Land Can Now Be Transferred to a Company Tax-Free

The Bangkok skyline in 2013.

If you own land and wish to transfer it to a company to pay for your shares in that company, you now do not have to pay personal income tax on the price of land received, according to a set of new laws – the latest of which was issued earlier this month.

The government enacted into law the Notification of the Director General of Revenue No. 5 on June 5, five months after passing Royal Decree No. 630 on Jan. 26 under the Revenue Code. Such a move was designed to exempt from paying income tax, special business tax and stamp duties those people who received income through the transfer of land and buildings to new companies with the intention of holding ordinary shares.

Wirot Poonsuwan

The land transfer will be exempt from income tax only when it meets conditions laid down in the Notification of the Director General of Revenue No. 4, signed into law on March 20, including the conditions that require the transfer of land to be made at market price, the transferring individual to hold a number of shares in the new company with value no less than the value of the land, and the individual not to subsequently sell the shares at a lower price than their book value.

The individual and the issuing company must also jointly certify the transfer of land as a registered share capital of the company before sending the certificates to both the local land registrar and the Director General of Revenue.


The state grants other privileges to encourage conversion of land into capital. A reduction of the land transfer fee from 2 percent to 0.01 percent of the appraisal value of the land (calculated on the appraisal value even though the transfer is made on market value) and an exemption of the 3.3 percent special business tax on the higher of the appraisal value. It also grants an exemption of the 0.5 percent stamp duty, calculated on the appraisal value or the sale and purchase price, whichever is higher.

Small-sized companies with paid-up capital not exceeding 5 million baht whose revenues from selling goods and services do not top 30 million baht in an accounting year and are registered as companies between Aug. 10, 2016 and this coming Dec. 31, will be given an additional tax break equal to 100 percent of their expenses.

This applies to set up the company and their accounting and auditing expenditure in addition to the regular full deduction of these expenses in the calculation of their taxable net income. In effect their tax cut amounts to 200 percent of the set up, accounting and auditing outlay – and this tax generosity runs for five financial years of the company consecutively.

Up to this point, you might start to wonder why the government is, all of a sudden, being so generous with these tax perks – the answer lies in its intention to urge individual taxpayers to carry on their businesses officially and systematically in the form of companies, to move from grey areas out to the open, improve transparency and boost the monitoring ability of the Revenue Department, which will all make for an increased tax collection.

Simultaneously, there has been an effort by the government to amend Section 49 bis of the Revenue Code, which stipulates that, however high the actual sale and purchase price of land is, the personal income tax of the seller will always be based on the appraisal value of the land, often substantially lower than the sale and purchase price.

A new Section 49 bis will likely switch from the appraisal value to an actual sale and purchase price as the base for calculating the income tax; there is a high degree of certainty this new law will soon be passed, even when no specific date has been forecast.

The prospect of this new law has created an opportunity for individuals, who own vast parcels of land with the intention to further sell them for a profit, to map out their tax planning by transferring land to companies, with the ultimate aim of minimizing the company’s income tax liability when the legal entity further sells the land for a profit. Tax privileges envisaged by Royal Decree No. 630 and the individual’s ability to transfer their land to the company at market price under the Notification of the Director General of Revenue No. 4 have been fully invoked.

Suppose the appraisal value of land fixed by the Treasury Department is 10,000 baht per square wa, it is not a strange phenomenon that market price of the land could triple that to 30,000 baht. After the land is transferred to the company at the market price of 30,000 baht, considered a high cost of land acquisition, the company further sells the land at an actual sale and purchase price of 35,000 baht, as the existing law requires a legal entity to do so.

The high cost leads to a low profit of 5,000 baht, which in turn is subject to less tax. Compared to another individual who did not embark on tax planning and did not transfer land to a company, his direct sale to a buyer at the actual sale and purchase price under the new Section 49 bis would be subject to personal income tax on the full basis of 35,000 baht. The tax planning thus spares the smart guy from a substantial amount of income tax at the expense of the state.

For credibility of the market value, at which a transfer of land is to be made pursuant to the Notification of the Director General of Revenue No. 4, an independent appraisal company approved by the Office of the Securities and Exchange Commission is sometimes engaged to carry out the appraisal work and determine market value.

Roughly speaking, when you apply for a credit at a commercial bank and offer land as security, the bank would fix the market value at about two times the appraisal value: the appraisal value of 10,000 baht per square wa would carry a market value of 20,000 baht at the bank. It is quite common for the non-bank private sector to fix the market value for a piece of land at three times its appraisal value at 30,000 baht or more. The appraisal company might give more or less, depending on several factors.

Tax authorities moved to counter the tide of the tax planning scheme: shorter than three months after the Revenue Department issued the Notification No. 4, it promulgated Notification No.5 on June 5 to abolish market value, at which a person must transfer land to a newly established company under the Notification No. 4. The new regulation instead requires the higher of the appraisal value or the cost of the individual acquiring the land, each naturally lower than the market price, to become the transfer price.


By way of illustration, for a plot of land with the appraisal value of 10,000 baht per square wa, the individual could have first acquired it for 15,000 baht – this cost of land acquisition must be used as the price, at which the individual transfers the land to the new company and turns it into the value of his stock and the cost of land acquisition by the firm. It is far lower than the market value of 30,000 baht, which is no longer relevant. When the company further sells the land at 35,000 baht, the low cost generates a higher profit of 20,000 baht to be used as the new basis of its corporate income tax under Notification No. 5, replacing the low 5,000 profit tax base in Notification No. 4. – the loopholes have been closed.

In actual fact, if we discard the complications and the cat-and-mouse game of tax planning in regard to individuals arranging to sell land going forward, the Royal Decree No. 630 is a good piece of regulation helping to ease small-sized entrepreneurs to start up a company with little cash upfront by converting dormant unproductive land into capital without any income tax burden. Those who wish to enjoy the privileges offered by this law need to hurry – the clock is ticking. New companies must be registered and land must be transferred to the company at the higher appraisal value or the original cost of acquisition no later than Dec. 31.

Wirot Poonsuwan is a practicing attorney and can be reached at [email protected]