Rental investment in Thailand: the legal guide for all future property owners

What is rental investment in Thailand?

Rental investment in Thailand involves acquiring a property with the aim of renting it out, thereby generating income for the owner. This type of investment is particularly widespread in Thailand, thanks to a dynamic property market, still relatively affordable prices and strong rental demand fuelled by tourism and expatriation.

In Thailand, rental yields can vary between 4% and 10% per annum, depending on the property’s location and management. Investors can choose between short-term rentals, mainly for tourists, and long-term rentals for expatriates and local residents.

Who should consider investing in rental property in Thailand?

• Local investors

Thai citizens enjoy considerable freedom when it comes to investing in rental property. They can purchase land, houses and condominiums without restriction. The purchase of real estate by a Thai is done directly, without the need for complex legal structures. However, it is advisable to consult a lawyer to ensure that all transactions comply with current legislation.

• Foreign investors in Thailand

Property ownership rules are stricter for foreigners in Thailand. According to the Condominium Act of 2008, foreigners can purchase condominiums provided that foreign ownership of the property does not exceed 49%. Foreigners cannot own land directly, but they can own houses built on land leased for a maximum of 30 years, renewable twice, for a total of 90 years.

Key stages in a rental investment in Thailand

• For local investors

Thai investors can purchase property without major restrictions. Once a property has been found, they can complete the purchase by signing a sales contract, followed by registration of the property with the Land Department. However, it is advisable to consult a lawyer to check that the contract is in order.

• For foreign investors

The process is more complex for foreign investors. They include : 

1. Legal advice: Use a lawyer specialized in real estate law to ensure that all stages of the purchase comply with Thai legislation.

2. Opening a local bank account: Necessary for real estate transactions, this account facilitates the transfer of funds from abroad.

3. Signing a promise to sell: This document, verified by a lawyer, details the terms of the purchase, payment terms and associated fees.

4. Transfer of funds: Funds must be transferred from a foreign account to the account in Thailand. The local bank will issue a document proving the origin of the funds, which is required to register the property.

5. Property registration: Once payment has been made, the property must be registered with the land department, thus guaranteeing the owner’s rights.

The legal framework for letting property in Thailand

Once the purchase of a property in Thailand has been finalized, owners, whether local or foreign, must comply with a number of legal rules when putting their property up for rent. Property rentals are governed by the Thai Civil and Commercial Code, which sets out the rights and obligations of landlords and tenants, as well as by specific tax and registration regulations.

• Registration and legal compliance

Landlords wishing to rent out a property must ensure that the lease contract complies with the provisions of the Civil and Commercial Code. This contract must include key information such as the duration of the lease, the amount of rent, payment terms, and the respective obligations of the parties. For long-term leases (over three years), the contract must be registered with the Land Department in accordance with article 538 of the Civil and Commercial Code, otherwise the lease will not be enforceable against third parties.

Failure to comply with this registration requirement may render the lease invalid under the law, thus limiting the landlord’s recourse in the event of a dispute with the tenant. It is also important to note that short-term rentals, such as seasonal or tourist lets, may be subject to additional regulations. In particular, short-term rentals of less than 30 days in residences not registered as hotels may be illegal under the Hotel Act B.E. 2547 and expose the owner to penalties.

• Taxes and tax obligations relating to rental investment in Thailand

Rental income in Thailand is subject to income tax, at rates ranging from 5% to 35% depending on the amount of income, in accordance with the Income Tax Act (Revenue Code B.E. 2481). Whether Thai or foreign, landlords must declare their income and pay the corresponding taxes.

In addition to income tax, a property tax is levied on rented properties, valued at around 12.5% of the annual rental value. On resale, a capital gains tax is also payable, but calculated only on the declared value.

Fees for registering the lease or transfer of ownership are also payable, amounting to around 1% of the contract value. For new constructions, a building-related tax may apply, depending on the length of ownership and the value of the project.

Failure to comply with these tax obligations may result in fines and penalties, as well as legal complications. Owners, especially foreign ones, are therefore strongly advised to consult a tax advisor or specialist lawyer to ensure that all legal obligations are met.

• Management and recourse

In the event of a dispute with a tenant, the landlord has a number of legal remedies under the Civil and Commercial Code. In the event of non-payment of rent or breach of the terms of the lease contract, the landlord can initiate legal proceedings to obtain the tenant’s eviction or compensation for damages. However, for these remedies to be effective, it is essential that the lease contract is properly drafted and registered.

Leasing a property in Thailand therefore demands legal rigor, both in the preparation of contracts and in compliance with tax and regulatory obligations. A solid legal framework is essential to secure the rental investment and maximize income while minimizing legal risks.

Risks to consider before investing in this sector in Thailand

Investing in this sector involves risks that should be approached with caution.

The local real estate market, while promising, remains volatile, depending on economic conditions and policies. This instability can be accentuated in tourist areas such as Phuket or Pattaya, which are more dependent on tourism.

Remote management also proves complex for foreign investors, often necessitating the use of local professional services, which generate additional costs.

Conclusion

Rental investment in Thailand offers attractive potential returns, but it is imperative to master the legal and tax requirements governing this type of operation. Strict compliance with the provisions of the Thai Civil and Commercial Code, as well as with tax obligations, is essential to protect your rights as a landlord and avoid any penalties. Investors, whether Thai or foreign, must adopt a rigorous and legally informed approach, drawing on the expertise of specialized lawyers and tax advisors, to secure their investment and optimize their rental income in strict compliance with Thai legislation.