Last week, we started a discussion of the withholding taxes on the sale of property. This week we'll talk about withholding taxes if the seller is an individual, not a company.
The withholding tax is the amount withheld from the purchase price of a sale of property sale and paid to the land officer when the purchase is registered at the land office. It is the seller's income tax on the deal. These taxes are withheld and paid to the government before the seller receives his or her money.
And this is important because if you understand the taxes on a property deal you're involved in, you will be able to pick up errors in the calculations _ and there are lots of them.
Let's see how the withholding is calculated in the case of the seller being an individual. If the seller is a company the withholding is calculated differently, which we covered last week.
The calculation is carried out in steps.
Step one: The allowable expenses are deducted from the appraisal price of the property and what remains is called the ''assessable income''. The allowable expenses are calculated with reference to Royal Decree 165 (BE 2529) under the Revenue Code and depend on the number of years the property has been held by the seller. The accompanying table illustrates how to calculate the assessable income.
For example, if the assessed price of the property is 10 million baht and the seller has owned it for six years, the assessable income on the deal is six million baht.
Step two: Divide the result of the first step by the number of years the seller has owned the property. So, in the example, we'd divide six million baht by six, and the result is one million baht.
Step three: Multiply the result of the second step by the applicable tax rate, which ranges from 5%-37%, depending on the amount.
You get the applicable tax rate by looking at the tax tables. Let's say the tax rate on one million baht is 20%. We then take 20% of one million baht, which comes out to 200,000 baht.
Step four: Multiply the tax calculated in step three by the number of years the seller has held the property. So in the example we multiply 200,000 by six and get 1.2 million baht.
The result is the amount _ 1.2 million baht in this example _ that will be withheld from the purchase price and paid to the government as the seller's income tax on the deal, withheld and paid by the buyer to the land officer.
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.
