BDO Richfield Advisory Limited Tax & Legal Services
So you can see that there are a number of factors that can affect whether or not you pay tax in Thailand on a capital gain and the level of tax payable.
Apartment lease The best way to illustrate how the Thai tax system works is to run through an example. Let’s consider the case where you take a long term lease over an apartment, which is a common structure used in resort areas catering exclusively to foreign buyers. If you make the lease in your own name, Thailand’s Revenue Code provides that an individual deriving assessable income from property situated in Thailand is liable to personal income tax, regardless of whether such income is paid within or outside Thailand and whether you are a tax resident of Thailand or not. The Revenue Code does not prescribe under what circumstances property will be considered “situated in Thailand”. It is a pretty safe bet though that the lease, which is a form of property distinct from the real estate under lease, would be considered property situated in Thailand for tax purposes.
Personal tax on transfer of a lease The gain on transfer of the lease would be subject to personal income tax at the marginal tax rates ranging from 10% to 37%. There won’t be any tax withheld when the lease transfer is registered, so it will be up to the seller to file a personal income tax return. Obviously the tax authorities may face difficulties collecting tax from a foreign seller if a return is not filed – there are provisions however that impose a duty on the agent appointed to manage the property to file tax returns on behalf of the property owner which could be enforced.
Double tax agreements Thailand has a comprehensive collection of double tax agreements, with over 50 countries currently signed up to prevent double taxation of their residents. These agreements normally prevent double taxation by either allowing one country only to tax the income or granting taxing rights to both, in which case the foreign taxpayer will only pay tax in his home country if the tax paid in Thailand is insufficient to offset his tax liability at home. So how would the transfer of an apartment lease be taxed under a double tax agreement? Much depends on the terms of the particular agreement, because although the agreements generally follow a similar form on the whole, the taxation of capital gains is one area where the terms do vary from country to country. It will be important to properly characterize the lease to determine which provisions of the double tax agreement apply to the gain. Where a double tax agreement does provide protection from Thai tax on capital gains made from the transfer of a lease, greater attention will be given to mitigating the taxes payable in the taxpayer’s country of residence. Of course, this will not be an issue for those living in countries with no capital gains taxes!
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