A recent Thai law might finally solve many of the frustrations of owning or leasing property in Thailand
By Paul Gambles and James Fraser
MBMG recommends that clients carefully review their property arrangements in light of the provisions of the 2019, Rights over Leasehold Assets Act. This act provides an alternative to many conventional long-term property ‘ownership arrangements’, both for residential and commercial purposes and for foreigners who aren’t legally able to own land in Thailand and also for businesses whose commercial lease arrangements are becoming increasingly unviable due to changes in the Commercial Industrial Leasehold Act.
The Rights Over Leasehold Assets Act became legislation in October 2019 and is an alternative to the conventional immovable property lease under the Civil and Commercial Code (CCC). 'This new Act is a big step towards enabling property and land ownership rights for periods of up to 30 years. It is more straight-forward, in that it does not require or depend on the specific clauses of a written agreement but simply on the registration of the transfer of the rights. This removes the sometimes ludicrously onerous clauses in typical lease agreements such as returning the house or property in the same condition as it was 30 years previously, or disallowing subletting or charging annual land fees or defining the arrangements, sometimes in an unhelpful or costly way for monthly utilities payments.
You can make changes to the property or even use your rights as security (e.g. for a mortgage). A rights holder under the new agreement (the worst part is that we don’t know how to describe them – a lot more than a tenant but not quite an owner) is free to sublease the property or to modify or have work done to the property (although of course other legislation might still apply such as The Condominium Act 2010) or even to mortgage the rights, without the owner’s prior permission. The owner must effectively wave goodbye to their control of the property, and expect to receive back only the bare asset (e.g. just land if it’s a house and land asset).
The rights over leasehold asset is automatically inheritable while the conventional Thai lease requires the inheritance of the lease to be written into the agreement otherwise the land and property will be returned back to the lessor (or their heirs) on death of the lessee (a conventional lease can be for up to 30 years or for lifetime of the lessee according to clause 541 of the CCC).
What if the owner wants to terminate? It’s possible for the land or property owner to terminate the rights but only once the owner and the rights holder come to an agreeable settlement, having also ensured that there are no other parties, such as sub-tenants who might be renting all or part of the property from the rights holder, are disadvantaged. The rights over the leasehold asset can’t be sold or transferred onward by the rightsholder.
The one right that the holder doesn’t have is to allow illegal dwellers to possess the land and if this happen then the owner can void the lease. This is important because in Thailand after 10 years squatters can claim their right to the ownership of the land that they possess.
This 2019 Act was spearheaded to help the property sector because the conventional lease not only requires an agreement which might be easily broken but is also subject to a growing number of other clauses in the Civil and Commercial Code, that increasingly came into conflict with the express intentions and terms of lease agreements.
It worthwhile to review your commercial property leases because the 2019 Act simplifies and clarifies arrangements better than conventional commercial leases and, in some respect, supersedes the Lease of Immovable Property for Commercial and Industrial Purposes Act. This has many of the characteristics of the 2019 Act but subsequent revisions to the Commercial and Industrial Leasehold Act have infringed upon the practicality of the conventional commercial lease and, for example, prevents a property from being both residential and commercial. This is not the case with the 2019 Act, where split usage isn’t prohibited.
For the conventional commercial lease it would seem to be even more important to examine the benefits of the 2019 Act as there appears to have been several legislative modifications and additions relating to commercial leases that might create future problems for your business, but which is not the case with the 2019 Act. Overall, the 2019 Act is a cleaner piece of legislation for Commercial Leases.
Both the owner and rights over the asset can obtain a certificate showing the transfer of ownership rights at a cost of THB 10,000 from the land department and/or can have an agreement to the same extent. The registration fee is a flat THB 20,000, and the transfer tax is 2% of the capital value, or THB 1,000 in the case of no capital value (the same in the case of inheritance).
MBMG’s Tax Webinar kindly hosted by CanCham
MBMG IA’s Thai tax webinar with CanCham discussed the ins & outs of Thai personal income tax and ways in which to reduce it. The Webinar was well attended, with many follow-up questions both during the webinar and in the days that followed.
One question concerned tax earned overseas for regional work undertaken in Thailand and if this is subject to tax – the basic answer is Yes.
Another interesting one was on a company car used by an expat whilst in Thailand but who didn’t arrange the lease himself – is this taxable income? The answer, in this particular instance, is No because the car in question is viewed as an extension of the business assets and all of the upkeep is the responsibility of the company in the same way an office is.
A further question, which might be sadly all too relevant at this time, related to the taxation of payment for loss of employment – in this specific instance, the individual is entitled to receive THB 300,000 tax free!
Finally, a number of people asked about the age to sell provident funds without being taxed. As long as other requirements (which can be complex) are satisfied, the age is 55.
However, in all cases, the details of the specific situation are vital and it’s always important to obtain professional advice, as the cases described above might not be equally applicable in cases that superficially seem similar.
For more information and to speak with our advisor, please contact us at email@example.com.