loan agreement, land sale and purchase agreement (if the money was acquired from a land sale), evidence of an entitlement to an estate or any other acceptable form of evidence.
In cases where the Thai shareholder is a Thai entity (regardless if there is any foreigner shareholder or director), the land officials will investigate the sources of funds by requesting the submission of its balance sheet or loan agreement together with its board resolution approving the transaction.
In addition both Notifications empower land officials to investigate the sources of funds of Thai entities acquiring land if the purchase price of the land is higher than the amount of registered capital of the Thai entity and where there is no mortgage of the land created as collateral over the land. If the Thai entity borrowed the money from a Thai lender, the Thai entity shall be required to present a loan agreement, balance sheet, evidence showing the withdrawal of money, the board resolution of both the borrower and the lender and if the lender is a foreigner, evidence showing the remittance of funds from offshore.
As for other means of long term land possession such as long term leases for a foreign entity, under Notification 2008, land officials will also check if these arrangements are not actually land acquisition by a foreigner and/or are contrary to the Foreign Business Act.
The Land Department has also set out a statement of terms which are required to be submitted to the land office upon registration of the land transfer. The Thai shareholder shall confirm that he/she does not hold the shares for and on behalf of any foreigner. Otherwise, he/she will be deemed in breach of Section 113 of the Land Code and Sections 137 and 267 of the Penal Code.
Thai shareholders of Thai entities acquiring land should know that land officials are duty bound to conduct and perform an investigation on the land acquisition regardless of its purpose if a foreigner is involved in the transaction. To facilitate this investigation, and to speed up the land registration with the land office, Thai shareholders and entities should prepare and ensure that all necessary documentary evidence, such as those discussed above, are in order.
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