New 100% Hotel Foreign Ownership Incentives

The Phuket Gazette.

Although the clogged backlog of government reforms are generally moved through at the slow, but steady pace of the winner of the famous race between the hare and the tortoise, a recent incentive shows a quickening pace.

In a recent move aimed at stimulating countries that are withholding foreign investment, Thailand’s Board of Investment (BoI) has created an incentive which now enables 100 percent foreign ownership of hotels.

Under notification (10/2552), the new amendment will enable hotel developments with a minimum value of 500 million baht (excluding the cost of land and working capital) to qualify for the new program. Previously, only hotels with a minimum of 100 rooms qualified, which had negative impact on potential high-end luxury resorts in Phuket that targeted a smaller number of client?le, but with higher room rates.

The initiative is certainly good news for Phang Nga, where there was a post-tsunami ban in effect which limited the size of new hotels to 79 rooms if located within 300 meters of the sea. This effectively disqualified any beachfront hotels from BoI certification, an area where high capacity buildings are required for their economic models to work. International operators can now compete on a level playing field.

Fundamental to the BoI program as it applies to Phuket is 100 percent foreign ownership of the hotel and the land it’s built on, fast processing of work permits through the Board’s Bangkok office and remittance of currency overseas. For Krabi and Phang Nga, there is an extra perk, permitting tax-free importation of machinery from abroad.

It’s important to note that this land ownership scheme only applies to hotels and not to residential components (such as condos), nor mixed use projects where there is the intention to sell managed villas. The ultimate aim of the BoI incentive is to spur tourism and create jobs along with sustainable hotel investment and not real estate or property.

There are significant advantages for international investors, including the ability to hold 100 percent of a Thai hotel and the land it rests on, without the necessity of forming partnerships, joint ventures or the use of nominees. Secondly, is the ability to obtain offshore debt and equity through absolute surety in Thai assets, creating options in the management of both local and foreign financing markets.

Of equal importance is attracting large international investment funds, which often have a horizon in the range of five to eight years and often have a mandate for disposition through a funding mechanism. On exit, there remains a considerably increased value in an offer for a hotel which can be wholly owned by foreign nationals, and this somewhat mitigates the market risk of having to rely only on domestic purchasers.

Eligibility for the revised incentives applies to applications made after September 14, 2009. There is a grandfather clause for existing approved projects who have yet to make use of current tax incentives. They must apply for the new program on or before December 30 this year. If not, an entirely new application process will need to be made.

The impact will certainly be felt in Phuket, where existing luxury projects such as Jumeirah Private Island and Taj Exotica had to delay development while seeking BoI status.

From an environmental standpoint, the new initiative is a positive step as developers are no longer forced to accommodate 100 units just to obtain 100 percent foreign ownership. As a result, foreign investors can now pursue smaller and hopefully greener developments.

Over in Phang Nga, including Khao Lak, the ability to attract more foreign developed luxury hotels is good news, considering the current market. The trend is currently leaning towards the mass development of midscale accommodation which primarily targets seasonal European tourists, thereby creating a wildly fluctuating high and low season.

While this is all great news for hotel investors and tourism, there remains no news on any similar stimulus for foreign ownership in the residential markets.

Going into 2010, foreign investment may begin to move back into hospitality, but for real estate developers in Phuket, there remains a defined shift in profile back to Thai nationals who are able to obtain banking support and some form of debt.

Lets hope that the new year will bring some equally good news on increasing leasehold provisions or some type of ownership initiative, something that many of Thailand’s neighbors have introduced over the past 12 months.

Freehold Vs Leasehold in Thailand

Owning a property in Thailand may be a dream for many people, but there are certain restrictions for non-Thai nationals when it comes to property and land ownership. We will outline some of the restrictions and requirements but it is highly recommended that you seek proper legal advice before entering into any property or land purchases in Thailand.

Differences between Leasehold and Freehold property?

Leasehold means that the buyer is leasing the property from the land owner for a pre-determined period of time normally valid up to 30 years. Renewal for a further 30 years is at the discretion of the lease holder (land owner). At the end of each term, both parties must register the renewal with the Land Department and pay government fees, including stamp duty. This gives the lessee “ownership” of the land. The downside is that the lesser may not wish to renew or the law may change to your detriment in the future. Any capital you invest into leased property is therefore liable to be lost. Property owned by the Crown Property Bureau is always Leasehold. Some private property owners may also sell their property with a leasehold title deed.

Freehold foreigners can buy and own freehold condominiums, giving you full ownership rights purchasers, including the right to sell or lease the property and to develop the property within the guidelines under Thai law.

How can a foreigner own a House and Land in Thailand?

A foreigner who invests 40 million baht or more in a Thai Company is eligible to purchase land and a house at the size of maximum 400 square wah maximum total land area.(1 square wah = 4 square meters). A foreigner who invests with a Thai registered company can purchase land and house with unlimited size and amount of investment through company registered name. (more…)

Who owns what?

Mon 4 Jan 2010

Saving tax on property bought before 28 March 2010

The Thai government announced on 18 May 2009 an extension of a property tax reduction, in which specific business tax is reduced from 3.3% to 0.1%, while transfer fees see a reduction from 2% to 0.01%. This extension comes to an end on 28 March 2010.

A refund can therefore be requested from the Revenue Department for any property transactions made, where 3.3% was paid, between the previous expiration date of 28 March, 2009 and 18 May, 2009.

If you plan to buy or sell a property, I advise for you to do this as soon as you can, so that you may enjoy the curent Thai tax promotion rate.

As with the majority of cases of buying property in Thailand, the buyer has to pay the tax and transfer fee or at least pay 50/50, therefore, tax will be one of the major costs. Before buying or selling any property, you should know the different tax liabilities of selling property as an individual (private) or as part of a company.

The following information will hopefully help:

1. Income tax
Income tax on selling property as an individual person will be calculated base on the official price (land valued price by the land department),not the true selling price. Therefore, the income tax for the individual will be much cheaper than the corporate price as they have to use the selling price as the tax base.

2. Withholding tax
Withholding tax on selling property from any company is always 1% of the selling price, but on an individual’s selling land, withholding tax will be much lower as beside using the official price, you are also allowed to deduct expenses based on how long you have owned the land, with the shortest time being the biggest deduction. (more…)

INSIDE PHUKET Top 5 Food Tips

While there are more great eating places then I can possibly list out in such a short space, here are the insider tips on top food destinations -

1.Da Vinci – Nai Harn

Great Italian food, down to earth prices and a cool ambience have made this place into a destination for many of the south’s residents and tourists alike. Wood fired pizzas remain a specialty and a well thought out kids play area, makes it great for the entire family.

2.9th Floor – Patong

What was once Phuket’s best kept secret has evolved into one of the busiest eating outlets here. Manager Thomas and his stunning crew of black clad waitresses draw repeat business from nearly everyone who has a meal there. Great views, excellent service and a large menu keep people coming back. Reservations suggested. (more…)