Due Diligence in Thailand

Due diligence in Thailand is a critical procedural and legal safeguard used to assess the legal, financial, and operational risks associated with investments, mergers and acquisitions (M&A), real estate transactions, joint ventures, and regulatory compliance. While the scope of due diligence may vary depending on the transaction type, the core objective remains consistent: to provide decision-makers with verified information to identify hidden liabilities and mitigate exposure.

In the Thai legal context, due diligence is not a statutory requirement per se but has become customary best practice in both private and institutional transactions. The process draws from Thailand’s civil law system, registry-based property regime, and administrative licensing structure, which together require a fact-based, document-intensive inquiry.

II. Legal and Institutional Context

A. Absence of Unified Code

Unlike in some common law jurisdictions, there is no standalone “Due Diligence Act” in Thailand. Instead, the practice is governed by:

  • The Civil and Commercial Code (contractual and property obligations)

  • The Land Code Act

  • The Foreign Business Act B.E. 2542 (1999)

  • The Securities and Exchange Act (for listed companies)

  • The Revenue Code (tax matters)

  • Sector-specific legislation (e.g., Environmental, Labor, Banking)

Due diligence is conducted based on contractual discretion, regulatory compliance obligations, and risk tolerance of the buyer or investor.

B. Public Registry System

Thailand has well-developed public registries that form the foundation of documentary due diligence:

  • Department of Business Development (DBD) – corporate filings and shareholder records

  • Land Department – title deeds, encumbrances, usufructs, mortgages, servitudes

  • Revenue Department – tax registration and compliance

  • Courts of Justice and Legal Execution Department – litigation and insolvency history

  • Local municipal offices – construction permits and zoning

III. Categories of Due Diligence in Thailand

A. Legal Due Diligence

1. Corporate Structure and Status

  • Verification of company registration

  • Examination of Articles of Association, memorandum of association, and share certificates

  • Analysis of shareholder agreements, preference share rights, voting powers

  • Review of board resolutions, authorized signatories, and cross-holdings

2. Licensing and Regulatory Approvals

  • Validation of business licenses (e.g., commercial registration, factory license, BOI approval, FDA permits)

  • Compliance with foreign ownership restrictions under the Foreign Business Act

  • Environmental impact assessments and relevant sectoral permits

3. Contracts and Obligations

  • Material contracts: suppliers, customers, service providers

  • Termination and renewal clauses

  • Default and penalty provisions

  • Change-of-control restrictions

4. Litigation and Compliance History

  • Search for ongoing or past litigation

  • Bankruptcy filings

  • Administrative sanctions or government investigations

  • Labor and employment disputes

B. Financial and Tax Due Diligence

  • Audit of financial statements, revenue recognition, and liabilities

  • Review of tax compliance, including:

    • VAT

    • Corporate Income Tax (CIT)

    • Withholding taxes

  • Verification of tax ID registration, tax filings, and arrears

  • Identification of aggressive transfer pricing practices or thin capitalization

Tax exposure is particularly critical, as under Thai law, successors may be held secondarily liable for unpaid taxes in asset deals.

C. Real Estate Due Diligence

In property acquisitions, the following aspects are examined:

1. Title Search

  • Confirmation of title deed class (e.g., Chanote, Nor Sor 3 Gor)

  • Chain of ownership

  • Encumbrances, mortgages, or litigation notices

  • Boundary consistency with satellite maps and physical inspection

2. Zoning and Land Use

  • Compliance with Building Control Act

  • Environmental zoning restrictions

  • Approval for intended use (e.g., hotel, factory, residential)

3. Construction Permits and Infrastructure

  • Legitimacy of building permits

  • EIA approvals (for large developments)

  • Connection to public utilities

  • Road access and servitude rights

D. Environmental and Labor Due Diligence

For industrial or development-intensive transactions:

  • Environmental compliance status

  • Waste disposal and water discharge records

  • Occupational health and safety compliance

  • Labor contract review, wage compliance, union activity, and severance liability

IV. Due Diligence in Foreign Investment Context

Foreign investors must pay special attention to:

A. Ownership Structures

  • Thai nominee shareholders are illegal under the Foreign Business Act.

  • True ultimate beneficial ownership (UBO) must be confirmed.

  • Tiered shareholding through Thai companies must not disguise foreign control.

B. BOI and Treaty Protections

  • BOI (Board of Investment) privileges may include foreign land ownership, work permits, and tax incentives.

  • Treaty protections (e.g., US-Thailand Treaty of Amity) should be documented and validated.

  • Review of BOI compliance reports and promotion certificate status.

V. Procedural Considerations

A. Confidentiality and Access

  • Most due diligence is conducted post-NDA (non-disclosure agreement) and subject to data room protocols.

  • Access to official records requires power of attorney or cooperation from the target company.

B. Materiality Thresholds

  • Legal teams should agree on materiality thresholds (e.g., contracts exceeding THB 5 million, litigation exposure over THB 1 million) to focus the scope.

C. Reporting Structure

  • Red-flag report: Focus on critical issues that may kill the deal or require price adjustments.

  • Full-scope report: Legal opinion with supporting documents, summaries, and proposed risk mitigation.

VI. Common Pitfalls

  • Misinterpretation of land title classes: Not all titles confer full ownership or transferability.

  • Unregistered agreements: Many commercial leases and service contracts are not registered, affecting enforceability.

  • Improper labor classification: Use of subcontractors to circumvent labor law creates hidden liabilities.

  • Overreliance on company representations: Official registry checks are often more reliable than internal statements.

  • Ignoring zoning compliance: A property zoned for agriculture cannot legally be developed for residential purposes.

VII. Legal Risk Mitigation Tools

  • Reps and warranties in the sale agreement

  • Indemnities for identified risks (tax liabilities, litigation)

  • Escrow arrangements or price holdbacks

  • Conditions precedent requiring risk resolution prior to closing

Where due diligence identifies critical risks, these can be addressed through legal drafting and transactional structuring.

VIII. Litigation and Enforcement Impact

In case of post-acquisition disputes, courts will assess whether the buyer conducted reasonable due diligence. In practice:

  • Failure to conduct due diligence may limit contractual remedies.

  • Thai courts respect contractual disclaimers but may favor the buyer if fraud or misrepresentation occurred.

  • Fraudulent concealment by the seller overrides contractual waivers of due diligence rights.

Thus, thorough documentation and communication during the process is essential to build a defensible position.

IX. Conclusion

Due diligence in Thailand is not merely a procedural formality—it is a legally and commercially necessary process for validating transactions and protecting investments. While the Thai registry system provides useful access to corporate and land information, legal complexities around foreign ownership, nominee structures, licensing, and zoning require expert local interpretation.

Whether in M&A, property acquisition, joint ventures, or regulatory compliance, a well-executed due diligence process helps uncover hidden risks, align expectations, and shape enforceable contractual protections. Its depth and focus should be calibrated to the deal size, sector, and risk profile.


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

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