This week we will continue our discussion on taxes applied to property transactions in Thailand.
Why is this important?
Because if you're buying a house, leasing land or buying a condominium, somebody will calculate the taxes owed and present you with a bill. If you don't understand what you're supposed to pay and what you don't have to pay, you'll have no choice but to come up with the assessed payment.
But you should know that lots of mistakes are made on the calculation of these taxes. If you understand these taxes, even enough to talk knowledgeably with your adviser about them, you may be able to pick up errors made by others _ and save yourself a bundle.
This time we're going to start talking about income taxes withheld at the time of a property sale. They're withheld by the buyer and paid to the land officer on the case, who receives them on behalf of the government.
Withholding taxes are taxes that the person who owes them doesn't receive. Instead the person paying the amount on which the tax will be due holds them back and pays them directly to the government.
Why is this done? Because if the government requires that you hold back taxes due to a seller and pay them directly to the government at the time the deal is done, the government is much more certain of getting paid.
For example, if the seller takes the money, including the taxes, and then goes bankrupt, the government never gets its taxes. So the government requires that it be paid before the seller is. This is how withholding works.
So imagine you're buying a condo, or that a Thai person is selling land or land and a house to another Thai person. Even if you're a foreigner in the latter transaction, this may be important to you because the seller may be selling to someone who will lease to you, and it may be that you're responsible for the taxes.
So to summarise, what we're talking about here is taxes that will be withheld at the time a property deal is registered at the land office. These are income taxes on the money the seller makes on the deal. They're withheld by the buyer and paid to the land office before the sale is recorded.
How are these taxes calculated? It depends on whether the seller is an individual or a company. Let's start this week with the situation in which the seller is a company.
The income tax withheld when the seller is a company is 1% of:
1) the appraised price of the property; or
2) the purchase price of the deal, whichever is higher.
Let's look at an example. Say you're buying a condominium and it's in the name of a company.
The appraised price of the condo is four million baht and the actual purchase price is seven million. What is the income tax that's supposed to be withheld from the company on that transaction?
It would be 1% of seven million baht, or 70,000 baht. This is because the actual purchase price is higher than the assessed price of the property.
Next time we'll explain the income tax withheld on the sale of property by an individual.
James Finch of Chavalit Finch and Partners (finch@chavalitfinchlaw.com)
and Nilobon Tangprasit of Siam City Law Offices Ltd (nilobon@siamcitylaw.com).
Researchers: Arnon Rungthanakarn and Sitra Horsinchai
For more information visit www.chavalitfinchlaw.com.
Questions? Contact us at the email addresses above.