8 Significant Expenses Related to a Factory and Warehouse Rental in Thailand

Renting a factory or a warehouse when you establish your company in a new country is a vital step in your business expansion. We hope our article can provide essential insights for many entrepreneurs who are looking to rent a factory or a warehouse and looking for factories for rent or a business person who wishes to expand your operation in Thailand.

When renting Thailand's factory or warehouse, you are confined to various associated costs. We hope our article can help you best evaluate the multiple offered rental properties and select the most suitable one for your successful business. Also, this article will help you fully understand the underlying costs related to renting in Thailand. For example, you are wondering what the associated costs of renting a factory or a warehouse are. What other factors I have to consider besides the rent. Are there additional charges or surcharges? Our article will help you assess the different properties. Ultimately, we hope our article can help you answer whether it is a worthwhile investment or not.

In this article, we illustrate the eight principal costs associated with renting a factory or renting a warehouse in Thailand.

However, before we present these costs, we wish to briefly outline the benefits of renting a factory or a warehouse. One central benefit is renting can significantly reduce the investment cost for the entrepreneurs as well as for established business owners. Since the construction cost combined with the land acquisition expenses are much higher than the rental prices, the rent option can help alleviate your capital structure. You can focus your investment capitals on operation and productivity. Therefore, renting enables business owners to require much less money to start your business in Thailand.

Another critical benefit of the rent option is you can enjoy the freedom to move, relocate, expand your operation easily and swiftly. Business people can quickly set up and run their factories or close down your plants if the conditions are not as expected.

Also, renting a factory or a warehouse can help you save many underlying expenses, such as maintenance fees, security fees, and property insurances. You can explore the benefits of renting by reading our article: 8 Advantages of Renting a Factory or a Warehouse.

8 Significant Expenses Related to a Factory and Warehouse Rental in Thailand

1. Rent 

The main cost of renting a factory or a warehouse, clearly, the rent. Industrial estates and real estate companies typically owned Thailand's factory and warehouse rentals. The landlords would quote the rental price by the number of square meters per month. Thus, the total cost would depend upon the size as well as the conditions of the property. In general, the rent does not include taxes, service charges, water fees, and other various service agreements.

The rental amount is the essential cost of renting a factory or a warehouse, and you should thoroughly evaluate this cost when selecting a property. We recommend that you should do your homework first by answering these critical questions. You should investigate the average factory or warehouse rental price in the area. Usually, the rental amount of factories and warehouses will vary depending on the location, the building age, additional functions, specifications, and the availability of utilities. These factors constitute the appropriateness of rental costs.

2. Deposit

Usually, a rental contract for a factory or a warehouse requires the deposit in terms of the monthly rent. The deposit can range from two to four months of the monthly rent, and the number of months would depend on the agreement between the landlord and the lessee. At the end of the contract term, the landlord would return this rental deposit to the lessee.

The deposit amount would depend on the negotiation between the parties. Therefore, we suggest that if you find a desired rental property, you should negotiate the deposit payment to be in a plausible agreeable term. The deposit amount should be satisfactory to both parties.

3. Advance payment

Another related expense that a tenant may encounter when renting a factory or a warehouse in Thailand is the advance payment. Typically, there are two types of advance rental payments, either the first month of the lease agreement or the last month of the rent. In both cases, the sum should constitute not more than one or two months of rent.

Therefore, you have to ensure that the landlord does not overcharge you for this payment. When you find the amount is abnormally high, you should negotiate with the owner accordingly. This payment should not freeze your capital allocation in such a way that impairs your business operations.

4. Tax

- Withholding tax deducted at source

This tax requires the lessee the responsibility to process the withholding and provide the withholding tax certificate to the lessor. The tenant has to handle this procedure every time she makes the payment (in Thailand, the rate is 5% of the rental amount). Afterward, within seven days in the following month, she has the responsibility to submit the withheld tax to the relevant revenue office.

Moreover, when your landlord charges you for other fees, such as common fees, service fees, and maintenance fees, you have to deduct three percent, which is a different rate from the rent.

- Value Added Tax (VAT)

In Thailand, when you rent a real estate property, either office rentals, warehouse rentals, factory rentals, or residential properties, you do not have the add the VAT. However, when the owner-whose annual income is over 1.8 million Baht- adds other related fees, such as common fees, service fees, and maintenance fees, you have to supplement the VAT to these fees. Currently, Thailand's VAT rate is 7 percent.

