Leasehold Tax Hitting Foreign Property Buyers
For many overseas investors purchasing apartments, and villas leasehold has been their only option due to foreign ownership restrictions in Thailand. While a 12.5% municipal tax on house and land has been in place, there previously was little enforcement due to limited manpower in the municipalities. Most Or Bor Tor's on the island are now taking serious steps in making assessments on developments and this is hitting real estate investors in their back pockets. I spoke to one of the leading tax advisors on property in Thailand Paul Ashburn of BDO Richfield in Bangkok who has this to say on the issue:
"Leasehold apartments are clearly subject to tax, even if there is a ownership structure above in which a foreign entity is connected and provides the lessees control of the owning company the nature of the foreign ownership law precludes this and ultimately the determination is that the property is held under lease.
In the case where the project is a condominium and while 49% foreign ownership on freehold would not apply, those under the 51% lease entitlements would be subject to tax.
Villas and freestanding homes also would fall under this provision is the property is registered under a lease.
The tax calculation is based on 12.5% of annual rental value, or in the case of leasehold then the lease amount of the annual recognized lease.
Currently the Government has said they are currently looking at reforms and a revision to the tax law under which a wider scope of application would be made and increase in property tax calculations. "
Its interesting to note that gray area in interpation between rent and lease that no doubt look to caused confusion in the assessment process and the 12.5% tax by law should be applied to units being rented out by owners and agents. While the law states the tax does not apply for owner occupied units, the structure of leasehold nullifies this for foreign owners. As we talk the municipalities are now hitting the tax trail and we are starting to see the impact of the enforcement of this tax, which will look to also start viewing the short term and vacation rental market as well as long term lets.