Advice On Tax Assessment For Illegal Lease..?

[paulbrun]

I 'urgently' need to get some info about a tax 'assessment' that has been made on my friend's property. His lawyer provided him with a 30-year renewable lease (in his own name), but has now been 'found out' by the tax authorities, who are demanding a fairly large amount of money to cover all the taxes that he would have paid, over the full length of the lease..! His lawyer is demanding that these 'taxes' are paid by my friend, and he has also cancelled the illegal lease. My friend now has a large bill (850k baht) and has no lease on the property that he bought here for his family. Neither he, nor his wife, are Thai, hence the need to have a Thai nominated as the legal owner of the property. Does he have any leg to stand on..? I am just trying to help him find out if there is anything he can do, as he is not even in the country, and the tax demand is due by the end of this month. Anyone with any helpful suggestions, or the contact details of someone that could help him, please let me know. Thanks. PS. My feeling is that his lawyer screwed up badly, and got himself in trouble, and is looking for my friend to bail him out. Which he will probably have to, or he risks losing everything..!

[bustersizemore]

What is the nature of the tax assessed? Is it income tax on the lease income for the 30-yr duration of the lease? If so, it's actually the liability of the land owner (lessor), and not your friend, the lessee. Sounds like the lawyer screwed up and is looking for you to pay the land owner's tax bill. How could the lawyer cancel the lease and why is the lease "illegal"? Is the owner of the land a friend, etc? The issue at hand is that it is a tax on the land owner's income and has nothing to do with your friend who leased the property. The tax could have probably been avoided completely if the lawyer had instructed the land owner properly (see below). I'd very much like to know which lawyer assisted your friend.  Hope this helps.

Many (possibly a majority) of the land leases in Phuket under this type of arrangement have been drafted in a manner which have exposed the legal land owner to significant tax liabilities. The tax liability arises from tax assessed on the stated prepaid rent for the entire lease term plus penalties. 

Unless the land owner filed a "Phor Ngaw Dor 93" to the Revenue Dept within filing due dates, he (or she) could be liable for tax assessed on the entire lease rent calculated in the year that the lease was executed. The "Phor Ngaw Dor 93", as I understand it, allows for a landlord to elect the tax to be calculated based on annual rent payments, as opposed to calculating the tax in one year as a lease might stipulat. This treatment of lease income, in many cases, eliminates any tax liability that may have existed if the rent had been calculated in the initial year based on the entire rental payments. 

Thailand utilizes a highly progressive tax structure. Tax calculated on all rent in one year(as opposed to spread out throughout the lease term) creates a significant tax liability for many landlords.

The Land Department and Revenue Department have processed a number of cases of this type. It remains a significant potential problem for many landowners in Phuket.

There are many legal advisors in Phuket who have been drafting these lease for years and did not warn their clients of the potential problems and/or the necessity of filing appropriate tax returns.

Edited January 25, 2010 by bustersizemore

[paulbrun]

Thank you. This is very helpful. It sounds much as I suspected, that the lawyer screwed up, by not filing any tax returns on the 'supposed' income from the lease, and now the revenue department has caught up with him, he expects my friend, the real owner, to cough up 850k baht to cover his liability. The real problem is that my friend now has NO lease, and the property is in the name of the lawyer, who can of course sell the property anytime he wants, to recover the taxes due. I think my friend is in a 'No Win' situation, and unless he is prepared to risk everything, by taking the lawyer to court (?), he will probably have to pay up, and learn his lesson. The question then is, what does he do next..? Can he form a company, and put the property down as the company registered address, and part of it's fixed assets..? Or should he 'sell' the property to someone he can trust, and come to some 'private' agreement with them..? Thank you again. I am going to look for 'professional' advice, to see if the lawyer can be made liable for his own mistake..? Unfortunately, I think it is written in the contract, between the lawyer (lessor) and my friend (lessee), that all costs and legal liabilities are at the expense of the latter..? I will post an update, once I have more information.

What is the nature of the tax assessed? Is it income tax on the lease income for the 30-yr duration of the lease? If so, it's actually the liability of the land owner (lessor), and not your friend, the lessee. Sounds like the lawyer screwed up and is looking for you to pay the land owner's tax bill. How could the lawyer cancel the lease and why is the lease "illegal"? Is the owner of the land a friend, etc? The issue at hand is that it is a tax on the land owner's income and has nothing to do with your friend who leased the property. The tax could have probably been avoided completely if the lawyer had instructed the land owner properly (see below). I'd very much like to know which lawyer assisted your friend.  Hope this helps.

