Key takeaways
Registering a lease is not an ownership transfer, so its accounting and tax treatment must be kept separate from a freehold sale. Preparation should start 3–6 months ahead and cover accounting, tax, legal and cash.
Introduction
The transfer or registration of a long-term lease (leasehold) is the point at which accumulated costs, revenue, tax and obligations to the bank all converge. If preparation is incomplete, the developer may face cash flow disruption, tax risk or disputes arising from incomplete documents.
1. Accounting perspective
1.1 Revenue recognition differs between freehold and leasehold
The sale of freehold condominium units falls under TFRS 15. Revenue is generally recognised at the point when control passes to the buyer, which is usually the transfer registration date. The developer must consider the probability of collecting payment and any significant financing component where there is a significant period between receipt of cash and delivery.
Leasehold must start with TFRS 16: a developer acting as lessor must classify the contract as a finance lease or an operating lease according to its substance. For a finance lease, the selling profit is recognised under TFRS 16 at the lease commencement date. For an operating lease, rental income generally has to be recognised over the lease term. Receiving a single lump-sum lease premium on the registration date does not mean all of the revenue is recognised on that date. The auditor should be involved in settling the policy before the first transfer.
1.2 Transferring WIP costs to COGS (freehold)
Land and construction work in a project held for sale are included in inventory under TAS 2. When revenue is recognised, only the cost of the units transferred must be released.
| Dr. | Cr. |
|---|---|
| Cost of sales, per unit transferred | WIP – construction work |
| WIP – land, at allocated cost | |
| Selling expenses | Contract cost asset (commission), amortised under TFRS 15 |
The cost of a sales gallery or sales office is generally a selling expense, not a development cost, unless there is a specific accounting reason, which should be discussed with the auditor.
There are two common allocation methods. The chosen method should be stated in the policy and applied consistently.
% NLA
Uses net saleable area as the base; suitable when units are similar.
Relative Selling Price
Uses selling price as the base; suitable when sizes or premiums differ widely.
COGS per unit = total allocable cost × (unit saleable area ÷ total project saleable area)
1.3 Input VAT in WIP
The sale of condominium units, being real estate, is outside the VAT system. Input VAT relating to this business generally cannot be credited and is included in cost. If a project has both VAT-registered activities and activities outside the VAT system, input VAT must be separated or apportioned by the correct method, so that creditable input VAT does not remain in WIP and costs are not duplicated.
2. Tax perspective
2.1 Taxes and fees
| Item | Freehold | Leasehold (lease registration) |
|---|---|---|
| SBT | 3.3% of the selling price or appraised value, whichever is higher, paid at registration. | Granting a lease is in principle not a sale under Section 91/2(6). Check that the substance of the transaction is genuinely a lease. |
| VAT | The sale of real estate is outside VAT. Separate goods or services must be assessed item by item. | The leasing of real estate is exempt under Section 81(1)(ta). Separate service charges may be subject to VAT. |
| Government fees | Normal transfer fee of 2% of the appraised value (temporary measures apply to qualifying transactions). | Lease registration is generally 1% of total rent over the lease term, plus stamp duty of 0.1%. Check the rates with the land office. |
| WHT | Corporate seller: 1% at registration, creditable against CIT. | Check by payer and recipient. Rent paid by a juristic person generally requires WHT. |
The lease premium, service charges and common area fees should be separated in the contract according to their actual substance. Splitting them in a way that is inconsistent with the facts in order to reduce the tax base carries risk.
2.2 Corporate income tax
The standard Thai CIT rate is 20%. Revenue and costs must be consistent for tax purposes. Depreciation included in WIP affects profit only when it is transferred to COGS. For leasehold with advance receipts, check the accrual basis and the tax method for recognising rent case by case.
2.3 Timing differences from commission
In the accounts, commission may be a contract cost asset amortised in line with delivery. If it is deductible earlier for tax purposes, a temporary difference and a deferred tax liability arise. Confirm the tax basis of that expense with an adviser before recording it.
Example: Commission of THB 50 million has been deducted for tax but not yet amortised in the accounts. Deferred tax liability = 50 × 20% = THB 10 million.
3. Legal perspective
| Issue | General principles |
|---|---|
| Lease term | Section 540 of the Civil and Commercial Code prohibits leasing immovable property for more than 30 years; a lease may be renewed for no more than 30 years from the renewal date. The proposal to extend this to 99 years is not law in force as at the review date. |
| Registration | Under Section 538, a lease of more than 3 years must be in writing and registered; otherwise it is enforceable for only 3 years. |
| Renewal | A promise to renew does not automatically create a real right, and Supreme Court Judgment No. 4655/2023 confirms the strictness of Section 540 where a contract is structured to circumvent the 30-year limit. |
| Change of owner | Under Section 569, the transferee takes over the rights and obligations under the existing lease, but other side agreements may not bind the new owner. |
| Subleasing and assignment of rights | Check the contract and consents, and register as required by law. |
| Reversion | When the lease ends, the right of possession reverts to the owner of the title in accordance with the contract and the law. |
Documents to prepare
Developer or lessor side
- Title deed or condominium unit ownership certificate, free of encumbrances or with the mortgagee's consent
- Construction documents (Or.1 and Or.6) and an EIA where the project meets the criteria
- For freehold, the condominium registration documents and juristic person documents; for leasehold, the final draft lease agreement
- Saleable area plan and defect inspection results
Finance and accounting side
- Reconcile booking deposits and instalment payments for each buyer to the GL
- Calculate COGS per unit from the WIP system
- Check the SBT base and fees against the latest appraised value
- Prepare the deferred tax schedule and the WHT register
- Prepare tax invoices only for items of goods or services within the VAT system
4. Financial perspective
Taxes and fees must be paid in cash on the transfer day, while most of the proceeds may sit in a controlled account or have to be allocated to release the mortgage. Preparation should therefore include the following:
- Prepare a closing cash flow forecast covering SBT, fees, WHT and CIT
- Coordinate with the bank on a partial release at least 30 days in advance
- Check the conditions for releasing funds from the controlled account or escrow (if any)
- Assess financial covenants such as DSCR and debt-to-equity
- Set aside a working capital reserve, for example 1.5 times the transfer-day tax burden, as an internal guideline rather than a legal requirement
5. Conclusion
Preparation should start at least 3–6 months before the transfer day, with a cross-functional closing team drawn from accounting, tax, legal, engineering and sales so that documents, revenue, costs and tax are consistent. The details of the law and accounting standards depend on the facts, and readers should seek advice from an adviser for their own case.