Taxation of Real Estate Agents

Real estate agents, when providing services to a seller in finding buyers and closing a transaction, receive remuneration in the form of a commission. This is income that will be taken into account when calculating corporate income tax at the end of the year, as well as when paying VAT for the reporting month (if the company is a VAT payer).

When concluding a contract, the buyer confirms their intention to purchase the property by paying a deposit. In case of refusal to proceed with the transaction, the deposit remains with the seller. If the seller refuses to proceed, the deposit is returned to the buyer (together with any penalties, if provided for in the contract).

Often, when a deposit is made, the parties involve a real estate agent to act as a kind of guarantor — the buyer transfers the deposit to the agent, and the agent either offsets it against the property price or, if the transaction does not take place, transfers the deposit to the innocent party.

It is important, before receiving funds into the agent’s account, to prepare the necessary documents that exclude the possibility of classifying the received amount as the agent’s income.

This helps avoid the forced VAT registration of the company (once turnover reaches 1.8 million baht, the company must apply for a VAT certificate within 30 days), or, if the company is already registered — paying VAT on the received deposit amount.

In addition, in the absence of documentary justification for receiving the deposit, this amount of funds (which in essence belong to third parties) will be included by the auditor in the company’s corporate income tax calculation at year-end.

Escrow services

An escrow account (conditional deposit account) is a temporary account held by a third party (an agent) for use in settlements between parties to a real estate purchase agreement.

After all contract conditions are fulfilled by the buyer and seller, the funds are disbursed from the escrow account in accordance with the agreement, and the account itself is closed.

According to the Escrow Account Act, only commercial banks and financial institutions may act as escrow agents.

Thus, services offered by law firms and real estate agencies — receiving money from a buyer and transferring it to the seller upon registration of the transaction with the Land Department — can only be referred to as “escrow services” conditionally. Escrow is strictly a financial service requiring an appropriate license.

The essence of agent or legal services is to simplify the settlement process between buyer and seller and to provide credit advice to the buyer when transferring funds from abroad.

To avoid exceeding permitted business activities and to eliminate taxation risks on funds that do not belong to the agent, the agent should consider the following:

Do not use the term “escrow” when communicating with clients to avoid misleading them about the nature of the services provided.
Exclude the terms “escrow”, “financial services”, and other terminology that may imply you are providing licensed financial services from service agreements.
Clearly specify the exact list of actions performed by the agent.
Clearly specify the amount received from the buyer and how and when the buyer intends to use it.
Specify the agent’s remuneration — which will constitute the actual income of the agent.

Services similar to escrow require strict accounting — down to the last satang. Your accountant must have documents clearly distinguishing your income from funds belonging to the buyer and seller.

If you have doubts, it is better to consult a lawyer — at least for drafting the service agreement or for providing the service itself and transferring responsibility to the lawyer.

Taxes when working with a property developer

The agent’s commission when working with a developer is always included in the company’s income. If the company is a VAT payer, 7% of the received amount must be paid by the 15th of the following month.

Important: VAT must be shown separately from the base service fee. For example, agent commission is 100,000 baht excluding VAT, VAT is 7,000 baht. Total is 107,000 baht. However, since this is a service transaction, the developer must deduct and remit a 3% withholding tax to the Revenue Department, calculated from the base amount and equal to 3,000 baht. Total payable: 100,000 + 7,000 − 3,000 = 104,000 baht.

All taxes must be correctly reflected in the invoice, and this is the agent’s responsibility.

However, in most cases developers are not willing to pay VAT on behalf of the agent. Developers are not VAT payers, so they have no input tax credit system, and paid VAT is not refundable.

Developers protect their interests by including VAT in the commission amount, which in contracts may appear as: “agent commission is 5%, including VAT” or “commission is 100,000 baht including VAT” or “commission is 93,460 baht plus VAT of 6,540 baht”.

Given that a real estate agent’s main expenses — office rent, salaries, staff bonuses — do not include VAT, VAT recovery is also highly questionable. Therefore, the most advantageous option is to remain a non-VAT payer.