BDO ADVISORY LIMITED · A TYPICAL VILLA LEASE DEAL Villa lease deals offered by developers...

BDO ADVISORY LIMITEDTax Planning for Investors Purchasing Property in ThailandSMART Investment & International Property Expo

PAUL ASHBURN6 June 2010

Tax Planning for Investors Purchasing Property in Thailand

PRESENTATION OUTLINE

• Taxes on purchase of freehold and leasehold property

• Taxation of rental income

• Capital gains tax

• Taxation of property holding structures


TAX IMPACT FOR INVESTORS

• Legal limitations of foreign ownership

• Property development laws

• Individual v corporate ownership

• The developer’s own interests!

Result – often not a straight property deal!


A TYPICAL VILLA LEASE DEAL

Villa lease deals offered by developers typically have one or more of the following features:

1.A long term lease of land i.e. for the maximum legal term of 30 years with options to renew.

2.Either a sales contract or construction contract for the villa.

3.An agreement for consultancy services.

4.An agreement to acquire a shareholder interest in the land owning company.

5.A leaseback agreement to rent out the villa for absent owners.


TAXATION IN HONG KONG - income from real estate

Profits Tax Liability in Hong Kong

Rental receipts from real property Taxable if the property is located in Hong Kong

Profits from the sale of real property Taxable if the property is located in Hong Kong


TRANSFER TAXES AND FEES FOR A CORPORATE SELLER - a snapshot

Tax VAT SBT SD WHT Regn Fee

Sale of Land and/or Building - 3.3% 0.5%1 1% 2%

1Not payable if transfer subject to SBT

Unless otherwise agreed between the parties, SBT and WHT is the liability of the seller and registration fee is shared equally.


CREATION OF A LONG-TERM LEASE - a snapshot of taxes and fees

Tax VAT SBT SD WHT Regn Fee

Creation of a long term lease - - 0.1%1 - 1%

1Not payable if transfer subject to SBT

Unless otherwise agreed between the parties, registration fee is shared equally and stamp duty is the liability of the lessor.


HOUSE AND LAND TAX- rental income

• 12.5% tax on buildings used for commercial purposes.

• Tax is assessed on the yearly value of the rental receipts for the hire of the building.

• The building owner is generally liable to the tax.


PERSONAL INCOME TAX- rental income

• Every person deriving assessable income from a property situated in Thailand shall pay tax whether such income is paid within or outside Thailand – Section 41 of Revenue Code

• 15% withholding tax on rental income if paid to a non resident of Thailand


PERSONAL INCOME TAX RATES

Net income (Baht) Tax rate

1-100,000 5%

100,001-500,000 10%

500,001-1,000,000 20%

1,000,001-4,000,000 30%

4,000,001+ 37%


TAXATION OF A THAI COMPANY - rental income

• 30% tax on net profits

• Lower tax rates apply e.g. 15%, if paid up capital is Baht 5m or less at end of accounting period

• 5% withholding tax may apply to rents

• Revenue Department has power to assess rents at market value


TAXATION OF A FOREIGN COY - rental income

Income Tax basis

Rental income paid from or within Thailand to a foreign company not carrying on business in Thailand 15% on gross income

Rental income received by a foreign company carrying on business in Thailand Max 30% on net profits


FOREIGN CO NOT CARRYING ON BUSINESS IN THAILAND - rental income received from offshore

Foreign CoOffshore

Thailand

Foreign Tenant

Property

15% Thai tax saving on rental income if rent is not paid from or within Thailand

Tenant

Owner

Rents

100


TAXATION OF REAL PROPERTY GAINS

Income tax is payable on real property gains by:

• personal taxpayers - using deemed gains provisions

• corporate taxpayers - included in net profit calculation subject to corporate tax


TAXATION OF REAL PROPERTY GAINS - personal income tax deduction

No. of years holding property % of income % gain

1 year 92 8.70

2 years 84 19.05

3 years 77 29.87

4 years 71 40.85

5 years 65 53.85

6 years 60 66.67

7 years 55 81.82

8 years or more 50 100.00


THAI TAXATION – sale of real estate by a foreign co.

How is real estate owned by a foreign company taxed in Thailand?

