Thai Property Taxes and Land Transfer Fees
Because of the peculiar local system of taxing property on an arbitrary assessed value as determined by the Land Department rather than true market value, these taxes could amount to a considerable percentage of the purchase price.
There is a property sales tax of 0.11% of assessed value or the sale price, whichever is higher, as well as a transfer fee of 0.01% of the assessed value of the land. Also a stamp fee of 0.5% of the assessed value or the sale price - again whichever is higher.
However, there is no property sales tax if:
- The seller has owned the property for at least five years.
- The seller received the property as an inheritance.
- The seller has used the property as his primary residence for at least one year prior to the sale.
If you haven't determined during the negotiations that the seller will pay the taxes upon transfer, you could get a nasty shock when a tax bill arrives - often some 2 or 3 months after the sale is completed - since the seller often neglects to mention this liability (and after all, why should they tell you if you don't already know or ask? As in all business transactions anywhere, caveat emptor is the rule: Let the buyer beware).
Once you have acquired the property, you must pay property taxes on it. If you rent out the property, the tax is 12.5% per year on the annual rental revenue. (Which is why so many local renters want the lessee to pay tax for them, as they don't want to lose 12.5% of their revenue.)
There is also a tax on non-rental property. This depends on location and land classification, and varies from 0.25% to 0.95% a year.
In addition, if the house is purchased through a company, one has to bear in mind that corporate tax is higher than personal tax, and the cost of setting up the company has to be considered as part of the initial investment outlay, even if this is a relatively modest additional cost.
Then, when you want to sell the property, it is simply a matter of transferring the shares of the holding company to the buyer, without the necessity of re-registering the land titles. There are of course costs and fees involved in this exercise, but typically only a few thousand Baht all told. Again, get a professional business representative or lawyer to do it all for you.
Selling a property 'naked' (ie: without a company 'wrapper'), you may be liable for all of the fees that were applicable at the time of purchase (see above). You would also have to pay income tax on the sale amount.
Deductions are calculated using a table from the Land Department, which is based on how long you have held the property. If you (or your wife/girlfriend) received the land from an inheritance, there is a standard deduction of 50%.
Otherwise, the deductions are as follows: 92% if you have held the property for one year, 84% for two years, 77% for three years, 71% for four years, 65% for five years, 60% for six years, 55% for seven years, and finally reaching 50% for eight years or more.
For example, if you have held the land for four years, the deduction is 71%. Therefore, if you sold the property for 1.25 million Baht, you would be liable for tax on 362,500 Baht. This taxable income is then divided by the number of years you held the property (divide 362,500 by 4 to get 90,625).
The tax owed is then calculated from the standard personal income tax brackets (see the table at the end of this article). From the tax brackets, 90,625 Baht is liable to tax of 531.25 Baht. You then have to multiply by the number of years you held the property. Take 531.25 and multiply by 4 to get the final tax figure of 2,125 Baht.
It may seem a bit silly to divide, and then multiply by the number of years you held the property. However, this means that in the end you pay less tax, because a lower base is used for the tax bracket calculation. If this division and multiplication did not occur, in the example above you would have had to pay 27,250 Baht in income tax at current rates.
There are two further requirements:
- For sale of inherited, non-commercial or non-investment property, the final tax figure must be no more than 20% of the sale price.
- No matter how long you have held the property, the number of years you use in the division and multiplication process for the tax calculation cannot exceed 10.
There are also certain special cases where the income tax does not apply:
- The property is inherited or is an unsolicited gift, and is in a rural area, and the sale price is no more than 200,000 Baht.
- The property is given to your children, or is appropriated by the government.
Buying and selling property can be a complex matter, and you should ask a lawyer to complete advice.
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