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BUYER'S GUIDE - สมุย Golden Triangle Koh Samui

Legal Brief

Thai Law generally restricts foreigners from owning land under freehold title, although it is possible under some circumstances involving substantial business investment. However, for the majority of foreigners, the following are legitimate ways to invest in property in Thailand.

 

1. Leasehold

Foreigners can lease land on short or long term contracts. Leases may be registered for up to 30 years and often have a renewal clause for additional periods of 30 years. A recent change in the law allows leases for industrial or commercial purposes to be for a term of up to 50 years, also renewable for further 50 year periods. Any lease of 3 years or more must be registered on the land title at the appropriate land office, in order for the lease to be enforceable.

2. Protected Leasehold

This option often applies to estates with several individual owners within one development. Each owners owns the buildings & structures in his name, but all the owners collectively own the company that owns the land, and each owner leases his plot from that company. This way the owners have the possibility to extend the leases indefinitely.

 

3. Freehold through a Thai Company

A Thai Limited Company can purchase land as a so-called ‘juristic person’ if the company is allowed to invest in and own land in accordance with its Objectives and Articles of Association. Foreigners can hold a maximum of 49% of the shares in such a Thai Limited Company with the remainder being Thai owned. It is vitally important that annual company accounts are completed and taxes paid on time.

 

4. Foreign Freehold of Condominiums

Individual condominium units have a form of freehold title deed which is registered at the Land Department. Foreigners are entitled to own up to 49% of the total area of a condominium development. If a foreigner does not have permanent residence, there must be proof that funds were brought into Thailand to purchase the unit. Condominium units may also be leased by foreigners in the same way that they may lease land.

Land Title Deeds

The preferred land title in Thailand is the Chanote (which literally translates as “Title Deed”) issued in accordance with the Land Act of 1954. Chanotes issued under the provisions of this Act are registered with the Land Department and state the ownership, exact boundaries, area measurements and encumbrances on the property (such as mortgages or servitudes). The purchaser of a Chanote is registered as the legal owner of the land with the Land Department at the time of transfer.

 

Chanotes are issued by the Land Department through application by the holder of a possessory right document for the land. Chanote is the highest and safest grade of land title in Thailand. Although other forms of possessory documents may occasionally be encountered as part of the historical record of a plot of land, there are three main types:

Nor Sor 3 Gor contains a semi-accurate measurement of the land and boundaries, along with verification of the utilization of the land in the past.

Nor Sor 3 is similar to the Nor Sor 3 Gor except that the measurements and boundaries are even less accurate and a 30-day public announcement period is required before any registration changes can take effect.

Sor Kor 1 is an unregistered form stating a claim by an occupant of land that the land belongs to him or her. The measurements are vague or missing and can easily be disputed.

 

Theoretically, all of the above titles can be purchased from the holder and upgraded to a Chanote, which can take anywhere from 3 months up to 1.5 years depending on the Land Department.

 

The many varying land title documents encountered in Thailand stem from the complex, and sometimes conflicting, history of land development and ownership documentation. Along with the land itself, the purchaser of land acquires any defects in the title and potential claims against it, and even a properly issued Chanote can be subject to legal attack. Therefore, legal due diligence by qualified and experienced attorneys should always be conducted prior to purchasing any land. This process will generally include a complete review of the title history of the land, encumbrance search, land site inspection, and verification of land use and zoning regulations.

 

Transfer of Ownership

Ownership is transferred by a written contract made before the Land Department. The transaction is recorded on the title deed or other document and all supporting documents are kept in official records. In general, the transfer fee, taxes and other expenses incurred from the registration of ownership transfer are as follows:

 

1. Transfer Fee
2% of the land office appraised value of the property.

 

2. Withholding Tax
– 1% of the land office appraised or the actual transaction value of the property, whichever is higher, if the seller is a corporation.
– Sliding scale based on the land office appraised value of the property, if the seller is an individual.

 

3. Stamp Duty OR Specific Business Tax
– Stamp Duty is 0.5% of the land office appraised or the actual transaction value of the property, whichever is higher.
– Specific Business Tax: 3.3% of the land office appraised or the actual transaction value of the property, whichever is higher.

