The Land and Building Tax is an annual tax levied on land and buildings in Thailand. It was introduced in 1901 and aims to generate revenue for local administrations to fund public infrastructure and services. The tax is levied under the Land and Building Tax Act B.E. 2475 (1932) and subsequent amendments.
Legal Framework
The main laws governing land and building tax are:
- Land and Building Tax Act B.E. 2475 (1932) – Establishes the tax and provides frameworks for assessment and collection.
- Land and Building Tax Act (No. 11) B.E. 2558 (2015) – Increased tax rates and introduced progressive tax brackets.
- Ministerial Regulations – Issues annual notification of tax rates for different localities.
The 2015 amendments significantly increased tax rates, especially for vacant land and commercial buildings. This aimed to increase tax revenue and discourage speculative holding of vacant land.
Housing and Land Tax in Thailand
In Thailand, the Building or Housing and Land Tax is an annual tax imposed by local governments on properties that are used for commercial purposes. This includes properties that are rented or leased out. The tax rate is set at 12.5% of the yearly rental income as per the lease agreement or the annual value assessed by local authorities, whichever is higher. This ensures that if a property owner declares a value too low, local authorities have the authority to adjust it based on various factors.
Importantly, owner-occupied residences are exempt from this tax. However, this exemption does not automatically apply to second or additional properties owned by the same individual. It is the responsibility of the property owner to inform local authorities if the property is being leased out or used commercially, and to pay this tax before the end of February each year. In most cases, this tax burden is passed on to the tenant or lessee as part of the lease agreement.
Notably, there are plans to replace this current housing and land tax system with a general asset-based property tax system in the future.
Condo Apartments and Building and Land Tax
For condominium or leasehold apartment owners in Thailand, the Building and Land Tax applies when they rent out their units. This tax obligation is akin to that for other real estate rentals. Notably, the payment of this local rental tax, especially in long-term leases, is typically passed on to the lessee or the buyer of a leasehold apartment. This means that while the owner is responsible for the tax, the financial burden often ultimately falls on the tenant.
This arrangement is a common practice in the Thai real estate market, where the tax implications of renting out a property are considered in lease agreements and pricing strategies. It’s important for both property owners and tenants to be aware of these tax responsibilities and account for them in their financial planning.
Thai Companies and Building and Land Tax
In cases where Thai companies own land and buildings, they are required to pay housing and land tax, irrespective of whether the property is used for rental purposes, as a director’s residence, or as a holiday home. This obligation exists even if the company does not generate income from the property or actively operate a business.
Notably, a foreigner living in a house owned under a company structure is not considered ‘owner occupied’. Therefore, the company owning the property must pay this tax. This highlights the importance of understanding the tax implications for property owned by Thai companies, particularly for foreigners living in Thailand under such arrangements.
Proposed Changes to Property Tax System in Thailand
Under the new law, every owner of land and/or permanent structures will be required to pay building and land tax, with owner-occupied residences no longer exempt. The tax will be based on the appraised value and use of the property, with the Treasury Department setting the appraised value every four years.
Tax Rates and Categories
| Property Type | Value Range (Baht) | Tax Rate |
|---|---|---|
| Residential | Up to 50 million | Exempt |
| Residential | 50 – 75 million | 0.02% |
| Residential | 75 – 100 million | 0.03% |
| Residential | Over 100 million | 0.05% |
| Agricultural | General land | 0.05% |
| Agricultural | Land with agricultural buildings | 0.02% |
| Commercial and Industrial | Up to 50 million | 0.3% |
| Commercial and Industrial | 50 – 200 million | 0.4% |
| Commercial and Industrial | Over 200 million | 0.7% |
| Vacant Land | Up to 50 million | 0.3% |
| Vacant Land | 50 – 200 million | 0.4% |
| Vacant Land | Over 200 million | 0.7% |
Exemptions and Reductions
Full exemptions from the tax are granted for certain types of properties:
- Land owned by government agencies and used for public purposes
- Public utilities such as water and electricity infrastructure
- Public transportation systems
- Religious places of worship and cemeteries
- Educational institutions
- Public hospitals and healthcare facilities
- Diplomatic mission properties
- Properties owned by the Thai Red Cross and charitable foundations
Tax reductions are provided for some categories:
- Owner-occupied residential homes get a tax reduction on the first 50 million Baht of value. This effectively exempts homes under this threshold.
- Agricultural land used for farming by owner-occupiers gets a 50% reduction in the normal tax rate.
- Historically or culturally significant buildings can get up to 90% reduction if registered with authorities.
- Low income households may get additional reductions or waivers at the discretion of local authorities.
- Elderly taxpayers over a certain age may get discounts in some provinces.
- Vacant land which is undeveloped due to legal or environmental restrictions can get a partial reduction.
- Disabled property owners may get special reductions subject to certain criteria.
