Escrow Accounts in Thailand

Escrow is a powerful risk-management tool in Thailand for real-estate pre-sales, construction milestones, M&A holdbacks, project finance and cross-border trade. Thailand’s Escrow Act B.E. 2551 (2008) and subsequent regulations created a formal, licensed framework: escrow is not just a private bank arrangement — it’s a supervised activity with defined agent duties, licensing, segregation and insolvency protections. Below is a practical, legally-rooted guide explaining how escrow works in Thailand, who may act as an escrow agent, the agent’s duties and liabilities, practical contract drafting points, AML/FX and tax implications, dispute handling and a checklist you can use when negotiating an escrow.

1. Legal foundation and who may act as escrow agent

The central statute is the Escrow Act B.E. 2551 (2008), supplemented by ministerial regulations and later amendments that expanded supervisory powers. The Act confines who may perform escrow services (commercial banks and other authorized financial institutions are the primary providers) and establishes an Escrow Regulation Committee and Ministry of Finance oversight for the business. The Bank of Thailand issues specific notifications to banks that set operational standards for bank-provided escrow services.

In practice, licensed commercial banks dominate the market as escrow agents because they already have custody, segregation and payments infrastructure and are subject to BOT prudential rules. The law and subsequent regulations also permit other licensed entities (subject to ministerial rules), but you should confirm the agent’s license and the scope of its authorized escrow activities before contracting.

2. What an escrow agent must do — core duties and legal protections

Under the statutory framework an escrow agent’s duties are strict and largely non-discretionary: accept and hold escrow property (cash, documents, title deeds, securities), follow the written release instructions in the escrow agreement, segregate escrow assets from the agent’s own assets, and maintain books and records enabling audit and regulator inspection. The agent must only release funds or documents upon the occurrence of agreed conditions (milestone certificates, court/arbitral awards, joint written instructions) or under a final court order.

A key buyer protection is statutory insolvency shielding: properly designated escrow funds (kept in segregated accounts and evidenced by the escrow contract and agent records) are, in many circumstances, protected from claims by the agent’s creditors if the agent becomes insolvent. That protection is subject to strict compliance with statutory custody rules and timely registration/notification requirements in some cases — so how the escrow is documented and funded matters legally.

3. Types of transactions where escrow is now standard

Escrow is widely used in Thailand for:

  • Property development and off-plan sales — staged buyer payments held pending construction milestones and Land Office transfer conditions.

  • Construction/project finance — contractor payments, retention sums and performance bonds released against engineer certificates.

  • M&A and share sales — warranty holdbacks, escrowed indemnity pools and earn-out disbursements.

  • Cross-border trade and marketplace settlements — marketplace escrow holding buyer payments until delivery confirmation and dispute resolution.

Because the Escrow Act is transaction-neutral (it applies to reciprocal contracts), parties can tailor escrow to many commercial flows — but the legal protections flow from using a licensed agent, strict documentary triggers and clear payment mechanics.

4. What a robust escrow agreement must contain

A well-drafted escrow agreement is the operative instrument. Essentials are:

  • Parties and agent licence: name of escrow agent and citation of its licence/authorisation.

  • Clear definition of escrow property: currency, account details, documents, securities, title deeds.

  • Objective release triggers: specific certificates (engineer’s certificate, Land Office confirmation), timing, documentary evidence and any cure periods.

  • Payment mechanics: where funds are held, FX conversion rules, interest allocation, bank account signatories, and exact disbursement flow.

  • Agent instructions and duty to verify: how the agent confirms a trigger, what evidence suffices, and whether agent may rely on certificates.

  • Fees and expenses: who pays the agent, when, and whether fees may be deducted from escrow.

  • AML/KYC obligations: required documentation up front to prevent later freezing of funds.

  • Insolvency and force-majeure: treatment of escrow on agent insolvency and priority rules.

  • Dispute resolution and interim relief: arbitration seat and the agent’s obligation to hold funds pending court or arbitral orders.

Because statutory insolvency protection can hinge on precise wording and timely segregation, the agreement should explicitly record where funds will be deposited, who bears FX risk, and require immediate confirmation of deposit receipts. Use short, objective triggers rather than subjective standards to avoid deadlocks. Practical drafting examples from practitioners emphasize the importance of objective milestones and independent certification (engineer, surveyor, transfer certificate).

