Mergers & acquisitions in Thailand play a significant role in the country’s economic growth, offering strategic opportunities for both domestic and foreign businesses. The process involves complex legal, financial, and regulatory considerations, and companies looking to engage in M&A activity must navigate Thailand’s corporate laws, tax obligations, and foreign ownership regulations.
1. Key Regulatory Bodies and Laws Governing M&A in Thailand
Several Thai regulatory bodies oversee M&A transactions to ensure they align with national interests and comply with legal standards. The main laws and authorities include:
a) Foreign Business Act (FBA)
The Foreign Business Act (FBA) limits foreign ownership in certain business sectors. Foreigners are generally restricted to owning no more than 49% of businesses in industries listed under the FBA unless they obtain a Foreign Business License (FBL) or benefit from Board of Investment (BOI) promotion.
b) Securities and Exchange Commission (SEC)
For publicly listed companies, M&A transactions are governed by the Securities and Exchange Act under the oversight of the Securities and Exchange Commission (SEC). If the transaction involves a publicly traded company, it is subject to disclosure, reporting requirements, and often a tender offer under the SEC’s supervision.
c) Trade Competition Commission (TCC)
The Trade Competition Commission ensures M&A activities do not lead to monopolies or anti-competitive practices. Transactions that would significantly reduce competition in the marketplace may be subject to review or restrictions.
2. Types of M&A Transactions
Mergers and acquisitions in Thailand generally fall into the following categories:
a) Mergers
In a merger, two or more companies combine into a single entity. The process usually involves one company absorbing the other(s), where the acquiring company continues to exist and the other company ceases to exist.
b) Acquisitions
An acquisition involves one company purchasing controlling shares or the assets of another company. The acquiring company gains full control of the acquired entity, but both companies may continue to exist separately after the transaction.
c) Asset Sales
In some M&A transactions, one company may purchase the assets of another company rather than acquiring the entire company. This allows the buyer to acquire specific parts of the business, such as property, machinery, or intellectual property, while avoiding the seller’s liabilities.
3. Legal Due Diligence
Due diligence is a critical component of any M&A transaction, particularly for foreign investors. Legal, financial, and operational due diligence are conducted to assess the target company’s legal standing, compliance with regulatory obligations, and financial health. Key areas of due diligence include:
- Corporate structure and ownership: Verifying the target company’s ownership structure and shareholders’ agreements.
- Licenses and permits: Ensuring the company holds the necessary business licenses, especially if the business is in a restricted sector.
- Contracts and obligations: Reviewing key contracts, leases, and existing obligations to ensure there are no hidden liabilities.
- Financial review: Analyzing financial statements to assess profitability, debts, and liabilities.
4. Foreign Ownership Restrictions
Foreign investors must navigate the Foreign Business Act (FBA), which restricts foreign ownership in certain sectors such as services, retail, media, and agriculture. Foreign businesses can hold up to 49% of the shares in restricted industries unless they obtain a Foreign Business License or seek exemptions under BOI promotion.
a) Board of Investment (BOI) Promotion
The BOI offers incentives such as tax breaks, 100% foreign ownership, and work permit facilitation for foreign investors operating in targeted industries, such as technology, manufacturing, and renewable energy. Foreign entities acquiring businesses in BOI-promoted industries may be exempt from the restrictions under the FBA.
5. Tax Considerations in M&A
Thailand’s tax regulations significantly impact the structuring of M&A deals. Several tax implications need to be considered, including:
a) Corporate Income Tax
The corporate income tax rate in Thailand is 20%, and companies involved in M&A transactions need to account for potential tax liabilities associated with the acquisition or merger.
b) Withholding Tax
If the acquisition involves the transfer of shares or assets, a withholding tax of 15% on capital gains may apply, especially when the seller is a foreign entity.
c) Value-Added Tax (VAT)
In asset sales, VAT may be levied at 7% on the value of the transferred assets. However, transfers of shares are generally exempt from VAT.
d) Specific Business Tax (SBT)
If real estate is part of the acquisition, Specific Business Tax (SBT) of 3.3% may apply to the transfer of land and buildings, depending on the nature of the sale.
6. Employment Law and M&A
When acquiring a business, it’s essential to address the employment contracts of the target company’s staff. Under Thai labor law, employment contracts are typically transferred to the new owner, unless the contract explicitly states otherwise. Employees who are terminated as a result of an acquisition or merger may be entitled to severance pay according to Thai labor laws.
- Severance Pay: The amount of severance pay depends on the length of employment, with maximum severance set at 300 days’ wages for employees with more than ten years of service.
- Employee Rights: Employees are entitled to the same rights and conditions under the new ownership, and changes to employment contracts must comply with Thai labor law.
7. Financing an M&A Transaction
M&A deals in Thailand can be financed in a variety of ways, including:
- Cash Transactions: The buyer pays for the acquisition in cash, providing full payment upfront or in installments.
- Debt Financing: The buyer may finance the transaction by taking out loans from banks or financial institutions.
- Equity Financing: In some cases, acquisitions are financed by offering the seller shares in the acquiring company as part of the payment.
Depending on the structure of the deal, each financing option has implications for the balance sheets and ownership structure of the companies involved.
Conclusion
Mergers and acquisitions in Thailand provide significant opportunities for both domestic and foreign investors, but they involve navigating a complex landscape of legal regulations, foreign ownership restrictions, and tax obligations. Thorough due diligence, understanding the restrictions under the Foreign Business Act, and considering tax implications are critical steps in ensuring a successful transaction. By working within the legal framework and structuring the deal effectively, companies can capitalize on Thailand’s growing economy while minimizing risks.