Escrow accounts in Thailand provide a secure financial mechanism for business transactions, ensuring that funds are held by a neutral third party until contractual obligations are met. While escrow services are widely used in international business, their use in Thailand is highly regulated and limited to specific circumstances under the Escrow Act B.E. 2551 (2008).
This article provides an in-depth analysis of escrow accounts in Thailand, including legal framework, practical applications, regulatory restrictions, and compliance requirements.
1. What is an Escrow Account?
An escrow account is a financial arrangement where a neutral third party (escrow agent) holds funds or assets on behalf of two parties engaged in a transaction. The funds are only released when the agreed contractual conditions are fulfilled, protecting both the buyer and the seller from fraud or contractual breaches.
2. Legal Framework Governing Escrow Accounts in Thailand
The Escrow Act B.E. 2551 (2008) is the primary law regulating escrow transactions in Thailand.
✔ Supervising Authority – The Bank of Thailand (BOT) and the Ministry of Finance (MOF) oversee escrow account regulations.
✔ Permitted Transactions – Only licensed commercial banks and financial institutions authorized by the MOF can legally act as escrow agents in Thailand.
✔ Contractual Requirement – The escrow agreement must be explicitly mentioned in a contract between the parties.
🔴 Key Restriction: Unlike in Western countries, escrow accounts are NOT legally required for most transactions in Thailand, except for certain government-regulated activities.
3. Key Uses of Escrow Accounts in Thailand
Although escrow services are not widely used in Thailand, they are beneficial in high-value transactions where financial security is essential.
3.1 Real Estate Transactions
✔ Escrow accounts can be used for real estate purchases, ensuring that the buyer’s funds are protected until the title deed transfer is completed.
✔ Common in foreign condominium purchases, where international buyers want additional security before transferring large sums of money.
🔴 Limitation: The Thai Land Department does NOT require escrow accounts for property transactions, making their use voluntary.
3.2 Mergers & Acquisitions (M&A) and Business Transactions
✔ Escrow accounts are used in M&A deals to hold funds until all corporate due diligence and approvals are completed.
✔ Protects both the buyer and seller in cross-border acquisitions involving Thai and foreign companies.
3.3 High-Value Commercial Contracts
✔ Used in international trade where goods are shipped, and payment is released upon confirmation of delivery.
✔ Common in government contracts, infrastructure projects, and technology licensing deals.
3.4 Construction and Development Projects
✔ Funds are held in escrow until specific construction milestones are completed, preventing contractor payment disputes.
✔ Used in public-private partnerships (PPP) and foreign-funded infrastructure projects.
3.5 Intellectual Property and Licensing Agreements
✔ Ensures that licensing fees, royalties, or franchise payments are paid only when contractual obligations are met.
4. Regulatory Compliance for Escrow Accounts in Thailand
4.1 Who Can Act as an Escrow Agent?
Under Thai law, only licensed financial institutions can serve as escrow agents. These include:
✔ Commercial banks registered in Thailand.
✔ Specialized financial institutions regulated by the Bank of Thailand.
🔴 Law firms, real estate agencies, and private companies CANNOT legally act as escrow agents under Thai law.
4.2 Mandatory Escrow Agreements
For an escrow arrangement to be legally enforceable, it must include:
✔ Details of the parties involved (buyer, seller, and escrow agent).
✔ Transaction details (purpose of the escrow, payment terms, and conditions for release of funds).
✔ Obligations and rights of each party.
✔ Conditions under which the escrow agent can release the funds.
4.3 Escrow Fees and Charges
✔ Banks charge transaction-based fees depending on the value of the escrowed amount.
✔ Fees typically range from 0.5% to 2% of the transaction value.
4.4 Legal Dispute Resolution for Escrow Accounts
If a dispute arises, it must be resolved through:
✔ Thai courts – If the escrow agreement is governed by Thai law.
✔ Arbitration – If an international contract includes an arbitration clause under Thai Arbitration Institute (TAI) rules.
5. Challenges and Limitations of Using Escrow Accounts in Thailand
| Challenges | Details |
|---|---|
| Limited Use in Real Estate Transactions | Unlike Western markets, Thailand does NOT legally require escrow for property sales. |
| Regulatory Restrictions | Only licensed Thai banks can act as escrow agents. |
| Lack of Public Awareness | Many Thai buyers and sellers are unfamiliar with escrow services. |
| High Service Fees | Banks charge substantial fees for escrow accounts, discouraging small transactions. |
| Dispute Resolution Complexity | Enforcing escrow disputes in Thai courts can be time-consuming. |
6. Alternative Financial Security Mechanisms in Thailand
Since escrow accounts are not widely used, businesses and investors often rely on alternative financial protection methods:
6.1 Bank Guarantees
✔ Thai banks issue guarantees for real estate, business contracts, and construction projects, offering financial security without holding funds in escrow.
6.2 Letter of Credit (LC) for International Trade
✔ A Letter of Credit (LC) ensures that payments are only released when shipping and delivery conditions are met.
✔ Commonly used for import-export transactions in Thailand.
6.3 Lawyer-Managed Trust Accounts
✔ Some foreign investors use law firms’ trust accounts to hold deposits in real estate transactions.
✔ Not legally considered escrow accounts, but offer a similar level of financial protection.
🔴 Risk: Not all law firms in Thailand are qualified to provide financial security services, making this option less reliable.
7. Conclusion: When to Use an Escrow Account in Thailand
Escrow accounts provide strong financial security, but their use is limited by Thai regulations. Foreign investors and businesses should consider escrow accounts when:
✔ Purchasing high-value assets such as real estate or businesses.
✔ Engaging in large-scale commercial transactions that require financial security.
✔ Entering joint ventures or international contracts requiring neutral fund management.
Since Thai law does not mandate escrow accounts in most industries, parties should carefully assess alternative financial protection options and consult with legal professionals and licensed financial institutions before engaging in escrow transactions.