Withholding Tax - This Can't Be Right

[JomtienEats]

TLDR: Is Withholding Tax applied to the gain in value of a property or to the entire assessed value?

http://www.doingbusinessthailand.com/thailand-property/selling-a-condominium-how-is-the-withholding-tax-calculated.html

I'm looking at this worked example of a property sold for 9m baht after 3 years - the amount of tax payable is 249,000 baht. If this example is correct, then the tax does not appear to be an income tax, nor a capital gains tax. It rather seems like a yearly property tax of about 0.9% of the value of the property, payable in a lump sum upon the sale of the property. The percentage amount decreases over the first 8 years to 0.64% per year if the property is held for longer but is cumulative so the overall amount due increases every year.

Reading Waller's 'Buying Property in Thailand', he suggests it is applied only to a gain in value of a property. That seems sensible and more in line with a Capital Gain style tax. However he rather glosses over the issue, and doesn't provide any worked examples.

So if I were to buy a condo for 9m baht, hold it for 30 years, sell it for 9m baht - what should I expect? A tax bill of 9m x 0.64 x 30 = 1,728,000baht or 0 baht (on the grounds there was no capital appreciation)

Wiser and more experienced souls please respond!

[MichaelJohn]

Yes, the witholding tax is on the sale price!!! But it is different for condos and you get discount for the length of time you've owned the property/land.

It is common practice to declare, at the land registry, a totally different price to that which is the actual sale price - this is the "govt assessed price".

By way of example, I sold a plot of land for several million Baht but the paperwork quite legally declared the value as 800k (being the assessed value) hence a big saving on the witholding tax.

There are some good examples and calculations at this web site http://www.siam-legal.com/realestate/thailand-property-transfer-tax.php

Hope that helps?

[harrry]

Actually the witholding is on an ased value. The rest is on a nominal value. When my wife's family transfered some land to her the assessor started working out the taxes and they assessed each plots value for tax based on features such as how much access to which road etc. We had to point out that it was as a result of a will transfer and this was not payable. The rest of the value was a per rai value based on district.

[JomtienEats]

Thanks for the answers guys! It sounds like a de facto yearly property tax. It reminds me a bit of an 'exit fee' that some mutual funds have. Of course the wise investor knows that an exit fee is the same as an entrance fee.

It is very dependent on this 'assessed value' - which it seems can be less, but not more that the actual sale price of the property. Adds some uncertainty to it.

Very little is said about this tax - I wonder how many property owners are surprised by large tax bills when they come to sell, never having heard of the tax before.

[Sophon]

Thanks for the answers guys! It sounds like a de facto yearly property tax. It reminds me a bit of an 'exit fee' that some mutual funds have. Of course the wise investor knows that an exit fee is the same as an entrance fee.

It is very dependent on this 'assessed value' - which it seems can be less, but not more that the actual sale price of the property. Adds some uncertainty to it.

Very little is said about this tax - I wonder how many property owners are surprised by large tax bills when they come to sell, never having heard of the tax before.

No, it's not a de facto yearly property tax. If that were the case you would be paying more the longer you had owned the property where the opposite is the case (as pointed out by Michael John).

Also, there is nothing to prevent the assessed value from being more than the agreed sales price, although it's normally the other way around.

Sophon

[harrry]

My understanding is that it is an incentive to retain property instead of churning it. THe thing I found strange is that all the other charges were based on the book per rai value while this tax is assessed on how valuaable the land is....like a rental value.

[JomtienEats]

No, it's not a de facto yearly property tax. If that were the case you would be paying more the longer you had owned the property where the opposite is the case (as pointed out by Michael John).

The rate per year goes down - but you'll find that you do indeed pay more the longer you own the property.

Also, there is nothing to prevent the assessed value from being more than the agreed sales price, although it's normally the other way around.

There's a legal precedent.

[JomtienEats]

My understanding is that it is an incentive to retain property instead of churning it. The thing I found strange is that all the other charges were based on the book per rai value while this tax is assessed on how valuaable the land is....like a rental value.

It does seem it gives some slight incentive for holding the property because the rate declines each year until year 8 when it levels off. However the removal of the other 3.3% specific business tax seems more effective in achieving this objective.

I thought the withholding tax might be a way to discourage waste, because it would be costly to hold empty properties. But actually it ceases to apply if the property has been left empty for 12 months.