bdo advisory limited · a typical villa lease deal villa lease deals offered by developers...
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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 ThailandPage 2
PRESENTATION OUTLINE
• Taxes on purchase of freehold and leasehold property
• Taxation of rental income
• Capital gains tax
• Taxation of property holding structures
Tax Planning for Investors Purchasing Property in ThailandPage 3
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!
Tax Planning for Investors Purchasing Property in ThailandPage 4
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.
Tax Planning for Investors Purchasing Property in ThailandPage 5
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
Tax Planning for Investors Purchasing Property in ThailandPage 6
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.
Tax Planning for Investors Purchasing Property in ThailandPage 7
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.
Tax Planning for Investors Purchasing Property in ThailandPage 8
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.
Tax Planning for Investors Purchasing Property in ThailandPage 9
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
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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%
Tax Planning for Investors Purchasing Property in ThailandPage 11
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
Tax Planning for Investors Purchasing Property in ThailandPage 12
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
Tax Planning for Investors Purchasing Property in ThailandPage 13
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
Tax Planning for Investors Purchasing Property in ThailandPage 14
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
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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
Tax Planning for Investors Purchasing Property in ThailandPage 16
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
Tax Planning for Investors Purchasing Property in ThailandPage 17
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
Tax Planning for Investors Purchasing Property in ThailandPage 18
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!
Tax Planning for Investors Purchasing Property in ThailandPage 19
TAXATION OF PROPERTY HOLDING STRUCTURES
Tax Planning for Investors Purchasing Property in ThailandPage 20
PROPERTY INVESTMENT
Direct investment
Offshore oronshore
company
Indirect investment
Tax Planning for Investors Purchasing Property in ThailandPage 21
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.
Tax Planning for Investors Purchasing Property in ThailandPage 22
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
Tax Planning for Investors Purchasing Property in ThailandPage 23
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
Tax Planning for Investors Purchasing Property in ThailandPage 24
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
Tax Planning for Investors Purchasing Property in ThailandPage 25
• 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
Tax Planning for Investors Purchasing Property in ThailandPage 26
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)
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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
Tax Planning for Investors Purchasing Property in ThailandPage 28
PRESENTER PROFILE
Tax Planning for Investors Purchasing Property in ThailandClient name - Event - Presentation titlePage 29
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.
Tax Planning for Investors Purchasing Property in ThailandPage 30
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.
Tax Planning for Investors Purchasing Property in ThailandPage 31
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