- Stamp duty

When you finalize your decision on the selected rental factory or warehouse and sign the lease contract, either you or the owner has to pay for the stamp duty to complete the process legally. In any circumstances, the stamp duty rate is at the rate of 0.1 percent of the entire rental contract. As for who is responsible for this payment would depend on the agreement between the tenant and the landlord.

- Property Taxes on Land and Buildings

Recently, the Thai government has introduced a new tax- Property Tax for Land and Buildings. This new decree has just started in 2020. In the first two years after its introductions (2020-2021), either you or the owner has to pay for this property tax for land and property uses.

For warehousing and manufacturing purposes, the government would charge the rate based on commercial uses, at the following rates:

For value under 50 million baht, the tax rate is 0.3%.

For a property with a value between 50-200 million baht, the rate is 0.4%.

For a property with a value between 200-1,000 million baht, the rate is 0.5%.

For a property with a value between 1,000-5,000 million baht, the rate is 0.6%.

Finally, for a property with a value exceeding 5,000 million baht, the rate is 0.7%.

It is vital that business operators, who evaluate the different prospective factories and warehouses for rent, should thoroughly access this critical tax amount. Also, as for whom is responsible for this payment, you should explicitly discuss with the owner for this increased tax payment before finalizing your rental contract. If you wish to understand this recent property tax further, we have written a detailed article on this tax. Please follow the link to this article: Thailand's New Land and Property Tax.

Moreover, if you wish to learn how to calculate the various taxes related to factory and warehouse rentals, please follow our link here for this article: 4 Taxes Related to Factory and Warehouse Rental in Thailand.

5. Water and Electricity

Business people who rent a factory or a warehouse in Thailand have to pay for water and electricity charges following the units of water and electricity used. In Thailand, the unit rates of your utility consumption would differ depending on the industrial estate's prices or the project's policies. Some projects add surcharges to your utility consumptions, while others add no additional charge.

Therefore, it is critical that when you assess each rental property, you add the utility rates into your evaluation. Detailed analysis of your utility consumptions can help you select the most fitting rental factory or warehouse. Before finalizing your lease agreement, you should inquire about the water and electricity rates of the rental factory or warehouse to make an informed decision.

In our rental factory and warehouse projects, we do not add any extra to your usage charges. We use the same prices quoted by the Metropolitan Electric Authority (MEA) and the Metropolitan Waterworks Authority (MWA).

6. Service fees or common fees

When you pick a factory for rent or warehouse for rent located in one of Thailand's industrial estates or industrial parks, the landlord would typically accrue service fees or common fees in addition to your lease. These central fees help maintain the shared infrastructures and facilities of the industrial parks. The project would utilize this charge for the utilities, garbage disposal, road maintenance, security guards, and management of other shared facilities.

7. The maintenance fees

After completing your factory and warehouse rent and you wish to move out, you must prepare for another essential cost-renovation payment. In Thailand, before moving out, the lessee must pay for the cost of renovating the factory or warehouse so that it can return to its original state. You need to complete this process, and then the landlord to return your rental deposit. Therefore, you should allocate some capital to pay for this expense.

Another related expense is the repair cost. In Thailand, the party responsible for this cost would depend on the agreement. Landlords would have different conditions on repair expenses. Nevertheless, we suggest that you should plan for repair costs and carefully examine the lease contract before signing.

For our rental factories and warehouses, we provide free repair services to all of our tenants. We have a dedicated team who will help you sort out these problems.

8. Other expenses

Other expenses may include expenses distinctive to your operations, and you have to be responsible for these charges. Water treatments, your private security guards, taxes for your billboards and signs, machinery, and product insurances are some examples within this type of expense.

For property insurances, some landlords would pay for this charge themselves, while others would demand the tenents to pay for it. For our rental properties, we would pay for the property insurances ourselves.

In sum, we have illustrated the different payments associated with factory and warehouse rentals in Thailand. Business people should carefully evaluate these eight vital costs before deciding on a property. The conditions would differ depending on the landlords and your contract terms. Finally, we hope our article can help you thoroughly assess these factors so that you can enjoy a successful business operation in Thailand.

If you are interested in renting a high-quality factory or warehouses in Thailand, please feel free to contact us anytime. Our properties have complete functions, and they are in excellent locations. Plus, we support our customers with free repair services throughout the leases as well as a full range of customer support services. Our projects have high-security systems with 24-hour security guards, and CCTVs.

Sources:

https://www.cbre.co.th/th/guides/thailand-industrial-typical-terms

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