Tax on Property Sales
Tim Jones a perplexed Miner from Alice Springs recently e-mailed me with a question concerning income tax on property. “Why when I bought a house in Patong this year was I asked to pay the owner's income tax and how is this calculated.”
An interesting question that frequently puzzles overseas buyers of property in Thailand. Here as elsewhere in the world there are costs involved in purchasing and selling property. There is a stamp duty of 0.5%, transfer tax of 2%, a business tax of 0.11% levied against an owner who has been in registered possession of a property less than 5 years (reduced from 3.3% just this week to apply for the remainder of the year, when it will be re-evaluated) and Income Tax.
Income tax (sometimes referred to as withholding tax) is applied on all property sales and is payable at the same time as a sale is registered. There is no Capital Gains Tax (CGT) in Thailand unlike many parts of the world, and income tax on a property acts as its replacement. Income is considered to have accrued when a sale takes place and is calculated as percentage of the sale value. The exact percentage of a sale value that is deemed applicable for the purpose of calculating Income tax is based on an official table of values formulated by the Government of Thailand.
The longer you have owned the property, the greater the percentage of the sale value is determined as income. After 1 yr ownership 8% of the total assessed value is liable for income tax, after 2 yr ownership it is 16%, after 3 years 23%, and so on until a maximum of 50% is reached after 8 years of ownership. Thereafter no matter how long the property has been owned the percentage remains constant at 50%. This income is then converted to an annual rate based on the number of years that the property has been owned .The resulting annual income will then be assessed at the normal personal income tax rates (a progressive rate ranging from 5% - for the first 100,000 Baht , 10% between 100,000 and 400,000 Baht , and thereon up to a maximum of 37% - for amounts over 4,000,000 Baht)
The property's sale value is determined at the District Land Registry Office Office at the time of sale and is based upon books of tables of land values by location and building value held at the Land Registry Office. These official tables are updated every five years or so. They are used as a base guide line to work out the assessed value of property and there is always a degree of flexibility in these matters. An owners declared value is taken into consideration and providing it is within a reasonable range of the official table of values an agreement can be reached. For private purchasers and owners there is no benefit in a high declared values and the minimum value or something close to it is the typical declared value.. Income tax is then calculated on the Land Registry Office's resulting assessed value. For most residential properties this will, when computed, work out to be in the order of 1% to 5% of declared value. Only properties of exceptionally high value owned for 8 years or more are likely to be assessed more than this.
"Who pays this Income Tax" , would seem a pretty obvious question to an overseas buyer. But in Thailand all aspects of the transfer of ownership of a property are considered and are brought into the bargaining process. It is not uncommon to have the owners income tax liability (relating solely to the property under consideration !) included in the discussion. Diligent research at the District Land Registry office can more often than not determine the amount an owner would be liable for income tax, on that particular property. There are no set rules who pays the income tax and they are in effect just part of the total cost of the transaction. It is therefore important when making a contract to purchase a property to clearly specify who is responsible for paying the Income Tax as well as the other taxes and transfer fees.