Typical due diligence issues

Operating a business without the requisite approval, license or permit, together with numerous instances of regulatory noncompliance in the conduct of the business, is a common issue uncovered during due diligence of corporate entities in Thailand, particularly in regulated sectors. The validity of an approval, license or permit as a result of the completion of the contemplated transaction is also a material issue in due diligence.

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. Even where documents are provided for review, there may be 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, the target company may not have properly affixed stamp duty in certain material contracts or documents or may not have properly filed its tax returns.

If any significant issues are discovered during the due diligence process, the buyer will usually require the seller to rectify the issues prior to closing. If an issue is not rectifiable, or is too costly to be rectified, the buyer may instead ask the seller to give specific indemnities in respect of those issues. 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 documents evidencing ownership, title documents to any relevant real properties, as well as the validity of approvals, licenses and permits necessary for the target's operations post-closing.

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. Both closing accounts and locked box are common pricing mechanisms for deals involving a target in Thailand.

Electronic transfers of funds, including through the 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 the parties. It is not uncommon for a deposit to be given upon signing a share sale or an asset sale transaction in Thailand, with or without an escrow arrangement. More unusual is a requirement for a deposit upon the signing of a letter of intent before signing definitive transaction agreements.

Is simultaneous signing/closing common?

Simultaneous signing/closing is not common, as a time period between signing and closing is usually needed to fulfill the conditions precedent. For a deal with simultaneous signing and closing, parties usually specify closing deliverables and actions to be fulfilled by the seller and buyer at closing instead of conditions precedent.

Notice to call a shareholders' meeting

A notice to call a shareholders' meeting is generally required to be sent to all shareholders by registered 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 determine whether there are any additional requirements relating to the notice to the shareholders.

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 to foreigners. A foreigner must obtain a Foreign Business License (FBL) or a Foreign Business Certificate (FBC) from the Ministry of Commerce (MOC) 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 the 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 affect the company's workforce. Hence, there is no requirement to obtain employee consent.

If there is an asset sale and employees form part of the in-scope assets or the transaction is an amalgamation, the transfer of employment does not take place automatically, and employee consents will have to be obtained first if their employment will be transferred from one employing company to another company. Without consents from the relevant employees, the employees will remain employees of the transferring company. If the transferring company subsequently wishes to terminate those employees without a statutory cause or those employees are terminated as a result of the transferring company no longer being in existence after the amalgamation, those employees will be entitled to statutory payments upon termination, including severance pay. There is also the risk of claims for unfair termination by the terminated 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 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 per instrument.

For a sale of immovable property by a corporate entity, there is a specific business tax at the rate of 3.3% of the higher of the following:

1. The official appraised value announced by the Land Department
2. The sale price

There is also a withholding tax at the rate of 1% of the higher of the following:

1. The official appraised value announced by the Land Department
2. The sale price

A registration fee is payable at the rate of 2% of the official appraised value announced by the Land Department.

For a sale of movable 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 amalgamations, mergers, entire business transfers and partial business transfers, 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 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.