Monthly Archives: April 2014

Selling a real estate lease in Thailand — caution, it is not just a matter of “assigning” it

“Assignment” and “Novation” are lofty sounding legal terms frequently used by consultants and lawyers. In Phuket these terms are used especially often in relation to lease agreements. Therefore, it is important that the legal meaning and effect of novation and assignment are clearly understood by anyone considering their use and to do this the starting and ending point must be understanding what they actually mean under Thai law. However, recently in a Thailand English news publication, assignment and novation were discussed and, unfortunately, inaccurately described. The concepts of assignment and novation were explained there as “viable options when it comes to resale of a lease”. In this Article we will explain the legal concept of assignment and novation and whether these are actually “options” from which the parties are free to choose.

The term “assignment” is not directly mentioned in the Civil and Commercial Code of Thailand (CCC). Rather, the CCC, in Book II Chapter IV, refers to the “Transfer of Claims”. Section 303 CCC states: ”A claim may be transferred unless its nature does not admit of it”. Important is to understand that it is a “claim”, or in common parlance a “right”, that may be transferred in accordance with Chapter IV. An example of such a claim is the repayment of a loan. The lender is entitled to “transfer” such claim. An authorization by the borrower is not legally required to execute this “transfer of claim” in a legally binding manner; notice to the debtor by a specific creditor is sufficient (Section 306 CCC).

In a lease relation the parties to a lease agreement have reciprocal “claims”’ towards each other. At a minimum the lessor “claims” the lease payment, the “rent”, and the lessee “claims” possession the leased object. Generally these claims are “transferable”. However, it should be noted that Section 544 CCC restricts the lessee’s right to transfer possession property under the lease agreement to a new lessee “unless otherwise provided in the contract”. Thus, it is generally highly advisable for lessees entering into a long-term lease agreement to receive such transfer rights.

Novation, on the other hand, is regulated in Chapter V – Extinction of Obligations – Part IV of the CCC”. Section 349 CCC explains that “[w]hen the parties concerned have concluded a contract changing the essential elements of an obligation, such obligation is extinguished by novation”. Section 350 CCC specifies that “[a] novation by a change of the debtor may be effected by a contract between the creditor and the new debtor, but this cannot be done against the will of the original debtor.”

Taking our example above of a lease agreement, the following reciprocal obligations exist in a lease relationship: the lessor is obligated to provide possession of the property and the lessee is obligated to make the lease payments. Therefore, in a lease relationship, the lessee is the debtor with regard to the lease payments and the lessor is the debtor with regard to the provision of possession of the lease object. Thus, it is always important to investigate what obligation, or which debtor of what obligation, will be “novated”.

In a typical “lease sale” example a lessee would “sell” his lease to a third party. The lessee has the right to “claim” the possession of the property from the Lessor. Such right he will need to “assign” in accordance with Section 303 ff CCC (Transfer of Claims) to the third party/the new lessee.

However, the lessee is also subject to an “obligation” and is the “debtor” relating to the lease rental payment. Thus, a novation agreement between the lessor and the third party with approval of the lessee in accordance with Section 350 CCC is also required.

Both of these legal elements are required for the third party/new lessee to “step into the shoes” of the original lessee. The parties in a contractual relationship with typical reciprocal rights and obligations are, therefore, not free to choose between a novation and an assignment in a typical “sale” of a lease.

Based on the foregoing then, what is such a “sale” legally? Answer: it is an assignment and a novation, not an assignment or a novation.

In closing, it should be noted that, once both the rights and obligations of a party to a contract have been transferred and novated to new party, a new contract comes into being. This fact is particularly significant if the contract in question is a lease in Thailand because if the remain lease term that is assigned to then new contract is over three years, then such term will only be enforceable up to three years, unless the new contract is registered at the relevant land office.


DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at:


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Taxation of personal rental income in Thailand

Many purchasers of real estate in Thailand are not using their newly purchased home as a permanent personal residence. Such assets are often meant to be used as a holiday home only and are unoccupied for the remainder of the year. One of the ongoing financial burdens of owning a holiday home is the common area fee and is normally incurred even if the purchaser does not use his asset. In order to cover such expenses, or simply to receive a return of investment, some purchasers rent out their holiday home and thereby earn rental income. These owners should also then be aware of the tax liabilities that they also incur when earning rental income in Thailand.

