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Thailand’s New Land & Building Tax (and why we’re seeing so much vacant land cleared)

But first, on a personal note: It would seem silly to wash over what’s happening around the world and in Thailand with the Covid-19 crisis.

I’ve been fielding a question from clients old and new about what my thoughts are on the ramifications to the property market here. In all honesty, who knows? Having said that, I’ve been here now 19 years and we’ve had a spate of problems which we’ve rebounded from every time – the 9/11 attacks, SARS, bird flu, the tsunami, bloody demonstrations, two separate coups, and the 2008/9 financial crisis. All of which we’ve overcome quicker than I’d ever expected, so I expect us to recover from this sooner than later. I know in my business I’m meant to be bullish by nature, but I truly believe there are opportunities in every situation and problem.

We will bounce back from this – and hopefully with greater resolve and a better appreciation for what we have when times aren’t so tough. Anyway, onto our regularly scheduled programme…

Something that was in the news last year and has now been in effect since January 1st, 2020, is the new Land & Building Tax Act in Thailand.

This Act has far-reaching implications for some, but for most of us, its effect will either pass us by completely or tag a very small tax/fee onto our property. One thing it may help explain is why we’ve seen so many large tracts of land around town being cleared and partially developed. Read on to find out why…

This new Act obligates individuals, corporations or any beneficiaries of land or buildings to pay tax. In doing so it replaces several legislations dating back to 1932.

The tax rates on properties were previously assessed on an income-based method. This new Act replaces this method with an assessment based on the property’s appraised value, as determined by the Land Registry Department – basically the same as how normal property transfer fees are based.

The tax will be applied in four main categories: Residential (including condos), Commercial, Agricultural, and Unused or Vacant Land.

This last one is why we’re seeing so many tracts of land being cleared of late. What the government wants to do is to introduce a progressive tax system that encourages landowners to utilize their land and offer incentives to do so. Individual owners of agricultural properties will have a tax reprise from 2020 through 2023, meaning they will be exempt from paying any tax. So now owners of large pieces of vacant land and clearing the land and at least preparing it for agricultural use so they won’t have to pay any tax on it for at least the next three years. But I digress. Moving on…

The following are the maximum tax rates for properties in Thailand…

• Commercial @ 1.2%
• Residential @ 0.3%
• Agricultural @ 0.15%
• Vacant/Unused Land @ 1.2%

However, as noted earlier, Agricultural land is exempt from any tax through 2023 provided it is owned by an individual rather than a company or corporation. Even for companies that aren’t exempt, paying 0.15% rather than 1.2% makes a massive difference if you’re holding thousands of rai all subject to tax for remaining unused.

Also, another caveat to be noted is that if a property remains vacant for more than three consecutive years, the rate will be increased by 0.3 percent every three years until it reaches a cap of three percent.

Exemptions

Property owners can be exempted from the land and building tax if they fall under the following categories:

• Agricultural land worth up to 50 million baht (US$1.5 million);
• Land or building used for residential purposes worth up to 50 million baht
• Individual owners of agricultural properties – they will be exempt from land and property tax for the tax period 2020-2023.
Note: As you can see, this is why most of us won’t be affected by these taxes. It’s more of a luxury tax and a tax to encourage agricultural development and stifle land banking.
Reduced Transition Period Fees
The Act provides a two-year transition period, starting January 1, 2020, to allow property owners to adjust to the new law. During this period there will be a reduced tax rate. For residential property these rates are as follows:
• Value up to 50m THB @ 0.02%
• Value between 50 and 75m THB @ 0.03%
• Value between 75 and 100m THB @ 0.05%
• Value above 100m THB @ 0/1%
For both vacant/unused land & commercial properties these rates are the same and are as follows:
• Value up to 50m THB @ 0.3%
• Value between 50m and 200m THB @ 0.4%
• Value between 200m and 1 billion THB @ 0.5%
• Value between 1 billion and 5 billion THB @ 0.6%
• Value over 5 billion THB @ 0.7%

Reductions

There are additional tax reductions in the deduction clause of the Act. In order to qualify, the property owners must meet the following criteria:

For 50 percent tax reduction

• An inherited property that is used for residential purposes. The owner’s name must be on the deed; or
• Property used for energy infrastructure projects such as a power plant.
For 90 percent tax reduction
• Land or buildings that are under development for an industrial estate for no longer than three years;
• Land or buildings that are awaiting sale for no longer than two years starting March 2019;
• Land or buildings awaiting sale and is owned by a financial institution. The financial institution must have held the property for no more than five years;
• Land or buildings under development for industrial or residential purposes; or
• Land or buildings under development for an educational institute.

The government is estimated to collect 39.4 billion baht (US$1.2 billion) from new land and property taxes in 2020.

In summary, the vast majority of us won’t see much of an impact. In fact, I’m quite in favour of this Act as it discourages land banking and also puts a reasonable tax on luxury properties. In all honesty, as with much legislation here in Thailand, there are many grey areas in this Act that allows people and corporations quite a bit of wiggle room to get out of paying most of, if not all of these taxes – a prime example being the clearing of these large land lots around town.

Most of us are sitting on a property valued at under 50m THB anyway, so we’re exempt from this. And even those fortunate enough to be sitting on a luxury property valued for example at 70m THB, the tax implication is only 0.03%, or 21,000 THB per year which really is a pittance compared to the property value, or particular compared to rates in the West.

By Stu Sutton

Stu Sutton is managing director of Jomtien Property and has worked exclusively in the Pattaya/Jomtien real estate market for 16 years.

Please feel free to contact him with any queries, compliments or good jokes at

086 108 6575, [email protected]

or visit Jomtien Property’s website at www.jomtien-property.com