Property tax planning in Thailand
Thailand’s new framework for the taxation of land, buildings, and condominium units – and how it transforms into the post-pandemic world
With the Land and Building Tax Act 2019, Thailand introduced a new taxation framework for property investments. Under the previous House and Land Tax Act as of 1932, properties were assessed on an income-based method with a flat tax rate of 12.5%. The new law repeals and replaces this method with an assessment based on the property’s appraised value and a progressive tax rate calculated on property usage. Apart from the House and Land Tax Act 1932, the new act replaces the Land Development Tax 1965, the Notification of the National Executive Council No. 156 as of 1972, the Royal Decree Designating the Medium Price of Land for Land Development Tax Assessment 1986, and others.
Details and fine-prints: The new tax is applicable to residential property including condominiums, as well as commercial, agricultural, and unused respectively vacant land. If a property remains vacant for more than three consecutive years, the rate will be increased every three years until it reaches a cap. Taxpayers are the individual or corporate owners as well as beneficiaries of the land or buildings. This includes plots without a land title deed for those who possess or use the land and buildings without being the owner. Tax rates differ and there is a broad scope of complex tax exemptions. The new laws provide for a two year transition period.
Tax relief 2020: For the tax year 2020, the tax burden has been discounted by 90% as a pandemic related tax relief. The deadlines for submitting the tax assessment form and the payment deadlines have been extended as well. Other tax relief measures apply, others will follow. Under a governmental guideline as of August 27, 2020, the taxpayer is not required to remit land and building taxes, if he did not receive a notice of tax assessment in time. In such cases, a retroactive assessment of the taxes is not allowed. #CoronaAlliance
Tax planning opportunities for foreign property investors
Separation of land and buildings: For efficient tax planning, the land and the buildings should be treated separately. This requires a separation of legal or at least balance-sheet (economic) ownership. Tax planning strategies are to avoid taxation, to shift the property into a lower-taxed category, and to delay the due date for tax obligations.
The boundaries between vacant property and a plot that is used, for some reason, not all the year, not entirely or in other legitime ways limited are fluid. The different tax rates between commercial and residential use and particularities of mixed-use cases open similar ways for a tax-efficient structuring of the property investment. The same might be true in appropriate cases for agricultural buildings.
The THB 50 million tax exemption for land worth up to THB 50 million can be relevant if the land is split into different plots with different owners. However, such cases should be handled with great caution to be legitimate and in compliance with the overall regulatory tax framework. Also, it is valid for residential homes only and this qualification has to be considered when corporate ownership or a lease structure converts the building into commercial use.
Other taxes: The land and building tax is just one element in the overall property tax structuring. Land transfer fees, withholding taxes, VAT, personal income taxes, corporate income taxes, special business tax, as well as the tiny stamp duty should be taken into consideration as well.
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