Many (possibly a majority) of the land leases in Phuket under this type of arrangement have been drafted in a manner which have exposed the legal land owner to significant tax liabilities. The tax liability arises from tax assessed on the stated prepaid rent for the entire lease term plus penalties. 

Unless the land owner filed a "Phor Ngaw Dor 93" to the Revenue Dept within filing due dates, he (or she) could be liable for tax assessed on the entire lease rent calculated in the year that the lease was executed. The "Phor Ngaw Dor 93", as I understand it, allows for a landlord to elect the tax to be calculated based on annual rent payments, as opposed to calculating the tax in one year as a lease might stipulat. This treatment of lease income, in many cases, eliminates any tax liability that may have existed if the rent had been calculated in the initial year based on the entire rental payments. 

Thailand utilizes a highly progressive tax structure. Tax calculated on all rent in one year(as opposed to spread out throughout the lease term) creates a significant tax liability for many landlords.

The Land Department and Revenue Department have processed a number of cases of this type. It remains a significant potential problem for many landowners in Phuket.

There are many legal advisors in Phuket who have been drafting these lease for years and did not warn their clients of the potential problems and/or the necessity of filing appropriate tax returns.

[paulbrun]

Sorry, I didn't answer all your questions. The tax appears to be mostly assessed on the 'theoretical' income the lawyer (owner) got in rent from the lease. There is also a large amount attributed to 'insurance', about which we know nothing..? And finally, there is another large amount added on at the end, 350k baht, about which there is NO information..?? The tax assessment, by the way, is on a commercial tax return, Por Ngaw Dor 90, and not on one for a private residence, 91 or 93. Maybe the lease is (was) not illegal, but asking a Thai to be nominated as the owner of a property, when in actual fact it is owned by a foreigner, is illegal, I believe..? No, the lawyer is not a friend of his, but is, I understand, a friend of the previous owner of the land, from whom he bought it..? I smell a rat, but it may be difficult, or more likely impossible, to prove..? I will not post the name of anyone on this forum, but I will, if necessary, let you know by e-mail.

What is the nature of the tax assessed? Is it income tax on the lease income for the 30-yr duration of the lease? If so, it's actually the liability of the land owner (lessor), and not your friend, the lessee. Sounds like the lawyer screwed up and is looking for you to pay the land owner's tax bill. How could the lawyer cancel the lease and why is the lease "illegal"? Is the owner of the land a friend, etc? The issue at hand is that it is a tax on the land owner's income and has nothing to do with your friend who leased the property. The tax could have probably been avoided completely if the lawyer had instructed the land owner properly (see below). I'd very much like to know which lawyer assisted your friend.  Hope this helps.

Many (possibly a majority) of the land leases in Phuket under this type of arrangement have been drafted in a manner which have exposed the legal land owner to significant tax liabilities. The tax liability arises from tax assessed on the stated prepaid rent for the entire lease term plus penalties. 

Unless the land owner filed a "Phor Ngaw Dor 93" to the Revenue Dept within filing due dates, he (or she) could be liable for tax assessed on the entire lease rent calculated in the year that the lease was executed. The "Phor Ngaw Dor 93", as I understand it, allows for a landlord to elect the tax to be calculated based on annual rent payments, as opposed to calculating the tax in one year as a lease might stipulat. This treatment of lease income, in many cases, eliminates any tax liability that may have existed if the rent had been calculated in the initial year based on the entire rental payments. 

Thailand utilizes a highly progressive tax structure. Tax calculated on all rent in one year(as opposed to spread out throughout the lease term) creates a significant tax liability for many landlords.

The Land Department and Revenue Department have processed a number of cases of this type. It remains a significant potential problem for many landowners in Phuket.

There are many legal advisors in Phuket who have been drafting these lease for years and did not warn their clients of the potential problems and/or the necessity of filing appropriate tax returns.

[Yamantaka]

My lawyer, who is in Bangkok, is competent and tenacious enough to get my former lawyer, who cheated me, disbarred for life. They are both Thai. It would be worth getting in touch as I think that if he believes your friend has a case that can be won, he might take it even though it is in Phuket.

He is Thammanat Yorbithol at:

Thammanat & Associates

249/17 Soi Ladprao 122

Wangthonglang 10310 BKK

(02) 539-5156

[jdinasia]

If the lease was properly registered at the land office (all leases over 3 years must be) then how can it just be 'cancelled' unilaterally?

