Merger Mechanics: Integrating Businesses under Thai Law

Overview of Mergers and Their Importance

Mergers represent a fundamental aspect of mergers and acquisitions (M&A) and have become increasingly important for corporate restructuring and growth strategies in Thailand. The process involves the combination of two or more companies into a single entity, with the aim of enhancing operational efficiency, expanding market presence, and strengthening competitive advantages. Typically, this results in one company ceasing to exist while the other continues as the surviving entity, absorbing the merged assets and operations. The merger process requires careful planning, beginning with thorough due diligence to identify any legal, financial, or operational risks. It also includes drafting a comprehensive merger agreement that defines the terms, share exchange ratios, and the management structure of the new or surviving entity.

Regulatory Environment Governing Mergers

In Thailand, the legal framework for mergers is defined by the Civil and Commercial Code (CCC) and the Public Limited Companies Act (PLCA). Public companies are subject to additional regulations issued by the Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand (SET).

Procedural Requirements for Mergers

The merger process involves key steps such as:

• Obtaining approval from shareholders at a general meeting.
• Registering the merger resolution with the public registrar.
• Addressing objections from creditors.
• Holding joint shareholder meetings for all merging entities.
• Registering the merger with the public registrar.

The process also involves further important legal considerations, including employee rights under Thai labor laws. Employment contracts are generally transferred to the new entity, and any changes require employee consent. Moreover, if foreign shareholders are involved, the Foreign Business Act (FBA) may impose restrictions on certain business activities.

Tax Treatment and Recent Rulings

The tax treatment of mergers was clarified by the Thai Revenue Department on February 21, 2024, through a public tax ruling. The Revenue Department ruled that a merger under the amended CCC does not qualify as an amalgamation under Section 73 of the Revenue Code (RC). Instead, it is treated as an entire business transfer (EBT) under Section 74 (1)(c) of the RC.

The key tax implications include:

• Corporate Income Tax:
  • Gains realized from the merger are exempt from corporate income tax.
  • The surviving entity must carry over the tax costs of acquired assets as recorded in the merging entities’ books.
• Value-Added Tax (VAT): Exempt.
• Specific Business Tax (SBT): Exempt.
• Stamp Duty: Exempt.

These exemptions align the tax treatment of mergers with EBT transactions, reducing tax burdens and encouraging businesses to utilize this new merger scheme.

Considerations for Global Transactions

For international mergers, the changes in Thai law also require careful consideration of cross-border regulations, tax treaties, and potential legal conflicts between jurisdictions. Foreign investors must navigate the restrictions under the Foreign Business Act (FBA), which limits foreign ownership in certain business sectors. Legal due diligence is essential to identify and address any restrictions or compliance requirements specific to the target company or industry.

Planning for Successful Mergers

Mergers in Thailand are a strategic pathway for business growth and transformation, but require careful legal and tax planning to ensure compliance and minimize risks. Domestic mergers must navigate Thai-specific regulatory requirements, while international mergers add layers of cross-border considerations. Companies planning to undertake a merger in Thailand should engage experienced legal and tax advisors to address the complexities and maximize the benefits of the transaction. This ensures a seamless integration process and a strong foundation for future success.

Need support navigating Thai mergers? Contact us for tailored, expert assistance.