Hughes Krupica: Yes or No? Short-term villa rental is commercial use

Moreover, as many often liked to point out, the Hotel Act and related ministerial regulations create an exception to the general rule under the Hotel Act that a property owner engaging in short-term commercial rentals of less than 30 days stays must obtain a hotel license if, and only if:

1. The total premises have no more than four rooms to accommodate commercial rental guests.
2. The total premises cannot accommodate more than 20 guests at a specified time.
3. The commercial rentals to guests of the premises count as an additional source of income only, and
4. In addition, as required by several local administrative agencies, the owner reported to the relevant local government agency that they would be operating their premises within the exception above.

So, knowing the above, the villa owner argument had been stated something along the line of this: “I own my villa building and the use of it is separate from the terms of the lease, and I am allowed to commercially rent my villa building for less than 30 days stays because my villa building has four or less rooms, cannot hold 20 or more guests at a specified time and the rentals are not my primary source of income, and therefore I do not need any license and I can do whatever I want with the villa notwithstanding these rules.”

Such a view, however, is probably incorrect, especially in the case of the following circumstances:

1. The villa building is part of a greater residential project with several other villa buildings, with a single Thai landowner leasing the land to the to the villa owners under the terms of a residential lease.
2. The villa buildings (and any other buildings) in said project were constructed, permitted to be constructed and “zoned” as residential use as stated on the construction permissions and development submissions to the local agency holding authority to deal with buildings (the Or Bor Tor).
3. The terms of the lease specify that the land plot may only be used for residential purposes.
4. The project land-owner is a company and the owner of the building (i.e. the lessee) is a company (either foreign or domestic), and
5. The short-term rentals are less than 30 days, commercial in nature, and can be made by the public.

Point 4 is a particularly exacerbating circumstance because of how the revenue department of Thailand views corporate entities. In some jurisdictions, it is quite normal for an entity to hold property interests only for residential purposes without having the taxing authority necessarily think that the property must be used for some commercial use. However, in Thailand, corporate entities are implicitly thought of as revenue driven legal entities, and therefore it can easily be considered that any person who holds a property in a juristic entity, whether it be foreign or domestic, is holding that property for the purpose of driving commercial revenues.

Accordingly, we caution that if your villa ownerships satisfy most of the above circumstances, you should very closely consider and seek professional advice as to whether or not a license is required. At a very minimum, if you are holding a property in an entity, such as an offshore company, you might very seriously consider whether or not you are engaging in commercial activity by advertising your villa to the public, on popular booking sources, and are receiving taxable rental income into your company.

In such case, a simple test is to ask yourself: would such activity be required to be reported to the taxing authority in my home jurisdiction? If the answer to that question is likely to be yes, then it is likely required to be reported to the taxing authority here in Thailand as well, by the leasing / building owning foreign entity, and not the beneficial owner, because such activity is defined as a commercial use in Thailand.

By Robert Krupica, Senior Partner of Hughes Krupica.
Hughes Krupica is a law firm which specialises in Real Estate; Construction; Hospitality; Corporate; Commercial; Personal Injury; Dispute Resolution; and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia.