For rental properties in Thailand, foreign investors can hold the property in their own name or through an offshore company. Moreover, the preferable ownership structure will necessitate a thorough examination of the associated costs and benefits. Additionally, it takes into consideration the owner’s special circumstances. However, the foreign leaseholder will fall in the bracket of earning individuals liable to pay Personal Income Tax in Thailand.
However, from a tax standpoint, this will necessitate consideration of both Thai and owner’s home country tax regulations. Additionally, it needs a measure of the impact on investment returns after tax if an offshore company exists between owner and property.
Therefore, the taxes payable on rental income are an essential tax consideration.
Taxes on Rental Income
Basically, on rental revenue from real estate, foreign people are subject to Thai Personal Income Tax in Thailand. Moreover, rental income of foreign individuals who are not Thai tax residents is usually subject to a 15% withholding tax.
How to pay less than 15% tax?
The tax withheld is not the total amount owed.
A foreign property owner can own a property in his own name and live outside Thailand. In this case, he may wind up paying substantially less than the 15% tax in Thailand.
Firstly, to pay 15% tax on rental income, a foreigner must disclose the rental income. Secondly, this disclosure is necessary on personal income tax returns with the Thai Revenue Department. Finally, now the rent withholding tax can then be utilized as a tax credit.
Moreover, this is necessary to reduce the amount of tax owed on the return. Henceforth, the taxpayer can obtain a refund of surplus withholding tax credits. However, the foreign taxpayer will get so from the Thai Revenue Department after filing a tax return.
However, preparing and filing a personal income tax return in Thailand is not difficult. Moreover, it gets easier when you have a reliable Accounting and Taxation Firm by your side.
Moreover, a property owner is entitled to a standard deduction of 30% on rental income. Additionally, a personal taxpayer can claim necessary and reasonable expenses incurred in generating rental revenue. However, the expenses must be backed by documentation evidence. Additionally, this will need to be provided for audit before the authorization of tax refund.
Please note that, there is no automatic refund. Otherwise, the Revenue Department will not consider refunding the extra tax paid unless you specifically request it on your return. Moreover, it may happen that you fail to make the request on the return. In this case, you still have three years after the return filing date to do so.
Tax Rates
In Thailand, a personal taxpayer can earn a net income of up to Baht 150,000 (about USD 5,000). Note that, this is in a tax year without paying Personal Income Tax in Thailand. For your information, many nations attempt to tax foreigners at higher rates or restrict them access to the tax-free level. On the contrary, Thailand’s tax scales are the same for citizens and non-residents.
Individuals in Thailand are subject to personal income tax at the following rates on their net income after deducting costs and allowances:
Net Taxable Income (in Baht) | Marginal Rate |
1 – 150,000 | 0% |
150,001 – 300,000 | 5% |
300,001 – 500,000 | 10% |
500,001 – 750,000 | 15% |
750,001 – 1,000,000 | 20% |
1,000,001 – 2,000,000 | 25% |
2,000,001 – 5,000,000 | 30% |
Above 5,000,001 | 35% |
Now, the Personal Income Tax Rate in Thailand on net income beyond Baht 750,000 is greater than 15%. So, this is the point where the tax payable exceeds the withholding tax credits.
According to our calculations, the property would have to generate roughly USD 140,000 in gross rentals each year. Note that, this is before the withholding tax credits would be insufficient to meet the income tax due. Additionally, it is during the filing of the personal income tax return in Thailand.
Personal Income Tax on Rental Properties for Foreign Investors: EXAMPLE
For your ease, let us put forth an example to clarify the advantages of filing a Personal Income Tax return in Thailand. For instance, let’s say a property earns Baht 1,000,000.00 (about USD 33,000) in gross rental income during the tax year. In this case, the potential tax refund will be similar to the following tax estimate for a typical property owner.
Taxable Net Income | Amount in Baht |
Gross Rental Income | 1,000,000.00 |
Less: Rental Expenses (30% Standard Deduction) | (300,000.00) |
Less: Taxpayer Allowance | (60,000.00) |
Total Deductions and Allowances | (360,000.00) |
Net Income | 640,000.00 |
Tax Calculation | |
Tax Payable on Net Income | 48,500.00 |
Less: Withholding Tax Credits (15% on Gross Rental Income) | (150,000.00) |
Tax Payable (Refundable) | (101,500.00) |
In this case, the tax payable is just under 5% of gross rental income. Additionally, it results in a refund of more than two-thirds of the withholding tax deducted from rents during the year.
However, the numbers speak for themselves. Additionally, they demonstrate a considerable tax benefit for foreigners who own Thai rental properties in names.
If you have a property in Thailand in rent or lease and are worried about taxation you are liable for, take help of our learned specialists. Alternatively, you may also email us at officer@konradlegal.com.