It is important to note that the duty to pay tax on rental income in Thailand does not depend on being a “tax resident” of Thailand or whether you receive the income in Thailand. This is often misunderstood. A tax resident of Thailand is “any person staying in Thailand for a period or periods aggregating 180 days or more (…)” (RC Section 41).

However, rental income is considered taxable income regardless of Thai tax residency under Section 40(5) of the Thai Revenue Code (“RC“). Section 41 states that “[a] taxpayer [i.e. “anyone”] who in the previous tax year derived assessable income under Section 40 (…) from a property situated in Thailand shall pay tax (…), whether such income is paid within or outside Thailand.”  Therefore, anyone, tax resident not, who earns rental income from a property in Thailand, must pay tax on that income and whether or not the rental income is paid on-shore or off-shore.

The good news that the taxable income is not simply the rental amount the owner receives. The RC allows certain deductions on the rental income. According to Section 43 of the RC in conjunction with Section 5(1)(a) of the RC and Royal Decree No. 11 (“RD“), expenses may be deducted “[i]n the case of houses, buildings, other constructions (…): [and] if let by the owner, a standard deduction of 30 percent shall be allowed as expenses (…)”.

However, the emphasis on the “owner” here should be carefully noted. In cases where a development investor is actually a lessee (that is they have purchased a long term lease from the developer) and not an actual owner, the investor rents out their property to generate rental income, they are only “sub-renting” or “sub-leasing”.  In such cases the 30% standard deduction is not applicable. But a portion of the rent paid by the investor to their developer could be credited as an expense against such sub-lease income.

Rental income tax recipients have the option to define the taxable income by sufficiently documenting their actual rental income related expenses. If these expenses are higher than the standard 30% deduction, are reasonable, and sufficiently documented, then it may well be worth the additional time and expense needed to claim these expenses. But it should be noted that the same restrictions on and regulatory evaluation of such claimed deductible expenses applicable to corporate entities income in Thailand apply to such rental income earned by individuals.

The amount of tax payable is calculated on a progressive tax scale for personal income tax purposes as follows:

Taxable Income  (Thai Baht) Tax Rate 
0-150,000 Exempt
more than 150,000 but less than 300,000 5%
more than 300,000 but less than 500,000 10%
more than 500,000 but less than 750,000 15%
more than 750,000 but less than 1,000,000 20%
more than 1,000,000 but less than 2,000,000 25%
more than 2,000,000 but less than 4,000,000 30%
Over 4,000,000 35%

The individual tax payer is required to report and remit his income tax using the personal income tax return form PND 91 by the end of March after the year in which the income was paid. Failure to report income can result in an assessment by the Revenue Department. The penalty is equal to the amount of additional tax payable. Further a surcharge of 1.5% per month on the tax payable is applicable.

It should also be noted that an “additional” category of tax is also payable each time the rent is paid. It is the duty of the payer of the rent who is renting the villa to deduct a “withholding tax” from the rental payment and submit it to the local Revenue Department. However, both the person renting the property and the owner of property who is renting it out the property and receiving the rental payment are jointly liable for the payment of this withholding tax.

The amount of withholding tax depends on whether the owner is a tax resident of Thailand and also whether the payer of the rental is a juristic person or an individual. If the owner is not a tax resident of Thailand the withholding tax rate is 15%. The legal status of the payer does not matter if the owner is not a tax resident of Thailand. If the owner is a tax resident of Thailand and the payer is a juristic person, the withholding tax rate is 5%. If the owner is a tax resident of Thailand and the payer is a natural person, there is no withholding tax applicable.

Finally, please note that the withholding tax is not an additional tax on the rental income; rather it is a pre-payment of the owner’s personal income tax. The withholding tax will be credited against the owners final annual income tax liability. However, if the withholding tax is not paid when the rent is paid significant tax and penalty liabilities are applicable.


DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at:

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Can your heir inherit your freehold condo . . . are you sure?

If you are a foreigner who has purchased a condominium unit on a freehold ownership basis in Thailand, you may be under the impression that part of the value you purchased was the peace of mind in knowing that you could easily leave the unit to your heir. However, if your heir is also a foreigner then, unfortunately, this is only partially true. Thailand’s well known stringent restrictions on foreign freehold ownership of immovable property also curtail if and how a foreigner can own an inherited freehold condominium unit.

