Taxes & Government Fees for Sale  of Real Property
“To be or not to be tax wise, that is the question”
By Ponthep Werachon

“To Be Or Not To Be Tax Wise” is the question of tax planning to avoid excessive tax implications. “Tax Avoidance” is not “Tax Evasion”.

“Tax Evasion” is punishable by the laws for involvement of fraudulent act while “Tax Avoidance” is not punishable if it involves only planning of the most wise tax structure. However, it is not easy to ascertain delineation between “Tax Avoidance” and “Tax Evasion”. The untouchable “Al Capone” was put in jail by the IRS for “Tax Evasion”, not for other felonies by the Fibbies. The IRS in USA can ambush you everywhere with their commandos.
Knowledge of law may enable you to plan the most wise tax structure.

“How can foreigners have access to knowledge” Knowledge is a truth which is always stranger than a fiction. A competent person who will tell them the truth should be a licensed professional specialist. The balance of interests in Pattaya seems to be a chronic problem. In this land of opportunity, where people worship “Easy Money” as their lord, many people are omni-competent to do various careers simultaneously just to have the money they worship. You may see a bunch of unlicensed professional specialists running around the city to tell the sob story. In the land of the blind, you may see only these one-eyed men showing off that they are kings of information to tell you every story except the truth.

Who will be a crusader to eradicate the ignorance of foreign buyers

We observe that the knowledge about Thai tax law seems to be the main ignorance of most foreigners. It never means that we want to diffuse the “Tax Evasion Syndrome”. We just want them to be knowledgeable of their rights and duties. You may see that most of foreign buyers pay all taxes for transfer of real property because they were told by an unlicensed specialist. Let them understand in order to be able to make their own decision without adhesion contract.

Taxes for Transfer of Real Property

Thai law requires that a transfer of real property must be registered with the land office where the land is located which is Banglamung Land Office for all lands in Pattaya. A real property in this article means land and building. However, the calculation in this article can be applied to the sale of a condominium unit.

Our policy is to equip the weapon of knowledge to all foreign buyers to defend themselves against unscrupulous persons who abuse all foreign buyers by their ignorance.

In this article, we discuss only taxes and government fees applicable on the transfer for sale of real property being land and house. These taxes and fees are collected by the land office, not other taxes on the possession of land and house which are collected by a local municipality, i.e., Pattaya City or Local Administrative Council (Or.Bor.Tor)

Taxes and Government Fees are different. Tax means “Pasee” in Thai being imposed on a person receiving a taxable income. But “Government Fee” means “Kah Tham Niam” which is imposed on a person handling the registration process with the competent authorities.  However, most of foreign buyers in Pattaya are confused by the misleading advice to pay all taxes and government fees.

Taxes and government fees including stamp duties for transfer of real property are :-

– Income Tax with a flat rate of 1% on a selling price for a juristic person (company) or a progressive rate on a selling price for a natural person
– Specific Business Tax (SBT) with a flat rate of 3.3% on a selling price for both    natural and juristic person
– Transfer Fees with a flat rate of  2% of an official appraised price
– Stamp Duties with a flat rate of  0,5% of an official appraised price

Income Tax (Withholding Tax)

The above income tax will be imposed on the recipient of taxable income from the sale of real property. This income tax will be withheld by the land office upon the registration for transfer of the land. The recipient can be either natural person (individual) like us or juristic person (legal entity) which are limited companies, limited partnerships, condominium juristic persons, associations and foundation etc.

For the transfer of real property with the Land Office which is either only land or land and building, a seller or owner of the property will have to pay.

Natural Person Taxpayer

A natural person is a human being like all of us who may enjoy all rights and vice versa be subject to all duties prescribed by law.  Thai tax laws do not discriminate between Thai nationals and foreigners.  If the owner is a natural person, the tax rate will be under the progressive rate as per the schedule under the Revenue Code. The schedule provides the maximum tax of 37% for the natural person.

Juristic Person Taxpayer

A juristic person is a person created by the law, i.e., limited company, limited partnership, condominium juristic person, association, foundation, government office, state enterprise. A juristic person may enjoy all rights and be subject to duties naturally applicable to juristic persons. If the recipient of taxable income is a juristic person or company, the tax will be calculated with a flat rate of 1%.

The income tax for both a natural and juristic person is based upon the actual selling price which cannot be lower than the official appraised price. The official appraised value of land is fixed per square wah by the land office for the tax collection which is always lower than the market price. The official appraised value for the land is per square wah (4 square meters) but the building is per square meter. The area of the building can be ascertained in a construction permit. Some unscrupulous developers transfer only the land to their customers to minimize their tax liabilities. It is advisable to retain a qualified lawyer to verify whether you also have the ownership of the house.

