PROPERTY PURCHASE GUIDEBOOK
R E A L E S TAT E B U S I N E S S
CONTENT 1 - DEFINITION AND TERMINOLOGY A B C D E F G
Condominium Title Definition Condominium/Apartment: Property Definition Apartment/Condo/Villa Leasehold Title Definition Apartment/Condo/Villa/Land Company Owned Freehold Definition Freehold Industrial Land Leasehold Definition
04 06 06 06 07 07 07
2 - THAILAND OWNERSHIP LAW A Condominium/Apartment Ownership
09
3 - PROPERTY PURCHASE GUIDELINE A Financial Transfer Procedures for Foreign Buyers: Condominiums B Taxation TAXES ON SELLING PROPERTY i. Transfer Fee ii. Lease Registration Fee iii. Specific Business Tax (Sbt) iv. Stamp Duty v. Withholding Tax (Wht) C Property Transaction Costs and Ongoing Expenses for Houses and Condominiums i Transfer Fee ii. Sinking Fund iii. Utility Meter iv. Lawyer’s Fee v. Common Area Management Fee
11 12 13 13 13 13 13 18 18 18 18 18 18
4 - VISAS FOR FOREIGNERS
20
5 - FINANCING
22
6 - PAYMENT INSTRUCTION FOR FOREIGN BUYERS OF THAI CONDOMINIUMS
24
7 - PAYMENT PROCEDURE A B C D E
Transfer Information. Obtaining “Foreign Exchange Transaction” Certificate. Debit Advice Payment Adjustment Transfer of Ownership
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1. DEFINITION AND TERMINOLOGY
PURCHASE GUIDEBOOK
DEFINITION AND TERMINOLOGY
A
CONDOMINIUM TITLE DEFINITION In Thailand a condo is a multi unit building where there is freehold ownership of individual units and a common interest along with all the other owners in the land and common areas. In some countries this is called strata title.
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04
01
A condo is registered at the Land Department and each individual unit has its own title deed.
02
Foreigners are allowed to own up to 49% in area terms of a condo building in Thailand.
03
The percentage of foreign ownership of each condo building is registered at the Land Department.
04
Purchasers of new condo buildings sold off plan need to clarify with the developer that their articular condo unit will be registered as part of the foreign quota.
05
Purchasers of units in existing condo buildings should clarify with the vendor if the unit is already part of the foreign quota or if not if there is foreign ownership quota still available.
06
All the money used to purchase a condo by a foreigner must be remitted to Thailand as foreign currency.
DEFINITION AND TERMINOLOGY
07
All the money used to purchase a condo by a foreigner must be remitted to Thailand as foreign currency.
08
Foreign purchasers need to obtain a "Foreign Exchange Transaction Form" certificate for each payment from the beneficiary bank all these certificates must be shown to the Land Department in order to register the condo.
09
A foreigner who has Thai baht in his non-resident bank account or who has foreign currency bank account in Thailand may withdraw money from such account for the payment of the condo unit. In this case, a withdrawal slip and bank certificate issued by the bank is needed confirming that the funds were withdrawn from those accounts to buy a condo. These documents will be required to be shown at the Land Department.
10
Foreigners with Thai spouses who are buying a condo jointly must comply with foreign ownership regulations and transfer all funds to purchase a condo from overseas.
11
Foreigners have Permanent Resident status in Thailand do not need to transfer funds from overseas.
12
The owner of a condo unit will be named on the title deed of the unit. The condo title deed will clearly state the area which will include balconies but exclude columns and common areas. The condo title deed will show the ratio of ownership of the common areas.
Car parks may be registered on the condo title deed in a number of different ways. • there may be an exact size and location of the car park space. • there may alternatively be a right to the exclusive use of a car park space(s) without defining the area or location.