[bustersizemore]

Thank you. This is very helpful. It sounds much as I suspected, that the lawyer screwed up, by not filing any tax returns on the 'supposed' income from the lease, and now the revenue department has caught up with him, he expects my friend, the real owner, to cough up 850k baht to cover his liability. The real problem is that my friend now has NO lease, and the property is in the name of the lawyer, who can of course sell the property anytime he wants, to recover the taxes due. I think my friend is in a 'No Win' situation, and unless he is prepared to risk everything, by taking the lawyer to court (?), he will probably have to pay up, and learn his lesson. The question then is, what does he do next..? Can he form a company, and put the property down as the company registered address, and part of it's fixed assets..? Or should he 'sell' the property to someone he can trust, and come to some 'private' agreement with them..? Thank you again. I am going to look for 'professional' advice, to see if the lawyer can be made liable for his own mistake..? Unfortunately, I think it is written in the contract, between the lawyer (lessor) and my friend (lessee), that all costs and legal liabilities are at the expense of the latter..? I will post an update, once I have more information.

What is the nature of the tax assessed? Is it income tax on the lease income for the 30-yr duration of the lease? If so, it's actually the liability of the land owner (lessor), and not your friend, the lessee. Sounds like the lawyer screwed up and is looking for you to pay the land owner's tax bill. How could the lawyer cancel the lease and why is the lease "illegal"? Is the owner of the land a friend, etc? The issue at hand is that it is a tax on the land owner's income and has nothing to do with your friend who leased the property. The tax could have probably been avoided completely if the lawyer had instructed the land owner properly (see below). I'd very much like to know which lawyer assisted your friend.  Hope this helps.

Many (possibly a majority) of the land leases in Phuket under this type of arrangement have been drafted in a manner which have exposed the legal land owner to significant tax liabilities. The tax liability arises from tax assessed on the stated prepaid rent for the entire lease term plus penalties. 

Unless the land owner filed a "Phor Ngaw Dor 93" to the Revenue Dept within filing due dates, he (or she) could be liable for tax assessed on the entire lease rent calculated in the year that the lease was executed. The "Phor Ngaw Dor 93", as I understand it, allows for a landlord to elect the tax to be calculated based on annual rent payments, as opposed to calculating the tax in one year as a lease might stipulat. This treatment of lease income, in many cases, eliminates any tax liability that may have existed if the rent had been calculated in the initial year based on the entire rental payments. 

Thailand utilizes a highly progressive tax structure. Tax calculated on all rent in one year(as opposed to spread out throughout the lease term) creates a significant tax liability for many landlords.

The Land Department and Revenue Department have processed a number of cases of this type. It remains a significant potential problem for many landowners in Phuket.

There are many legal advisors in Phuket who have been drafting these lease for years and did not warn their clients of the potential problems and/or the necessity of filing appropriate tax returns.

Very interesting that the lawyer is owner of the property also. So the lawyer has taken title to land to "assist" his foreign client and will most probably "inherit" the property in 30-years for free. That's a great way to establish a retirement fund! Certainly no conflict of interest or illegal activities on the lawyer's part here....

You should look at the contract to determine the precise wording of what fees your friend is responsible for. "All costs and legal liabilities" should not be inclusive of bona fide tax liability that the land owner has incurred by virtue of lease income. 

The tax liability issue is a problem that's really impossible to remedy "after the fact". 

In other countries, lawyers must accept responsibility for negligence, breach of fiduciary, unethical conduct, etc but this is Thailand and the foregoing does not necessarily apply. I think your lawyer could possibly be held accountable for canceling the lease (on what basis was that accomplished & how could that be done without forging your signature?). 

You need to avail yourself with some good legal advice. 

Again, I would interested to know who the lawyer is so I(and others) can avoid him in the future.

[bustersizemore]

Sorry, I didn't answer all your questions. The tax appears to be mostly assessed on the 'theoretical' income the lawyer (owner) got in rent from the lease. There is also a large amount attributed to 'insurance', about which we know nothing..? And finally, there is another large amount added on at the end, 350k baht, about which there is NO information..?? The tax assessment, by the way, is on a commercial tax return, Por Ngaw Dor 90, and not on one for a private residence, 91 or 93. Maybe the lease is (was) not illegal, but asking a Thai to be nominated as the owner of a property, when in actual fact it is owned by a foreigner, is illegal, I believe..? No, the lawyer is not a friend of his, but is, I understand, a friend of the previous owner of the land, from whom he bought it..? I smell a rat, but it may be difficult, or more likely impossible, to prove..? I will not post the name of anyone on this forum, but I will, if necessary, let you know by e-mail.

Why didn't the lawyer execute a loan agreement with you (collateralized by the property) whereas you provided him the money to purchase the property? The property reverts to him in 30-years (or he agrees to extend the lease beyond the initial expiration date). This structure should pass muster as being a legitimate business transaction as opposed to him justing taking title to the property and acting as a nominee buyer on your behalf. I smell a stupid rat.

