Phuket Property – Condos versus Apartments
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Thailand Property
Legal FAQs & Info
Regardless of your tax domicile, income earned from renting property in Thailand will generally be subject to Thai income tax. An exception would be when the location receiving the income is outside of Thailand making it beyond the scope of Thai taxation. For example, when a management company or online portal (e.g., Airbnb Booking.com etc.) may make a payment abroad (from their account overseas) directly to owner’s account overseas.
When the income does fall within the scope of Thai taxation, depending on such factors as the entity owning the property (a person or a company), if the income is collected into a personal or company bank account and if the rental contract is in a person’s or company’s name, the tax applicable will either be personal income tax or corporate income tax.
Personal Income Tax
This is levied on income before expenses. Progressive rates apply from 5 to 35% apply to income over 150,000 THB. Under Thai law, there are certain relief/deductions allowable against personal income taxes.
Corporate Income Tax
This levied on net profit after expenses. Progressive rates from 15-20% apply to net profit over 300,000 THB. Deductible expenses include furnishing, maintenance, utilities, estate fees and depreciation.
Taxes and Government Fees for Buying and Selling Property
If a property transaction occurs by taking over a company (this could be a Thai company or an offshore company), then the owner of the property in question is still the same company. No transfer of property ownership has in fact occurred and no taxes or fees applicable to real estate transfers need to be paid. Instead, the transaction involved is a share transfer.
In the case where the company being taken over is Thai, the government fees for the transaction are 0.1% stamp duty on the value of the shares. The seller of the shares also has to pay personal income tax on any capital gains (see section on Capital Gains below). In the case where the company being taken over is foreign, no taxable event has occurred in Thailand. As this transaction is offshore, there is no liability for Thai tax, though taxes may be applicable in another jurisdiction.
Where a property is acquired without taking over a company then there is an actual transfer of property ownership. A real estate transaction has occurred and government fees and taxes need to be paid. These can account for up to 6% of the contract price.
The taxes and fees involved vary according to whether the ownership is leasehold or freehold.
When acquiring a lease of a land or building, both stamp duty and a lease registration fee need to be paid. These are calculated using the total value of the lease (i.e. total rental throughout the lease term), the stamp duty is 0.1% and the lease registration fee is 1%. In Thailand, the seller normally pays the stamp duty and the lease registration fee is split 50:50 between both parties. These fees are the same if the party involved is a person or a company.
Summary of Leasehold Transfers
| Tax/Fee | Rate | Party Liable |
|---|---|---|
| Stamp duty | 0.1% | Seller |
| Lease registration fee | 1% | Buyer and seller share 50:50 |
The seller of the lease is also subject to tax on any capital gain (see section on Capital Gains below).
If the transaction involves freehold property, such as land or a freehold condominium, the following taxes/fees need to be considered: transfer registration fees; withholding tax and either Specific Business Tax or stamp duty.
Note, when a transaction is deemed commercial in nature, this is when the property is registered in a company name or it has been held in a personal name for less than 5 years, then Specific Business Tax applies, otherwise stamp duty is applicable.
The transfer registration fee is currently 2% of the land office appraised value. Also known as the assessed value, this what the land office values the property at. This is normally significantly below the actual market value or the agreed purchase price.
If the seller is a company, the withholding tax is calculated as 1% of either the land office appraised value or purchase price, whichever is higher. However, if the seller is an individual, then the withholding tax is calculated using a combination of the appraised value, the length of time owned and the progressive personal tax rate.
Specific Business Tax is calculated as 3.3% of either the land office appraised or the purchase price, whichever is higher. Stamp duty is calculated as 0.5% of which is the greater out of the land office appraised value and the purchase price.
So how are these taxes and fees partitioned between buyer and seller? Theoretically, the transfer registration fee should be split 50:50 between both parties and the seller is liable for the withholding tax and either the specific business tax or the stamp duty. However, in practice many deals are agreed on the basis that all the transfer fees and taxes are split equally between buyer and seller.
Summary of Freehold Transfers
| Tax/Fee | Rate | Party Liable |
|---|---|---|
| Transfer registration fee | 2% | Buyer and seller share 50:50 |
| Withholding tax | 1% | Seller |
| Specific Business Tax | 3.3% | Seller |
| Stamp duty | 0.5% | Seller |
The seller of both leasehold or freehold property, and also shares in a Thai company, is subject to tax on any capital gain. If the seller is a person, any capital gain is subject to personal income tax (rates of 10 to 35% apply). If the seller is a Thai company, instead corporation tax is applicable (rates of 15 to 20% apply for companies with paid-up capital of up to 5 million baht).