Thailand’s legislation on condominium ownership is laid out in the Condominium Act (1979) and as further amended (the “Condominium Act”). Only under certain conditions does the Condominium Act allow foreigners to own a freehold condominium unit. Perhaps the best known current foreign ownership restriction is the “49% foreign freehold quota”; with very limited exceptions, foreign freehold ownership cannot exceed 49% of the total floor space of a condominium project in Thailand. Furthermore, pursuant to Section 19 of the Condominium Act, even where foreign freehold space is available, only foreigners who meet one or more of the following conditions are entitled to receive a freehold title to a condominium unit in Thailand, regardless of how they received the unit:

(1)  Any foreigner permitted to permanently reside in the Kingdom under the Immigration Act;

(2)  Any foreign immigrants permitted to enter the Kingdom under the Board of Investment Act;

(3)  Any alien juristic person registered under Section 97 and 98 of the Land Code;

(4)  Any alien juristic person qualified under the 24 November 1972 Announcement of the Revolution Committee No. 281 and which has had a Board of Investment Certificate granted under the Board of Investment Act; or

(5)  Any alien or alien juristic person who has brought foreign currency into Thailand or who has withdrawn Thai Baht currency from their foreign resident Thai Baht account or who has withdrawn money from a foreign bank on deposit in Thailand. [Pursuant to Section 19 ter (5) of the Condominium Act, the amount of currency required under this paragraph (5) is defined as “not less than the price of the unit to be purchased”.]

The Condominium Act outlines clearly that any foreign person who does not fulfil at least one of these conditions is not entitled to own a condominium unit in Thailand.

What does this mean with regard to inheritance? Obviously, if you are a foreigner and your heir is a foreigner then, the 49% quota would not be an issue as the unit would pass from one foreigner to another maintaining the same foreign/Thai ownership ratio before and after inheritance. However it is quite possible, even quite likely, that your foreign heir might not meet any of the additional Section 19 criteria for foreign freehold ownership of a condominium. In such case, while your heir may have legally inherited your condominium unit, they will not be legally eligible to continue owning it and Section 19 septem of the Condominium Act, as follows, would then be applicable:

All foreigners not qualified under Section 19 who receive the condominium unit either by inheritance or in any other way, must report the matter to the relevant administrative official within 60 days from the date they receive such property and they must then sell the property within one year from the date they receive it, otherwise, the provisions of Section 19 quinque shall be applied mutatis mutandis.

Section 19 quinque of the Condominium Act provides that if the said foreigner fails to sell the condominium unit within the time allotted, the Director of the Land Department shall have the right to sell the unit.

Thus, if your condominium unit is inherited by your foreign heir, such heir must inform the land officer at the Provincial Land Office or the Branch Land Office respectively where the condominium is located within 60 days of such inheritance. Then, if your foreign heir does not meet the criteria under Section of 19 of the Condominium Act, such heir must comply with Section 19 septem Condominium Act and either sell the condominium unit themselves or face having the Director of the Land Department sell the unit. Note, however, that your foreign heir would have up to one year after inheriting the unit to either sell the unit or comply with Section 19. Most likely the best, if not the only, option for your heir to comply with Section 19 would be for your heir to then transfer the relevant foreign currency into Thailand. After such transfer your foreign heir would then be entitled to continue to own the freehold condominium unit in perpetuity.

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Can you turn an apartment or office building into a hotel or condominium?

With the continued development and proliferation of new hotels and condominiums in the face of may unused or underused older pre-existing office and apartment buildings in places like Bangkok and Phuket, some have wondered if it would not be an environmentally wise as well as an economically prudent move for a prospective hotel or condominium developer to consider refurbishing such a pre-existing structure for their purposes. At the same time it seems there is common misconception that such a conversion of a building is not possible under Thai law.

The Building Control Act (1979) (“BCA”) generally regulates the construction and use of buildings in Thailand. Unless the BCA states otherwise, any construction of any building must be permitted by the relevant Local Administrative Office (e.g. Tetsabaan or Or Bor Tor, etc, depending on where you are located in Thailand) that oversees such matters in the area in which the building is located. In order to obtain the building permit, the applicant must, among other things, state the purpose for which the building is intended to be used. Such intended use will then be stated on a building permit; for example, “residence” for any residential villa, “hotel” for any hotel and “condominium” for any condominium, etc.

What if the owner of, say an office or apartment building, decided he could have a much more lucrative asset by changing it into a condominium and sell the units or into an hotel and run it as such? Is that “doable” in Thailand? The answer is a qualified “yes”.

