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Understanding the legal framework for land tax in Thailand
Thailand strictly regulates foreign land ownership, permitting little exception to laws keeping property within Thai control. Since 1954, the Land Code Act bars non-nationals from direct ownership, instead requiring long-term leases or corporations with majority Thai stake under rare exemptions like special economic zones. This legal restriction necessitates that most foreign involvement in land is through leasehold arrangements or corporate structures that meet government requirements. In most cases, foreigners looking to invest in land must do so either through a long-term lease (often capped at 30 years) or by incorporating a company with majority Thai ownership. Given the complex legal terrain, fully understanding the legal framework for land tax in Thailand is crucial.
This article provides an in-depth explanation of the various tax implications associated with land in Thailand, focusing on individuals and legal entities who own land, lease land, or are involved in the transfer of land rights. Each category includes practical examples to illustrate how these rules apply in real situations.
Table of Contents
Land Taxes in Thailand for Landowners
Taxation of the land owned by individuals
The Land and Building Tax Act of 2019 created a single framework nationwide for property assessment, replacing the former House and Land Tax Act and introduced a unified framework for land tax in Thailand. It obligates all people formally registered as owners of plots, homes, or attached constructions to pay annual the Land and Building Tax set locally. The Rates for this Land tax in Thailand range depending on a land’s designated purpose:
- Agricultural use: 0.01% to 0.1%
- Residential use: 0.02% to 0.1%
- Commercial or industrial use: 0.3% to 0.7%
- Vacant or unused land: 0.3% increasing every three years to a maximum of 1.2%.
Individuals benefit from certain exemptions, particularly when the land in question serves as a primary residence. For instance, there is no tax on the first fifty million baht of appraised value when the owner both owns and occupies the land and structure as their principal home. Additionally, small-scale agricultural landowners may also benefit from exemptions or lower tax brackets.
Assessment and Payment of this Land Tax in Thailand
This land tax in Thailand is assessed by the local administrative organization where the land is located. Notifications are generally sent out by February each year, and payment must be completed by the end of April. Failure to comply with these deadlines may lead to penalties and interest charges.
For example, a rice paddy owned by Mr. Somchai in Chiang Mai’s four million baht estimate deserves just four hundred baht under preferential agricultural treatment and probable carve-outs.
Taxation of the Land owned by Legal entities
Companies, registered partnerships, foundations, and other juristic persons that own land are also subject to the Land and Building Tax Act. However, these entities do not benefit from the exemptions granted to individual owners for this Land Tax in Thailand.
There is no exemption grounded on main residence for companies, as they are not deemed natural individuals. Consequently, any terrain detained by a company is taxed according to its use, without deductions. If the terrain is employed for commercial operations such as offices, manufacturing facilities, or retail outlets, it falls under the commercial or industrial class and is levied at the highest pertinent rate.
It’s common for real estate developers to utilize special purpose vehicles (SPVs) to hold title to terrain. These special purpose vehicles are still subject to land tax in Thailand and may only reduce their tax commitment through optimized terrain use planning or by qualifying for privileges under investment advancement plans.
For example, a property growth company registered in Bangkok owning an undeveloped plot of terrain intended for future flat building construction may be subject to an increasing land tax rate each year if the terrain stays vacant. After three years, the tax rate could climb to 1.2% of the appraised value.
Land Tax in Thailand applicable to land tenants
Taxation of the land leased by individuals
While ownership of land principally triggers responsibility under the Land and Building Tax Act, those renting or leasing the property may still carry fiscal duties depending on the agreement. According to Section 37, the owner is responsible for paying the tax. Nonetheless, lease agreements commonly include clauses demanding the tenant reimburse the owner for the land tax in Thailand that he has paid.
In reality, particularly for long-term rentals exceeding three years, registering the lease with the Land Office is compulsory. These registered leases frequently transfer the land tax obligations to the tenant, who essentially acts as the de facto taxpayer despite lacking legal ownership.
If a lessee sublets the property or generates income from it, the income faces Personal Income Tax according to the Revenue Code. Rates range from 5% to 35% contingent on amounts.
For example, one woman leases a plot for a decade to operate a small eco-friendly campsite. Though possessing no title to the land, her contract necessitates paying the land tax annually to the owner. Plus, earnings from running the campsite undergo personal income tax, which she discloses yearly.
