THAILAND REAL ESTATE & CONVEYANCING; TAX
THAILAND’S HOUSE & LAND TAX
Thailand’s House and Land Tax (‘HLT’) is set at 12.5% of a property’s ‘annual rental value’, defined as “.. the sum for which the property may reasonably be expected to let from year to year ..”. In the case of a lease, the HLT is calculated on the basis of the actual rent itself.
The single most important & applicable HLT exemption is available for “..houses or other structures inhabited by the owners thereof ..” which essentially means that owners of condominium, units, etc. for the purposes of residing thereupon themselves may qualify for this exemption, with the caveat that the property cannot be subjected to assessable rental income for even a day. HLT is among the few Taxes empowered to local municipalities, c.f. national revenue authorities. The Tax is essentially collectable from certain property owners and is generally imposed upon structures and land from which owner / proprietor receive, or should receive ascertainable rental income, i.e. proprietors letting out their property.
Property proprietors should receive an Official Notice from the relevant authorities, upon receipt of which it is required that the proprietor file the Form ‘Por Ror Dor 2’ which is essentially a declaration of the annual rental value of the property for the foregoing year. After which, the municipality will utilize this information to determine the applicable annual rental value of the property and the entailing amount of Tax payable. The municipality may assess and assign a value itself should it be in disagreement with the proprietor’s submitted value. The Por Ror Dor 2 is to be submitted within 30 (thirty) days from date of receipt (or within the time frame as otherwise outlined in the Notice), failure of which will result in a 200 THB fine and importantly, a waiver of the right to appeal against the municipality’s assessment. Further, the provision of false / wrongful information or making a false statement for the purpose of Tax evasion / distorting the proper calculation of ‘annual rental value’ could lead to severe repercussions such as imprisonment not exceeding six months and/or a fine not exceeding 500 THB.
Henceforth, the discretion bestowed upon the municipal authorities in House & Land Tax assessment is notably wide and this sometimes provide ample leeway for proprietor with authority for ‘negotiations’ as to the payable amount. This complemented with various other inefficiencies with the HLT and the Local Development Tax (land without structures) has pushed the Thai Government to implement a more contemporary and comprehensive property Tax that would change the basis of the property Taxation (property with structure(s) / building(s)).
The proposed change is to evolve assessment via assessed rental value to that of the immovable property itself. This would serve somewhat as a safeguard as municipal authorities thus would no longer be empowered to determine the Tax payable themselves. In the event that such a change were to take place, the assessment function in terms of property Tax would be usurped by the existing Valuation Committee in accordance with the Thai Land Code. Similar valuation methods are already in use as the basis for the calculation of Personal Income Tax (‘P.I.T’) and fees payable upon transfer of immovable property, as per Section 49bis of the Revenue Code. Contrasted with ‘assessed rental value’, such a valuation method utilizes actual market value, pursuant to Section 103et seq. of the Land Code. Furthermore, similar to the HLT, property owners can expect that any such new property Tax would also exempt property inhabited by owners.
THAILAND’S NEW PROPERTY TAX?
This highly anticipated modernized, comprehensive property Tax that would effectively take the place of current property Taxes including the HLT has in fact been approved by the Thai Cabinet as early as 2010 but nonetheless, the Ministry of Finance had decided to table the draft.
In any event, the new Government has declared that it will implement the said Tax and thus proprietors, may expect its implementation to be forthcoming. This new property Tax will be concentrated on the collection of Tax from wealthy landowners such as investors and politicians and concurrently divide / spread land ownership to families with lower incomes in view of the higher Taxation involved in Government acquisition, and the selling or letting out of property. All 30 million odd properties (plots of land with and without structures; commercial structures and residential structures) in Thailand are currently under valuation. Such valuations are already completed in several locations and are predominantly categorized into 3 (three) categories:
- Taxation of a general structure / building equal to or less than 0.5%
- Taxation of a residential unit without commercial usage equal to or less than 0.1%
- Taxation of land for agricultural use equal to or less than 0.05%
On the other hand, the Tax applicable to vacant land that is not put to use is 0.5% of the total valued price for the first 3 (three) years with an increment of 100% every 3 (three years) remains unused, with a ceiling of 2% of the total valued price. The Taxation situation has notably improved conditions for the purchase of property and if property prices is seen to experience a decline in the event, it may well be a good signal to buy as prices can be estimated to regain its high in the near future.
While we wait to observe the actual effects of the new Property Tax’s implementation, it can be estimated to have a significant impact on property / real estate trends in Thailand.
For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.
This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.