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| 28 Mar 2006 06:55:50 am |
| Not all foreign property owners are taxed the same |
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One of the major factors affecting the amount of tax a foreigner property owner must pay in Thailand will be whether the property owner is an individual or a company.
For foreign individuals owning real estate in Thailand - which can normally only be a condo or a building due to restrictions on foreign ownership of land under the Land Code - all rental income will be taxable. The foreigner’s nationality or residence status is not relevant nor does it matter whether the rent is received in or outside of Thailand.
This is because the Revenue Code provides that every individual who derives rental income from property situated in Thailand shall pay personal income tax on such income, whether such income is paid within or outside Thailand. Personal tax rates are relatively high for the region, ranging from 10-37 per cent. Once you earn the equivalent of US$25,000 you will start paying 20 per cent tax. Above US$100,000 the rate is 37 per cent.
Foreign corporate property owners
For a foreign company owning real estate in Thailand – which will normally be limited by law to investments in condos or buildings similar to that owned by foreign individuals – the income taxes it has to pay in Thailand will depend on whether or not the company is carrying on business in Thailand. Unlike the personal income tax laws, the mere fact that a foreign company owns real estate in Thailand does not automatically mean that it will be liable to tax in Thailand on rents.
There are two main provisions of the law to consider:
1. Under Section 70 of the Revenue Code, rental income paid from or within Thailand to a foreign company not carrying on business in Thailand is subject to 15 per cent withholding tax.
This source rule means that a foreign company not carrying on business in Thailand can receive rental income from outside Thailand free of Thai tax. So when is a foreign company considered to be carrying on business in Thailand?
2. Under Section 76bis of the Revenue Code, if a company organized under a foreign law has an employee, a representative or a go-between to carry on business in Thailand and thereby derives income or gains in Thailand, such company shall be deemed carrying on business in Thailand.
In such a case, the employee, representative or go-between shall, insofar as income or gains derived in Thailand are concerned, be deemed the agent of the offshore company for filing corporate tax returns and paying 30 per cent corporate tax on net profits to the Revenue Department. The remittance of the taxable profits out of Thailand shall also be subject to 10 per cent income tax. In short, the foreign company ends up being taxed similar to a Thai company in many respects.
The appointment of a real estate agent in Thailand to find tenants for the property should clearly fall within the meaning of a representative or go-between. Rental income derived by the foreign company through the efforts of the agent should therefore result in the foreign company being deemed carrying on business in Thailand and liable to corporate taxes in Thailand on profits derived from the rental property.
Where agents of foreign companies are concerned, tax law sometimes distinguishes between a dependent agent and an independent agent. An independent agent may not have a duty and liability to file tax returns and pay tax on behalf of its foreign principal.
An independent agent is normally one that acts as an agent in the ordinary course of its business and does not act specifically or mainly for one customer. There is no law at the moment however that allows real estate agents in Thailand to be treated as independent agents for Thai tax purposes.
Thailand has an extensive network of double tax agreements that can reduce the amount of tax a foreigner has to pay in Thailand. These double tax agreements typically follow the same form when it comes to the taxation of income from real estate – that is, Thailand retains its right to tax income from the rental of real estate situated in Thailand. In short, a double tax agreement will not help to alleviate the liability to Thai income tax on rental income.
The tax treatment adopted in practice by foreign companies may of course be completely different to what I have described above. I do have a feeling that most foreign companies are not aware that they could be deemed carrying on business in Thailand for tax purposes, especially if they have an agent in Thailand to manage the property on their behalf. Foreign property owners would be well advised to check that they are paying income tax in accordance with the law.
Written by : Paul Ashburn, Senior Partner of BDO Richfield Avisory Limited
Source : Thailand Property Report , March 2006 |
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Category : Thai Property Tax
| By : admin |
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| 02 Mar 2006 08:20:43 am |
| Building confidence after the tsunami |
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Since the early 1960s it has been apparent that meteorologist Alfred Wegner’s claim that the surface of the globe consisted of fractured blocks of crust in motion relative to each other was no illusion. Since then, this observation has hardened into established fact. The drifting blocks we know as continents crunch against and alongside each other much like the ice flows in pack ice, although much more slowly.
Over hundreds of years, stresses can build up where these tectonic plates are driven to move past or against each other by movement of the fluid material of the earth tens of kilometres below the surface, but cannot proceed because of the contact with neighboring plates. Finally, when the stress can’t be resisted any longer, it’s relieved by the plates suddenly moving relative to each other, and producing earth tremors and quakes.
Over the following decades and centuries, the stress rebuilds and is relieved once again, creating further shocks. The important point is that unless there’s major accumulation of stress, there will be no large-magnitude shock. Plate moment in active tectonic areas can be of the order of a hand’s width per year. Where this is resisted over sufficiently long periods of time, the sudden relief of stress slowly built up can have catastrophic consequences.
