Mergers and Acquisitions in Thailand

Mergers and Acquisitions in Thailand. Mergers and acquisitions (M&A) are strategic tools used by domestic and international investors to expand operations, enter new markets, achieve vertical or horizontal integration, and gain competitive advantage. In Thailand, M&A activity is regulated by a combination of commercial law, sector-specific legislation, and foreign investment controls. As a civil law jurisdiction, Thai M&A transactions rely heavily on statutory procedures rather than judicial precedent.

This article examines the legal and procedural landscape of M&A in Thailand, including acquisition methods, approvals, due diligence, and common transactional pitfalls.

I. Legal Framework for M&A in Thailand

M&A transactions are governed by several core laws:

• Civil and Commercial Code (CCC) – governs share and asset transfers, contractual obligations, and corporate formation

• Public Limited Company Act B.E. 2535 (1992) – applies to public companies listed or seeking listing on the Stock Exchange of Thailand (SET)

• Securities and Exchange Act B.E. 2535 – regulates tender offers, disclosures, and insider trading for listed companies

• Trade Competition Act B.E. 2560 (2017) – deals with antitrust and market dominance issues

• Foreign Business Act B.E. 2542 (1999) – restricts foreign ownership in certain sectors

• Revenue Code – governs tax implications of M&A structures

Depending on the industry, additional regulations may apply, such as those issued by the Bank of Thailand (BOT), Office of Insurance Commission (OIC), or Food and Drug Administration (FDA).

II. M&A Structures in Thailand

There are two principal methods for acquiring a business in Thailand:

A. Share Acquisition

The buyer acquires all or a portion of the target company’s shares from the existing shareholders.

Advantages:

• Simpler process for ongoing business operations

• Contracts and licenses usually remain valid

• Retains the legal personality of the target entity

Considerations:

• Buyer assumes all liabilities (past and future)

• Foreign shareholding restrictions may apply

• Requires careful due diligence

B. Asset Acquisition

The buyer purchases specified assets and possibly liabilities, without acquiring the legal entity.

Advantages:

• Buyer avoids assuming unknown liabilities

• Flexibility in selecting which assets to acquire

Disadvantages:

• May trigger contract novations, employee transfers, and license reissuance

• Higher tax and registration costs

• Time-consuming regulatory approvals

C. Amalgamation (Merger)

Thailand allows two companies to merge into a new entity through an amalgamation process under the CCC.

Steps include:

• Board and shareholder approvals

• Notification to creditors

• Registration with the Department of Business Development (DBD)

New corporate registration and tax identification numbers are issued. This method is less common due to procedural complexity.

III. Regulatory Approvals and Filings

A. Department of Business Development (DBD)

All corporate structural changes—including share transfers and amalgamations—must be registered with the DBD. Required documents include board resolutions, share transfer forms, amended company affidavits, and tax clearance.

B. Securities and Exchange Commission (SEC)

Applies to publicly listed companies. Mandatory tender offers are triggered if:

• A party acquires >25%, 50%, or 75% of voting rights

• Partial or full takeovers require public filings, prospectuses, and fairness opinions

C. Trade Competition Commission

Notifiable transactions include:

• Mergers that create a monopoly or market dominance

• Acquisitions exceeding thresholds of market share, sales, or asset value

Prior approval or post-closing notification may be required. The Commission has authority to block or impose conditions.

D. Foreign Business Licensing

If foreign shareholders acquire >50% of a Thai company operating in a restricted sector (under the Foreign Business Act), a Foreign Business License (FBL) or BOI promotion is required. Violations may result in criminal penalties.

IV. Due Diligence in Thai M&A

Robust due diligence is critical. Areas of focus include:

A. Corporate Due Diligence

• Company registration documents

• Shareholder structure

• Board resolutions

• Capital increases and amendments

B. Legal and Compliance

• Licenses and permits

• Existing litigation or disputes

• Employment contracts and Social Security compliance

• Foreign ownership limits and quotas

C. Financial and Tax

• Audited financial statements

• Tax filings and outstanding liabilities

• VAT and withholding tax compliance

• Transfer pricing and related party transactions

Thailand has strict document retention and tax record review periods (up to 5 years), which must be verified during diligence.

V. Taxation of M&A Transactions

A. Share Purchases

• No VAT is imposed

• No stamp duty for transfer of shares in private companies

• For public companies, 0.1% of the share price or par value (whichever is higher)

• Capital gains tax applies to the seller:

  • Thai individuals and entities: taxed as ordinary income

  • Foreign sellers: taxed at 15% on capital gains (unless exempted by a DTA)

B. Asset Purchases

• Subject to VAT (7%) on transferred assets

• Transfer of real estate subject to:

  • Transfer fee: 2%

  • Specific Business Tax: 3.3% (if applicable)

  • Stamp duty: 0.5%

Buyers should negotiate tax indemnities and consider tax-efficient structures.

VI. Employment and Labor Considerations

In an asset sale:

• Employment contracts do not automatically transfer

• The buyer must offer new contracts to employees

• Severance obligations may arise for the seller under the Labor Protection Act

In a share acquisition:

• Employees remain employed under the same entity

• Employee consent is not required, but corporate restructuring must not adversely impact terms

Collective bargaining agreements and union rights must also be reviewed.

VII. Use of Special Purpose Vehicles (SPVs)

Foreign investors often use offshore or onshore SPVs to facilitate M&A:

• To limit liability

• To satisfy local shareholding requirements

• For tax planning purposes

However, the use of nominee Thai shareholders (to circumvent FBA restrictions) is prohibited and may trigger investigation by the DBD or SEC.

VIII. Post-Closing Integration

Key steps after transaction completion include:

• Updating shareholder and director information with the DBD

• Amending company objectives (if needed)

• Consolidating bank accounts, accounting systems, and internal policies

• Renegotiating supplier and customer contracts

• Filing post-merger notifications to antitrust regulators (if applicable)

IX. Common Risks and Challenges

• Foreign ownership violations under the FBA

• Undisclosed liabilities (e.g., tax audits, litigation)

• Regulatory delays in approvals, especially in sensitive sectors

• Currency controls and remittance of proceeds for foreign sellers

• Improper due diligence leading to acquisition of non-compliant entities

Buyers should insist on comprehensive warranties and indemnities, including escrow arrangements or holdbacks for contingent risks.

X. Conclusion

M&A transactions in Thailand are complex endeavors that intersect corporate law, foreign investment regulation, tax planning, antitrust review, and labor compliance. While share purchases offer simplicity, asset purchases provide risk containment. Amalgamations remain rare but are legally available.

Foreign investors must navigate not only transaction mechanics but also structural limitations under the Foreign Business Act. Success in Thai M&A requires not just commercial negotiation, but strategic legal planning and diligent regulatory engagement.