Escrow Accounts in Thailand

Escrow Accounts in Thailand. Escrow is a neutral, contractual mechanism where a third party (the escrow agent) holds funds, documents or other assets until pre-agreed conditions are met. In Thailand the framework for formal escrow arrangements is statutory — parties can use escrow to reduce counterparty risk in property pre-sales, construction and project finance, M&A holdbacks, cross-border trade and large commercial contracts. Because escrow in Thailand must be handled by licensed agents, it gives stronger legal protection than ad-hoc “trust” arrangements.

Legal foundation and who may act as an escrow agent

The core statute is the Escrow Act B.E. 2551 (2008), which defines escrow contracts, the duties and liabilities of escrow agents and the supervisory framework (the Escrow Supervision Committee and the Minister of Finance). Only persons or juristic entities prescribed in Ministerial Regulations — typically licensed financial institutions or other authorized entities — may carry out the escrow business and must obtain an escrow license.

Commercial banks are the principal providers of escrow services in practice, but they operate under additional Bank of Thailand guidance and must comply with BOT notifications if they intend to offer escrow services. The BOT has issued specific notifications setting governance and operational rules for banks acting as escrow agents.

What the law requires an escrow agent to do

Key statutory duties and protections to know:

• Deposit and segregation: Funds received must generally be deposited into an escrow account at a financial institution without delay (often within one business day) and kept separate from the agent’s own assets.

• Safekeeping of property and documents: For non-cash escrow property (e.g., title deeds), the agent must take custody and keep records. For real estate escrows the agent must notify the Land Office so title transfer cannot proceed until conditions are met.

• Impartial performance: The agent must release escrow property only according to the escrow contract or a court order. Improper release, misappropriation or negligence exposes the agent to administrative sanctions, license revocation and criminal liability in severe cases. Fee levels are subject to oversight by the Escrow Supervision Committee.

• Bankruptcy protection: The Act provides limited protection of escrowed funds against attachment or seizure if the escrow agent becomes insolvent, helping shield trust funds from the agent’s creditors (subject to statutory conditions).

• Typical use cases and practical structure

Common transactional uses in Thailand:

• Real estate / off-plan sales: Buyer payments staged into escrow linked to construction milestones; agent notifies Land Office and only permits title transfer after conditions are met.

• Construction and project finance: Milestone payments or retention sums paid into escrow; release on certification by an engineer or joint committee.

• M&A / share purchase holdbacks: Purchase price held for warranty indemnities or earn-outs, released per the SPA timetable or arbitrator/court decision.

• Cross-border trade and marketplaces: Escrow for escrowed payments on e-commerce platforms or escrowed letters of credit alternatives (subject to FX and AML rules).

The practical structure is tri-partite: (1) the principal parties (buyer/seller), (2) the escrow agent (licensed bank or authorised custodian), and (3) the escrow agreement recording conditions, evidence to be produced, release mechanics, fees and dispute resolution.

What an escrow agreement must contain (practical checklist)

Under the Act and best practice, an escrow contract should at minimum specify:

1. Parties’ identities and contact details.

2. Precise description of escrow property (funds, documents, title, securities).

3. Conditions for release (clear milestone or documentary triggers).

4. Payment / deposit mechanics and timing (where funds will be held).

5. Duties of the escrow agent (notification, record keeping, segregation).

6. Fees, who pays them and payment timing (agent cannot unilaterally take fees from escrow property unless agreed).

7. Currency, FX mechanics and taxes (who bears exchange risk and withholding obligations).

8. Dispute resolution (arbitration clause and/or courts) and instructions on handling conflicting instructions.

9. Termination, insolvency treatment and indemnities for the agent.

A well-drafted agreement avoids ambiguous conditions (the single biggest cause of escrow disputes).

Regulatory, AML and FX practicalities

Escrows that accept inbound foreign currency or act across borders must comply with Bank of Thailand foreign-exchange rules, KYC/AML obligations and local tax reporting. Banks will perform standard AML/CDD checks on principals, and cross-border remittances into escrow can be subject to documentation requirements. Expect banks to require corporate and board resolutions, proof of source of funds and supporting transaction documents before opening escrow accounts.

Dispute handling and enforcement

If parties dispute release, the agent will generally hold funds pending a mutual written instruction, an arbitral award or a final court order. Many commercial escrows specify arbitration (SIAC/Thai Arbitration rules) for speed and confidentiality; however, if a party seeks interim relief (injunction) local courts can be involved. Because the escrow agent is licensed, regulators can also step in for agent misconduct.

Common pitfalls & how to avoid them

• Using an unlicensed “escrow” provider. Only licensed escrow agents enjoy statutory protections; ad-hoc arrangements can be hard to enforce.

• Vague release conditions. Milestones should be objective (certificates, dates, delivered documents).

• Ignoring land-office notification rules in property deals — title transfers can be blocked or proceed incorrectly if the agent fails to notify the Land Office.

• Not addressing FX/tax/withholding (who pays tax on interest, who bears currency swing).

• Overlooking AML/KYC requirements that delay account opening.

Quick practical checklist before you sign an escrow agreement

• Confirm the agent holds an escrow license (Minister of Finance / BOT permissions).

• Insist the contract lists precise release conditions, documentary triggers and certificate issuers.

• Require segregation and bank confirmation of deposit within statutory timeline.

• Build dispute resolution (arbitration + interim court remedies) into the agreement.

• Address FX, interest on escrow funds, taxes and agent fees up front.

Conclusion

Thailand’s Escrow Act (B.E. 2551) and BOT guidance have created a clear, supervised channel for escrow services — especially useful in property presales, construction projects, M&A and cross-border transactions. The protections (licensed agents, segregation, Land Office notice, insolvency safeguards) are powerful, but they only work if the escrow is done with a properly licensed agent and a tightly drafted escrow agreement. For high-value or cross-border deals, use a licensed bank or authorized custodian and get Thai legal and tax advice before signing.