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The Effect of Koh Samui City Status on Property Ownership

At the beginning of 2012 Koh Samui Island was given city status by the central Thailand government. This will have some lasting effects on the island’s ability to raise and benefit from its new found freedom from the provincial center in Surat Thani. What it indeed means is that any local taxes collected from business on the island will now wholly benefit the island, meaning a much better opportunity for island funding of development projects and infrastructure.

The impact of this change will filter through to many businesses and also expatriates with second homes. There will no doubt be more focus from the local tax and government on the island to collect taxes, which will now directly benefit the well being of the local economic area. Whereas before, taxes generated were mostly controlled by the provincial offices in Surat Thani, this move to city status will increase motivation of tax collectors to review and improve their collection systems.

In terms of the impact on second home / vacation home owners on Koh Samui, one must now be more aware of the taxes which are applicable to home ownership on the island. There are two forms of taxes that are most obviously collectable from income generated from renting out property. The first is the corporate income tax on rental income, which is calculated on the taxable profits of your land and property owning company.

The second of these is tax is defined as structural Usage Tax, or House Tax which is calculated at the rate of 12.5% on the yearly rental income. The sum collected is either declared on the lease agreement value, or alternatively on the annual assessed value by the local Samui land department, whichever is higher.

In order for the second tax to apply, the property must not be the primary residence of the owner. So it is certain to apply to second homes or vacation homes of expatriates. In the case where a company owns the property, Structural Usage Tax must be paid by the company irrespective of whether rent is paid or income is received by the company. So then this tax applies to all cases where a company is set up to own land and house. Of course what this means is that any property owner that has been fortunate enough not to pay this tax in the past, is actually liable to pay from the date the house was completed. Although it is likely that the tax would be collected on the current year assessment only, this is only a reasonable assumption and not known with certainty. The government could technically recover on prior year unpaid amounts.

The implications for property ownership due to Koh Samui’s new City status are positive for the property market of Koh Samui. One should also prepare to have to pay this tax when it falls due. The benefits should accrue in better refuse and other local government service provision. It must also be remembered that compared to tax measures in other parts of the world, that these are relatively small. Contributions to government and local community are to be welcomed.