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If you’re buying property in a foreign country as an investment, that is, to sell the property after some time to make profits, make sure you have a good knowledge about the Capital Gains Tax rate.
Capital Gains Tax, or CGT as it’s sometimes called, sometimes comes as a surprise to sellers, when they try to sell for profit. Unaware of the tax at the time of buying, some people don’t include it in their calculations.
So: it’s important to learn about CGT in advance, before buying property, especially if you buy (investment property) to get a high price appreciation.
Learning about CGT helps you to make a more accurate calculation of the profit you can make in the next few years.
In this article, I have provided more in-depth information about CGT, what it is, how it’s calculated and local regulations and rates.
What is Capital Gains Tax?
Capital Gains Tax is collected by governments and deducted from the profits (capital gains) you earn when selling an asset, most commonly property, that has increased in value.
An important distinction, worth mentioning again: the tax is applied on the price appreciation, not the actual sales value.
For example, if you have bought a property for USD 250,000 and sold it for USD 350,000, the tax will be calculated on the profit you make – that is USD 100,000.
In some countries, like Canada, the tax is applied to 50% of the total gain.
In most countries, the rate of tax is based on the holding time, the time period you’ve owned the country. Normally, if you own the property for a shorter time (in Hong Kong and Singapore it’s 5 years), you’ll be subject to a (often significantly) higher CGT.
Capital Gains Tax is usually highest in the EU countries and lowest in African and Asian countries, including countries like Singapore, Vietnam and Hong Kong.
When do I need to pay capital gains tax?
As explained, you pay the CGT when you sell the property.
You have to pay the tax immediately after you sell the property, after making deductions from relative expenses, if applicable.
Normally, your Solicitor can help you to do this.
In countries where there are thresholds, different rates for different holding times, calculating CGT can be a bit tricky.
Do your research throroughly and seek help when needed.
Working with a Solicitor or Conveyancer can make things easier.
Do I have to pay capital gains tax when I buy property?
You don’t have to pay Capital Gains Tax when buying a property.
At the time you purchase property, a transfer fee or stamp duty is normally applied instead.
Where do I pay capital gains tax?
There are countries that tax their citizens on income or profit made in any part of the world.
For example, if you are a UK citizen, you have to pay the tax on your income (profit) made in Australia, along with paying a CGT in Australia.
To avoid this, you can take advantage of dual taxation treaties. You have to make sure that the country you are buying property in has a dual taxation treaty with your country to avoid dual taxations.
Capital gains tax in the Asia Pacific region
Capital Gains Taxes ranges from 0% to 43% in the Asia Pacific region. Similarly, there is a huge variation in regulations, rates and thresholds.
Below, I’ve included different tax rates for the most popular countries in the Asia pacific region
In Thailand, the capital gains tax rate is same as the income tax. This means, the capital gain you make from selling a property in Thailand is considered your income, on which the regular income tax rate is applied.
The rate can be added to the aggregate income or taxed separately.
If you’re a foreign seller, the income will mostly be taxed separately where the rates are computed differently, up to 20%, while the normal income tax is up to 35%.
You can also make deductions on the income or capital gain made by selling a property in Thailand, based on the time you’ve owned the property. The time is commonly known as “holding time”.
For example, for a holding period of 1 year, the taxable profit amount is 92%. If the property is hold for 8 years or more, you only need to pay tax on 50% of the profit.
So the longer you own the property, the lesser the taxable profit.
Malaysia abolished its capital gains tax in 2007, but after two years, it was reintroduced with a new name.
Capital Gains Tax is now known as Real Property Gains Tax (RPGT). The tax rate is based on the holding period. Following are the RPGT rates applicable for foreign buyers:
Ownership period up to 5 years → Tax rate is 30%
Ownership period of over 5 years → Tax rate is 5%
So, if you’re buying property in Malaysia, you can save 25% of tax if you hold the property for at least 5 years.
In Cambodia, you have to pay a capital gains tax of 20%.
With an introduction of new tax reforms to make Vietnam more tax friendly for foreign investment, Vietnam has one of the lowest rates for Capital Gains Tax in the region.
The flat rate of Capital Gains Tax for foreign buyers is only 0.15%.
Taxes are normally higher in Australia if compared to other Asian Pacific countries and CGT is no different. The CGT is included in the marginal rate of tax for non-citizens which is 46.5%.
For those properties that were owned before May 2012, the foreign buyers had an opportunity to save up to 50% if the property was owned for more than 12 months.
But after 2012, the discount is only available for residents and non-residents or foreign buyers have to pay tax on 100% profit.
New Zealand is one of the most tax-friendly countries for investors looking to invest money in real estate. There are almost no taxes involved like stamp duty on buying and selling a property.
Same is the case with CGT as there is no tax on any gains you make by selling your property.
Hong Kong is popular among foreign and mainland investors, one reason is that taxes are generally low (except for stamp duties).
Hong Kong is famously known (together with Singapore) for not applying any capital gains tax, in case you hold a property long term (at least 5 years).
Corporate taxes are generally low in Singapore, also, there is no Capital Gains Tax in Singapore if you buy and hold.
If you have an obvious profit incentive, you can be subject to the capital gains tax.
Capital gains tax in the United Kingdom
Non-residents are subject to a high CGT in the UK, compared to other countries: the flat rate is 28%.
However, UK also has a threshold system, called “Tax Free Allowance”. Simply, this means you don’t have to pay CGT up to a certain amount. The amount is GBP 11,100, so you don’t need to pay any CGT below this amount earned.
Capital gains tax in the United States
In the United States, foreigners have to pay 15% as Capital Gains Tax on the property. But the rate of Capital Tax Gains also depends on the state.
You may have to pay Capital Gains Tax on federal, state, and even city level that often adds up to 50% – 60%. For example, in New York you have to pay 31.4% capital Gains Tax. Similarly, Capital Gains Tax in California is 33%.
Capital gains tax in Canada
Even if tax rates are higher in Canada, only 50% of the total gains is subject to CGT.
The income tax, or marginal tax rates, are applied on profits. The rate of the marginal tax differs between states like in Ontario, where you have to pay 43% marginal tax of 50% of the profit.
In addition, there are also other deductibles that can be made for maintenance and repairs.
Capital gains tax will be one of the highest (if not the highest) tax you pay when buying property.
You can avoid CGT by buying and selling properties in countries like Hong Kong, Singapore. In Vietnam, the rate is only 0.10%.
In some countries, like Thailand, you can reduce the CGT by owning the property for a longer time. In most cases, the longer you keep it, the lower the rate.
Capital Gains Tax can significantly affect the profits you make from selling a property.
It’s important that you learn about Capital Gains Tax, its rates and thresholds, before investing overseas.