Navigating Asset and Share Deals in Thai M&A

Understanding the Key Differences Between Asset and Share Deals in Thailand’s M&A Landscape

Introduction

Choosing between an asset deal and a share deal in Thailand’s M&A market significantly shapes outcomes for buyers and sellers.

What Are Asset and Share Deals?

In M&A, an asset deal involves selling or purchasing specific business assets, such as equipment or intellectual property, allowing parties to target desired components without transferring the entire company. A share deal entails transferring the company’s shares, effectively handing over the whole business, including all assets, liabilities, contracts, and operations. These structures drive tax obligations, complexity, and continuity in Thailand’s regulatory environment.

Asset Deal: Selective Disposal with Challenges

An asset deal enables sellers to sell specific assets, like equipment, customer base, or intellectual property, while retaining valuable or strategic components, providing flexibility to streamline operations or divest non-core units. Selling only desirable assets attracts buyers seeking to avoid liabilities, potentially increasing sale prices for high-value items. This structure is ideal for a clean exit from parts of the business. Buyers often favor asset deals to cherry-pick assets, sidestep undisclosed liabilities, and benefit from tax advantages through a stepped-up asset basis, which supports depreciation deductions to reduce future taxable income.

However, asset deals present significant challenges:

• Higher Tax Burden: Asset sales trigger income tax (20% for companies, 0-35% for individuals) and VAT. Property transactions incur registration fees and taxed. Limited companies face double taxation: 20% corporate income tax on profits, 10% withholding tax on dividends distributed to shareholders, reducing proceeds.
• Complex Process: Each asset requires individual transfer, needing consents for contracts or permits, which is time-consuming and costly under Thai regulations.
• Labor Obligations: Employee transfers under Thailand’s Labor Protection Act may require consultations and severance payments if employees object, adding costs.

Share Deal: Simplicity with Liabilities

A share deal simplifies the transaction by transferring the entire company, including contracts, licenses, and employees, ensuring business continuity with minimal disruptions. Sellers benefit from tax efficiency: individual share sales incur personal income tax (0-35%), and companies face income tax (20%), with no VAT or double taxation, as proceeds are not distributed as dividends. This structure reduces administrative burdens, as no individual asset transfers are needed. While buyers often prefer asset deals to avoid inheriting liabilities, share deals offer efficiency by maintaining operational stability and business-related licenses without requiring consents.

Share deals have notable drawbacks:

• Liability Retention: Sellers may remain liable for pre-sale obligations if not properly disclosed, requiring careful due diligence. Buyers inherit all liabilities, known or unknown.
• Responsibility to Wind Up: Sellers must liquidate the company, involving audits and tax clearances, a lengthy process in Thailand.
• Regulatory Scrutiny: Foreign buyers may face restrictions under Thailand’s Foreign Business Act, potentially delaying transactions.

Strategic Takeaways

Sellers typically prefer share deals for tax efficiency and simplicity, while buyers favor asset deals to cherry-pick assets and avoid liabilities. Thailand’s tax and regulatory landscape demands tailored structuring. Our firm provides expert guidance and precise tax calculations to optimize your deal. Contact us to navigate your M&A transaction.