Mergers and Acquisitions in Thailand

Mergers and Acquisitions in Thailand. Thailand’s strategic position in Southeast Asia, strong domestic market, and growing role in regional supply chains have made it an attractive destination for corporate investment. One of the primary vehicles for business expansion is mergers and acquisitions (M&A).

M&A transactions in Thailand involve multiple layers of law — corporate law, foreign ownership restrictions, competition law, securities regulations, and labor law. This article examines the legal framework, transaction structures, regulatory approvals, due diligence process, and practical considerations for both Thai and foreign investors.

1. Legal Framework

M&A transactions in Thailand are governed by a combination of statutes:

Civil and Commercial Code (CCC) – Governs private limited companies, partnerships, contracts, and general corporate law.
Public Limited Company Act B.E. 2535 (1992) – Governs public companies.
Foreign Business Act B.E. 2542 (1999) – Restricts foreign ownership in certain businesses.
Securities and Exchange Act B.E. 2535 (1992) – Regulates listed companies and takeovers.
Trade Competition Act B.E. 2560 (2017) – Requires approval for mergers that may reduce competition.
Labour Protection Act – Governs employee rights in business transfers.
Revenue Code – Tax implications of share or asset transfers.

2. M&A Structures in Thailand

A. Share Acquisition

Mechanism: Purchaser acquires shares of the target company from existing shareholders.
Effect: Company continues operating with its assets and liabilities intact.
Key Considerations:
- Must comply with the Foreign Business Act if foreigners hold majority shares.
- Stamp duty payable (0.1% of the higher of par value or sale price).

B. Asset Acquisition

Mechanism: Purchaser acquires specific assets and rights of the target (e.g., real estate, equipment, contracts).
Effect: Purchaser does not assume liabilities unless contractually agreed.
Key Considerations:
- Requires novation of contracts, transfer of employees, and re-registration of licenses.
- Transfer fees and taxes (land transfer fees, specific business tax, VAT).

C. Amalgamation (Merger)

Mechanism: Two or more companies combine into a new company; the original entities cease to exist.
Effect: New company assumes all assets, rights, and liabilities.
Procedure:
- Shareholder resolutions from each merging company.
- Creditor protection process.
- Registration of the new entity at the Ministry of Commerce.
Use Case: Consolidation of businesses within the same group or strategic alliances.

3. Regulatory Approvals

Foreign Business Act (FBA)

Foreigners cannot engage in certain restricted businesses unless they obtain a Foreign Business License (FBL) or qualify under an exemption (e.g., Board of Investment promotion, Treaty of Amity for U.S. citizens).

Competition Approval

Trade Competition Act 2017 requires pre-merger approval from the Trade Competition Commission (TCC) for mergers that may substantially lessen competition, or post-merger notification for significant market share acquisitions.

Securities and Exchange Commission (SEC) and Stock Exchange of Thailand (SET)

For listed companies, M&A is regulated under the Securities and Exchange Act and Takeover Rules.
Acquisitions of more than 25%, 50%, or 75% of voting shares trigger a mandatory tender offer (MTO).

Sector-Specific Regulators

Certain industries (e.g., telecommunications, banking, energy, insurance) require specific approvals from regulators such as the Bank of Thailand, Office of Insurance Commission, or National Broadcasting and Telecommunications Commission.

4. Due Diligence

Thorough legal, financial, and tax due diligence is critical in Thai M&A. Key areas include:

Corporate documents: Articles of association, shareholder agreements, board minutes.
Licenses and permits: Validity and transferability.
Ownership verification: Land title deeds, intellectual property rights.
Contracts: Change-of-control clauses, termination risks.
Litigation: Pending or threatened claims.
Labor matters: Employee contracts, severance obligations.
Tax compliance: VAT, corporate income tax, transfer pricing.
Foreign ownership restrictions: Shareholding structure, nominee risks.

5. Employee and Labor Law Considerations

Under the Labour Protection Act, employees affected by business transfers must be informed.
In an asset acquisition, employees are not automatically transferred — their consent is required, and severance pay may be triggered if they do not agree.
In an amalgamation or share acquisition, employment generally continues under the same employer entity, with no termination obligation.

6. Tax Implications

Share transfer: Stamp duty (0.1% of sale price or par value). No VAT.
Asset transfer: May trigger VAT (7%), specific business tax (3.3%), and land transfer fees.
Corporate income tax: Capital gains subject to Thai tax if seller is a Thai entity; for foreign sellers, tax treaties may apply.
Withholding tax: May apply on cross-border payments.

7. Key Challenges in Thai M&A

Foreign ownership restrictions: Many service sectors remain restricted.
Regulatory delays: Approvals from multiple regulators may take months.
Nominee shareholder risks: Use of Thai nominees to circumvent the FBA is illegal and may invalidate the transaction.
Contract enforcement: Court procedures can be lengthy; arbitration is often chosen in cross-border deals.
Cultural factors: Negotiations may be influenced by Thai business practices, requiring sensitivity and patience.

8. Dispute Resolution in M&A

M&A disputes often involve valuation disagreements, breaches of warranties, or regulatory issues. Options include:

Thai courts: Jurisdiction over civil disputes, governed by Thai law and procedure.
Arbitration: Common in cross-border deals (Thai Arbitration Institute or international bodies such as SIAC or ICC).
Mediation: Increasingly encouraged, particularly in commercial disputes.

9. Practical Example

A European manufacturing company seeks to acquire a Thai partner to expand production. Instead of buying assets, it opts for a share acquisition to preserve existing licenses and employee contracts.

Due diligence reveals that 60% foreign ownership would breach the Foreign Business Act. The buyer applies for Board of Investment (BOI) promotion, which allows 100% foreign ownership in the promoted sector. Approval takes three months, after which the acquisition proceeds.

This case highlights how structuring, regulatory exemptions, and due diligence shape Thai M&A.

10. Checklist for M&A Transactions in Thailand

✔ Determine transaction structure (share, asset, or amalgamation).
✔ Conduct legal, financial, and tax due diligence.
✔ Confirm compliance with the Foreign Business Act.
✔ Seek regulatory approvals (TCC, SEC, BOI, sector-specific regulators).
✔ Address employee transfers and labor compliance.
✔ Structure tax-efficient payment mechanisms.
✔ Draft and sign transaction documents (SPA, SHA, ancillary agreements).
✔ Close transaction and register changes with the Ministry of Commerce.

Conclusion

Mergers and acquisitions in Thailand are shaped by a complex interplay of corporate, foreign investment, competition, and labor laws. Success depends on careful structuring, thorough due diligence, and compliance with regulatory requirements.

Foreign investors must be particularly mindful of ownership restrictions under the Foreign Business Act and may need to rely on exemptions such as BOI promotion or the Treaty of Amity. At the same time, domestic companies must consider competition law and shareholder protection rules.

A well-planned and executed M&A transaction offers opportunities for expansion and growth, but requires professional guidance to navigate Thailand’s legal and regulatory landscape.

Disclaimer: This article provides general information about M&A law and practice in Thailand. It is not legal advice. For case-specific guidance, consult a licensed Thai corporate lawyer.