Property Closing Costs
Closing costs when buying property are an inevitability. In Thailand these are generally deemed fair and reasonable, but still take some understanding of how they are arrived at.
As a follow up to a recent brief overview, here is a fuller description of this topic.
Apart for the costs of drafting sale contracts - which are not significant in a simple transaction, but can rise if the deal is complex - there are four areas where fees and taxes will be incurred (and paid to the land office or the revenue department) at the point of sale of a property.
All property transactions will incur a stamp duty of half of one percent (0.5%) and, then depending whether the transaction is a lease or a sale either a 1% (registration fee) or 2% (transfer fee) will be applied. These fees are collected by the land office.
Next the transaction may be subject to a business tax of 3.3% - this will be applied to all sales by companies and (subsequent to an amendment a few years ago - intended to reduce speculation in property) to any private vendor sale that takes place within 5 years of the date of original purchase. Where due, business tax by individuals will be collected by the revenue departments desk in the land office at the point of sale (companies pay it later with their monthly tax payments)
Next comes the income tax assessment which is also collected by the revenue department desk at the land office. This is where it starts to get complex - in Thailand there is no capital gains tax (on private sales) as is common in many western counties.
In private sales - either a 5% withholding tax is taken (to be adjusted in your year end tax returns) - or and this is more efficient - you can request that income tax is calculated at the point of sale - according to a table of rates which in essence says that the longer you own the property the greater the proportion of its value is taxable.
That taxable income is then divided into the number of years of ownership (to get an annual income) and then multiplied by the applicable personal income tax rates for those years - in practice this will work out to under 2% of the price for properties of low to medium value (higher marginal tax rates for large incomes can push the figure significantly higher for very valuable properties). In a corporate situation a 1% withholding is taken at the point of sale and the sale price goes onto the corporate balance sheets.
If you are reeling from the number of separate tax components and totting up figures in your head which seem to make my “fair and reasonable statement” look a little odd, you can take comfort in that the transfer fee and income withholding taxes are based not upon the actual market rate but the governments’ book values for land and buildings which are known as the minimum assessed values. While these are occasionally higher than the true price, most commonly they are a fraction of the market rates, since, while they are updated periodically, market rates have been rising at a far faster rate. Assessed values typically vary from 30% to 80% of market value (with assessed values for condos being closest to and those for raw land being the furthest from market price). Business tax, if applied, and stamp duty are levied on the declared price of the property. In practice therefore, the total cost of sale will be much lower than the base fees would initially suggest.
Who pays these various fees and taxes at the point of sale is a negotiable matter between buyer and seller - there is no fixed rule, but generally they will be somehow split. It is important that these are stated in your purchase contract.