Tax Considerations in Renting or Selling Condominiums / Apartments in Thailand
1. Rental income subject to personal income tax
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Income earned by an individual from the rental of property located in Thailand is subject to the Thai personal income tax regardless of whether the rental income is paid inside or outside of Thailand. The net rental income after deduction of expenses is included in the individual’s personal income, subject to taxation at the rate described in Section 3 below.
For the rental of immovable property, the individual may take a standard expense deduction of 30% of the rental or may deduct actual expenses. It is strongly recommended that the individual use the standard 30% deduction because trying to claim actual expenses in a higher amount will almost surely result in an audit by the Revenue Dept. Therefore, as a practical matter we can say that 70% of the income from the rental of the unit is included in the individual’s personal income.
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The standard expense deduction for rental of movable property is 10%. Again, it is not wise to claim a higher deduction. So, effectively 90% of the income from movable property is included as income.
Because of the higher standard expense deductions, and the possible application of the Thai VAT described in Sec. 2 below, it is often preferable for an individual to have all of his rental income under the lease of the unit, not from the lease of furnishings and the provision of services.
2. Thai VAT on furnishings rental and service agreements
It is common practice in the Thai real estate market to divide a lease agreement into two separate contracts. The first is a rental agreement for the leased premises (immovable property) and the second is a furnishings rental and service agreement. This is done in an effort to minimize the household tax (see Sec. 5 below). By shifting part of the premises rental to furnishings rental and service fees, the household tax is reduced (unless the District Officer exercises his authority to assess a higher rental value under the household tax law).
However, if the lessor’s total furnishings rental and service fee income for any 12-month period exceeds Baht 1.8 million the lessor becomes subject to the Thai VAT. This requires the lessor to register under the VAT system and file monthly VAT returns. It also means that the lessee must pay VAT at the rate of 7.0% on the furnishings rental and service fees.
3. Thai personal income tax
An individual’s total personal income after deduction of expenses is subject to tax as follows. Net taxable income would be calculated by taking the total personal income and deducting: (a) an allowance of Baht 30,000, (b) the amount paid for life insurance premiums for policies having at least a ten year term (this deduction cannot exceed Baht 40,000) and (c) qualified charitable donations (this deduction cannot exceed 10% of the balance of the personal income after deducting (a) and (b)).
The net taxable income is subject to tax at the following rates:
Net income Tax rates
Not exceeding 80,000 Exempted
Exceeding 80,000 but not exceeding 100,000 5%
Exceeding 100,000 but not exceeding 500,000 10%
Exceeding 500,000 but not exceeding 1,000,000 20%
Exceeding 1,000,000 but not exceeding 4,000,000 30%
Exceeding 4,000,000 37%
4. Consequences of failure to file and pay personal income tax
The personal income tax return should be filed no later than in March in the year following the year in which the income was earned. Failure to make a timely filing results in a penalty of Baht 2,000. More significantly, the amount of unpaid tax is subject to a surcharge calculated at the rate of 1.5% per month until paid. The statute of limitations for the tax owing, including surcharges, is 10 years (i.e., taxes and surcharges arising more than 10 years ago are no longer collectable by the government).
5. Household tax
The rental income from immovable property is also subject to the household tax at the rate of 12.5% of the gross rental amount. This amount must be paid to the District Office for the district in which the property is located. The owner of the property must submit an application to pay the household tax each February. The District Office will then issue a notice to pay the tax. The District Office may at its discretion assess a higher amount if it believes that the rental income declared is too low. The tax should be paid within 30 days of receipt of notice from the District Office. There is a surcharge of up to 10% for late payment. If the tax is not paid within 4 months of the notice the District Office can commence an action to seize the property and sell it at auction.
The penalties for failure to comply with the household tax include a jail term of up to six months and a fine of Baht 500, or both.
6. Stamp duty
A lease agreement is subject to a stamp duty of 0.1% of the total rental owing during the term of the lease. The lessor is responsible for the stamp duty. If the lease call for the lessee to pay the stamp duty, the stamp duty itself should be included as rental income of the lessor.
Stamp duty will also apply to the sale of condominium units in cases where the Specific Business Tax does not apply (see discussion below). The stamp duty is applied to the sale of property at a rate of 0.5% of the assessed value of the property.
7. Personal income tax on sale of condominium unit
Income from the sale of a condominium unit is assessable income under the Thai personal income tax. Calculation is based on the Land Office’s assessed value of the property, not the actual sale price. The tax on the sale of the unit is collected at the Land Office at the time of transferring title. It is not included in the individual’s personal income subject to filing and taxation at the end of the tax year.
To calculate the income tax on the sale, one deducts the standard expense deduction from the assessed value. The standard expense deduction depends on the number of years that the condominium was held as follows:
Number of years unit was held: Standard deduction (based on percentage of assessed value)
One year: 92%
Two years: 84%
Three years: 77%
Four years: 71%
Five years: 65%
Six years: 60%
Seven years: 55%
Eight years or more: 50%
The amount resulting after deducting the standard expense deduction is divided by the number of years the unit was held to create the average annual income. The tax rates for an individual are applied to the average annual income to create the annual tax rate. The annual tax rate is multiplied by the number of years the unit was held to determine the total tax owing at the time of transfer.
8. Specific Business Tax on sale of condominium unit
If a condominium unit has been held for less than five years the sale will likely be subject to the Specific Business Tax (“SBT”). The SBT, which includes a locality tax, is normally 3.3 % of the sale price. However, under special regulations in effect through March 24, 2010, the SBT rate is reduced to 0.11 %. This special regulation was put in force to assist the sluggish real estate market after the 1997 economic crisis. Now that real estate sales have picked up markedly it is not likely that the special regulation will be extended, so the rate may well revert to 3.3%, although perhaps the reversion to 3.3% will be phased in.
The SBT does not apply to the sale by an individual of his own principal residence provided that he has lived in it for at least one year. In order for this exclusion to apply, the seller’s name must appear as the owner on the unit’s household registration. Normally only Thai citizens and foreigners holding Residence Permits are entitled to appear on a household registration. However, there is a special type of household registration made available for other foreigners so that they can qualify for the exclusion under the SBT. A foreigner who resides in his own condominium unit should make sure that his residence is recorded on a household registration.
If the SBT does not apply to the sale of a condominium unit, then stamp duty will apply (see discussion above).