Thailand’s New Land and Building Tax Law

Thailand’s New Land and Building Tax Law

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If you own property in Thailand, the way in which your tax rates are calculated each year is about to change. A new Land and Building Tax Law, set to come into effect at the start of 2019, shifts the focus onto the appraised value of a property, and away from income-based assessments often done at the discretion of officers.

But what will this actually mean in the long run for developers, homeowners and tenants?

How will the new law work?

From 01 January 2019, Thailand’s new Land and Building Tax Law will determine payable tax rates by calculating the sum of standard land and building prices set by the Treasury Department (these two costs will be updated every four years for reassessment purposes).

A second part of the new law considers land usage, which would mean the same two buildings could be subject to different tax rates depending on what function they serve.

Land use purposes are split into categories: 1) Agriculture, 2) Residential, 3) Commercial and industrial, and 4) Un-utilized land.

The new regulations aim to standardize tax assessments, which will hopefully limit the amount of discretion an officer has over each individual case. The new land-use categorization is also being implemented in an effort to improve the overall fairness and accuracy of tax assessment in the kingdom.

Advantages and disadvantages

First of all, the new law may potentially impact property developers, as those in the selling market will probably have to start paying more tax on property which is under construction or currently unsold.

Whereas the old model applied a maximum tax rate of 70 baht per rai on land valued below 30,000 baht per rai, the new regulations would impose a commercial tax rate of 2% of the asset valuation on the same property. This is would go for all developments, and not discriminate between commercial and housing projects, for which the tax ceiling rate is 0.5%.

On a more positive note, tax rates for land which is defined as being ‘under construction’ will be subject to a discount of 0.05% over the first 3 years of the construction project. This would mean that property sitting on land valued below 30,000 baht per rai will be subject to a taxation rate of only 15 baht per rai.

With both advantages and disadvantages resulting from the new law, experts believe that the overall impact on property developers in Thailand will be minimal, with the small tax hikes and new discounts effectively cancelling each other out.

Tenants could feel the squeeze

Siam Commercial Bank (SCB)’s Economic Intelligence Center (EIC) has identified one group which could be negatively affected by the new Land and Building Tax Law: those renting a property with a high valuation but only a paying low monthly rental fee.

This is due to the shift from the previous income-based assessment to a property value based assessment. Sub-lessors who are faced with rising rates are likely to pass on the burden to those who are renting each property unit in the form of higher monthly payments. This would apply to tenants of both residential and commercial properties.

It is also worth noting that this change would not immediately affect tenants who have already signed a long-term lease, and any future lease agreements must specify which party is responsible for paying the property’s tax.

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