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DEFINITION AND TERMINOLOGY
B
CONDO/APARTMENT : PROPERTY DEFINITION Thailand has specific definitions that describe the difference between an apartment or condo, and whilst different parts of the world use either apartment or condominium to describe what is essentially the same type of property, Thailand does not.
C APARTMENT CONDO /
VILLA LEASEHOLD TITLE DEFINITION A foreigner may register ownership of a 30-year lease with the Land Office. This may be a lease of a condominium, an apartment, a house/villa or land. The land owner or building owner must hold the property on freehold "Chanote" title or "Nor Sor 3 Gor". There are no restrictions on foreigners owning a building outright. Therefore, a foreigner may own a building erected on the land over which they have a 30-year lease. The lessor can grant the lessee a series of options to renew the lease for further terms of 30 years, but these options cannot be registered against the land title and are only enforceable on the contracting parties. This structure is transparent and is fully in accordance with the Thai law. As the leasehold structure can be complex we recommend that the purchasers of a leasehold property seek qualified legal advice before entering into lease contracts.
D APARTMENT / CONDO / VILLA / LAND COMPANY OWNED
An indirect means of foreign ownership of property in Thailand is possible through the ownership of a Thai company, however there are strict rules as to what is deemed to be a Thai company when foreigners are involved. The establishment of a Thai company and the law relating to foreign ownership of landed property is a specialist area and it is recommended that purchasers consult legal professionals who are well experienced in this area.
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DEFINITION AND TERMINOLOGY
E FINANCING Foreign investors engaged in industrial projects in Thailand may be entitled to own real estate through two different programmes. The BOI (Board of Investment) can grant permission to foreign companies to own land for factory sites. Foreigners are also allowed to buy freehold land on industrial estates for manufacturing purposes. In Thailand an industrial estate is clearly defined as a property developed by or with a license from the Industrial Estate Authority of Thailand.
F FREEHOLD DEFINITION Freehold means that a property can be owned in perpetuity. The owner has the right to sell or lease the property. Land and buildings can be owned freehold. There is also condominium title in Thailand where individual units in a building may be owned freehold.
G LEASEHOLD DEFINITION This means that the building or land is held on a lease from the land or building owner. The maximum fixed term of lease in Thailand is 30 years. It is possible to contractually agree options to renew but these options are not registered at the Land Department.
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2. THAILAND OWNERSHIP LAW
PURCHASE GUIDEBOOK
THAILAND OWNERSHIP LAW
A
CONDOMINIUM/ APARTMENT OWNERSHIP
Foreigners can buy and hold Thai real estate through a variety of ownership structures and land titles. The three most common forms of ownership used by foreigners to hold Thai real estate are leasehold, freehold through a condo title, and freehold through acquisition by a Thai company. Foreigners may also, in some circumstances own Industrial property freehold. The Thai Land Code considers "foreign" ownership to be property ownership by any foreign individual or company.
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3. PROPERTY PURCHASE GUIDELINES
PURCHASE GUIDEBOOK
PROPERTY PURCHASE GUIDELINES
A
FINANCIAL TRANSFER PROCEDURES FOR FOREIGN BUYERS: CONDOMINIUMS
Under the 1991 Condominium Act, non-residents who purchase condominium units must transfer the funds to pay for the unit from overseas, with the money entering Thailand as foreign currency. Purchasers need to obtain a “Foreign Exchange Transaction Form” certificate for each payment from the beneficiary bank, and all these certificates must be shown to the Land Department in order to register the condominium.
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PROPERTY PURCHASE GUIDELINES
B TAXATION Individuals who invest in property in Thailand are often unaware of the tax liabilities that may arise on either buying or selling the property. Typically, foreigners invest in real estate either through purchasing a condominium unit which they hold in their own name or by taking out a lease on a landed property. A tax analysis by Mazars, one of Thailand’s leading international accounting, audit and tax advisory firms, shows that an individual or other legal structure will always be subject to taxation on the sale of the property.