A tsunami will occur where the crust of the earth moves beneath the sea and some of the energy of the movement is transmitted to the overlying water, resulting in a sudden, huge displacement and a high-speed high-energy surge in the water. Where this makes landfall, devastation can occur, depending on the energy available and the seabed structure at the point of impact.
The plates carrying Indonesia, the Philippines, India and Southeast Asia, together with the bed of the Indian Ocean, are in intense, continuous motion in one of the earth’s most tectonically active regions.
The nearest rift in the earth’s crust to Phuket lies in the deep water just off the coast of North Sumatra and extends along the entire coastline of the island in a southeast direction. This was the origin of the December 2004 tsunami, which devastated communities in the Indian Ocean and along the Andaman coast.
This was a high-energy event associated with vertical movement of the seabed in the order of 10-20m, over a length of around a thousand kilometres along this rift. It will be repeated, although probably not within our lifetimes. Phuket was sheltered from the force of the tsunami by Sumatra. The wave diffracted around Sumatra’s north coast at Aceh ,reaching Phuket with less force that at points further up the coast and in India and Sri Lanka, which is why in many parts of Phuket it was no more than a surge up the beach line with no damage.
Many of Phuket’s beaches have a deepwater shelf and reef that further protect most of the west coast, and even areas like Mai Khao and Natai received virtually no damage and have seen very strong real-estate demand from discerning international buyers, contrary to early expectations.
It can be said that Phuket has been ‘calibrated’ with a ‘maximum-scale deflection’, since the likelihood of a more energetic impact is extremely remote, as this was the biggest movement ever recorded. We now know what impact to expect on Phuket and the surrounding region, and should protect new assets and builds accordingly.
The question of ‘is it likely to happen again’ is probably answered with: ‘Possibly, but unlikely for at least one or two hundred years from now’ Not a risk factor, the experts believe, in this century.
Written by : Nick Anthony, Managing Director of Indigo Real Estate
Source : Luxury Properties, Spring Issue 2006 |
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Category : Phuket
| By : admin |
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| 28 Jan 2006 07:10:22 am |
| Sound tax advice for property investors |
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Whether buying, selling or leasing property in Thailand, investors will often want to know what tax planning can be done – in compliance with the prevailing laws-to mitigate the taxes.
Three issues that I often help potential investors address are:
What is the most tax efficient tax structure?
Buying, selling or leasing real estate requires planning to develop an efficient tax structure.
Will the ownership and financing structures stand up to scrutiny?
The tax authorities almost invariably examine these.
What tax planning can be done to mitigate tax liabilities arising on exit?
In order to mitigate the taxation liabilities arising on capital gains the full impact of this should be recognized and planned for on acquisition.
Some of the points to consider when purchasing property in a Thai company are discussed below.
Rental income
I get the impression that some people think that they can set up a company in Thailand to purchase their home and then treat the company as if it is dormant. They may be in for a surprise when the taxman visits.
A Thai company pays income tax on its net profits calculated on an accrual basis. This means that rents become taxable once they are derived – the timing of rental collection is not relevant.
People that buy property in a Thai company to use as their residence or holiday home should be particularly wary of the Revenue Department’s power to assess rents to the company at their market value if no rents are received or they believe that the rents are too low without justifiable grounds.
In such circumstances, to avoid a tax assessment on deemed rents it is crucial to put a rental agreement in place and pay an appropriate rent to the company – a nominal rent will not suffice.
A simple way to keep the tax bill low is to keep the company’s paid up capital at Bt5 million or less at the end of the accounting period. The corporate tax rate will then be 15 per cent for the first Bt1 million in net profit and 25 per cent for the next Bt2 million before becoming 30 per cent, the corporate tax rate that normally applies to private companies with more than Bt5 million in paid up capital.
Interest on loans
It is common for investors to make loans to their Thai company to fund the acquisition of the property.
If the lender is an individual or a foreign company that does not carry on business in Thailand, it is optional for Thai tax purposes to charge interest on the loan.
Charging interest is one way to extract profits out of the company and at the same time keep taxable profits low. Interest is deductible on an accrual basis, which means it does not have to be paid in order to be deductible in an accounting period.
When the interest is paid, the company often has a liability to withhold tax. Interest paid to individuals or foreign companies not carrying on business in Thailand for example shall be subject to withholding tax at the rate of 15 per cent.
Interest charged to the company should not exceed an arm’s length rate, which means calculating the rate by reference to market rates.
The exit strategy
One advantage of using a corporate structure to invest in real estate in Thailand is that it gives one the option to sell the company rather than the property.
On paper at least it will normally look more tax effective to sell your shares in the company rather than the property itself, thereby avoiding all the taxes and fees that real estate transfers attract.
