Typical due diligence issues
Undertaking an activity without the required approval, license or permit is a common issue raised during the due diligence of corporate entities in Thailand, particularly where the corporate entity is operating in the real estate sector (e.g., the construction or alteration of buildings) or any other regulated sector.
Another common due diligence issue is the lack, or incomplete nature, of information provided for review by the buyer during the due diligence exercise. Title documents and other corporate documents (such as a proper share register book, or complete records of real property ownership) are often missing. This can make it difficult to verify the seller's ownership and title to the property being acquired by the buyer. Even where documents are provided for review, there may be some difficulties in verifying the authenticity of the title documents and whether they were duly issued by the relevant governmental bodies.
Tax is another common issue raised in due diligence. For instance, often the target company may not have properly affixed stamp duties in certain material contracts or documents or may not have properly submitted its tax returns.
If any of the issues described above (or any other significant issues) are discovered during the due diligence process, the buyer will usually require the seller to rectify those issues prior to closing. If an issue is not rectifiable, or is too costly to be rectified, buyers may, instead, ask the seller to give specific indemnities in respect of those issues. If one or more of the issues raised during the due diligence is material, especially in relation to ownership and title of real property, it may be a deal breaker for a buyer. However, depending on the nature of the buyer and its risk appetite, some buyers may be willing to accept the risks and proceed with the acquisition.
Bearing in mind the typical issues raised in due diligence (discussed above), a buyer looking to purchase a corporate entity in Thailand should conduct detailed due diligence of that target entity, with a particular focus on the adequacy of title documents to any relevant real properties.
Pricing and payment
Generally, an independent appraisal is not required to support the valuation of the target in a share deal or an asset deal unless required by any specific laws e.g., securities and stock market regulations, tax and etc. The price can be adjusted after due diligence or after completion via the purchase price mechanism in the definitive agreement.
Electronic transfers of funds, including through SWIFT Code international system, are the most common way of paying cash consideration.
Signing/closing
Is a deposit required?
A deposit is not required and can be negotiated between parties, but it is fairly common for a deposit to be given upon signing a share sale or an asset sale transaction in Thailand. A deposit may also be required upon signing a letter of intent before signing definitive transaction agreements. An escrow arrangement for a deposit is also common.
Is simultaneous signing/closing common?
Simultaneous signing/closing is not so common. Depending on the type of transaction, there is usually a time period between signing and closing to fulfil the necessary conditions precedent. If there is a simultaneous signing/closing, parties usually specify closing deliverables and arrangements to reflect actions to be fulfilled by the seller and buyer instead of conditions precedent.
Notice to call a shareholders' meeting
A notice to call a shareholders' meeting must be sent to all shareholders by receipt-acknowledged mail (except in cases where there are bearer shares issued by the company, in which case the notice is also required to be published in a local newspaper). This requirement should be considered when arranging for signing/closing. It is also necessary to carefully review the articles of association to see whether they impose any additional requirements relating to the notice to call a shareholders' meeting.
Foreign investment restrictions
There is a foreign investment screening procedure under Thai law. The foreign investment screening procedure is primarily focused on foreign business licensing requirements under the Foreign Business Act, B.E. 2542 (1999) (FBA).
The FBA lists businesses that are prohibited or restricted for foreigners. A foreigner must obtain a foreign business license or a foreign business certificate from the Ministry of Commerce before engaging in a restricted business in Thailand. For further information, see the more detailed section on "Foreign investment restrictions”.
Antitrust/merger control
Thailand's merger control regime requires pre-merger approval if a relevant transaction results in dominance, which is assessed by a dominance test that considers market share and turnover. The post-closing notification applies when the turnover test is met, focusing on revenue generated by the merging parties in a relevant market. The competition authority has 90 days to review the application, extendable by 15 days. There is no statutory deadline for post-closing notifications. For transactions subject to pre-merger approval, the buyer must file within six days from closing. For further information, see the more detailed section on "Antitrust/merger control".
Other regulatory or government approvals
Mergers and acquisitions related to specific businesses, such as insurance and financial institutions, have specific regulatory approval requirements.
In share acquisitions, a target company, as an employer, continues to be the employer of its employees, and this does not result in any impact on the company's workforce. Hence, there is no requirement to obtain employee consents.
If there is an asset sale and employees form part of the in-scope assets, the transfer of employment does not take place automatically, and employee consents will have to be obtained first. Without consents from the relevant employees,, the employees will remain employees of the seller. If the seller subsequently wishes to terminate the employment of those employees without a statutory cause, those employees will be entitled to statutory payments upon termination, including severance pay. Moreover, the seller will also bear the risk of a claim of unfair termination from the relevant employees.
At the time of the transfer of employment, the transferee (the buyer) is required to assume all of the rights and obligations of the transferred employees from the transferor (the seller), including assuming those employees' years of service.
In a sale of shares, stamp duty is payable on the original share transfer instrument at the rate of 0.1% of the sale price or the paid-up value of the sold shares, whichever is higher. A duplicate share transfer instrument is subject to minimal stamp duty of THB 5 each.
For a sale of immovable properties by corporate entities, there is a specific business tax at the rate of 3.3% of the higher of the following:
- The official appraised value announced by the Land Department.
- The sale price.
There is also a withholding tax at the rate of 1% of the higher of the following:
- The official appraised value announced by the Land Department.
- The sale price.
There is also a registration fee at the rate of 2% of the official appraised value announced by the Land Department.
For a sale of moveable assets or intangible assets (e.g., intellectual property and goodwill), there is a VAT of 7% of the sale price of the assets. For the sale of intangible assets, there is also withholding tax at the rate of 3% of the sale price.
Tax benefits are available for M&A transactions undertaken by way of special schemes, such as amalgamation, entire business transfer, and partial business transfer, subject to certain criteria and conditions.
OECD's Two Pillar Solution
The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting has put forward a so-called Two-Pillar Solution to address the tax challenges arising from the digitalization of the economy. Pillar Two is intended to introduce a global minimum effective rate of tax of 15% for large businesses in each jurisdiction where they operate and will lead to fundamental changes in the international tax system. It is currently being implemented in a large number of jurisdictions.
Groups will need to consider how the Pillar Two rules could impact on the life cycle of M&A transactions from the pre-acquisition phase (including transaction planning (such as the choice of acquisition structure and financing) and due diligence of the target group), the acquisition phase (such as contractual risk allocation around Pillar Two) to the post-acquisition phase and the impact of Pillar Two on any post-acquisition integration.
For information on post-acquisition integration matters, please see our Post-acquisition Integration Handbook.