Acquisition of Assets as an M&A Deal Structure in Thailand

(Part 2 of a 4-Part Series on M&A Deals in Thailand) 

Essential Considerations for Asset Acquisitions in Thailand

Asset Acquisition Process and Key Considerations

When pursuing mergers and acquisitions (M&A) in Thailand, one commonly adopted approach is the acquisition of assets from the target company. Unlike a share acquisition, which involves purchasing equity in the target company, an asset acquisition focuses on buying specific assets such as property, intellectual property, or operational equipment. This structure is particularly advantageous when the buyer wishes to avoid inheriting liabilities or focus solely on particular business segments. However, asset acquisitions in Thailand have unique procedural, regulatory, and compliance aspects that demand careful consideration.

The process typically begins with a comprehensive due diligence exercise. Buyers must verify the ownership of the assets they intend to acquire, ensuring there are no encumbrances, liens, or disputes over title. This step includes reviewing land title deeds, intellectual property registrations, and machinery ownership documents. For intangible assets such as customer or supplier contracts, buyers must carefully evaluate the terms to ensure their seamless transfer.

Following due diligence, the parties negotiate and execute an Asset Purchase Agreement (APA). This contract outlines the terms of the transaction, including the assets being transferred, the purchase price, representations, warranties, and indemnities offered by the seller. In Thailand, the APA must comply with local legal requirements and often involves specific clauses tailored to address Thai regulatory considerations. The execution of the APA marks a significant milestone, but the transfer of ownership involves further regulatory and administrative steps.

Regulatory, Tax, and Legal Compliance

In Thailand, transferring ownership of certain assets, such as real estate or business licenses, requires registration with relevant government authorities. Real estate transactions must be recorded with the Land Department, while regulated licenses may require approval from specific agencies. For instance, factory licenses, import/export permits, or FDA registrations may necessitate formal applications to reflect the change in ownership. These regulatory approvals can extend the transaction timeline and incur additional costs, particularly for foreign buyers unfamiliar with Thai administrative processes.

In general, the sale of assets, particularly those in the form of tangible property (e.g., real estate), may trigger VAT liability. In Thailand, VAT is generally applicable to the sale of goods and services, and the transaction may be subject to VAT at the standard rate of 7%. However, certain transactions, such as sales of used goods or transfers of certain types of assets, may be exempt or subject to special tax treatments. For the seller, the gain from an asset sale is typically treated as taxable income and subject to corporate income tax at the prevailing rate of 20%. Certain asset sales may be subject to withholding tax in Thailand, particularly if the transaction involves the sale of shares, land, or certain intangible assets. If the asset deal involves the transfer of real property, there are additional taxes to consider, such as specific Business Tax and Stamp Duty.

Thai labor laws also play a critical role in asset acquisitions involving the transfer of employees. Buyers are required to offer equal or better terms of employment to employees associated with the acquired business. Failure to comply with these obligations can lead to disputes and, in some cases, severance claims. If the buyer is terminating the employment, this could trigger severance payment liabilities. If the buyer is taking over the employees from the selling party, the calculation of any payable severance payment will include the time the employee has been employed by the seller.

Foreign buyers face additional restrictions when acquiring real estate in Thailand, as foreign entities are generally prohibited from owning land outright. However, creative solutions, such as long-term leases or ownership through a properly structured Thai company, are commonly employed to address this limitation. Compliance with anti-money laundering or anti-corruption laws, such as the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act, is another essential consideration for international buyers.

Risk Management and Strategic Benefits

One of the significant advantages of an asset acquisition is the ability to isolate and avoid liabilities associated with the target company. Unlike a share acquisition, where the buyer assumes the company’s liabilities, asset acquisitions allow buyers to cherry-pick desired assets while leaving behind undesirable obligations. However, risks remain. Hidden liabilities, such as unpaid taxes or employee claims tied to the acquired assets, can emerge post-acquisition. To mitigate these risks, buyers should negotiate robust indemnity provisions in the APA and consider establishing escrow arrangements to secure potential claims. In most cases, the selling company needs to be wound up after the share transfer, which could be perceived as a burden for the seller.

Despite its benefits, asset acquisition as an M&A structure is not without challenges. Regulatory approvals, compliance obligations, and the risk of misrepresentation by the seller can complicate the transaction. These factors make it essential for buyers to seek expert legal and financial advice to navigate the complexities of Thai regulations and ensure a smooth transaction.

In conclusion, the acquisition of assets offers flexibility for investors looking to acquire specific aspects of a target business while mitigating liability risks. However, success in such transactions requires careful planning, due diligence, and a clear understanding of Thai regulatory and tax frameworks.

For expert guidance on asset acquisitions in Thailand, contact us today to ensure a seamless and compliant transaction.