• There is no specific capital gains tax provision for property situated in Thailand

• Must look to general provisions regarding the taxation of foreign companies


TAXATION OF CAPITAL GAINS FROM TRANSFER OF LEASEHOLD INTERESTS

Income tax payable by foreigners on the transfer of leases:

• personal taxpayers – taxable as ordinary income

• corporate taxpayers - included in net profit subject to corporate tax if derived from carrying on business in Thailand


HONG KONG DOUBLE TAX AGREEMENT (DTA)

• Only HK’s second comprehensive DTA –first with ASPAC country

• Effective from 2006

• May result in no income taxes payable in HK and Thailand!


TAXATION OF PROPERTY HOLDING STRUCTURES


PROPERTY INVESTMENT

Direct investment

Offshore oronshore

company

Indirect investment


WHAT IF- a possible scenario

• A foreigner buys a property in Phuket for Baht 15 m.

• The property is leased out for five years.

• The property is sold for Baht 20 m.


OPTION 1 - purchase in his own name

• Liable to personal income tax on net rental income

• Only real option on sale is to transfer direct ownership of the property

• Thai taxes on transfer will apply e.g. registration fees, income taxes etc. and are collected at Land Department on registration of transfer


OPTION 2 - purchase through a foreign company

• Indirect investment in Thai property requiring structuring at the outset

• Two options on sale - sell the shares in the foreign company or transfer direct interest of the property

• Cannot use for land deals


SHARE SALE- Foreign co taxation of gains

Sale to offshore purchaser

No Thai tax payable on any gain made if sale executed and consideration paid offshore

Sale to onshore purchaser

15% withholding tax on gains paid from or within Thailand

Exemption or reduction under some Double Tax Agreements


• Indirect investment requires structuring at the outset - necessary for land deals

• Must keep audited accounts, regular tax filings etc

• Two options on sale - sell the shares in the company or transfer direct ownership of the property

OPTION 3- set up a Thai company


Foreign CoOffshore

Thailand

Foreign Buyer

Thai Co

No Thai tax on gain of 5 if offshore sale

Cost

15

Sales price

20

Shareholding in Thai Co

OPTION 3– set up Thai company (sale of shares)


Tax Rate Amount (Baht) Rate Amount (Baht)

- WHT- SBT- Stamp duty- Transfer fee- Corporate tax

1%3.3%

-2%

30%

200,000660,000

-400,000

1,300,000

--

0.1%--

--

20,000--

Total 2,560,000 20,000

Transfer of Building Transfer of Shares

ASSET SALE BY THAI CO- property worth Baht 20 m


PRESENTER PROFILE

Tax Planning for Investors Purchasing Property in ThailandClient name - Event - Presentation title

BDO THAILANDTax & Legal Contacts

Page 29

PAUL ASHBURNSenior PartnerTax & Legal [email protected]: +662 260 7290Direct: +662 661 9781Mobile: +6681 499 5707Fax: +662 260 7297

QualificationsBachelor of Commerce, UNSW Australia; Member of the Institute of Chartered Accountants of Australia Fellow of the Securities Institute of Australia

ExperiencePaul has over 20 years experience providing tax advisory services, including more than 10 years in Thailand. Paul’s specialities include mergers & acquisitions, international taxation and tax structuring of cross-border transactions.


BDO PROFILE

THAILANDBDO Advisory Limited specialises in providing tax and legal services to multinationals operating in Thailand and the Asia Pacific region.

BDO Advisory Limited, a limited liability company incorporated in Thailand, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

BDO is the brand name for the BDO International network and for each of the BDO Member Firms

INTERNATIONALBDO International is a worldwide network of public accounting firms, called BDO Member Firms, serving international clients. BDO International is the world's fifth largest international accounting and advisory network, with over 1,000 offices in 110 countries and more than 46,000 professionals.


BDO ADVISORY LIMITEDTax & Legal Services

28th Floor, CTI Tower191/16 New Ratchadapisek RoadKlongtoey, Bangkok 10110 ThailandTelephone:+66 2 260 9467TeleFax: +66 2 260 2680Website: www.bdo.co.th

BDO ADVISORY LIMITED · A TYPICAL VILLA LEASE DEAL Villa lease deals offered by developers...

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