http://www.property-report.com	May 2006

By Paul Ashburn, Senior Partner, BDO Richfield Advisory Limited

The calculation of income tax on the sale of real estate in Thailand is not simple, especially for personal taxpayers. The law in this area is a mix of Revenue Code, Royal Decrees, Ministerial Regulations and Revenue Department Instructions.

In short, personal income tax is payable on the official appraised price of the property at the time of sale, less deductions stipulated by the law.

The actual sales price that the property fetches is not relevant. The actual cost of acquiring the property is not relevant in most cases.

It is a tax that assumes that after holding a property for eight years or more you have made a gain of 100 per cent. The result - the seller pays tax on a gain he has not made - is a tax on a fictitious gain. It is tax that may make you think twice about selling property.

Calculating tax on a fictitious gain

At the time of sale, income tax must be withheld and paid at the Land Department in order to register the transfer. The calculation of the withholding tax for personal taxpayers can be summarised as follows: 

1. Take the official appraised value of the property and deduct the expenses allowed under the law. The net amount is then divided by the number of years the property has been held, which is capped at 10 years for the purposes of this calculation.
2. Take the final amount from above and calculate the tax on it at the marginal personal tax rates of 5-37 per cent. The tax so computed is then multiplied by the number of years the property is held, the result being the withholding tax payable. This method is akin to taxing the gain as if it were derived in equal annual instalments over the period the property was held.

In some cases the withholding tax calculated cannot exceed 20 per cent of the sales price.

Deductible expenses

The expenses allowed when calculating the gain subject to withholding tax will depend on how the property was acquired. If acquired by gift or bequest, the deduction is 50 per cent of the sales price. For other cases, a standard deduction shall be allowed in accordance with Royal Decree No. 165 issued under the Revenue Code.

The deduction decreases the longer that the property is held, as shown in the table below:

These standard deductions have been the same for the last 20 years. After eight years or more the deduction is limited to 50 per cent, which is the same as saying the seller has made a gain of 100 per cent.  As you can see, the actual cost of the property is not relevant for calculating the withholding tax.

Withholding tax election

The seller can pay the withholding tax and leave it at that – there is no need for the seller to include the gain in his personal income tax return at the end of the year. A taxpayer that includes the gain in his personal tax return may elect to claim a deduction for the actual cost of the property rather than the standard deduction.

Tax exemptions

There are only a few exemptions available. One is buried away in Ministerial Regulation No. 126 issued under the Revenue Code, and applies only if you were fortunate enough to have bought in 1997 during the economic crisis. Where the property is held for at least one year and sold before the end of 2007, then the income from sale is not taxable.

Since 2003, an exemption applies to income from the sale of one's place of residence in the case that a new residence is also purchased.   There are however quite a few conditions that apply to take advantage of this exemption.  For example, the income exempted, which will be based on the official appraised price and not the contract price, cannot exceed the value of the new property and the new home must be bought within one year prior to or after the sale of the old one.

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