Thailand does not have a real property tax system and, for the time being, there are two local taxes applicable to people who own immovable property.
The first tax is the Local Development Tax imposed upon people who either own or possess land. This tax rate varies according to the estimated land value as appraised by the local authorities. Allowances may be granted if the owner utilizes the land for personal dwellings, animal husbandry and/or the cultivation of crops. The extent of these allowances depends upon the location of the land. It is said that the rates are so low that officials don’t usually bother to collect on a yearly basis. This tax is also levied on houses, buildings or any other improvements built on the land.
Then there is the House and Land Tax, which applies to the owner of a house, building, structure or land that is either rented or put to commercial use. Taxable property under the House and Land Tax includes houses not occupied by the owner, industrial and commercial buildings and land used in connection therewith. The tax rate is 12.5% of the estimated annual rental value of the property or the actual rental value, whichever is the highest. Owner occupied residences are exempt from this tax. Note, however, that this exemption applies only to individuals, not to juristic persons, because juristic persons are deemed to use their property commercially. In other words, a company that purchases an office has to pay the tax, even if the company uses the premises to serve its own offices. There is a project to replace the House and Land Tax with a real property tax within 2 years, wherein the rate would be from 0.01% up to 1% of the estimated value of the property, depending upon the property type. The rate would be 0.01% on agricultural land, 0.1% on personal residences; 0.5% on commercial buildings and 1% on undeveloped land.
Note that it is possible to mitigate the cost of the House and Land Tax. If, for example, you rent condominium in Pattaya fully furnished, you may choose to execute two agreements with your lessee. The first agreement will be for the rental of the condominium unit and the second agreement will be for the rental of the furniture and/or additional services (if any are provided). This will reduce the cost of the House and Land tax because the tax only applies to the yearly rent received from renting out the property, but not on the rental income received from renting out the furniture, etc.
If the rental agreements are executed between two individuals, there is no VAT applicable on the furniture or service agreements. If, however, the owner of the condominium is a company and if the company is registered for the VAT, then the VAT will apply at 7% on the furniture or service agreements executed between the lessor and the lessee.
For example, if you rent out condominium in Pattaya fully furnished for a rental fee of THE 60,000 per month and only make one agreement with your Lessee, then you’ll have to pay a yearly House and Land Tax as follows: 60,000 x 12 x 12.5% = THE 90,000. You can save on taxes legally by simply breaking the rental fee down into two agreements. For example, the rental fees may be THE 35,000 per month for renting out the condominium and THE 25,000 for renting out the furniture. If you break the rent down in this way, the Land and House Tax will be only THE 35,000 x 12 x 12.5%= THE 52,500. If, however, the owner of the condominium is a company registered for VAT, then it will have to apply the VAT to the furniture lease agreement. Even so, the company owning the property will save money on taxes, because the Lessee supports the cost of the VAT.
The matter of the withholding tax also applies when renting out. If an individual leases a property to another individual in Thailand, the payment of the rent is not subject to withholding taxes. However, when a company is renting a property, then the company will have to deduct a withholding tax from the amount of the rent paid to the owner (whether an individual or a company). The amount withheld must be paid to the tax administration on behalf of the owner who will use the withholding tax as a tax credit against the yearly income tax. The rate of the withholding tax is 5% in Thailand. Note that when a rental fee is paid outside Thailand, the amount of the tax to be withheld from the payment is 15%. Furthermore, if you are a non-resident offered a rental guarantee by a developer, never forget to take the withholding tax into account when calculating your potential income.