Property Taxation Question .......

[Burgernev]

As I understand, you buy land and property via the company route, then when you come to sell it you have to pay corporation tax on the 'capital gain'. IE: for example, you buy a 5m Baht house and 5 years later you sell it for 9m, you wish to return to your country, therefore you have to declare and pay tax on the 4m profit.

The 4m profit you declare in that tax period would apply at the 30% rate of tax. If your comapny was only making a small profit for the previous years, entitled to somehow 'spread' that profit back accross the duration of the asset, therefore making the respective profit under 1m per year for the life of the asset, in which case only 15% rate of tax would apply ?

Thanks for any help.

Burger

[Thaipwriter]

As I understand, you buy land and property via the company route, then when you come to sell it you have to pay corporation tax on the 'capital gain'. IE: for example, you buy a 5m Baht house and 5 years later you sell it for 9m, you wish to return to your country, therefore you have to declare and pay tax on the 4m profit.

The 4m profit you declare in that tax period would apply at the 30% rate of tax. If your comapny was only making a small profit for the previous years, entitled to somehow 'spread' that profit back accross the duration of the asset, therefore making the respective profit under 1m per year for the life of the asset, in which case only 15% rate of tax would apply ?

Thanks for any help.

Burger

Making a profit on property here is not an everyday occurrance.

Supply outstrips demand and when your 4 year old home is starting to look old there will be brand new buildings sitting empty that are built with better materials and maybe better features like double glazing as it becomes more popular in Thailand due to the price of electricity.

Getting your money back out of property in Thailand is more of a challenge than many people on here realise, let alone registering any "profit".

There's not too many stories anywhere on this forum that document profit from privatly sold property in Thailand. There's a few about losses though

Sorry for not answering your question, i doubt you will ever need the answer anyway.

[Burgernev]

Thanks for the reply Thaipwriter ..... err I think.

Property prices are rising rapidly in certain areas, namely Hua Hin at the moment.

Anyways, can anyone answer the question ?

Cheers,

Burger

[astral]

It should be noted here that property in iThailand rarely changes

hands for the price declared to the Land Office.

Generally the price declared is "low" to minimise the property tax,

which is why the Land Office has its own way of valuing property.

I wonder how this affects the declaration for tax by the company owing

the property?

[rishi]

If your comapny was only making a small profit for the previous years, entitled to somehow 'spread' that profit back accross the duration of the asset, therefore making the respective profit under 1m per year for the life of the asset, in which case only 15% rate of tax would apply ?

Won't call myself much of an expert on this issue (neither), but my guess is that you better calculate with the 30% tax. I'll list a couple of reasons for this guess:

1) If your company didn't make any profit the preceeding 3 years - it isn't Revenue Dep's problem ... they certainly wouldn't impose creative thinking in their own disfavour.

2) Even if there should happen to be some kind of loophole - be sure your books will be carefully scrutinized. If your company hasn't been anything other than a non-performing shell for owning property - which is illegal - you wouldn't want your books to be scrutinized by any authority (you might loose the property without refunds).

[Dragonman]

As far as I am aware only net losses are carried over for up to 5 years. If you are in profit the capital gains is treated as ordinary income tax within the relevant year.

[Burgernev]

Thanks Rishi and Dragonman,

I suspected that might be the case.

Cheers,

[Nadia 2]

As far as I am aware only net losses are carried over for up to 5 years. If you are in profit the capital gains is treated as ordinary income tax within the relevant year.

Yep, net losses may be carried forward over five consecutive years. No carry back of losses is allowed (and you cannot somehow spread profit back).

Selling a property 'naked', you may be liable for all of the fees and you would also have to pay corporate income tax on the sale amount. If you sell to another foreigner a share transfer agreement is usually drawn up. Then it is simply a matter of transferring the shares of the company to the purchaser, without the necessity of re-registering the land title at the Land Office.

Forget about company ownership – too many legal drawbacks. The law is not somehow grey or the government could change the law – no - it is clearly illegal under present law. There is no guarantee you will be able to own (or sell) land through your company five years from now.

In the majority of the land transfers the price declared to the Land Office is a fraction of the actual purchase price (to avoid taxes and fees). This can be something like 1/10th of the actual purchase price. Should this valuation discrepancy be caught (I think it will) - the Revenue department is not stupid and it is simply comparing the Land Office documents with your company accounts (which reflect the actual purchase price) - the situation would have to be corrected and a substantial fine to be paid.

Beware that you sign in the land office that you have given (and you must give) the true and correct purchase price for the land. You may be criminally liable for false statements in any official documents which you have signed on behalf of the company....

