Tax mechanics and revenue recognition on the ownership transfer day

Why transfer day is the turning point

A condominium developer incurs costs years before it recognises revenue. Before transfer day, land costs, construction costs, design fees, permit fees, interest during construction that qualifies under TAS 23 and common utility costs accumulate in inventory or WIP under TAS 2. The company cannot yet recognise revenue, even though it has received booking deposits and down payments, because that money is a contract liability under TFRS 15.

When ownership transfer is registered, control of the condominium unit generally passes to the buyer. Five events therefore occur together: payment of taxes at the land office, revenue recognition, the transfer of WIP to COGS, the calculation of profit per unit, and the build-up of the year's CIT base.

Event 1: taxes and fees at the land office

Specific Business Tax (SBT) is 3% plus a 10% local tax on the SBT, a total of 3.3% of the revenue or the appraised value, whichever is higher. The seller files the return and pays at the time of registering the rights and juristic act. For a unit priced at THB 10 million, THB 330,000 of SBT must be prepared when the selling price is higher than the appraised value.

A corporate seller also has 1% withholding tax (WHT) deducted on the registration date. This is a tax credit for the company, not a cost. The transfer fee is normally 2% of the appraised value, and who bears it depends on the contract. If the sale falls within SBT, 0.5% stamp duty is not payable.

In the accounts, SBT is an expense directly related to the sale of that unit. This article shows it as an item below gross profit. Some companies include it in cost of sales. The key point is to use one method consistently so that margins can be compared across periods.

Event 2: revenue recognition under TFRS 15

TFRS 15 requires revenue to be recognised when control is transferred. For a typical condominium this is a single point in time, usually the transfer registration date, rather than percentage of completion as with construction contracts.

On transfer day, the company clears the booking deposit, contract deposit and down payment from liabilities and recognises revenue at the full selling price. The final instalment from the bank or the buyer arrives as cash on the same day.

Event 3: transferring WIP to COGS

Once revenue is recognised, the company transfers that unit's accumulated cost from WIP to COGS in the same period. Cost is generally allocated by saleable area: total cost divided by total saleable area, multiplied by the area of the unit transferred. If different unit types differ greatly in quality or view, the allocation may be weighted by relative sales value so that gross profit per unit reflects reality.

The accumulated costs comprise:

• Land cost, including fees and duties on purchase
• Construction cost under the EPC contract
• Design and consultancy fees
• Permit and EIA costs
• Interest on a qualifying asset under TAS 23
• Allocated common utility costs

When the project cost estimate is revised, adjust the cost rate per sq m for units not yet transferred, without restating units already transferred (prospective adjustment).

Event 4: profit per unit

Unit Profit = Revenue − COGS − SBT 3.3% − Commission

Commission that is an incremental cost to obtain a contract and is expected to be recovered is deferred and recognised as an expense on transfer day together with the revenue. Where the amortisation period is no more than 1 year, the company may choose to recognise it immediately under the practical expedient.

Event 5: CIT at 20% calculated annually

CIT is calculated on the net taxable profit for the whole year, not per unit. An ordinary limited company is subject to a 20% rate and has two payment deadlines.

• PND 51: filed within 2 months of the last day of the first 6 months. For a calendar-year period, this is by the end of August of that year. It estimates the full-year profit, and half of the calculated tax is paid after deducting the available credits.
• PND 50: filed within 150 days of the end of the accounting period. For a calendar-year period, this is around the end of May of the following year.

If the profit estimated in PND 51 is more than 25% below the actual net profit, a surcharge of 20% of the underpaid tax applies under Section 67 ter.

Because CIT falls due months after SBT, the company must set cash aside rather than reinvest the profit or overpay dividends, especially when the next project has not yet reached its transfer cycle.

For projects promoted by the BOI, tax privileges depend on the announcements and the promotion certificate. Check the latest conditions, and separate the accounts of promoted and non-promoted activities from the start.

The sequence of events for the sale of one unit

Practical recommendations

1. Prepare a unit-by-unit transfer schedule. State the expected transfer day, selling price, allocated cost, SBT and commission, so that CIT can be estimated at least 12 months ahead.
2. Set cash aside for tax as soon as revenue is recognised, at least equal to 20% of the profit per unit, after taking account of accumulated losses and WHT credits.
3. Separate the BOI and non-BOI accounts from the first month and allocate shared revenue, costs and expenses with supporting documents.
4. Check how commission is recorded. If the period from payment to transfer day exceeds 1 year but the commission is expensed immediately, profit before transfer will be understated and profit in the transfer period overstated.
5. Prepare an 18-month rolling cash flow forecast to see when each tax payment falls due and to avoid the situation of high profit but no cash.

Conclusion

Small errors on transfer day can distort the financial statements, produce incorrect tax and disrupt liquidity. A project accounting system that tracks revenue, costs and tax per unit is therefore the basic infrastructure of this business.