A share deal can however contain tax pitfalls that need to be understood at the outset when you invest in the property.
A combination of factors, most importantly Thailand’s self-assessment tax system which puts the onus on the taxpayer to self determine his liability to tax, means that the level of tax risk in a share deal is high in many cases. By tax risk, I mean the risk that the company is audited in the future by the tax authorities and found to have underpaid its taxes. A prudent purchaser will conduct a tax due diligence of the company to attempt to uncover potential tax exposures that he will inherit when he takes over the company.
If the company has not filed tax returns in accordance with the law, it will likely reduce the attractiveness of a share deal, as the purchaser will seek to obtain some assurances or reduction in the price to insure against tax liabilities related to the period of the seller’s ownership.
Keeping a clean set of books and proper tax records as well as engaging a reputable tax advisor can therefore translate into significant savings in the long run.
Written by : Paul Ashburn, Senior Partner of BDO Richfield Advisory Limited
Source : Thailand Property Report ; January 2006 |
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Category : Thai Property Tax
| By : admin |
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| 28 Nov 2005 07:39:55 am |
| Thai tax breaks for HK investors |
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Hong Kong and foreign investors alike are expected to reap significant tax savings from the agreement for the avoidance of double taxation recently signed off between Thailand and Hong Kong by Paul Ashburn, Senior Partner, BDO Richfield Advisory Limited.
The agreement is only the second comprehensive agreement for the avoidance of double taxation (DTA) that Hong Kong has concluded since it began to explore the possibilities of establishing a network of DTAs with its major trading partners in 1998. The DTA will take effect in 2006 if the procedures for it to enter into force are completed this year.
Who can access the benefits of the DTA?
Many of the Thai tax breaks granted under the DTA are only available to residents of Hong Kong. A resident of Hong Kong is defined in the DTA to include:
(a) any individual who ordinarily resides in Hong Kong;
(b) any individual who stays in Hong Kong for more than 180 days during a year of assessment or for more than 300 days in two consecutive years of assessment one of which is the relevant year of assessment;
(c) a company incorporated in Hong Kong or, if incorporated outside Hong Kong, being normally managed or controlled in Hong Kong; or
(d) any other person constituted under the laws of Hong Kong, or if constituted outside Hong Kong, being normally managed or controlled in Hong Kong.
As can be seen from the above, the nationality of a company or person does prevent one from being a resident of Hong Kong for the purposes of the DTA. A foreign company could qualify as a Hong Kong resident and access the tax benefits of the DTA.
Take for example the ever popular British Virgin Islands (BVI) international business company used by many Hong Kong investors. A BVI company whose directors hold their meetings in Hong Kong would be considered to be managed and controlled in Hong Kong, and would be a Hong Kong resident for the purposes of the DTA.
Impact on real estate investments
At first glance, it may not be obvious how HK property investors will benefit from the new DTA. Like all the other double tax agreements Thailand has negotiated, it retains its right under the DTA with Hong Kong to tax rental income and gains derived by a HK resident from real estate situated in Thailand. The DTA therefore will have no impact on how Thailand currently taxes property rents and capital gains.
The DTA will however provide relief from Thai taxes in many other cases such as the taxes imposed on capital gains, business profits, interest and royalties.
Share sales
Whilst capital gains are not taxable in Hong Kong, HK companies with no place of business in Thailand would normally face a 15% withholding tax on gains made from the sale of shares, if the gains are paid from or within Thailand. Gains made by HK individuals not resident in Thailand shall also be subject to 15% withholding tax.
Thailand has agreed under the DTA to give up its right to tax gains on share sales in many cases, so that a sale won’t be taxable in either country, a curious result when one of the underlying principles of the DTA is to avoid double taxation - not taxation all together!
One major exception though is when a HK resident makes a gain from the sale of shares of a company deriving more than 50 per cent of its asset value directly or indirectly from real estate situated in Thailand. In this case Thailand retains its right to tax the gain. This provision is aimed squarely at property rich companies and is meant to defeat the tax benefit arising from selling the company’s shares rather than the property it owns.
This provision however may have little impact, as a seller can often restructure his shareholding prior to selling to minimize the Thai tax payable.
15% withholding tax on services eradicated
Service firms based in Hong Kong such as architects, designers, marketing and sales agents, lawyers, accountants, regional offices etc working for Thai companies will no longer have to pay Thai tax on their income unless they carry on business in Thailand through a permanent establishment. The main impact of this move is that service fees paid from Thailand to HK residents will no longer be subject to 15% withholding tax.
HK resident companies can also perform services in Thailand for up to six months within any twelve–month period and not be subject to Thai tax on their profits. Likewise, a building site, a construction, assembly or installation project or supervisory activities in connection therewith will not create a taxable presence in Thailand if such site, project or activities last not more than six months.