5. AML, FX controls and practical bank requirements

Banks must comply with Thai AML/KYC rules and Bank of Thailand FX notifications when escrow involves cross-border currency movements. Expect the escrow agent to require corporate documents, board resolutions, passports, proof of source of funds, and to run CDD checks before opening the escrow account. Cross-border escrow (funds coming from offshore) also needs compliant inward remittance documentation to avoid delays or regulatory holds. Early coordination on AML paperwork avoids frustrating funding delays.

6. Fees, timelines and typical commercial terms

Escrow fees in Thailand are commercial — banks charge set-up fees, custodial fees and transaction fees. Typical structures are a one-off set-up fee plus an annual custodial charge and per-disbursement fees; for complex M&A holdbacks agents may quote a percentage of the escrowed amount. Timelines depend on prescribed triggers: simple payment release on a certified invoice can be same-day; releases tied to Land Office registrations or court awards take longer and may require agent legal review. Always get a fee schedule and SLA from the bank before signing the escrow agreement.

7. Disputes, interim holds and enforcement

If parties dispute release, agents are required to hold funds pending mutual written instructions, a court order, or an arbitral award. Many escrow agreements include an express suspension clause permitting the agent to place funds into a suspense account while the dispute is resolved; the agent should also have express indemnity from the depositing parties for acting in good faith on certificates. When urgent relief is needed (injunctions, freezing releases), parties commonly seek interim injunctions from Thai courts even where the main contract specifies arbitration — so include express carve-outs in the dispute resolution clause to allow interim judicial relief. 

8. Practical checklist before you sign or fund an escrow

  1. Confirm agent license — get written proof of the agent’s Ministry of Finance/BOT authorization. 

  2. Read the escrow agreement line-by-line — check objective release triggers and insolvency wording.

  3. Agree on an independent certifier (engineer/surveyor/land officer) for milestone attestations.

  4. Provide AML/KYC documents early to avoid delays. 

  5. Budget agent fees and deposit confirmation SLA — require immediate bank confirmation of deposit into segregated account.

  6. Plan for agent insolvency — confirm statutory protections apply and consider escrow insurance or additional security if necessary. 

Conclusion

Thailand’s escrow framework gives substantial protections — statutory agent duties, segregation and limited insolvency shielding — but those protections depend on using licensed agents, rigorous documentation and carefully drafted trigger mechanics. For high-value property projects, M&A holdbacks or cross-border platform payments, structure the escrow with objective milestone triggers, independent certifiers, clear AML compliance and a dispute-resolution plan that permits interim court relief when needed. If you’d like, I can draft a model escrow clause tailored to (a) an off-plan property sale, (b) an M&A warranty holdback, or (c) a construction milestone escrow — tell me which and I’ll prepare the clause and a short annotated checklist.


Visit our website for more information: https://www.siam-legal.com/realestate/Escrows-in-Thailand.php

Comments

Post a Comment

Popular posts from this blog

Child Adoption in Thailand

Child adoption in Thailand is a legally recognized process that allows individuals or couples to become the legal parents of a child who is not biologically theirs. It is governed by Thai law, primarily the Child Adoption Act of 1979, and involves both domestic and intercountry adoptions. The Department of Social Development and Welfare (DSDW) plays a central role in overseeing and regulating all adoption processes in Thailand.     Types of Adoption in Thailand Thailand recognizes two main types of adoption:     Domestic Adoption: This involves adoptive parents (either Thai or foreign nationals) who are domiciled in Thailand adopting a Thai child. Applications are submitted directly to the Child Adoption Center of the DSDW in Bangkok or the provincial DSDW office where the applicant resides.     Intercountry Adoption: This process is for foreign individuals or couples who wish to adopt a Thai child and raise the child in a country outside of Thailand...
Read more

Representative Office in Thailand

A Representative Office (RO) is a form of foreign business presence in Thailand designed for non-revenue-generating activities. It allows a foreign company to engage in specific, limited operations to support its head office abroad, without directly conducting sales or earning income in Thailand. The concept is regulated under the Foreign Business Act B.E. 2542 (1999) (“FBA”) and related Ministry of Commerce (MOC) regulations. 1. Legal Basis and Regulatory Authority Primary Law: Foreign Business Act B.E. 2542 (Sections 4, 7, 14–17). Responsible Authority: Department of Business Development (DBD), Ministry of Commerce. Relevant Ministerial Regulations: Prescribing types of permitted RO activities and application procedures. Under the FBA, foreign entities may not engage in restricted businesses without a Foreign Business License (FBL) . A Representative Office is considered a restricted form of “service business” but can obtain an FBL for its permitted activities mor...
Read more