Welcome to 2020.
The New Year brings new opportunities and new challenges. In Thailand it also brings into effect new rules for both property taxes and transfer pricing documentation and disclosure requirements. This alert provides a brief discussion of both.
New Thai Property Taxes Take Effect
In 2019, a new Land and Building Act was passed and has taken effect as of 1 January 2020. This much anticipated update to the property tax rules in Thailand makes significant changes to not only the rates of tax applicable to different types of property but also and maybe even more importantly completely changes the basis on which the tax is computed. The impact of these changes is anticipated to be so burdensome on tax payers that the legislation provides for a transitional period during which the additional taxes due during the first two years (2020 and 2021) can be spread over a four year period from (2020 to 2023).
New Tax Base
Quite possibly the most impactful part of the new property tax legislation is the switch from an income-based tax computation methodology to utilization of an annual value to be based on a property’s appraisal value. This appraisal value methodology is intended to increase the tax basis to more closely reflect the actual market value of the property and also avoid the prior tendency by some landowners to artificially set income rates earned on certain properties at below market rates thereby reducing the property taxes payable. This new methodology will no doubt raise property taxes on some properties significantly.
New Applicable Tax Rates for 2020 and 2021
In addition to the tax base modification, new tax rates based on how property is utilized have taken effect. One interesting aspect of these modifications is the tax to be assessed on vacant (i.e., fallow) properties. This tax is meant to incentivize property owners into utilizing land as opposed to merely holding it in an unproductive capacity, which is contrary to highest and best use principals.
|Ceiling tax rate 0.15%||Ceiling tax rate 0.3%||Ceiling tax rate 1.2%|
Primary residential dwelling
(Land and building owned by individual)
|Appraisal value||Tax rate||Appraisal value||Tax rate||Appraisal value||Tax rate|
|0 to 75 million||0.01%||0 to 25 million||0.03%||0 to 50 million||0.3%|
|75 to 100 million||0.03%||25 to 50 million||0.05%||50 to 200 million||0.4%|
|100 to 500 million||0.05%||50 million||0.1%||200 to 1,000 million||0.5%|
|500 to 1,000 million||0.07%||
Primary residential dwelling
(Only building owned by individual)
|1,000 to 5,000 million||0.6%|
|1,000 million upwards||0.1%||0 to 40 million||0.02%||5,000 upwards||0.7%|
|40 to 65 million||0.03%||The rate applicable to vacant properties will increase by 0.3% every 3 years until it reaches 3%.|
|65 to 90 million||0.05%|
|90 million upwards||0.1%|
|Other residential dwellings|
|0 to 50 million||0.02%|
|50 to 75 million||0.03%|
|75 to 100 million||0.05%|
|100 million upwards||0.1%|
The tax rates from 2022 onward will be announced via the subsequent issuance of a Royal Decree. The local tax authority is empowered to impose a higher rate but it cannot exceed the relevant ceiling rates.
Taxes Payable During the Transitional Period
To ease the additional burden on taxpayers during an initial adoption period, the Act provides payment relief for property that has historically been subject to property taxes prior to 2020. If under the new rules the assessed taxes due are higher than the property tax liability for tax year 2019, then taxpayers are only require to pay a portion of the incremental tax difference during each of the transitional years (i.e., 2020 to 2023).
Tax Amount Payable
|2020||Property tax due in 2019 plus 25% of the additional tax amount due|
|2021||Property tax due in 2019 plus 50% of the additional tax amount due|
|2022||Property tax due in 2019 plus 75% of the additional tax amount due|
|2023||Full amount of the assessed tax payable|
Other Tax Exemptions and Reductions
Property exemptions under the new Act
- Principle residences owned by individuals having a value of less than 50 million baht;
- Land and buildings owned by individuals used for agricultural purposes will be exempted from tax from 2020 to 2022;
- Public property, non-profit assets and the like ( i.e. property of religious organizations);
- Property owned by exempt intergovernmental organization, such as the United Nations or Embassies and the like.
Special tax reductions per Royal Decree
1. Properties eligible for 50% reduction
- Inherited property used for residential purposes, if the owner’s name appeared in the house registration book on January 1, 2020;
- Property used for energy infrastructure such as a power plant
2. Properties eligible for up to 90% reduction
- Principal residences received via inheritance prior to the effective date of the new Act;
- Buildings used for public services
Other properties eligible for special tax rate reductions
- 0% for one year for vacant land being developed into a private residence (for non-commercial purposes)
- 0.05% for 3 years for land being developed into housing (for commercial sale)
- 0.05% for 5 years for non-performing assets owned by financial institutions
Long Anticipated Transfer Pricing Disclosure Reporting Starts in 2020
On November 21, 2018, Thailand introduced a new transfer pricing law which was effective for fiscal year commencing on January 1, 2019. Thereafter, the TRD amended and revised the Thai Revenue Code by enacting Royal Decree No. 47 (“RD47”). Under RD47, Companies established pursuant to Thai law are subject to TP documentation rules if they have an annual turnover of at least THB 200 million (USD 6 million).
For 2020, the effect is that this is the first year documentation and information disclosures will be required reporting as part of 2020 tax filings for the 2019 tax year.
TP Disclosure Forms and Submission Deadlines
The new law establishes reporting requirements for companies with income exceeding THB 200 million (USD 6 million) for each accounting period. These companies must submit a Transfer Pricing Disclosure Form (“TPD”) detailing the names and other information for related companies and the total amounts of all related company transactions. This form is attached to the company’s annual tax return, which is normally due within 150 days of the company’s fiscal year-end, normally the end of May for calendar-year based taxpayers (Section 71 ter).
The Details of Disclosure Form
The key contents to be declared in the disclosure form include:
Related-party information such as annual income and expense of related party transactions. In addition, values for the following transactions need to be declared for each related party:
- List of the related companies located in Thailand and overseas;
- Income arising from the company’s primary business (Direct Income);
- Other income;
- Primary expense: raw materials/ goods purchases;
- Primary expense: Purchases of land, buildings and equipment;
- Other expenses
Service fees/ technical fees/ commissions;
- Amounts owed to (borrowed from) related parties at year end;
- Loans to related parties at year end;
- Confirmation of other information indicated on a yes/no basis
- Availability of consolidated group revenues from consolidated financial statements;
- Existence of information relating to business restructuring between related parties during the accounting period;
- Existence of information related to transfers of intangible property to related parties during the accounting period.
If you require further guidance on any of the above matters, please do not hesitate to get in touch with our Key Contacts below or your usual DFDL advisor.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Head of Regional Tax Practice
Thailand Tax Director
Head of Regional Compliance & Investigations