Fractional Ownership News
Tax implications of owning Thailand fractional real estate
Fractional ownership of holiday homes is a relatively new concept in Thailand. It offers the benefits of owning a holiday home for a fraction of the cost. The tax considerations for fractional property owners are similar in many respects to traditional ownership of real estate in Thailand. Paul Ashburn of BDO Advisory (left) reports.
In brief, the points to consider are:
- The transfer taxes and fees imposed on entry and exit. Where joint ownership in a property occurs at the same time, personal income tax on the transfer shall be paid on a collective basis rather than in accordance with the purchaser´s fractional ownership in the property.
- Tax planning for the purchase should consider the end game from the very start. In particular, the question of tax on any capital gain made on exit and how to minimize that tax.
- The taxes payable if the property will be used to derive rental income. Joint ownership of properties by individuals could be taxed collectively rather than on an individual basis.
- Property taxes. At the moment the property would be taxable at the rate of 12.5 per cent per annum on its deemed rental value.
- For foreign owners, there will be a focus on not only the taxes payable in Thailand but also in their home country.
In its simplest form, the legal ownership of the property may be structured so all owners are registered as the owners on the ownership documents. In Thailand, developers selling to a mainly foreign audience are likely to consider using a legal structure that sees indirect ownership of the property being offered instead.
The ability to structure real estate holdings tax effectively in Thailand is largely governed by the nature of the development, i.e. landed villas, condos or apartments – which unlike condos are not deeded properties – and the legal structure that is being used to ´sell´ the property to the foreigner.
The basic ingredients of the legal structure for selling fractional ownership in Thai property to foreigners can often be similar; long term leases with renewal options if freehold is not permitted; a Thai special purpose vehicle (SPV) to hold land, condo units or apartment buildings that the foreign buyer cannot own in their own name; and offshore companies in tax haven jurisdictions to act as a collective ownership vehicle for foreign owners.
Sometimes the structuring stops there. How well the structure has been fine tuned from both a financial and tax perspective will influence the amount of tax paid by the developer and future owners.
Effective tax planning for selling fractional ownership in Thai properties using an offshore vehicle as the collective owner involves financial modeling and an appreciation of the Revenue Department´s approach if the whole structure comes under scrutiny.
For example, the use of offshore companies in tax havens to act as a collective owner of a Thai SPV is often abused. At the outset it will have a real practical benefit – which is not tax related. The offshore company will have an advantage of operating under a legal framework that is more familiar to foreign owners, and will allow greater flexibility to arrange the articles and rules of association between the owners. Of course, being in a tax haven also allows the affairs of the company to be organized in a tax-free manner so it acts as a conduit with no related tax leakage.
A developer may then perceive an opportunity to use the offshore structure to generate profit in the offshore compan
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