Specific Business Tax

The Specific Business Tax  (SBT) is imposed with the flat rate of 3.3% on the actual selling price if the owner either a natural person or juristic person sells the property within 5 years from acquisition of ownership.

Calculation of Income Tax

In case the company is the owner, the tax can be easily calculated by 1% of the actual selling price which cannot be lower than the official appraised value.

It will be more complicated if the owner is the natural person, you have to refer the income in the schedule of the progressive rate under the Revenue Code of Thailand :-

– not more than 100,000            5%

– more than 100,000 – 500,000                10%

– more than 500,000 – 1,000,000             20%

– more than 1,000,000 –  4,000,000        30%

– more than 4,000,000                                    37%

The method of calculation is as follows :-

1) Before calculating the amount of tax to be paid under the progressive rate, the gross amount of income will be first deducted by deductible allowance with the percentage according to a number of year/s the owner owns the land.

– 1 year  92%

– 2 years 84%

– 3 years 77%

– 4 years 71%

– 5 years 65%

– 6 years 60%

– 7 years 55%

– 8 years 50%

For example, if Mr. A sells the land he owns for two years for the price of  2,000,000 baht, he may first deduct the allowance of  84% for the rate of 2 years being the result of 1,680,000 baht. Therefore, the amount of 2,000,000 baht deducted by  1,680,000 baht is 320,000 baht.

2) After the above deductible allowance, the deducted amount of 320,000 baht will be divided by the number of year/s (2 years)  the seller owns the land being the result of 160,000 baht.

This amount of 160,000 baht will be used as the base to calculate the progressive tax rate being :-

– 5% for the amount not more than 100,000 baht being 5,000 baht
– 10% for the amount of 60,000  baht being 6,000 baht
The result is 11,000 baht.
The amount of 11,000 baht must be multiplied once again by the number of year/s the seller owns the land.

The amount of tax to be paid is 22,000 baht.

For the building, the depreciation can be applied which will not be discussed in this article.

Calculation of the Specific Business Tax

The calculation of the Specific Business Tax (SBT) of 1% on the actual selling price is collected if the seller owns the land not more than 5 years. It is deemed a speculation if a person sells the land within a short period of time after acquisition. If the seller is not subject to the Specific Business Tax (SBT), the stamp duty of  0.5% will be applied.

Government Fees and Stamp Duties

Government fee for the transfer of land of 2% on the official appraised value is collected on the registration of transfer with the land office.  The stamp duty of 0.5% is collected if the seller is exempted from Specific Business Tax (SBT).

The law never says that the government fee and stamp duty belong to  either a seller or buyer. It can be equally absorbed. You should negotiate with the owner and clearly mention in a contract that who will be responsible for the government fee and taxes. As a buyer who believes that the market belongs to the buyers, you will be always preponderant in the negotiation.

About the Income Tax and Specific Business Tax (SBT), the seller should pay because the nature of these taxes should belong to the seller who receives the income. However, foreign buyers are always misled to pay all these taxes with their ignorance.

Some foreign sellers and buyers are misled to declare the selling price lower than the price they actually buy and sell. You may minimize the Income Tax and Specific Business Tax (SBT) which are not based on the official appraised value, but please bear in mind that you are involved in tax evasion and sometimes money laundering if you cannot justify the amount of money loses in the transaction.  You may not say “My money is just lost in space”.

Capital Gains Tax

It is a normal practice in Pattaya that the owner declares the selling price of the land lower than the selling price the buyer actually pay to the owner in order to minimize the income and specific business taxes. Most of them will declare the official appraised value being lower than the selling price. The buyer may not raise any objection in case the buyer will jointly pay all taxes with the seller However, if the buyer who is a juristic person sells this land in the future and the new buyer insists to declare the real price, there will be a difference of the price generating capital gains which will be taxable at the end of the year once you prepare the balance sheet and file the corporate annual tax returns. The annual corporate income tax is 30% from the net profits. The net profits come from the gross income deducted by allowable expenses. The allowable expenses are either actual expenses proved by actual receipts or depreciation expenses for the assets. The depreciation for building is 5% of the total value for the period of 20 years. The capital gains can be taxable profits to be declared at the end of the year.

Please note that this article is just only preliminary idea focusing only some areas involving foreigners.  More details on a specific issue will be required by the specialist to provide you with the exact figure of taxes.

If you are happy in this Kingdom why not to devote and contribute to the land and country deemed your last castle.