Escrow Accounts in Thailand

Escrow accounts in Thailand is not merely a private convenience; it sits inside a statutory, supervised framework that gives buyers, sellers, lenders and project sponsors real legal protections — but only if the arrangement is properly structured, documented and operated by an authorized agent. This guide explains the legal architecture, who may act as escrow agent, the agent’s duties and insolvency protections, the main commercial uses (real-estate, construction, M&A, marketplaces), essential escrow-agreement mechanics, AML/FX and tax touchpoints, dispute and enforcement paths, and a practical checklist for negotiating escrow in Thailand.

Legal foundation and who may act as escrow agent

The Escrow Act B.E. 2551 (2008) creates a regulated model for escrow services in Thailand and subjects providers to Ministry of Finance (and, in practice, Bank of Thailand/other regulator) supervision. In commercial practice licensed commercial banks are the dominant escrow agents because they already provide custody, settlement and FX infrastructure and are subject to prudential and AML supervision. The Act also contemplates other authorized entities but you must confirm any agent’s license or statutory authorization before contracting.

Why this matters: using a properly licensed agent brings statutory duties, segregation rules and limited insolvency protection for escrowed assets — protections that do not apply if parties park money in an ordinary account or with an unregulated intermediary.

Core duties and legal protections of the escrow agent

A licensed escrow agent in Thailand has defined, largely non-discretionary duties:

Accept and hold escrow property (cash, title deeds, share certificates, documents) in a segregated account or custodian arrangement.
Follow the written release instructions in the escrow agreement; release only on occurrence of objective triggers or on joint written instruction, court order or arbitral award.
Segregate escrow assets from the agent’s own balance sheet and maintain books and audit trails.
Perform KYC/AML checks and refuse deposits where source-of-fund documentation is inadequate.

Statutory protections mean that, if the agent is properly instructed and holds funds in accordance with the Act, escrowed assets are commonly protected from the agent’s creditors should the agent become insolvent — but these protections can fail if formalities (segregation, account naming, documentation) are not strictly observed. Hence the written agreement must describe precisely where funds will be kept and how the agent evidences deposit.

Typical commercial uses and tailored mechanics

Escrow is used across many transaction types — but the release mechanics differ by use:

1. Off-plan property / real-estate pre-sales

Buyer deposits progress payments into escrow.
Releases tied to construction milestones certified by an independent engineer or quantity surveyor and, for final payment, to Land Office transfer or condominium unit registration.
Escrow protects buyers from developer insolvency and developers from buyer default when milestones are independently certified.

2. Construction & project finance

Contractor drawdowns against stage certificates issued by an engineer; retention amounts kept in escrow as defect security.
Agent acts on engineer certificates, preventing sponsor/contractor stand-offs over payments.

3. M&A / share purchase

Indemnity holdbacks and earn-outs placed in escrow for a defined period.
Release via agreed schedule, or upon expiry of claim period, subject to administrator approval or arbitral award if disputes arise. Escrow insurance or representation-and-warranty (RWI) policies can be layered to reduce escrow quantum.

4. Marketplace / escrow for goods

Marketplaces hold buyer funds until delivery confirmation and dispute-timeout; agent integrates with merchant settlement. Regulatory overlays (payment-service rules) often apply.

Each scenario needs objective triggers (engineer certificate, Land Office transfer certificate, DBD registration extract, signed delivery note) to avoid deadlocks.

What an escrow agreement must (always) contain

A robust escrow agreement is the operative instrument — essentials include:

Agent authorization: name, license citation and confirmation it is authorized under Thai law.
Precise identification of escrow property and account details (IBAN/Thai account, currency).
Clear, objective release triggers and required documentary evidence (sample certificates attached as schedules).
Independent certifier role: identity, scope, standards and certificate form the agent will accept.
Agent verification & reliance mechanics: agent entitled to rely on certificates and indemnified for good-faith acts.
Dispute suspension clause: steps if parties disagree — e.g., agent places funds in a suspense account and refuses further release absent court/arbitral order.
Fees, interest allocation and FX rules (who bears conversion costs and treatment of interest while funds sit in escrow).
AML/KYC requirements and conditions precedent to funding.
Insolvency and priority wording confirming segregation and intended creditor protection.
Dispute resolution and carve-outs for urgent court injunctions (allow interim judicial relief despite agreed arbitration).

Draft triggers narrowly and objectively; don’t let “manager’s satisfaction” or other subjective standards be the only release condition.

AML, FX and tax practicalities

AML/KYC: Thai banks require corporate documents, board resolutions, POAs, passports, source-of-fund statements and enhanced due diligence for high-value transfers. Early delivery of KYC documents prevents funding delays.
FX controls: cross-border funding often requires compliance with Bank of Thailand remittance rules and inward remittance documentation. Banks may refuse large foreign inflows without full paperwork.
Tax consequences: escrow releases may trigger VAT, WHT or stamp duty depending on the transaction (e.g., final property transfer attracts transfer tax/SBT). Parties should coordinate tax treatment to avoid surprise withholding at time of release.

Handling disputes, deadlocks and agent insolvency

If parties dispute a release the agent typically refuses release and holds funds pending joint instruction, court order or arbitral award. Good escrow agreements permit the agent to move funds to a suspense account and to bill fees against the account. Parties frequently add an escalation protocol (expert determination within a short window) to avoid protracted stand-offs.

If the agent becomes insolvent, statutory segregation protects escrow assets where the account and documentation meet the Act’s formalities. To preserve this protection include express account-naming, agent confirmations and immediate written notice obligations.

Practical checklist before you sign or fund escrow

Confirm agent license and obtain written proof.
Attach model certificates (engineer, Land Office extract, DBD share transfer) as contract schedules.
Require immediate deposit confirmation: agent must issue a dated receipt and account confirmation on funding.
Specify independent certifier and exact certificate wording the agent will accept.
Agree fees, interest and FX mechanics up front.
Provide full KYC/AML documents early.
Include interim-relief carve-outs allowing court injunctions even where arbitration is the main forum.
Consider layering escrow insurance or RWI for high-value M&A holdbacks.

Conclusion — structure protects value

In Thailand, escrow delivers statutory and commercial protections that materially reduce transaction risk — but only when the agent is licenced, the escrow agreement is tightly drafted, objective certifiers are identified and AML/FX/tax formalities are front-loaded. For any material transaction engage local counsel to draft the escrow text, confirm agent licensing and test the deposit/release path with the bank before you sign commercial contracts. Properly executed, escrow converts a theoretical promise into a real, auditable ring-fenced pool that both parties can trust.