Pursuant to Section 32 of the BCA and the 2009 Ministerial Regulation issued thereunder, any “hotel; condominium; warehouse; hospital; hazardous goods storage room; dormitory or common residential building (e.g. an apartment) that is a “Large Building[1]”; convention hall or office building having a total floor area of 300 square meters or more; any building used for any commercial purpose and having a total floor area of 300 square meters or more; or any building used for any industrial or educational purpose” is a building subject to control over its use (a “Use Controlled Building”).

Section 32 of the BCA further prescribes that on completion of the construction of the Use Controlled Building a notification must be given to the Local Administrative Office to inspect the structure. After the inspection, if the Local Administrative Office determines that the construction was completed in accord with its building permit, permission to use the building will be granted. A Certificate of Use for the purpose applied for in the building permit will be issued. If, however, the Local Administrative Office does not inspect the building within 30 days of the notification of completion, the owner or possessor of the building may go ahead and use or allow others to use the building for the purpose stated in the building permit.

In addition, Section 33 of the BCA provides that the owner or possessor of the non-Use Controlled Building must not use or allow others to use it for any purpose specifically reserved for Use Controlled Buildings. Neither may a Use Controlled Building be used for any purpose reserved for Use Controlled Buildings other than the purpose for which it was originally permitted. However, the exception to this rule is if a permission for such is granted by the Local Administrative Office.

Thus, to change any non-Use Controlled Building to a Use Controlled Building or one type of Use Controlled Building to another type of Use Controlled Building (regardless of whether or not the building is yet to be constructed, under construction or is already completely built) the following steps must be followed:

1)    Pursuant to 1985 Ministerial Regulation No. 10 issued under the BCA, the following documents must be submitted to the relevant Local Administrative Office:

(a)  An application to change the purpose of use of the building (a form of which is called “KHOR. 3”);

(b)  A copy of any document that legally evidencing who owns or possesses the building;

(c)   A consent letter from the owner of the building (if the applicant is not the owner, but is the possessor of the building);

(d)  A permit to change a purpose of use of the building (if the change of purpose of use of the building was permitted before);

(e)  A signed copy of the applicant’s corporate documents at least 6 months update and the authorized director’s identification card and house registration or passport (if the applicant is a company);

(f)   5 copies of the building plan;

(g)  A calculation report on the building’s structure (if the change of purpose of use of the building will decrease the weight-carrying capacity of the building);

(h)  A letter of approval and certification of the calculating engineer and a copy of the Thai engineering license of said engineer (if, pursuant to the BCA, the building requires engineering control); and

(i)   Any other supporting documents required by the Local Administrative Office.

2)    Pursuant to the BCA, the Local Administrative Office must then either issue a permit to change the purpose of use of the building (a form of which is called “OR. 5”) or deny the issuance thereof and inform the applicant in writing with the reasons for the non-issuance, within 45 days from the date of the application. However, also under the BCA, the local administrative office may extend the deadline for up to two additional 45 day periods for any reasonable cause; if so, the Local Administrative Office is required to notify the applicant in writing of the cause for the extension(s).

It should be noted that any change of purpose of use of a building to a non-controlled use, does not require governmental permission.

In closing, it should also be noted that getting a building permitted and certified for use as a condominium or hotel is not the “end of the regulatory road”. There are other legal requirements conditioned on and subsequent to obtaining the correct building permit and use certification before the building can be operated as a condominium or hotel, such as obtaining the requisite condominium or hotel license.

[1]Large Building” means a building having a total floor area of more than 2,000 square meters OR a building 15 meters tall or more and having a total floor area of more than 1,000 square meters but not exceeding 2,000 square meters.

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A foreigner can legally own some Thai-LAND

It is a common misunderstanding that foreigners are per se restricted from owning land in Thailand. One of the most interesting exceptions from the restrictions of foreign ownership of land in Thailand has been enacted for foreigners who bring at least Thai baht forty million equivalent into Thailand for certain prescribed investments. Such foreigner may apply for freehold ownership of up to 1,600 square meters of land under the rules, procedures and conditions prescribed by Section 96(bis) of the Land Code (as amended by the Land Code Amendment Act No. 8 (1999)) and in the 2002 Ministerial Regulation issued under the Act.

