Questions Continue About Proposed New Land Tax Laws

[Sunbelt Asia]

Questions continue about proposed new Land Tax Laws

The Thai Government remains committed to implementing a new property tax regime that will affect property owners throughout Thailand according to Finance Minister, Korn Chatikavanji. Some sources claim the bill has already gained the approval PM Abhisit Vejjajiva’s Cabinet and is being vetted by the Thai Attorney generals while others claim the law has yet to gain Cabinet approval. Either way, the possibility that the new law will take effect during the upcoming Parliamentary session is raising concerns among foreign and domestic property owners and investors. Foreign investors wonder if the tax increases will force them to sell their investment properties into a market that could be flooded with investors disposing of real estate because the increased taxes make their investment less profitable or even see them taking losses on their investment. Land prices, especially outside of Bangkok and resort locations, could see a significant decrease in price if investors try to sell property en mass when the new taxes take effect.

Purportedly the new law will exclude taxes on a residential owner’s residence (if he/she lives there for over 6 months a year) but increase taxes from .05% to 2% on other land and buildings. The aim of the law is to change the tax structure from one based upon individual’s income to one based upon their “wealth”. Some see the dramatic shift in tax policy, from the current system where 90% of tax revenues are generated by employment taxes to one based upon assets in real estate, as an attempt to placate the rural poor and increase Thailand’s political stability through economics . The law also aims to collect at least 20 Billion THB/year but Korn claims that 90% of property owners would be excluded from the tax increases. The planned revenues from the taxes will be distributed to “local administrations” as the Government aims to make them “self-sustaining” and reduce the central Government’s burden and role. Korn did admit the law faces opposition but is adamant that the change in necessary.

(See http://thailand-business-news.com/real-estate/20044-thailand-condo-thailand-remains-commited-to-new-property-tax/)

[sunbelt][/sunbelt]

Edited August 25, 2010 by Sunbelt Asia

[JohnLeech]

The government appears to have already started making local administrations "self-sustaining" by directing them to start actively collecting Building and Land Tax (BE2475). While this has always been legally required (12.5% of the real or estimated yearly rental, whichever is the higher, from any company owning property where a company director is resident) it has apparently been widely ignored by companies owning property and by local administrations alike.

According to my local Or Bor Tor (municipality), NOT ANY MORE. A couple of weeks ago I received a registered letter from the local authority addressed to the Director of the company owning my house, asking me to go to see them a couple of days ago to pay my taxes or face being taken to court.

I duly went, with my Thai partner and relevant documents, and explained that earlier this year we (my patner had been a co-director) had transferred the house and other land to him and subsequently closed the company. Just in time, as it turned out. As he put it, with a smile, "you're lucky", as "Bangkok" had recently instructed all Or Bor Tors to actively start collecting the tax and in his district (Huay Yai) alone the Land Office had told him of some 1,000 properties owned by Thai companies which owed tax. Had we not done so, taking advantage of the reduced transfer taxes at the time, the company would have been liable for considerable backdated Bulding and Land Tax and penalties for late payment - and I should emphasise that this is a locally paid tax, in addition to any taxes normally paid annually by a company.

As an example, if your house rental were a not excessive 20,000 baht a month and you had not paid since buying the property 10 years before then you would owe around 500,000 baht (12.5% per year = 30,000 baht x 10, plus a 100% fine for anything over 5 years and 80/60/40/20% for subsequent years). As I had already learnt after getting the letter, and as he confirmed, the responsibility for paying the tax and informing the municipality of company ownership, etc, is the company's, not the local municpality's, so pleading that you either didn't know or didn't receive any tax demand was no defence. To make matters worse, for some, anyone buying a property already in a company name by taking over directorship and avoiding paying transfer tax would owe back-tax for the entire time that the company had owned the property, not just the period since they bought it. I was indeed "lucky", since as a limited company all liabilities had ended when the company was closed, as was readily agreed.

We didn't quite leave unscathed, as we had also not paid the "Local Development Tax" where again ignorance was no defence, however as this was a set 70 baht per rai per year (payable on property of one rai or more) for the time the property had been owned by the company (plus fines as above), and 35 baht for personal owners, I was quite happy to part with under 2,000 baht including paying for the next three years in advance.

Company owners, be warned!!

[trogers]

And why would companies buy landed properties that are not specifically used in their line of business?

[TheWalkingMan]

Sounds like there will be a whole lot of howling once the companies receive those letters. Might be better to do a calculation and if the liability is close to the value of the property, dump it and buy another with the taxes paid.

[trogers]

Sounds like there will be a whole lot of howling once the companies receive those letters. Might be better to do a calculation and if the liability is close to the value of the property, dump it and buy another with the taxes paid.

Dump what and buy what? The property or the company? If company, the co-owners will still be liable for unpaid taxes...

[gregb]

Paid the tax bill last week on our land in Pathumthani. 185 baht. We asked about the new law for next year. The girl there said that only land in Bangkok was going to be affected, and that the provinces could do whatever they wanted. For now, Pathumthani has no policy to increase the taxes.

Not sure what this really means. I thought the law was supposed to be implemented nationwide. Now it sounds like it is a special tax for the capitol. Can anyone confirm or deny what we were told?

Edited August 29, 2010 by gregb

[InterestedObserver]

It's not a law yet. Still has to be approved by the government bureaucracy and posted in the gazette. Will apply nationwide, if and when.

[JohnLeech]

Sounds like there will be a whole lot of howling once the companies receive those letters. Might be better to do a calculation and if the liability is close to the value of the property, dump it and buy another with the taxes paid.

Dump what and buy what? The property or the company? If company, the co-owners will still be liable for unpaid taxes...

OK, I'll bite .......

Once a limited company is closed then the company's ex-directors have no liability. That's why its called a limited company.

GregB, sounds like your local tax rate is similar to mine - nominal! Its also only applied here on land with a registered house on it so, again fortunately for us, as our land is on 3 separate chanoots only the one with the house on it is taxed even though they are all adjoining. The new tax is reportedly to be double the rate for land with a building at 0.1% of assessed value, unless it is the owner's primary residence in which case it is free, and 0.05% for agricultural land. The actual cost will depend obviously on the assessed land values, which are due to be revised next year - here the official value is 70,000 baht per rai, even though the actual value is probably around 10 to 20 times that.

It'll still be relatively nominal even if it is approved in spite of the objections - my friendly tax collector told me that he had been one of the ones objecting to it in Bangkok! As the only other local tax here is to pay for having my rubbish collected three times a week , at a cost of 240 baht a year I won't be complaining.