Local authorities are empowered under two laws to regulate and tax you in such cases: 1) the Hotel Act; and 2) the House and Land Tax Act.
The Hotel Act (2008) requires any place that provides accommodation for less than a period of one month in exchange for payment is defined as a “Hotel”, regulated by the Hotel Act, and requires a hotel license.
There is a limited exception to this. A license is not required if:
1) the said place has less than five rooms; and
2) cannot accommodate over 20 guests at a time; and
3) the income being earned for such is merely “additional income”.
However, even in this case the owner must report such accommodation activity to the relevant local authorities.
Anyone who operates a “Hotel” without a license is liable to:
a) a fine of up to B20,000; plus
b) a fine of up to B10,000 per day of such illicit operation; and
c) imprisonment of up to one year (in the case of a company, the person subject to such imprisonment would be the director).
If you or your company own a condominium unit or villa here in Thailand that was used – even if only for one day – by someone other than its legal owner with or without you having received rental income, then you or your company have incurred liability under the House and Land Tax Act (1932) (HLT).
The HLT tax is imposed on the owner of such structures if they receive, or should have received, rental income. And the HTL tax is one of the few taxes that localities, rather than the national revenue authorities, are empowered to collect.
However, and very importantly, “houses or other structures inhabited by the owners thereof…” are exempt from the HLT tax applies to
The amount of HLT tax is 12.5% of an amount equal to the annual “rental value.” It is calculated based on the total annual rental value of the foregoing year. The annual “rental value” is defined as the “sum for which the property might reasonably be expected to let from year to year. When there is a lease, the rent is the basis of the annual value…”
Thus, if you allow an acquaintance to stay in your villa or condominium without you for a few days, the authorities have the discretion to determine that you did, or should have, charged rent. They may then charge you an amount equivalent to 12.5% of total amount of money that they think you did, or could have, earned by renting it during the entire preceding year.
To make this clear, if your property is subject to assessable rental income for even one day, then the HLT tax payable is 12.5% of the total rental value for the entire year.
Any owner of property subject to HLT tax is required to submit their official declaration of the annual rental value of the property for the foregoing year within 30 days after having received notice from the relevant authorities (or within the time frame outlined in the same notification).
The relevant local authorities may then use this information to determine the annual rental value of the property and the amount of tax to be paid.
However, if the local authorities do not agree with the rental value figures submitted, or if no figures are submitted, they are empowered to assess and assign the rental value themselves.
Such assessment may be appealed if the owner submitted their official declaration. But not doing so means the right to appeal the assessment is waived.
Failure to file the official declaration or providing false information, or doing so in order to evade the proper calculation of the annual value, is punishable by fines, imprisonment, or both.
Liability when using a company
There are exemptions from the tax under the HLT. The most common is found under Section 10 and is applicable if the houses or condo is inhabited by either:
a) an agent (of the company) to protect the place; or
b) the owners thereof.
One might presume that one or both of these exemptions apply where the director of the company is the one staying in the house or condo. After all, isn’t it the director of a company legally obliged to protect the company’s property?
Unfortunately, the Supreme Court in 2006 did not concur with this reasoning (ruling 1410/2549). Instead, the Supreme Court held that an “agent to protect the place” requires that the agent be actually assigned to protect the building and not just allowed to live there. Thus, according to the Supreme Court a company owning a structure and having its legal representative residing in the building for dwelling purposes is not eligible to that part of the Section 10 exemption.
Alternatively, one might presume that the other Section 10 exemption should apply to a company’s director. After all, isn’t the director basically the company itself with regard to interacting with third parties. Isn’t the director staying in the building owned by the company the same thing as the owner of the building staying there itself?
Again, unfortunately, the Supreme Court in 2007 said “no” (ruling 689/2550). The Supreme Court reasoned that a company can use a structure it owns as a registered address or in the course of its business and therefore it does not need its director to stay there.
Moreover, said the Court, since the director is a distinct legal entity from the company, the director living in the building is not the same as the company living in the building. Therefore, the “owner” exemption provided under Section 10 of the HLT also does not apply to such a case.
Thus, if any company – whether Thai or offshore – owns a house or condo in Thailand and someone, including the director, stays there even for one day, that company will be liable to pay HLT tax.
In closing, it should also be noted that the HLT tax is not the only tax applicable to such use of a building owned by a company. Rental income tax is also payable and assessable by the Revenue Department under the Revenue Code.
DUENSING KIPPEN is an international law firm specialising in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand, and affiliated offices in 45 other countries. Visit them at: duensingkippen.com