To apply, a foreigner must submit an application (the “Foreigner 4 Form”, available at any local land office) together with the following documents:

(1)  a copy of the applicant’s passport;

(2)  evidence of  the not less than Thai baht forty million Prescribed Investment,  in any of the following formats:

(a) a letter of investment confirmation from a seller of bonds of Thai Government, bonds of the  Bank of Thailand, bonds of a State Enterprise or bonds of which the Ministry of Finance secures the capital or interest; and/or

(b) a letter from the Asset Management Company confirming that the applicant has invested in a prescribed mutual fund relevant Securities and Stock Exchange, and law and evidence of investment in such fund; and/or

(c) evidence showing that the applicant has invested in the share capital of a juristic person who is granted investment promotion under the relevant investment promotion law; and/or

(d) evidence of engaging in an activity that is entitled to investment promotion under the relevant investment promotion law;

(3) evidence of bringing a foreign currency into Thailand, or the withdrawal of the money from a foreign currency account or from a non-resident Thai baht account for the investment (note: evidence of investment in any one or combination of (1), (2)(a) – (d) and/or (3) may be provided as long as  total amount invested is Thai baht forty million or more);

(4)  a letter of confirmation certifying that the land the foreigner wishes to own (the “Land“) is located within a prescribed “residential area” from the relevant authority who oversees town and country planning where the Land is located;

(5) a letter from the Ministry of Defense or from the agency concerned, confirming that the Land is not located in a military safety zone; and

(6) a map showing the location of the Land.

The application documents must be submitted at the Relevant Land Office which has jurisdiction over the land the foreigner wishes to own. The decision to grant the permission to will then be made by the authorities delegated such responsibility by the Minister of the Interior.

Any such ownership grant however is subject to the certain conditions: (1) the grantee shall maintain the Prescribed Investment for a continuous period of not less than five years as from the date of registration of ownership of the Land (the “Investment Period”) and shall submit evidence of such to the Relevant Land Office once a year, for five consecutive years; (2) the grantee shall utilize the Land for residential purposes and in a way that is not contrary to the public interest or local customs; (3) the grantee shall inform the Relevant Land Office within sixty days as from the date of utilization of the Land for residential purposes; (4) the grantee shall facilitate the Relevant Land Office in supervising the use of the Land to ensure that the utilization is in accordance the prescribed conditions; (5) if the grantee withdraws the Prescribed Investment before the end of the Investment Period, the grantee shall inform the Relevant Land Office of such withdrawal within sixty days; (6) if the grantee does not comply with (1) – (5) the Director General of the Department of Lands shall have the power to order the grantee to dispose of the Land within a period of not less than one hundred eighty days and not more than one year, failing which the Director General shall have the power to dispose of the Land; (7) the grantee shall utilize the Land for residential purposes within two years as from the date of registration of ownership of the Land.  If the grantee does not do so, the Director General shall have the power to dispose of the Land.


DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at:

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Your offshore company’s rental income tax

The use of offshore companies incorporated in jurisdictions such as the British Virgin Islands to own real estate is not uncommon in Thailand. One reason often cited by investors using such companies is that they believe it will result in significant tax savings. Whereas this may be true with regard to any tax applicable to the “sale” of the real estate by way of sale of the offshore company itself, it may not be true with regard to other potential tax liabilities. In this article we summarise the Thai income tax consequences of an offshore company renting out real estate it owns in Thailand.

In general, juristic persons “carrying on business in Thailand” are subject to corporate income tax (“CIT”) at the basic rate of 20%. CIT is applicable whether these entitles are incorporated under Thai law or some other foreign law. Companies organized under Thai law are subject to CIT on their worldwide income. However, companies organized under a foreign law are only subject to CIT if such income results from “carrying on business in Thailand”.

If an entity incorporated under foreign law that is not “carrying on business in Thailand”, but receives payment of assessable income from or within Thailand, such payment is subject to a withholding tax (“WHT”) at a rate 10% or 15% depending on the type of payment, for example as follows:

Service 15%
Interest 15%
Royalties 15%
Dividends 10%
Rent 15%
Liberal professions 15%

Where the recipient of assessable income is an offshore party, the Revenue Code of Thailand (“RC”) places the liability for filing the applicable WHT return and submitting the tax payment itself on the payer of the assessable income; in our rental income example, the lessee of the real estate owned by the offshore company.

