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March 17, 2020

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Mergers & Acquisitions Thailand


Warot-Wanakankowit

As The Thai Government Has Already Issued Merger Control Regulations In The End Of 2018, Companies, Lawyers And Business Consultants Must Take The Merger Control Regulations Into Consideration When Conducting M&A Activities...

As The Thai Government Has Already Issued Merger Control Regulations In The End Of 2018, Companies, Lawyers And Business Consultants Must Take The Merger Control Regulations Into Consideration When Conducting M&A Activities

Recent developments

As the Thai government has already issued merger control regulations in the end of 2018, therefore, companies, lawyers and business consultants must take the merger control regulations into consideration when conducting M&A activities. There has been a certain amount of deals in Thailand which were subject to merger control regulations in 2019.

Methods for M&A activities

An acquisition of shares of a company and acquisition of business and assets are most common acquisition methods in Thailand.

Acquisition of shares
The share acquisition is the most common method for a company to acquire a target company. It is easier to implement but due diligences must be conducted to identify risks in the target company and indemnities and warranties shall be incorporated in the share purchase agreement.

It is worth noting that the transfer of shares will be subject to stamp duty in Thailand at the rate of 0.1 percent of the greater of transfer value or par value.

Acquisition of business/assets
An acquisition of assets will be done in the case where the acquirer does not want to run the risk of having hidden legal and tax liabilities in the target company as legal and tax liabilities generally remain with the target company and are not transferred with the business/assets.

Nonetheless, the Foreign Business Act may restrict foreign companies to directly hold business/assets. Thus, a Thai company must be established to hold business/assets in Thailand. Please note that certain legal requirements have to be met.

Please note that the transfer of assets is normally subject to Value Added Tax and certain transactional documents are subject to stamp duty and other fees in Thailand.

MA-activities

Relevant regulations

Foreign Business Act (FBA)
The FBA is the most important regulation to be considered when foreign companies conduct M&A transactions in Thailand. The FBA restricts and forbids foreign nationals and companies from doing some business activities, including most of the service businesses in Thailand. For the purpose of the FBA restrictions, a ‘foreigner’ is classified as a foreign individual, a company incorporated outside Thailand, or a company incorporated in Thailand that is majority-owned by foreign individuals or foreign companies.

Therefore, in some cases, the foreign companies shall not be able to hold more than 50% of shares in the Thai company.

Foreign Business Department in the Ministry of Commerce is a government agency which oversees the FBA.

Trade Competition Act (TCA)
After the TCA came into force in 2018, it has played an important role in M&A transactions in Thailand. Any M&A transaction which meets the requirements under the TCA must comply with the provisions of the TCA to (i) obtain pre-approval or (ii) post-notification of the transactions. In short, pre-approval will be required when the M&A transaction would create a monopoly and the postnotification will be required when the M&A transaction will result in less competition in the market.

The Office of the Trade Competition Commission is a government agency that oversees the TCA.

Labour Protection Act (LPA)

In share acquisition transactions, there will be no requirement to obtain prior consent from the employees as, legally speaking, the employer is still the same.

However, in acquisition of business/assets that involve the transfer of employees, the LPA will provide that all rights, duties and privileges of the employees will be assumed by the new employer and the transfer of employment must be consented by the employees. In case where any employee does not give the consent or does not want to work for the new employer and the existing employer stop operations, it shall be deemed that the employment contract is terminated and such employee shall be entitled to severance pay from the existing employer.

Department of Labor Protection and Welfare is a government agency that oversees the LPA.

It is important to note that M&A activities in different industries may be subject to different and specific regulations in each industry.

Choice of acquisition funding

In acquisition transactions, an acquirer will have to decide whether to fund the vehicle with debt or equity, or even a hybrid instrument which combines the characteristics of debt and equity.

Debt
The advantage of using debt is the deductibility of interest for tax purposes and the ease in repatriating the investment via repayment of principal. On the other hand, the payment of dividends is not deductible and returns of capital can be an onerous and time-consuming task.

Thailand does not have thin capitalization rules.

Equity
An acquirer may use equity to fund its acquisition. However, using equity funding may not be attractive since dividends are not deductible for Thailand tax purposes and dividends cannot be distributed unless the company is profitable. Also, a return of capital (equity) will be more difficult than a return of the loan.

However, in the cases of joint venture or investment in startups, it is more common to do the equity funding rather than the debt funding.

Entire business transfer and amalgamation

Under the Thai Revenue Code, it allows a company to conduct an entire business transfer, under which the business and liabilities of one company will be transferred to another company by doing a share swap. If all conditions are met, the entire business transfer will be a tax-free transaction.

Thailand also has an amalgamation process where two companies can merge to form a new company. This transaction should be free from Thai corporate income tax, but any tax losses in either of the original companies will be lost. Both the original companies dissolved as a part of the amalgamation.

Warot-Business-Consultant
Warot Business Consultant Ltd. & Wingman and Partners Ltd.
Author:
Warot Wanakankowit, Partner
Warot Wanakankowit is a founding Partner at Warot Business Consultant Ltd and Wingman & Partners Ltd. He has substantial experience in taxation, corporate and commercial transactions, foreign direct investment and foreign business law, labour and employment, and merger and acquisition transactions. Warot has also fulfilled the role of director in various companies in order to help set up operations and manage those companies.
Warot Business Consultant Ltd. has worked with several corporations for commercial transactions and joint venture matters and assisted multinational companies in setting up business in Thailand either by establishing wholly owned subsidiaries or partnering with Thai companies.
On the other hand, Wingman & Partners Ltd. is one of the best-known law firms in the startups scene in Thailand. It has actively helped and represented both VCs and startups in Thailand for a few years.
Warot’s recent cases include representation of a reputable truck manufacturer in Thailand in negotiating the shareholders’ agreement with one of the biggest distributors of automotive parts in Australia to set up a joint venture company in Thailand and representation of one of the fast-growing advertising companies in negotiating the shareholders’ agreement with 3 corporate venture capitalists for fundraising.
Warot has been invited to be a speaker in many startup events such as Techsauce Global Summit and Thailand Startup Week.
Prior to founding his own firm, Warot worked at Weerawong, Chinnavat & Peangpanor Ltd., one of the leading law firms in Thailand. Before that he worked at KPMG Phoomchai Tax Ltd. as well as with PricewaterhouseCoopers Legal and Tax Consultants Ltd. in Thailand. Warot obtained his LL.B. degree from Thammasat University, and LL.M. degree from King’s College University, in the UK.
Practice Areas
- Mergers & Acquisitions;
- Corporate and Commercial Transactions;
- Foreign Direct Investment;
- Tax
- Labour and Employment

Disclaimer – This article only gives general guidelines for Mergers & Acquisition in Thailand. It is advisable to obtain advise from legal and business consultants before implementing or conducting M&A activities in Thailand.

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