[Burgernev]

Thanks for your informative reply Nadia,

If you sell to another foreigner a share transfer agreement is usually drawn up. Then it is simply a matter of transferring the shares of the company to the purchaser, without the necessity of re-registering the land title at the Land Office.

Ah, so that's the trick, that sounds good.

Forget about company ownership – too many legal drawbacks. The law is not somehow grey or the government could change the law – no - it is clearly illegal under present law. There is no guarantee you will be able to own (or sell) land through your company five years from now.

There's seems to be a 50/50 split between people on this one. Personally I will operate the company in an active way, pay a lot of taxes, and am quite comfortable with this 'potential risk'.

Beware that you sign in the land office that you have given (and you must give) the true and correct purchase price for the land. You may be criminally liable for false statements in any official documents which you have signed on behalf of the company....

Thing is, the land office that covers Hua Hin, actually tells us what the land and house value should be, and as you say is a fraction of the real cost. So again, I am quite comfortable with this, worst case scenario I guess, is one day the house owner will have to pay a bit more tax. These taxes and fees at the land office are quite modest anyway.

Thanks a lot Nadia,

Burger

Edited April 23, 2006 by Burgernev

[Nadia 2]

Thanks for your informative reply Nadia,

Forget about company ownership – too many legal drawbacks. The law is not somehow grey or the government could change the law – no - it is clearly illegal under present law. There is no guarantee you will be able to own (or sell) land through your company five years from now.

There's seems to be a 50/50 split between people on this one. Personally I will operate the company in an active way, pay a lot of taxes, and am quite comfortable with this 'potential risk'.

Beware that you sign in the land office that you have given (and you must give) the true and correct purchase price for the land. You may be criminally liable for false statements in any official documents which you have signed on behalf of the company....

Thing is, the land office that covers Hua Hin, actually tells us what the land and house value should be, and as you say is a fraction of the real cost. So again, I am quite comfortable with this, worst case scenario I guess, is one day the house owner will have to pay a bit more tax. These taxes and fees at the land office are quite modest anyway.

I see your point Burger, but you should declare the correct purchase price. Section 104 of the Land Code: 'Persons recording rights or legal acts with regard to land showing its value for the purpose of paying fees shall show the true value thereof and the competent authority shall have the power to assess the value in accordance with the market price at that time and to examine witnesses and evidence in connection therewith'.

Transfer fee and stamp duty is the responsibility of the Land Office. The registered value can be used or the official will assess the value. Section 106 Land Code: 'If the competent authority thinks the declared value unreasonably low, he shall assess the value for the purposed by the collecting fees by relying on evidence or following the rules prescribed by the Minister etc…'.

The Land Office may accept the lower sell price but when it comes to withholding tax and specific business tax the Revenue Department will require taxes to be paid over the true value. One day the Revenue Department could (and I’m 99% sure they will) come knocking on your company door comparing your accounts with the Land Office documents... And again, the situation would have to be corrected and a substantial fine to be paid and you may be criminally liable for false statements in any official documents which you have signed on behalf of the company....

The opinion about company land ownership on this forum may seem 50/ 50 (members on this forum are getting better informed and I don't think it is still 50/50), but then the 50% must be uninformed or must have a commercial interest in the property market.

[Burgernev]

I see your point Burger, but you should declare the correct purchase price. Section 104 of the Land Code: 'Persons recording rights or legal acts with regard to land showing its value for the purpose of paying fees shall show the true value thereof and the competent authority shall have the power to assess the value in accordance with the market price at that time and to examine witnesses and evidence in connection therewith'.

Transfer fee and stamp duty is the responsibility of the Land Office. The registered value can be used or the official will assess the value. Section 106 Land Code: 'If the competent authority thinks the declared value unreasonably low, he shall assess the value for the purposed by the collecting fees by relying on evidence or following the rules prescribed by the Minister etc…'.

The Land Office may accept the lower sell price but when it comes to withholding tax and specific business tax the Revenue Department will require taxes to be paid over the true value. One day the Revenue Department could (and I’m 99% sure they will) come knocking on your company door comparing your accounts with the Land Office documents... And again, the situation would have to be corrected and a substantial fine to be paid and you may be criminally liable for false statements in any official documents which you have signed on behalf of the company....

I do find it strange why our local land office insist on setting the value themselves, when they must be aware that value of the houses farangs are buying, is actually higher. For obvious reasons, the people taying the taxes and fees do not object to the land office's valuation!!

I thought about it at the time, and would have been happy to delcare the correct value, but was advised by all concerned to 'go with the flow', so to speak.

The SBT is only 3%, so if I had to pay the difference one day then so be it.

Cheers.

Edited April 23, 2006 by Burgernev