In addition, if the property was impacted by a natural disaster or emergency in the past year, taxpayers can apply for a proportional tax reduction based on the extent of damage.
Taxpayer Responsibilities
- Taxpayers must register ownership of land and buildings with the local land office under the area the property is located. Registration normally occurs when the title deed is transferred.
- Any changes in ownership through sale, transfer or inheritance must be registered within 150 days. The new owner is liable for tax from the next calendar year.
- Taxpayers must file an annual self-assessment return declaring property details by end of February each year. This includes land area, building size, usage type, rental value etc.
- After receiving the official tax bill from the local assessment office, payment must be made within 30 days. Tax can be paid at various channels – at district office cashier, via internet banking, mobile banking apps etc.
- If full payment cannot be made, taxpayers can apply for installment plans with interest. Approval is based on income status.
- Any changes to property affecting tax liability like usage change, renovations, need to be reported within 60 days. Reassessment will be done.
- Late tax payments incur a penalty of 2% per month on the outstanding tax amount. If no payment after 12 months, 10% surcharge is added.
- Providing false information on tax returns can lead to fines of up to 200% of avoided tax. Criminal charges are possible for tax evasion.
- Failure to register property and file returns can attract fines of 5,000 to 50,000 Baht under the Tax Collection Act.
Tax Collection and Administration
- The Department of Local Administration under Ministry of Interior has overall responsibility for the tax system.
- Provincial and district offices have local tax collection departments to handle assessments and collections.
- Bangkok Metropolitan Administration and Pattaya City have separate property tax departments.
- Assessments are done by local appraisal officers based on rental valuation guidelines from the Treasury Department.
- Tax bills are issued to property owners annually by the provincial/district tax collection offices.
- Revenues from the tax go directly into the budget of respective local administrations.
- Provincial governments utilize the revenues primarily to fund public infrastructure like roads, parks, water management.
- District and sub-district administrations use revenues to provide public services like sanitation, lighting, markets.
- A portion of revenues is also allocated to village health volunteers and provincial disaster management.
- Local administrations can request Treasury Department for advice on valuation, exemptions, taxpayer assistance, use of revenues etc.
- The Comptroller General’s Department oversees compliance with relevant laws and regulations.
Dispute Resolution and Appeals
Property owners can dispute their tax assessment on grounds of incorrect valuation or improper application of exemptions. The process for resolution is:
- First appeal is made to the Provincial Valuation Appeals Committee within 30 days of receiving tax notification. This committee has 30 days to resolve the appeal.
- If not satisfied, next appeal can be made to the Provincial Tax Appeals Committee within 30 days of valuation committee’s order. This committee has 60 days to decide.
- If still not resolved, a final appeal can be made to the Tax Court within 15 days of the committee’s order.
- The Tax Court follows formal court procedures and allows submission of evidence and expert opinions. Its judgement on the case is final.
For disputes over alleged non-payment or tax evasion, the process is:
- The Revenue Department will issue a notice to the taxpayer asserting non-compliance.
- Taxpayer can submit a letter with explanations to the assessment officer within 30 days. Additional documentation may be requested.
- If dispute not resolved, case is forwarded by assessment officer to the Local Tax Collection Committee.
- Committee reviews the evidence and decides whether charges should be pursued. Their decision can be appealed in Tax Court.
- Unresolved cases go to court which can levy financial penalties and prison sentences depending on the severity.
Property Transfer Tax
In Thailand, the transfer of a house, as part of immovable property transactions, involves several tax obligations. These include withholding (income) tax, transfer fees, stamp duty, and business tax. There is no standardized formula for allocating these costs between the parties involved. The negotiation of who pays the transfer tax and fees is a crucial aspect of the overall price negotiation process and should be settled well in advance, rather than being left for discussion at the Land Office during the transfer process.
Comparative Analysis
Compared to other countries, Thailand’s property tax revenue is on the lower side as a percentage of GDP.
- In OECD nations, property taxes contribute 1-3% of GDP on average.
- Thailand’s property tax revenue is about 0.6% of GDP, though increasing over time.
- For example, property taxes are 2.2% of GDP in the UK, 3.1% in the US and 1.1% in neighboring Malaysia.
Thailand’s top personal income tax rate of 35% is comparable to regional peers but higher than developed economies.
- Top personal tax rates range from 15-30% in most OECD countries.
- Thailand’s corporate income tax rate of 20% is also aligned with regional average.
Thailand’s property tax rates after 2015 hikes range from 0.02% to maximum of 0.7%.
- Maximum rates in other countries are often higher at over 1% to even 4% of assessed value.
- However, tax brackets are wider in Thailand and exemptions more generous.
Valuation of property for tax purposes in Thailand is still well below actual market rates in many areas. This results in lower effective tax burden compared to international standards.
Regular rate updates and technology-driven assessment procedures can enhance Thailand’s property tax over time. More recurring revenues will help local governments deliver better public services.