TAXES ON SELLING PROPERTY Many individuals who have invested in property in Thailand are often very unaware of the tax liabilities that may arise on selling the property. Typically, foreigners have invested in property either through buying a condominium unit which they hold in their own name or having taken out a lease on a landed property. As our analysis shows below, an individual or other legal structure will always be subject to taxation on the sale of the property. The general tax rates (excluding company or individual personal tax which may also apply eventually) are shown below. Perhaps surprisingly, for an individual selling a property, the taxation system is actually very complex.
SALE OF FREEHOLD LAND & PROPERTY
TRANSFER OF LEASEHOLD LAND
Transfer Fee
2%
N/A
2%
Seller/Buyer
Lease Registration Fee
N/A
1%
N/A
Lessor/Lessee
Specific Business Tax
3.3% or N/A
N/A
3.3% or N/A
Seller
Stamp Duty
0.5% or N/A
0.10%
0.5% or N/A
Seller
Withholding Tax
1% or 5 - 35%
N/A
1% or 5 - 35%
Seller
CATEGORY
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SALE OF BUILDING
LIABILITY TO TAX
PROPERTY PURCHASE GUIDELINES
TRANSFER FEE This cost is often borne equally by the seller and buyer but this needs to be agreed by both parties. The transfer fee is based on the official appraised value irrespective of the contracted sale price.
LEASE REGISTRATION FEE This is paid on the total rental payable over the lease term. This cost is often borne equally by the lessor and lessee but this needs to be agreed by both parties.
SPECIFIC BUSINESS TAX (SBT) SBT is payable by all companies and those individuals who hold the property for less than 5 years. It is based on the official appraised value or the contracted sale price, whichever is the higher. An individual is also exempt from SBT if the property has been used as the principal place of residence of the seller whose name must also appear on the household registration certificate for at least one year.
STAMP DUTY This fee is only payable where SBT is not applicable and, in the case of a sale of property, it is based on the official appraised value or the contracted sale price, whichever is the higher. Where leasehold land is being transferred, stamp duty is payable on the remaining value of the lease.
WITHHOLDING TAX (WHT) WHT is remitted by the buyer (on behalf of the seller) from the proceeds of sale. Where the seller is a company, the WHT on the sale of property is calculated at 1% of the Land Department’s official appraised value or the contracted sale price, whichever is greater. Where the seller is an individual, the WHT is based on the individual’s marginal tax rate (except that the first Baht 150,000 is taxed at 5% instead of allowing the tax-free threshold) after deducting from the official appraised value a standard deduction based on the number of years of ownership. All of the taxes and fees outlined in the table above with respect to the sale of property (including the lease of land) are payable at the Land Department. WHT payable in respect of a nonresident seller is normally a final tax. The 1% WHT liability of a resident Thai company can be used as a credit against final income tax payable upon lodgment of an annual tax return. A resident individual seller of property can, however, elect to treat the WHT as a final tax or lodge an annual return by declaring the actual gain on sale in order to obtain a refund of any overpaid tax. In practice, however, this method is rarely used. Not all the taxes will necessarily be applied in every case. In particular, stamp duty is only applicable in cases where specific business tax is not applied. PAGE
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PROPERTY PURCHASE GUIDELINES
Sample calculation of withholding tax for the sale of a condominium unit
I.
In the case where the seller is a company, both Thai and foreigner: The seller will be subject to withholding tax at the rate of 1% of the sale price or the official appraised value of the unit, whichever is greater, upon the registration of the transfer of the unit.
II.
In the case where the seller is an individual, both Thai and foreigner: The seller will be subject to withholding tax at the rate calculated, based on the official appraised value of the unit (irrespective of whether the contracted sale price is higher than the official appraised value) as follows:
• The official appraised value of the unit is obtained. •A standard deduction for expenses is allowed against this appraised value based on the number of years in possession (see Schedule A).
• This resulting calculation is then divided by the number of years in possession (maximum of 10 years). • Initial tax is then calculated on this gain in accordance with the Personal Income Tax Schedule (see Schedule B).
