Property Tax Obligations in Thailand

By Paul Ashburn Senior Partner BDO Advisory Limited 12.05.2011 03:10

There is a general consensus that Thailand’s property tax regime is in need of reform but for years it has been a thorny issue for Thailand’s governments to address.

A draft of a new property tax law has been mooted but progress to date has been slow and any change will require careful planning and implementation over the long term. The election planned for this year will see the law’s introduction deferred until a new government is formed. In the meantime, property owners will this year once again need to consider their liability to ﬁle house and land tax returns.

Who needs to pay?

If you own real estate in Thailand that has been used in the last year for commercial purposes, including a holiday house or unit, you may be liable to ﬁle a return for house and land tax (HLT).

Villas owned by foreigners in Thailand may be structured with the land being leased on a long term basis. In this case the foreigner owns the villa building but not the land on which the villa is built. Where the owner of the building is not the same as the land owner, the law provides that the building owner shall be the person liable for HLT for both the land and the building.

Having an interest in Thai property by indirect means, such as fractional ownership or a leasehold condo unit, may also result in a liability to HLT. In this case, the liability would arise because of contractual terms agreed with the property owner, which allows him to pass on any HLT assessed against the property.

What property is exempt.

A number of exemptions are provided under the law. Where the property is used by the owner as their place of residence, then it shall be exempt from HLT under Section 10 of the HLT Act. An exemption is also provided under this Section if a representative of the owner resides in the building to take care of it and the building is not used for storing goods or for a commercial purpose.

It is conceivable that foreign owners may claim exemption for their holiday homes, if it is not used for a commercial purpose, such as short term lettings.

Foreign property owners might chose to invest in Thai real estate via an offshore holding company, typically in a tax haven jurisdiction, with a view to minimising taxes. Whether or not an offshore company is the right choice requires careful analysis of the costs and beneﬁ ts, taking into account the particular circumstances of the owner. Buying a villa or condominium unit in Thailand using an offshore company opens up the buyer to a potential liability to HLT. In principle, a company cannot avail itself of the residency exemption. This principle was adhered to the Supreme Court when it ruled against a company that tried to avail itself of the residency exemption, on the grounds that the directors of the company resided in the building.

How much do I have to pay?

HLT shall be calculated on the yearly rent received for the property. If the property is not rented out e.g. the owner uses it in his business, an assessed rental value shall be determined instead. A reduction of the rental value may be requested in certain circumstances e.g. the property has been vacant, it has been damaged or is in a serious state of disrepair.

The real sting of HLT is the tax rate – 12.5% of the rental value of the property. The new property tax regime if introduced would calculate the tax on the ofﬁcial appraised value of the property instead. Land and buildings generally would be taxed at a rate of 0.5% under current proposals.

What are the ﬁling requirements?

Persons liable to HLT shall submit Form Por.Ror.Dor.2 at the District ofﬁce or Sub-district Administrative Organization where the property is located within the end of February. For new properties, supporting documents should also be provided, for example, title deed of the property, sale and purchase agreement, lease agreement, construction permit, house registration, map of the property etc.

A tax assessment shall then be issued and shall be payable within 30 days from the date of receiving the assessment. Surcharges apply for late payment.

What if I disagree with the assessment?

A taxpayer not satisﬁed with the assessment because the HLT is too high or the assessment is not made correctly, is entitled to appeal within 15 days from the date of receiving the assessment. If the taxpayer is not satisﬁed with the result of the appeal, he can bring the case to the court within 30 days from the date of receiving the verdict.

How are rental programmes taxed?

Some developments in Thailand, particularly those in resort areas, offer rental programmes as part of the package, including guaranteed rental returns. With HLT still likely to be around in the near future, property owners and managers will need to agree on how rental values should be declared and who will be responsible for ﬁling the returns and making the tax payments.

Being part of a rental pool should make a property owner a soft target for a tax audit. Records of the rents received by owners are maintained in Thailand by the rental pool manager. It is important that owners and property managers alike understand and comply with Thailand’s tax laws if they are to avoid nasty surprises when the taxman eventually pays a visit.

This article was written by Paul Ashburn, Senior Partner, BDO Advisory Limited.

BDO Advisory Limited, a limited liability company incorporated in Thailand, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO International network and for each of the BDO Member Firms.

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