Certain classes of income such as interest, dividends and royalties e.g. payments to use software or trademarks, arising in Thailand will still be taxable, but lower tax rates may now apply under the DTA
Future tax planning under the DTA
Hong Kong’s territorial basis for taxing profits means that a person who carries on a business in Hong Kong but derives profits from Thailand is not required to pay tax in Hong Kong on those profits.
This could raise some interesting tax planning opportunities when the DTA comes into effect. For example, if a HK resident company were to undertake a six-month service contract in Thailand, under the DTA it should not be liable to Thai income tax on profits arising under the contract. The profits should not be taxable in Hong Kong either as the services which give rise to the payment of the fees are not performed in Hong Kong.
The Thai tax savings that will become available under the DTA, coupled with Hong Kong’s territorial basis for taxing profits, is sure to create new and exciting tax planning opportunities for foreign investors.
Written by : Paul Ashburn ,Senior Partner of BDO Richfield Advisory Limited
Source : Thailand Property Report ; November 2005 |
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Category : Thai Property Tax
| By : admin |
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| 08 Apr 2005 08:56:57 am |
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Firstly a confession; I am well known as a crazy traveler and have accoured the world numerous times in search of holy grails and –in Michael Lewis speak – the new new thing but being a Surin beach-based guy and preferring an old army jeep over more modern and efficient means of transportation (not to mention fast and air –conditioned) I travel to the south of Phuket as infrequently as possible.
Yes, it has also been a bias, but I now publicly admit that I have overlooked some very positive developments that have swayed my now positive views. Historically (1980s) getting south of Phuket was pretty arduous; the roads were awful and it became a hotel and holiday destination with few international residents. Fast forward to the 1990s and Kata/Karon boomed with hotels and international holiday-makers. Swarms of restaurants and bars sprang up with all of the associated service businesses and the area boomed.
New roads were cut through the island’s core making travel times quicker and with it more residents moved in. Most hotels were decent 3-4 star establishments with a few old 5-star favourites like The Boathouse, Mon Tri’s and Le Meridien.
Fast forward into early this decade and enter ‘Katamanda’, which set about reversing this trend with quality and design targeting higher end clientele and fed off the success of hoteliers like neighbouring ‘The Boathouse’ that brought in high spending expats and the Hong Kong crowd. Katamanda also was a pioneer in selling luxury residences and launched at a time when there were virtually no west coast residential estates. Today a new trend is quickly emerging and has the potential to rapidly change the nature of the South of Phuket - Kata, Karon, Rawai and Cape Panwa - in just a few years. It’s moving upmarket.
A new four-lane highway through the island’s middle is well underway easing the bottlenecks around the Central department store; seaplanes, choppers and boats all now ply the area; and there are a number of new 5-star hotels either planned, built or under construction, including The Conrad, The Four Seasons, The Taj Exotica, The Mangosteen and Cape Panwa. With this activity it’s no surprise that high quality estates have recently been launched and show many of the winning attributes that have driven house prices on the upper west coast: good design, professional building teams, well-capitalized developers and a range of resort facilities and hotel management, making owning a beach house much more hassle free (and also a return driven investment).
The Mangosteen Suites, 22 ultra modern beach chic apartments by Bali-based Gary Fell, are just being launched and offer sensational ocean views, good prices and an excellent operator coupled with a resort that is already operational and doing well. With a guaranteed yield of up to 7 per cent for the first two years taking the guessing game out of the start-up phase and existing hotel numbers these suites are prime investment properties and will do well.
The Crowne Residences have sold well as they are also well managed and across from the beach. These too are attractive investment properties.
Listed Bangkok developer Raimon Land have set the area alight with heavy marketing, hot design and stunning views with the apartment project the The Heights. Here designer Hans Brouer - who was a Norman Foster protégé - takes living on the edge, to the edge.
Kata Gardens was Raimon’s first project in Kata and is almost sold out and completed in about a year, a solid accomplishment and a salute to Raimon’s first-class management team (and marketing budget!).
Around the corner with elegant eagle’s nest ocean views is Cape Panwa, a nearly completed luxury estate with 3-5 bedroom residences, one bedroom pool villas and a small boutique hotel, with prices attained in excess of US$2 million and large tropical home architecture. These sold quickly off plan. Lastly Tamarind is an exclusive value-for-money oceanfront estate that has a beautiful east coast aspect.
“Go south young man” used to be wise words spoken as solid advice and foresight, and these days in Phuket it’s nice to have new choices and will ensure that the upper west coast boys are kept on their toes with nimble, design savvy and concierge-minded estates.
Written by : Nick Anthony ,Managing Director of Indigo Real Estate
Source :Thailand Property Report , April 2006, Issue no. 19 |
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Category : Real Estate
| By : admin |
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