Mergers and Acquisitions in Thailand

Mergers and Acquisitions in Thailand. Mergers and acquisitions (M&A) play a significant role in Thailand’s evolving corporate landscape. Driven by economic liberalization, foreign investment, and regional integration within ASEAN, M&A transactions offer strategic avenues for market entry, expansion, or restructuring. While opportunities abound, Thailand’s legal and regulatory framework demands careful navigation. This article provides an in-depth overview of the M&A environment in Thailand, including legal structures, approval processes, foreign ownership limits, tax implications, and key risk areas.

1. Legal and Regulatory Framework

M&A transactions in Thailand are primarily governed by:

Civil and Commercial Code (CCC) — Governs company law and contractual principles
Public Limited Company Act B.E. 2535 (1992) — Applies to mergers involving public companies
Foreign Business Act B.E. 2542 (1999) — Restricts foreign ownership in specific business categories
Trade Competition Act B.E. 2560 (2017) — Regulates anti-competitive behavior and notifiable M&A thresholds
Securities and Exchange Act B.E. 2535 (1992) — Oversees listed companies and tender offers
Bank of Thailand (BOT) and other sector-specific regulators — For finance, telecom, insurance, and other regulated sectors

Depending on the type of company, the transaction structure, and the parties involved, various approvals and filings may be required from governmental agencies such as the Department of Business Development (DBD) and the Trade Competition Commission (TCC).

2. Common M&A Structures

There are three main types of M&A transactions in Thailand:

A. Share Purchase

This is the most common structure for private and public company acquisitions.

Buyer acquires shares from existing shareholders
Company retains all assets and liabilities
Requires due diligence on corporate records, liabilities, and compliance
Share transfers must be recorded in the share register and notified to the DBD

For foreign buyers, shareholding may be subject to foreign equity restrictions under the Foreign Business Act (FBA).

B. Asset Purchase

Buyer acquires specific assets, not the shares of the company
May involve real estate, equipment, contracts, or business segments
Liabilities are not automatically transferred unless contractually agreed
Requires asset transfer documentation and possible re-registration (e.g., land titles, licenses)

This method provides greater flexibility in isolating risk but may be more cumbersome due to regulatory approvals, employee transfer requirements, and VAT considerations.

C. Merger (Amalgamation)

Thailand allows amalgamation, where two or more companies consolidate into a new entity.

All assets and liabilities are transferred to the new company
Both merging companies cease to exist post-merger
Requires approval from shareholders (at least 75%)
Must follow procedures under the CCC or Public Limited Company Act

As of recent legislative updates, Thailand is expected to introduce true “merger” options (A + B = A or B), aligning with international practices. Currently, amalgamation (A + B = C) is the legally recognized structure.

3. Foreign Ownership and Restrictions

The Foreign Business Act (FBA) classifies businesses into restricted categories (List 1–3), many of which limit or prohibit majority foreign ownership unless:

A Foreign Business License is obtained
The activity is promoted by the Thailand Board of Investment (BOI)
The transaction is structured through a Thai-majority joint venture or nominee arrangement (note: nominee structures are under increasing scrutiny)

Sectors with common foreign restrictions include retail, services, agriculture, media, and certain professional services. Due diligence must assess whether the target operates in a restricted category and whether restructuring or BOI promotion is viable.

4. Due Diligence: Legal, Financial, and Operational

Comprehensive due diligence is crucial to uncover hidden liabilities and assess valuation. Key areas include:

Corporate records — Company registration, shareholder structure, board resolutions, and compliance history
Licenses and permits — Whether operations are properly authorized under Thai law
Employment — Staff contracts, social security obligations, severance risks
Tax compliance — VAT, corporate income tax, transfer pricing, and withholding tax
Litigation — Pending disputes or regulatory actions
Environmental — For manufacturing or real estate deals
Intellectual property — Trademarks, patents, and software licenses

Findings from the due diligence process often affect the deal structure, valuation, warranties, and indemnity clauses.

5. Anti-Competition and Regulatory Clearance

Under the Trade Competition Act, the Trade Competition Commission (TCC) may require:

Pre-approval for M&A transactions that may lead to a monopoly or dominant position
Post-completion notification for transactions exceeding specific asset or turnover thresholds

Failure to comply can result in fines of up to 0.5% of the transaction value and reputational damage.

In addition, sector-specific approvals may be required. For example:

Bank of Thailand for financial institutions
Office of Insurance Commission for insurance firms
NBTC for telecom or media deals

Legal counsel must evaluate whether the deal triggers any of these regulatory approvals.

6. Taxation Implications

M&A transactions can trigger various tax considerations:

Share Sale

Subject to capital gains tax for individual sellers
Companies may realize gains taxed at the corporate income tax rate (20%)
Withholding tax applies if shares are sold by foreign entities (15%)

Asset Sale

May trigger VAT (7%) on the sale of goods or equipment
Stamp duty and specific business tax (SBT) may apply for property transfers

Amalgamation

Generally tax-neutral, but losses may not be preserved
Registration fee of 0.5% of the registered capital applies

Tax structuring (e.g., use of holding companies, BOI privileges) can reduce the effective tax burden and should be explored early in the deal process.

7. Employees and Labor Considerations

In asset deals or amalgamations, existing employment contracts do not automatically transfer. The buyer must:

Offer new contracts on equivalent terms, or
Provide severance payments in accordance with the Labor Protection Act

Notice periods, unpaid benefits, and accrued bonuses are also evaluated during due diligence and negotiations.

In share sales, employment is generally unaffected, as the employer entity remains the same.

8. Deal Documentation and Closing

Key legal documents include:

Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA)
Disclosure Schedules (listing exceptions to warranties)
Share Transfer Instruments and Board Resolutions
Escrow Agreements, if deferred payment or contingent pricing applies

Typical closing conditions include:

Regulatory approvals
Lease or permit transfer
Satisfaction of due diligence conditions
Payment of purchase price

In cross-border M&As, additional documentation may be needed to comply with foreign exchange regulations or offshore remittance procedures.

9. Dispute Resolution and Enforcement

Thai M&A contracts often include governing law clauses, which can be Thai or foreign law depending on the parties. However, if litigation occurs in Thailand, Thai courts may apply public policy rules even to foreign-governed contracts.

Options for dispute resolution include:

Thai courts (for local counterparties)
Arbitration (popular for international deals, with venues such as SIAC or TAI)
Mediation or escrow safeguards for resolving post-closing disagreements

Conclusion

Mergers and acquisitions in Thailand are a vital channel for business growth and foreign investment. However, success depends on navigating a multi-layered legal environment — from foreign ownership limits to tax structuring, regulatory approvals, and employee transfer obligations.

Whether the deal is a strategic acquisition, joint venture, or restructuring, investors must engage local legal, tax, and financial experts early. With proper planning and execution, M&A in Thailand can unlock lasting value in a dynamic Southeast Asian economy.