Escrow Accounts in Thailand

Escrow Accounts in Thailand. Escrow accounts are an important legal and financial mechanism used globally to protect parties in transactions involving significant sums of money or high-value assets. In Thailand, while the concept is still developing compared to jurisdictions such as the United States or the United Kingdom, the use of escrow accounts is steadily expanding, particularly in real estate, mergers and acquisitions, and cross-border commercial transactions.

This article provides a comprehensive legal analysis of escrow accounts in Thailand: how they are governed, their permitted uses, who may act as escrow agents, and common contractual and regulatory considerations in practice.

1. Legal Framework for Escrow in Thailand

1.1 Governing Law

The primary legislation governing escrow services in Thailand is the Escrow Act B.E. 2551 (2008). This act formally introduced and legalized the concept of escrow accounts and agents in Thai law, laying the legal foundation for the protection of parties in commercial transactions.

The Escrow Act covers:

Definition and permissible scope of escrow transactions
Licensing of escrow agents
Obligations and liabilities of escrow agents
Supervision by the Ministry of Finance and the Bank of Thailand

1.2 Supervisory Authority

Escrow agents in Thailand are regulated by the Ministry of Finance, with oversight delegated to the Fiscal Policy Office and cooperation from the Bank of Thailand, depending on the nature of the agent (bank, non-bank, etc.).

Only licensed entities may act as escrow service providers. These include:

Commercial banks
Financial institutions
Juristic persons registered with the Ministry of Finance as escrow businesses

2. What is an Escrow Account?

An escrow account is a temporary, neutral holding account maintained by a third party (the escrow agent) into which funds or assets are deposited by one party in a transaction. The funds are released to the beneficiary only after specific pre-agreed conditions are fulfilled.

The key legal feature of escrow is that neither party to the transaction has direct control over the funds until all terms have been satisfied.

3. Common Uses of Escrow in Thailand

While escrow accounts can be used in various contexts, the most common use cases in Thailand include:

3.1 Real Estate Transactions

In property transactions, particularly involving off-plan condominiums or developments, buyers often deposit funds into an escrow account. The developer receives payment only upon achieving construction milestones or legal transfer of the unit. This reduces buyer risk in case of project delays, fraud, or non-compliance.

However, the use of escrow in real estate is not mandatory, and many developers continue to accept direct deposits, especially when financing the project internally.

3.2 Mergers and Acquisitions

In M&A deals, especially those involving foreign investors, escrow accounts are used to:

Hold purchase price funds until closing conditions are met
Secure warranties or indemnity obligations during the post-closing period
Facilitate staged payment releases

3.3 Litigation Settlements and Cross-Border Disputes

In civil litigation or international arbitration involving financial settlement, funds may be held in escrow while parties await court orders, registration of judgments, or completion of other legal formalities.

3.4 Visa and Investment Programs

Under certain investment-linked visa schemes (such as the Thailand Elite or Long-Term Resident Visa), escrow accounts may be used to demonstrate proof of funds or secure future investment into Thailand.

4. Requirements for Escrow Agents

4.1 Licensing and Registration

To operate as an escrow agent, a business must be:

A juristic person with minimum registered capital (usually not less than THB 5 million)
Approved by the Ministry of Finance
Compliant with ongoing reporting, financial audit, and operational standards

Commercial banks are automatically eligible but must notify and report their escrow activities.

4.2 Fiduciary Duties

Escrow agents are bound by law to:

Act with impartiality and neutrality
Keep escrow funds segregated from other funds
Only act in accordance with written instructions agreed to by both parties
Maintain records for inspection by regulatory authorities

Violation of these duties can result in administrative penalties, civil liability, or criminal prosecution.

5. Structure and Documentation of an Escrow Arrangement

5.1 Escrow Agreement

The escrow agreement is the core legal document and must include:

Names and identification of the parties
Purpose and duration of the escrow
Escrow agent’s duties and powers
Deposit and release conditions
Rights and responsibilities in the event of dispute or default
Fee structure and payment

The agreement must be in writing and signed by all parties, including the escrow agent.

5.2 Bank Account Setup

The escrow agent must open a dedicated bank account for each transaction. This account must:

Be in the agent’s name, clearly marked as “escrow”
Be used only for that specific transaction
Be reconciled and reported regularly

6. Tax and Reporting Considerations

Funds held in escrow are not considered income for the depositor or beneficiary until released. However, once released, the income becomes subject to Thai income tax or corporate tax if applicable.

In some cross-border cases:

Withholding tax obligations arise
Fund movements may need to be reported to the Bank of Thailand under exchange control regulations (especially for foreign currencies)
Proper purpose codes must be used for inbound and outbound remittances

7. Challenges and Practical Issues

7.1 Lack of Mandatory Escrow Use

Unlike some jurisdictions where escrow is legally required for real estate purchases (e.g., the U.S.), Thailand does not mandate escrow for most transactions. This leaves room for risks, especially when dealing with unknown counterparties.

7.2 Limited Awareness and Adoption

Many Thai businesses and individuals are unfamiliar with escrow structures, particularly outside major urban areas. As such, escrow arrangements often face resistance or misunderstanding unless parties are legally advised.

7.3 Enforcement of Conditions

In rare cases where disputes arise over escrow release conditions, the escrow agent may withhold funds and seek court direction. To avoid litigation, agreements must clearly specify objective, document-based release conditions.

8. Alternative Mechanisms

In cases where escrow is impractical or not accepted, parties may use:

Bank guarantees: A Thai or foreign bank guarantees payment upon condition
Post-dated cheques: Less secure, but still used in commercial practice
Notarial undertakings: Where a lawyer or notary commits to hold funds

These mechanisms carry different legal risks and may not provide the same neutrality as escrow.

9. Recent Developments

While Thailand has not introduced new escrow laws in recent years, regulatory interest is growing due to:

Increased cross-border investment
Fintech and digital payment platforms offering escrow-like services
Consumer protection concerns in real estate and e-commerce

In 2023, the Fiscal Policy Office began reviewing the Escrow Act for possible expansion to cover digital assets, which would be a significant development.

Conclusion

Escrow accounts in Thailand provide a valuable mechanism for ensuring trust, security, and neutrality in financial transactions. Though still underutilized compared to developed jurisdictions, their use is growing in sophistication, especially in real estate, M&A, and cross-border contracts.

Legal counsel should always be consulted when structuring escrow arrangements, especially when dealing with international parties, regulatory reporting, and risk allocation.