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Phuket Property Guide: Your shelter is not a tax shelter

Phuket Property Guide: Your shelter is not a tax shelter

We touched on this in our first instalment, but we’ve since had a lot of questions about why a company-owned property should create an income tax liability for you. Today we expand on this – and we hope that existing owners don’t find it too frightening.

propertyland
By Thai Residential

Sunday 28 April 2019, 02:30PM


Having a Thai company set up – either your own company or using that of your employer – to legally own accommodation in Phuket invokes income tax obligation on both you and the company. Photo: Roberto Nickson

Having a Thai company set up – either your own company or using that of your employer – to legally own accommodation in Phuket invokes income tax obligation on both you and the company. Photo: Roberto Nickson

It is an inconvenient truth that foreigners may not legally own land in Thailand.  There are limited exceptions, related to investment in the Thai economy, which we will cover at a later date. But since these apply to only a small fraction of potential buyers, it is safe to say that freehold landed property is off limits to foreign buyers.

One workaround which has been common for years is to set up a Thai limited company, and buy the land/house/villa in the name of the company. Doing so makes the owner a Thai entity, not a foreigner. It is, however, illegal for a foreigner to establish a company purely with the intent to purchase property. It is also illegal to use nominee (“sham”) shareholders to set up the company in the first place. (This topic will receive greater attention in a later segment.)

Thai companies conducting legitimate business, producing audited accounts and filing taxes are perfectly allowed to own property. But if one such business – whether your own or your employer’s company – owns the house, villa or condo you live in, that is benefit in kind to you. And that makes it taxable.

If your employer owns the property where you live, and you do not pay rent, the fair market value of the rental on that property is considered income to you. Likewise, if the company pays your rent as part of your employment package, the actual amount of rent paid is also a benefit.

Most employers are aware of this, and if you work for a multinational company, it is likely they handle your local income taxes for you. But most people are not aware that setting up a Thai limited company to buy a bungalow or villa in which to live creates an income tax liability.

Aside from the potential legal ramifications of setting up the company, if you are the director of a Thai company which owns the property in which you live, that is technically a “director’s perk”. And the fair market rent which your property would command is treated as taxable income to you.

On top of that, the rental income which your Thai company should be collecting is assessed as income to the company, which is obligated to deduct withholding tax, as discussed in a previous article in this series. That withholding tax is essentially a “pre-payment” of income tax, which the company must file every year.

So, by living in company-provided accommodation in Phuket, there is an income tax obligation on both you and the company.

But if you are a director of the company, and you set it up specifically to own the property, then it’s triple the fun: the legal status of the company, the tax status of the company, and your personal income tax liability.


This article is from the 2018/2019 Thai Residential Phuket Property Guide. To download the 2019/2020 Guide visit ThaiResidential.com. Email: phuket@thairesidential.com. +66 9484 11918

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Kurt | 29 April 2019 - 21:14:28

Being suggested to set up a business company to 'own ' property + land is a trap. After a while you have to come up with business results of your 'company'.  Don't manoeuvre yourself in that situation when you not have a real company. When it becomes a problem nobody backs you up. Remember, you are in Thailand.

CaptainJack69 | 29 April 2019 - 13:49:56

Huh, so we're essentially charged twice for the same thing? Double pricing? in Thailand? Well, it's nothing new is it...

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