• This initial tax calculation is then multiplied by the number of years in possession. The result of the calculation shall be the amount of total withholding tax payable.
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PROPERTY PURCHASE GUIDELINES
TABLE1 : STANDARD DEDUCTION FOR EXPENSES (DEPRECIATION) No. of year of owning
(% of Depreciation Deduction)
1
92
8
2
84
16
3
77
23
4
71
29
5
65
35
6
60
40
7
55
45
( ≥ 8 years)
50
50
More than 10 years (calculateMaximum at 10 years)
50
50
(Income)
(% Tax)
(Amount of tax) (THB.)
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(% calculate for income tax)
PROPERTY PURCHASE GUIDELINES
TABLE2 : Personal Income Tax
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0-150,000
(% of Depreciation Deduction)
(% calculate for income tax)
150,001-300,000
5%
7,500
300,001-500,000
10%
20,000
500,001-750,000
15%
37,500
750,001-1,000,000
20%
50,000
1,000,001-2,000,000
25%
250,000
2,000,001-5,000,000
30%
900,000
> 5,000,000
35%
PROPERTY PURCHASE GUIDELINES
FOR EXAMPLE If the seller sells the unit within 2 years of acquisition, and the official appraised value is Baht 3,000,000, the withholding tax will be:
(i) Official appraised value = Baht 5,000,000 (ii) Deduction of expenses based on the number of years in possession (2 years) = 84% of the price = 84% of 5,000,000 = 4,200,000 5,000,000 – 4,200,000 = 800,000 (iii) Divided by the number of years in possession (2 years) 800,000 / 2 = 400,000 (iv) Calculation of the tax in accordance with Personal Income Tax Schedule 150,000 x 0% = 0 150,000 x 5% = 7,500 100,000 x 10% = 10,000 = 17,500 (v) Multiplied by number of years in possession (2 years) 17,500 x 2 = 35,000 Withholding tax amount is Baht = 35,000 Notwithstanding the calculation in the method above, the total withholding tax payable shall not exceed 20% of the total price.
Credit: CBRE (www.cbre.co.th)
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PROPERTY PURCHASE GUIDELINES
C “ PROPERTY TRANSACTION COSTS
AND ONGOING EXPENSES FOR HOUSES AND CONDOMINIUMS”
� Transfer fee :
There is normally a 2% transfer fee for houses and condos which is either paid by the vendor, the buyer, or is split between both parties, depending on what has been agreed.
� Sinking fund :
For a new condominium project, the buyer pays a one-off lump sum upon transfer of the property from the developer to the purchaser. This money is to be used for major renovations and replacement of equipment when necessary, to ensure the maintenance of the building and ultimately its value in the future.
� Utility meters :
There is a payment for the initial registration of the electricity meters in new residential properties, and a transfer of registration fee for the re-sale of properties.
� Lawyers’ fees :
Each party pays its own legal fees.
� Common area management fee :
These fees are paid by owners for the upkeep of the common areas of condominiums and housing estates. For new residential developments, it is common to pay up to several years’ management fees in advance.
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4. VISAS FOR FOREIGNERS
PURCHASE GUIDEBOOK
VISAS FOR FOREIGNERS
VISAS FOR FOREIGNERS
There are different types of visas for foreigners entering Thailand, including tourist visas, work visas and retirement visas. For more information, please check the websites of the Ministry of Foreign Affairs and the Thai Government’s Department of Immigration.
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5. FINANCING
PURCHASE GUIDEBOOK
FINANCING
FINANCING Financing for foreigners to purchase real estate in Thailand is complex and changes regularly. We recommend that you check with your bank to get the latest details.