One of the problems here is that if the transaction were deemed to be a nominee ownership, your friend would most probably be held responsible and the Thai lawyer (the legal expert) would be free to victimize another client.

[katabeachbum]

If the lease was properly registered at the land office (all leases over 3 years must be) then how can it just be 'cancelled' unilaterally?

If the leaseagreement states lessee pays all taxes, which is normal, and lessee fail to do so in time, its rather simple for lessor (owner, in this case lawyer) to cancel lease in court and courts cansel lease in land office.

Since according to OP there is a time frame to complete tax payments, I would think lease has not yet been canselled, and Ops friend still has a chance to complete his duties (pay taxes) according to leaseagreement.

I assume the leaseagreement has been registered in land deed as required by the law for a lease more than 3 years. On the back side of land deed in land office, it can be read if the lease is still valid. I would seek asap legal advice from a competent lawyer to check this and have the taxes payed if still lease valid.

using the same lawyer as owner for lease and legal advice does not seem like a sound solution

[bustersizemore]

If the lease was properly registered at the land office (all leases over 3 years must be) then how can it just be 'cancelled' unilaterally?

I'd like to know the same but I have witnessed clerks at the local OrBorTor actually "white out" details on land documents and modify them "at will". I assume that the same practice happens at the Land Department. 

All the fuss in Thailand concerning documents, copies, etc, etc creates an "illusion" of precision and accuracy which does not exist.

[thaiwanderer]

His lawyer may well have had a widely worded power of attorney to deal with the lease to begin with.

Obvious conflict of interest as lawyer and lessor - although lessee weeking to circumvent the law can't really complain.

If not an out and out scam by the lawyer i imagine (though i may be wrong) that the lease hasn't been cancelled rather the land office just refused to register it?

The lease should specify whose liable for taxes although as its a sham agreement lessee should pay for the tax (presumably the lawyer hasn't received the full amount for giving the lease?).

Ironic really that the lawyer who 'helped' the friedn break the law now has hive over a barrel.

SUGGEST MODS MOVE TO REAL ESTATE FORUM?

[bustersizemore]

His lawyer may well have had a widely worded power of attorney to deal with the lease to begin with.

Obvious conflict of interest as lawyer and lessor - although lessee weeking to circumvent the law can't really complain.

If not an out and out scam by the lawyer i imagine (though i may be wrong) that the lease hasn't been cancelled rather the land office just refused to register it?

The lease should specify whose liable for taxes although as its a sham agreement lessee should pay for the tax (presumably the lawyer hasn't received the full amount for giving the lease?).

Ironic really that the lawyer who 'helped' the friedn break the law now has hive over a barrel.

SUGGEST MODS MOVE TO REAL ESTATE FORUM?

"Hive over a barrel"... I don't think so.

The lawyer has a tax liability of 850k Baht and holds title to the property which is most likely worth millions of Baht, all for zero investment and he charged a hefty fee to put the "deal" together. 

It appears that the lawyer has done very well in this transaction.

Welcome to the Land of Scams (LOS)

Edited January 25, 2010 by bustersizemore

[paulbrun]

I have just found out that my friend 'agreed' to canceling the lease, because the lawyer told him that by reducing the length of the lease, he would also reduce the amount of tax that he would have to pay. It didn't. In fact, the original amount was about 600k, and this was increased to 850k, and the lawyer was warned by the tax authorities that he would be sued, and debarred for life, if he tried to circumvent the system anymore..! I reckon this lawyer is probably going to have to move elsewhere, and/or practice in a different area of the law in future..? Unfortunately, I have still not been able to get a copy of the 'original' contract that he had with the lawyer..? Thanks to everyone for their comments. It has given him, and me, food for thought..!

If the lease was properly registered at the land office (all leases over 3 years must be) then how can it just be 'cancelled' unilaterally?

[paulbrun]

Thank you very much for the contact details of your lawyer in Bangkok. I believe you posted them before, a few months ago, and I made a note of them and passed them to my friend, who at that time was considering hiring a new lawyer..? Unfortunately he didn't, and he is now having to pay a large tax bill..! One of his problems is that he doesn't live here full-time, and comes only for a few months each year. But he will still need a lawyer, to sort out the mess he is still in regarding the lease..? I have passed your information to him again. Thanks again.

My lawyer, who is in Bangkok, is competent and tenacious enough to get my former lawyer, who cheated me, disbarred for life. They are both Thai. It would be worth getting in touch as I think that if he believes your friend has a case that can be won, he might take it even though it is in Phuket.

He is Thammanat Yorbithol at:

Thammanat & Associates

249/17 Soi Ladprao 122

Wangthonglang 10310 BKK

(02) 539-5156