Escrow Accounts in Thailand

Escrow Accounts in Thailand. An escrow account is a financial and legal mechanism in which money or documents are held by a neutral third party (an “escrow agent”) pending the fulfillment of agreed conditions between contracting parties. In Thailand, the provision of escrow services is regulated primarily under the Escrow Act B.E. 2551 (2008), and its implementation is strictly controlled by the Ministry of Finance (MOF) and the Bank of Thailand (BOT).

Thailand’s adoption of escrow mechanisms—especially in real estate transactions—has been gradual due to cultural norms, statutory limitations, and the narrow list of authorized service providers.

II. Legal and Regulatory Framework

III. Definition and Legal Nature of Escrow

Under Section 3 of the Escrow Act:

“Escrow” means a contract whereby one or more contracting parties deliver money or property to an escrow agent, to be released upon fulfillment of conditions agreed by the parties.

The escrow agent acts in a fiduciary capacity and must maintain strict neutrality, holding assets on behalf of both parties without favor until the triggering event or performance condition is satisfied.

IV. Licensing of Escrow Service Providers

Only licensed entities may act as escrow agents in Thailand. The Ministry of Finance, upon consultation with the BOT, may authorize:

• Commercial banks

• Finance companies

• Credit foncier companies

• Specific juristic persons meeting minimum capital and compliance standards

Law firms, developers, or individuals may not act as escrow agents unless licensed under the Act.

Licensing requirements include:

• Registered capital (minimum THB 50 million)

• Risk management systems

• Internal control mechanisms

• AML/CFT compliance policies

• Regular reporting obligations to BOT and MOF

V. Typical Use Cases in Thailand

1. Real Estate Transactions

• Most common context for escrow use in Thailand

• Used to secure buyer deposits pending transfer of title at the Land Office

• Especially important in off-plan condominium purchases and foreign buyer transactions

Developers and purchasers enter into a three-party escrow agreement, where funds are released to the seller only after title transfer and registration is completed.

2. Mergers and Acquisitions (M&A)

• Escrow may be used to hold purchase price or indemnity reserves

• Released upon satisfaction of post-closing covenants or completion accounts

• Often includes multi-tier release schedules (e.g., 12 months, 24 months)

3. Cross-Border Commercial Contracts

• Used in joint ventures, intellectual property transfers, and service milestone agreements

• Requires an intermediary Thai financial institution capable of foreign exchange processing

• Must comply with BOT capital controls and foreign exchange regulations

VI. Key Components of a Thai Escrow Agreement

An enforceable escrow agreement under Thai law should include:

1. Identities of contracting parties

2. Escrow agent name and license number

3. Nature of the principal contract (e.g., sale of land, shares, services)

4. Clear release conditions (objective triggers only)

5. Designated escrow account number and bank

6. Authorized signatories and dispute mechanism

7. Fee structure and liability limitation of the escrow agent

All parties must sign the escrow agreement. If related to land, it is often referenced at the time of registration at the Land Office.

VII. Legal Duties and Liabilities of the Escrow Agent

Under the Escrow Act:

• The agent has fiduciary duties to both parties and must act impartially

• Escrow funds must be held in segregated accounts, not commingled with operational funds

• Breach of duty or premature release may result in:

  • Civil liability for damages

  • Administrative penalties

  • Criminal liability if fraud or collusion is involved

The agent is also subject to anti-money laundering (AML) obligations under the Anti-Money Laundering Act B.E. 2542 (1999).

VIII. Limitations and Practical Constraints

A. Limited Adoption Outside of Real Estate

While legislated, escrow is not customary in non-real estate civil transactions, due to:

• Lack of awareness

• Reluctance of banks to act in smaller transactions

• Cultural preference for direct performance and trust-based resolution

B. No Judicial Escrow Substitution

Thai courts do not recognize private escrow as a substitute for:

• Injunctions

• Sequestration of assets

• Court-supervised provisional measures

Thus, escrow cannot be used to circumvent formal pre-judgment asset freezes.

C. Dispute Over Release Conditions

If parties dispute whether a condition has been met, the escrow agent must freeze the funds until:

• Both parties agree in writing, or

• A court order is issued determining entitlement

IX. Foreign Exchange and Capital Controls

Escrow accounts involving foreign currency are subject to Bank of Thailand regulations, including:

• Inward remittance reporting (for amounts over USD 50,000)

• Use of Foreign Exchange Transaction Form (FET)

• Reporting of repatriation for non-resident escrow beneficiaries

Failure to comply may result in currency exchange fines or delayed fund release.

X. Termination and Dispute Resolution

An escrow arrangement may be terminated upon:

• Fulfillment of escrow conditions

• Expiry of term (if so defined)

• Mutual termination by agreement

• Court intervention

Disputes are resolved either by:

• Contractual arbitration clause, or

• Civil lawsuit filed in the Thai Court of First Instance, usually at the jurisdiction of the agent’s registered office

Thai law does not provide for automatic arbitration unless expressly agreed.

XI. Conclusion

Escrow accounts in Thailand offer a structured, neutral, and enforceable mechanism to manage payment and risk in conditional transactions—especially in regulated sectors like real estate and foreign investment. However, their effectiveness depends on proper legal drafting, use of licensed agents, and strict compliance with both local regulations and cross-border financial rules.

Legal counsel should ensure:

• The escrow agent is properly licensed under the Escrow Act

• The release conditions are objectively defined and unambiguous

• Parties are aware of dispute resolution procedures

• Tax and foreign exchange reporting requirements are met