 

4. Other Expenses
For leasehold, there is a registration fee of 1% of the total lease amount and a stamp duty of 0.1% of the total lease amount.

Property Taxation

Building and Land Tax is imposed on the owners of a house, building, structure and/or land except for the first residential place. The tax rate is 12.5% of actual or assessed annual rental value of the property.

A Local Development Tax is imposed upon any person who either owns or is in possession of land. The tax rates vary according to the appraised value of the property being determined by the local authorities. There is an allowance granted for land utilized for personal dwellings. This allowance differs according to the location of the land.

 

DISCLAIMER

This page is a general introduction only and does not represent legal advice. We strongly advise that professional legal advice be sought before conducting any business in Thailand, and we disclaim any liability whatsoever for any damage caused by reliance on the contents of this page.

 

Transaction Cost

There are no laws in Thailand which dictate who pays what when property is bought and sold. This will usually be part of your negotiations with the seller.

 

If you are buying from a developer, check your sales and purchase agreement to see what taxes and fees the developer expects you to pay before you commit.

 

Remember, who pays what is governed by your agreement with the seller.

 

This can add as much as 6.3% to the price of your property.

 

So what are all the Taxes and Fees?

 

1. Specific Business Tax
Specific Business Tax is only payable on freehold property sales.

 

And only if the property has been owned by the seller for less than 5 years.

 

If the seller has owned the property for more than 5 years, no Specific Business Tax is due. Instead Stamp Duty is payable.

 

The rate of Specific Business Tax is 3% – or 3.3% including local taxes.

 

This tax is calculated on the declared sale price recorded at the Land Department. But you should know that if officials consider it too low, they can reassess the value of your property and adjust the tax accordingly.

 

Who pays?
The seller is responsible for paying any Specific Business Tax due.

 

2. Stamp Duty
Stamp Duty is only payable on freehold property sales and when Specific Business Tax does not apply. That is, when the property has been owned by the seller for over 5 years.

 

The rate is 0.5%. Calculated on the declared sales price of the property, or the official government assessed value – whichever is higher.
Who pays?
If you buy from a developer who has no Specific Business Tax to pay, Stamp Duty is usually shared 50:50. If you buy from an individual, it’s common for the buyer to pay the Stamp Duty.

 

3. Withholding Tax
This is basically a prepayment of income tax by the seller.

 

It is paid directly to the Land Department when the property’s ownership is transferred.

 

Withholding Tax is calculated on the declared sale price of the property or the government’s assessed value – whichever is higher.

 

The rate is 1% if the seller is a company.

 

As an individual, the rate of tax you pay depends on how long you have owned your property.

 

It’s a complicated calculation. Basically the liability reduces the longer you own your property.

 

Who pays?
Withholding Tax is the seller’s responsibility.

 

4. Transfer Fees
Transfer Fees are payable at the Provincial Land Office when your property is transferred and registered.

 

The rate is 2% of the declared sale price or the government assessed value of your property – whichever is higher.

 

Who pays?
Usually Transfer Fees are split 50:50 between the buyer and seller.

 

5. Lease Registration Fee
This is 1.1% of the registered sale price, including local taxes. It is payable when your lease is registered at the Provincial Land Office.

 

Who pays?
Usually the Lease Registration Fees are split 50:50 between the buyer and seller.

 

6. Local Department Tax
This tax is payable by anyone who owns land.

 

The rate varies depending on the Land Department’s appraised value of your land.

 

But at the moment the rates are so low officials don’t even bother to collect this tax.

 

7. House and Land Tax
If you plan to rent out your property you’ll have to pay House and Land Tax.

 

The current rate is 12.5%. This is calculated using the estimated annual rental value of your property, or your actual rental income based on your accounts -whichever is higher.

 

8. Withholding Tax on Rental Income
If you rent your property as an individual to another individual then there is no withholding tax to pay in Thailand.

 

But if you use an agent to rent your property, they must deduct withholding tax by law – before they pay you.

 

The current rate is 5% in Thailand. But if you have your rental income paid to you outside Thailand, 15% will be withheld. This must be paid to the tax department and will be credited against your personal income tax. So make sure you allow for it when you calculate your rental prices. And if you are offered a rental guarantee you should deduct it from the income you expect to receive.