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6. PAYMENT INSTRUCTION FOR FOREIGN PURCHASER OF CONDOMINIUM
PURCHASE GUIDEBOOK
Payment instruction for foreign purchaser of condominium
Payment instruction for foreign purchaser of condominium Under the Condominium Act 1991, non-resident foreigners who purchase condominium units must bring in the funds to pay for the unit from overseas. That means that the entire payment must be transferred into the country as “foreign currency”. The beneficiary bank will issue a “Foreign Exchange Transaction” certificate which should be presented to the Land Department when registering the ownership of the condominium. For each transfer, banks will only provide a “Foreign Exchange Transaction” certificate for amounts of over US$ 50,000. For amounts of less than this, the bank will issue a credit note, which may be presented, with the confirmation letter from the bank, to the Land Office in order to register the condominium.
In case that you do not have a bank account in Thailand, you will remit the funds directly to the Developer account. In such case, the developer, as the beneficiary, will obtain the Foreign Exchange Transaction certificate from the bank on behalf of the purchaser. The developer will keep all the certificates and/or credit notes with the letter from the bank until the date on which the ownership of the condominium units is transferred. In the event that the purchaser wishes to keep those documents, a request can be submitted to the developer. If you have a bank account in Thailand the procedures will be the same but you will be the beneficiary and you will have to obtain the Foreign Exchange Transaction certificate from the bank by yourself.
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7.PAYMENT PROCEDURE
PURCHASE GUIDEBOOK
PAYMENT PROCEDURE
A
PAYMENT PROCEDURE Transfer Information
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Bank Account Name
: .............................................................................................
Bank Account No
: .............................................................................................
Bank Name
: .............................................................................................
Branch
: .............................................................................................
Bank Address
: .............................................................................................
SWIFT CODE
: .............................................................................................
PAYMENT PROCEDURE
B
OBTAINING “FOREIGN EXCHANGE TRANSACTION” CERTIFICATE • The name of the remitter must be the same as the purchaser (as indicated in the S&P agreement. Please fill in full name and address of the remitter and the beneficiary. • The money is transferred as foreign currency. Do not convert in Thai Baht before making a transfer. The conversion into Thai baht will be done by the beneficiary bank.
• Please indicate in the transfer instructions that the purpose of transfer is
“To purchase a condominium Unit No. __________ at __________ Condominium”
Please use the exact wording above in order to avoid any misinterpretation by the Land Department. For example, the word “apartment”, a term which is frequently used in other countries, has different meaning from “condominium”.
• Please include both overseas and beneficiary bank charges for each payment.
Example
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Installment payment No.1 Assume bank charges US$200 Baht Total Assume exchange rate @ 40Baht = 1US$
Baht 1,200,000.8,000.Baht 1,208,000.-
Amount to transfer
US$
30,200.-
PAYMENT PROCEDURE
C
DEBIT ADVICE
After each funds remittance, please fax or email the debit advice to our sales office for our records, to Fax No.: +66 2 _______________________________ or Email: ____________________________________ We shall then be able to assist you in tracing the payment and ensure that the receipt of payment will be sent to you promptly.
D
PAYMENT ADJUSTMENT
The conversion into Thai baht may result in the difference either a surplus or a shortfall amount regarding each payment. As such, the balance of all the payments will be adjusted in the final payment due upon registration of the ownership of condominium.
E
TRANSFER OF OWNERSHIP
The conversion into Thai baht may result in the difference either a surplus or a shortfall amount regarding each payment. As such, the balance of all the payments will be adjusted in the final payment due upon registration of the ownership of condominium. Prior to the transfer of ownership, the developer shall inform the buyer about the amount due, including the final payment (after adjustment), transfer fee, common area management fee, electricity meter deposit, and sinking fund as well as the means of payment and the recipient names. The final payment needs to be paid by a cashier cheque which will be exchanged with the condominium’s title deed on the date of transfer of ownership. We recommend setting up a non-resident bank account at a local bank in Thailand for the purpose of issuing a cashier cheque. We hope the above information is useful and if you have any other queries, please feel free to ask our sales representative.
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