Thus, tax liability for such rental income depends on whether or not the offshore company is deemed to be “carrying on business in Thailand”. The RC does not define “carrying on business in Thailand”. Section 66, paragraph 2 of the RC states that juristic companies or partnerships organized under foreign laws and carrying on business in Thailand are subject to the same tax as those organized under Thai law, but only with respect to income arising from or in consequence of the business carried on in Thailand. In addition, Section 76bis of the RC states:

“For a company or juristic partnership incorporated under foreign laws which has an employee, an agent or a go-between for carrying on business in Thailand and as a result receives income or profits in Thailand, such company or juristic partnership shall be deemed to be carrying on business in Thailand and the person who acts as an employee, an agent or a go-between for the business, whether he is an individual or a juristic person, shall be deemed to be representative of the company or juristic partnership incorporated under foreign laws and shall have the duty and liability to file a tax return and tax payment in accordance with the provisions of this Part, with respect to only the above mentioned income or profits.”

The practical implication of Section 76bis is obvious. Barring any exception – such as an applicable double taxation agreement with another relevant country – if the real estate owned by an offshore company is leased out through an onshore estate agent or a “rental pool” company, that estate agent or rental pool company could be deemed to be an “employee, an agent or a go-between” of the offshore company. The result would be that the offshore company would then be treated like a Thai entity with regard to the income derived from its real estate located in Thailand and its rental income would be subject to the same tax regime. Furthermore, the onshore liability to file the tax return and pay the applicable tax on behalf of the offshore company would be on the said agent or rental-pool company.


DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at:

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Capital gain . . . but more tax than your company bargained for

What people commonly suspect in the Thai real estate market is that if a company sells immovable property such as land it is subject to a specific “capital gains tax” or that the sale of that land is taxed at the corporate income tax (“CIT”) rate of 30%.  However, such is not necessarily the case.

First, even though it is true that a “gain” realized on the sale of immovable property must be recognized by the selling company in the accounting period when the sale took place, companies in Thailand pay tax only on the net profit.  Section 65 Revenue Code (“RC”) defines “net profit” as the result of income from business or arising out of business in one accounting year, less certain expenses.  In other words: the “net profit” of the whole accounting year is the basis of taxation and not a single taxable event, such as the sale of immovable property.

Also, the amount of tax payable further depends on the classification of the selling entity. The corporate income tax rate in Thailand is generally 30%.  However, this rate is reduced for so called “small and medium sized enterprises” (“SME”).  SMEs are taxed on a progressive scale. The tax rate for an SME is 15% for the first one million Thai baht in profit and 25% for the profit between one and three million Thai baht. The profit exceeding three million Thai baht is then taxed at 30%.  Please note that there are several special conditions when computing net profit or loss such as, exemptions, bad debts or depreciation.

Now it is  likely that the most substantial transaction cost on the sale of land by a company will be the resulting CIT.  In order to avoid this (and other) costs, some sellers have occasionally resorted to “under-declaring” the sale price of land when they transfer it.  Obviously, such behaviour is illegal. For one, the  seller of such land clearly evades corporate income and specific business taxes.

However, also the buyer of such undervalued land will be committing unlawful tax evasion. When a corporate entity sells an immovable property, a “withholding tax” at the rate 1% of the sale price is required to be “deducted” from the sale price and paid to the authorities on transfer.  The legal duty to withhold and pay this tax is the buyer’s.  And a surcharge on the late or inadequate payment of the withholding tax at a rate of 1.5% per month of the late paid amount is applicable.

Furthermore, such undervaluation is also highly ill-advise from the commercial standpoint of the corporate buyer. Since the land will be booked into the accounts of the buying entity at the undervalued amount any subsequent sale of such land will result in a higher taxable event than it would have without the undervaluation on the initial purchase of such land. For example, hypothetically (very generalized and simplified):

In 2005 the Company A actually buys the land for two million Thai baht but the purchase is declared to be for only one million Thai baht.  In 2010, Company A sells the land for three million Thai baht. The actual realized profit in such case is one million Thai baht, and the CIT “should be” approximately three hundred thousand Thai baht.  However, because Company A declared that they originally bought the land for one million Thai baht, the actual CIT Company A will have to pay is approximately six hundred thousand Thai baht.

Therefore, a corporate purchaser of an undervalued plot of land should be very much aware that by undervaluing such purchaser takes over the corporate income tax liability of the corporate seller (in addition to the purchaser’s own legal and tax liability); and that is certainly far more (or perhaps “less”) than bargained for!

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