Land tax in Thailand for Corporate tenants
When an entity leases land, it does not automatically incur liability for the land and building tax. The legal obligation remains with the landholder. However, it is standard practice in the commercial sector to include provisions in the lease contract that shift the burden of the land tax in Thailand to the corporate tenant.
Companies leasing land to generate income have ongoing tax duties, with rental earnings added to yearly profits and charged at a standard 20% corporation tax rate. Furthermore, companies making lease payments must legally withhold a portion of each lease payment and submit it to the Revenue Department as a 5% withholding tax .
Beyond constant land tax in Thailand, long-term leases trigger administrative costs at registration. For agreements spanning over three years, fees consist of 1% of the total lease value registered as a registration charge as well as 0.1% more in stamp duty. These fees are deposited when registering the lease with the Land Department.
For example, a Thai logistics company leasing land near Laem Chabang Port for 15 years to operate a container depot will pay registration fees and stamp duty upon registering the lease. In addition, the company must retain 5% of each rent given to the landlord and notify this to the Revenue Department each month.
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Land tax in Thailand during transfer of land rights
Taxation of the transfers by way of sale
When property changes ownership through purchase, the government imposes several taxes and charges. The most prominent land tax in Thailand during land sale is the 2% transfer charge calculated on the appraised land value. Often buyers and sellers split this fee evenly, though arrangements can vary.
Another significant land tax in Thailand is the Specific Business Tax, which applies when the seller has owned the land for less than five years and is not eligible for exemptions. For these, the Specific Business Tax levies at 3%, plus an added 10% municipal tax, making an effective rate of 3.3%.
The Revenue Department also imposes withholding tax on sellers. For individuals, the tax is calculated using a standard formula based on the appraised value and duration of ownership. For companies, the withholding tax is set at one percent of the higher value between the appraised price and the actual selling price.
Stamp duty is also levied on the transfer, although it is waived in cases where the specific business tax applies. When applicable, the stamp duty is assessed at 0.5% of the transaction value.
As an example, if a Thai company sells a commercial land plot in Pattaya after owning it for only two years, the sale would trigger a transfer fee, a withholding tax, and the Specific Business Tax, all of which could significantly reduce the net proceeds from the transaction.
Land tax in Thailand for transfers by way of lease
When land is leased rather than sold, the lease transaction itself triggers several financial obligations. As previously mentioned, lease agreements longer than three years must be registered. The registration fee amounts to one percent of the total rental value over the lease term, and an additional stamp duty of 0.1% is charged.
If the party leasing out the land is a business that is registered for value-added tax due to its annual income exceeding the statutory threshold, a seven percent value-added tax is applied to the lease payments. This land tax in Thailand must be collected from the lessee and remitted to the Revenue Department.
Moreover, rental payments made by a lessee to a lessor are subject to withholding tax. This means that the lessee is responsible for withholding a fixed percentage—typically five percent—of the payment and submitting it directly to the tax authorities on behalf of the lessor.
Any income derived from leasing land, whether by an individual or a legal entity, must be reported and is subject to personal or corporate income tax accordingly. The method of reporting and payment depends on the taxpayer’s classification under the Revenue Code.
For instance, a foreign investor who retains a 30-year permit on a seaside plot and sublets the terrain to hotel operators will be beholden to value-added tax, withholding tax, and profits tax, relying on the composition of the lease contract and the proceeds generated from it.
Conclusion
Thailand’s lawful system offers a comprehensive and organized technique for the taxation of properties, whether by ownership, leasehold, or transfer. The Land and Building Tax Act, together with the Revenue Code and Land Department’s rules (https://www.dol.go.th/en/Pages/interneteng.aspx) , forms the backbone of this framework. People and legitimate entities involved with lands in Thailand must be cognizant of their obligations, which differ considerably depending on their lawful status and the nature of their rights over the land. Ownership by persons may present certain tax advantages, while companies generally face higher liabilities. Tenants must navigate contractual obligations that may assign tax liabilities to them, even where the law does not directly impose such obligations. Transferors, whether selling or leasing land, are subject to multiple layers of taxation and fees. Legal counsel is strongly advised to ensure compliance and optimize tax planning in all land-related transactions.