Note, foreign buyers of Thai property need to ensure that they have documentation to confirm that the funds for the purchase were sent in from overseas. For transfers greater than 20,000 USD, the official document issued for the transfer is the Foreign Exchange Transfer Form (FET). The funds should be sent into Thailand as foreign currency, not Thai baht. The FET officially documents the remittance of the foreign currency into Thailand, and the subsequent exchange into Thai baht inside the country. With proper documentation to show that foreign currency was sent into Thailand for the purchase (ideally an FET), the seller can later repatriate the same amount of money that they sent in tax free and only the capital gain is subject to income tax.
Foreigners earning income from Thai property registered in their own name are obliged to file a personal income tax return. The tax is calculated using a progressive rate after deducting allowable expenses. The progressive rates range from 5 to 35%:
| Income After Expenses (THB) | Tax Rate (%) |
|---|---|
| Up to 150,000 | 0 |
| 150,001 – 300,000 | 5 |
| 300,001 – 500,000 | 10 |
| 500,001 – 750,000 | 15 |
| 750,001 – 1,000,000 | 20 |
| 1,000,001 – 2,000,000 | 25 |
| 2,000,000 – 5,000,000 | 30 |
| Over 5,000,000 | 35 |
Thai limited companies are subject to corporate income tax (CIT) on annual net profit. This naturally includes the situation when a company holds an asset in the form of real estate, this could be land or a building/structure, and the real estate is sold producing a capital gain. This capital gain is taxed the same as any other form of company income.
For a companies with paid-up capital of up to 5 million baht, progressive CIT rates of up to 20% apply as follows:
| Net Profit (THB) | Tax Rate (%) |
|---|---|
| Up to 300,000 | 0 |
| 300,001 – 3,000,000 | 15 |
| Over 3,000,000 | 20 |
What are the ownership options for foreign buyers of Thai houses and villas?
Thai law states that foreigners cannot own land directly, they can own buildings only. So, if a foreigner wants to buy a house/villa (or a townhouse) which includes land, he has two basic ownership options for acquiring the land.
- Set up a carefully structured Thai limited company to hold the freehold of the land. The freehold of the land is put in the company name. There is a minimum requirement for the company of two Thai shareholders. These Thai shareholders will typically be provided by the lawyer setting up the company or handling the transaction. The foreign buyer is made a director, and a shareholder, in the company. You can also have more than one foreign shareholder or director, but the total foreign shareholding must not exceed 49% and for every foreign director, you also need Thai shareholders. So, if you have 2 foreign directors, you will have 4 Thai shareholders etc. Crucially, there are a number of protective measures put in place by the lawyer setting up the company to create the safest possible structure for the foreign director(s). These give the foreign director(s) complete control. These often include, but are not limited to, the following: the foreign director(s) is the only officer who can commit or bind the company in any contractual dealings; the director’s shares are preference holding more voting rights than the nominal shares; when the company is set up, the Thai shareholders sign an open-dated share transfer form, meaning they can all be signed out and replaced with other shareholders whenever the foreign director(s) wishes; the Thai shareholders sign agreements to waive their financial rights.
The company owns the freehold of the land and the investor(s) is free to build on the land, sell or lease property and transfer their rights to next of kin.
Note: The company must of course comply with Thai law and money should pass through the company books, shareholder meetings must be held, minutes of meeting prepared, and yearly accounting must be filed etc.
- Lease the land on a rolling 30-year lease. An alternative to setting up a Thai limited company is for the foreigner to purchase a 30-year lease for the land. Options to renew the lease for 2 further periods of 30 years are built into the contract to make a total lease period of 90 years. The contract can also include a fixed option to purchase the freehold whenever the foreigner wishes.
Note: The house/villa itself (the structure) can be owned directly by the foreign buyer. However, if the freehold of the land is held in a Thai company, then the house/villa will typically be held in the same company. This is for reasons of tax efficiency and ease of resale.
What is difference between Thai condominiums and apartments?
Condominiums in Thailand are distinct from ‘standard’ apartments in that they have a condominium licence which means that up to 49% of the private living space of the condominium building can be bought by foreign investors on a freehold basis. The remaining 51% can be directly owned by Thai individuals, held in a Thai company or leased to foreigners.
Regarding ‘regular’ apartments (i.e., where the development has no condominium licence), the ownership structure is either a 30-year lease and/or shares in a company which holds the freehold. In the case where the apartment is both leased and the buyer also given shares in the company owning the freehold, this is often referred to as I protected leasehold structure because having shares in the company owning the freehold makes the lease renewals more secure. Regarding the leasehold term, 30-years is the maximum allowed in Thai law for one term, however, options to renew the lease for 2 further periods of 30 years are typically built into the contract to make a total lease period of 90 years.
Important note: This text serves as general guide only and clients should seek advice from qualified professionals for more detailed clarification.
