Is Leasehold Better Than Freehold?

Leasehold and freehold are two different ways of owning and using real estate in Thailand. Which option is better depends primarily on the buyer’s goals and specific circumstances.

Let’s look at several situations in which leasehold may have advantages over freehold.

Protection Against Certain Property Risks

Leasehold is a personal right that cannot be confiscated in the same way as real property. In the event of losing a civil lawsuit, the leasehold right is not put up for auction and cannot be seized as real estate owned by the debtor.

Freehold property, by contrast, may be subject to such risks.

Therefore, if your lifestyle or professional activities involve an increased risk of litigation, leasehold may, in certain situations, be a more suitable option.

If Owning Property Abroad Is Undesirable

Some countries require their citizens to report real estate acquired abroad. Other countries impose restrictions on the acquisition of foreign real estate for certain categories of citizens, such as government officials.

In addition, a person may simply prefer not to become the owner of real estate abroad because of potential future obligations or risks.

In such a situation, an alternative to purchasing property on a freehold basis may be a long-term lease, i.e. leasehold.

Obtaining a Visa Based on Property Ownership

Thailand has visa programs under which real estate may serve as a basis for obtaining a visa.

In particular:

10-year LTR — subject to meeting the investment requirements established by the program, including an investment in real estate worth at least USD 1 million, of which USD 500,000 must be invested in Thailand;
1-year investment visa — subject to meeting the requirement to invest at least THB 3 million in real estate.

Freehold

An apartment purchased on a freehold basis may serve as a basis for obtaining either of these visas, provided that all other requirements of the relevant program are met.

Leasehold

A leasehold interest in an apartment or land under a villa may serve as a basis for an LTR visa if the property and lease terms meet the program’s criteria.

At the same time, real estate is not the only possible basis for obtaining an LTR visa.

Resale: Taxes and Fees

One of the most common misconceptions is that when reselling a leasehold, the seller will pay less in taxes — only 1.1% instead of 6.3%.

In practice, the situation is more complicated.

Freehold

When selling real estate on the secondary market, the taxes and fees paid by the buyer and seller at the Land Department when registering the transaction include:

registration fee — 2%;
Specific Business Tax (SBT) — 3.3% or Stamp Duty — 0.5%;
seller’s tax, which is calculated taking into account the number of years the property has been owned and the applicable depreciation rate.

Once the transaction has been registered, the relevant taxes and fees withheld by the Land Department are final.

Leasehold

When registering the assignment of a leasehold at the Land Department, fees of 1.1% are payable.

At the same time, income tax on the seller’s leasehold income is not withheld at the time of registration. It is calculated and paid by the leasehold seller after the transaction has been registered.

The amount of tax depends on the income received and other circumstances of the transaction.

Therefore, it is incorrect to assume that an assignment of a leasehold always costs the seller only 1.1%.

The Tax Burden Must Be Calculated in Advance

When assigning a leasehold, the tax burden must be determined before the transaction is registered.

In practice, a situation may arise where the seller expects to pay only the 1.1% registration fee, but after the transaction is registered, receives a demand to pay a significant amount of tax.

For example, during one consultation, a client contacted us after completing a transaction worth approximately THB 10 million and received a demand to pay more than THB 1 million in tax.

Therefore, the tax consequences of a leasehold assignment should be calculated before the transaction takes place, not after it has been registered.

So, Is Leasehold Actually Better Than Freehold?

There is no definitive answer.

Freehold provides ownership of the property, while leasehold provides a long-term right to use the property under the terms of a lease agreement.

When choosing between these options, it is important to consider not only the price of the property, but also the purpose of the purchase, potential property-related risks, visa objectives, the rules of the buyer’s country of citizenship, and the tax consequences of a subsequent sale or assignment of the leasehold right.

Therefore, leasehold may be a more suitable option for some buyers, while for others, the advantages of freehold will be significantly more important.