Thailand’s Government to Cut Land and Buildings Tax and CIT Rates on SMEs

Thailand’s government has announced that it will be cutting the tax rates on its Land and Building tax, as well as on its Corporate Income Tax rates for small and medium-sized enterprises.

Land and Buildings Tax

Thailand’s Finance Ministry is planning to cut the maximum rates of the Land and Buildings tax in half from previous proposals. Additionally, tax exemptions will be expanded in order to help landlords and homeowners.

The newly proposed rates will be as follows:

• 25 percent on land for agricultural use (reduced from 0.5 percent)
• 5 percent on land for residential use (reduced from one percent)
• Two percent on land for commercial use (reduced from four percent)
• Unused or vacant land will be taxed at 0.5 percent and rates will double every three years but will not exceed a maximum level of two percent of the appraised value (the ceiling rate for unused land was previously set at four percent)

According to Rungson Sriworasat, Thailand’s Finance Permanent Secretary, the tax rate cuts are aimed at allaying taxpayers’ worries and the effective rates would be well below the maximum rates. The country’s Finance Minister, Sommai Phasee, has stated that the new regulations should result in the reduction of the gap between the ceiling and the effective tax rates, reducing it to three to four times rather than the original eight to ten times.

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Additionally, the government has clarified that tax rates will be based on the appraised value of the homes and land, these are as follows:

• Owners of homes and land with a value not exceeding one million baht after deducting depreciation will not be liable to pay the land and buildings tax
• Homes and land worth more than one million baht but not exceeding three million baht after depreciation will be charged at half the effective tax rates
• Homes and land valued above three million baht will be levied at the effective tax rates

Corporate Income Tax

In a recent decision, Thailand’s Joint Public-Private Consultative Committee will reform the tax structure for small and medium-sized enterprises (SMEs), which are currently taxed at a CIT rate of 20 percent. Thailand defines an SME as any business with an annual turnover of not more than THB200 million.

Corporate Income Tax (CIT) is a direct tax levied on a juristic company or partnership carrying on business in Thailand or not carrying on business in Thailand but deriving certain types of income from Thailand. In general, the CIT amount is based on the net income companies obtain while exercising their business activity during one business year.

The reduced taxes will be applied to businesses with lower profits; the rates will be as follows:

• A five percent rate on SMEs with a net annual profit of up to THB5 million (US$150,000)
• A 10 percent rate on SMEs with profits of up to THB10 million
• A 15 percent rate on SMEs with profits of up to THB20 million

Additionally, an in-principle agreement has been reached which will result in the Revenue Department dropping its retroactive audit for back taxes on SMEs who are registering for tax the first time – this should result in more SMEs registering and increasing the tax base for the Thai government.

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Thailand’s CIT rates have fluctuated over the previous years, with an average rate of 27 percent from 2006 until 2014. In 2007, rates reached their highest level – 30 percent; the lowest level was hit in 2013 – 20 percent. The current CIT rate in Thailand continues to be 20 percent.

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