Thailand property tax in a rental
There are no general property taxes (capital tax on property imposed by the government) in Thailand, but real properties put to commercial use and not used for residential purposes by the owner are under the Building and Land Tax Act B.E. 2475 required to pay a property tax at a rate of 12,5 % of the annual rental value or the annual assessed rental value (if no rent is paid or the declared rent is considered too low). The annual assessed rental value is based on a calculation method over the appraised value of the property (land, house, apartment). If anyone leases a property at a rent lower than a reasonable rent, the amount could be adjusted and lessor could be taxed on what the rent should have been.
It is the property owner's responsibility to inform the local authorities (Or.Bor.Tor or local municipality) and pay building and land tax before the end of February each year.
Owner-occupied residences are exempt from building and land tax (only for the first property, the second or more properties are not automatically exempt). Not regarded as owner occupied is a situation where a foreigner owns a property through a Thai juristic entity (Thai limited company) and uses the house as his holiday home or residence. If the land and buildings or any other improvements are owned by a company and used for residence by the foreigner the company is required to pay building and land tax, irrespective if the company receives any income out of it.
Company owned properties
Foreigners owning land and house through a limited company are often unaware of their responsibility for this tax and possible consequences of not paying. The company is legally a separate entity (Thai juristic person) and foreigner using the property is not considered the owner, nor the property owner occupied. The relevant local authorities do occasional checks on companies owning land which will lead to a higher tax assessment and fines for the company (foreigner). In this structure this tax should be paid or separate ownership of the building from the land and therefore company.
Property tax and lease agreements
Thai landlords usually want the tenant (lessee) to pay building and land taxes for them as part of the lease agreement (as they don't want to lose 12.5% of their revenue). A common clause in a lease agreement in Thailand is:
'The lessee agrees to pay to the Lessor any and all taxes, if any, beginning with taking possession of the property and during the term hereof which may be levied upon or assessed against the property and all interests therein and all improvements and other property thereon, whether belonging to Lessor or Lessee'
In any long term land lease structure in Thailand it is recommended for the foreigner to have separate ownership over the structures (lease the land own the house). Not only will this improve his legal rights to the land it also reduces tax liabilities.
Local land tax
There is also a very small tax on non-rental property for undeveloped land (local development tax) imposed upon the person who either owns or is in possession of the land without a building. The rate depends on location, size, use of the land, land classification and assessed value.
Property tax reforms in Thailand (plans)
There are plans in the Thai government for a new property tax that will replace the current building and land tax and local land tax. The new tax system will put a more general tax on immovable property and every owner of land and/ or any permanent structure built upon the land will have to pay property tax (owner-occupied residences will not be exempt under the new property tax law). The new property tax will have 3 maximum tax rates depending on the use of the property and will be calculated over the appraised value of the property:
- - the tax rate shall not exceed 0,5 % of the appraised value of the land and building if put to 'commercial' use (similar to the current situation)
- - the tax rate shall not exceed 0,1 % of the appraised value of the property when used as private residence (new)
- - a tax of 0.05% of the appraised value shall be charged if the land is used for agricultural purposes (similar to the current local land tax)
In the proposed plans the above rates are the maximum tax rates that can be charged by the local authorities, therefore, under the new tax law, building and land tax could vary per district.