Escrow in Thailand

30 Sep 2019   |   By Ken Smith


The purpose of this information post is to inform readers of the situation regarding escrow in Thailand.

In short, it is illegal for companies to offer escrow services in Thailand unless specifically approved by the Fiscal Policy Office of the Thailand Ministry of Finance Department. This department can only authorize 'financial institutions' (like banks and finance companies, who comply with the requirements of the department) and not real estate agencies and not law firms as is common in other countries.

What is Escrow?

In many countries, there is a system in place whereby people who wish to buy large items which are subject to contractual conditions, like real estate or businesses, can lodge their payments with a third party to be held and released or dealt with under an agreed set of conditions. A very simple example is a buyer of a house may lodge final payment for the house purchase with their agent (in escrow) on the condition that it can only be paid to the seller after the title deed for the property has cleared. In this example, the buyer can pay the money up front and know in full confidence that until the title deed is transferred, the money will not be paid. The seller too is comfortable knowing that the sale will proceed (because the money has already been put up) once the title is cleared.

In theory and in practice, escrow is very useful to buyers and sellers as it gives them a form of security over their purchase or sale. Escrow is used in many countries and almost routinely where contractual conditions apply. In cases where an escrow payment is made (or withheld) and this is contested by either the buyer or seller, then the conflict is resolved through the normal legal process and, importantly, in accordance with that country's legislation regarding money held in escrow. There is legislature in place regarding escrow and there are processes in place to deal with accountability, disbursement and dispute resolution.

Escrow in Thailand

The Thai government has been considering its own escrow legislature for a long time with a view to making it more readily available and more like other countries. Unfortunately though, as at the time of writing, the only legislature that exists relates to authorized financial institutions - more or less, banks. Some banks in Thailand provide an escrow service and some do not. If you find a real estate agency or law firm providing an escrow service in Thailand, they will be doing so without proper approval and there are a few problems with offering an escrow service without proper approval.

Escrow receipts and payments are typically made into and out of a company bank account. Some companies will have a separate account just for escrow and in some countries this is actually a requirement and there are separate compliance and reporting requirements dealing specifically with escrow accounts and transactions. In Thailand however, because there is no law dealing with a company receiving and disbursing escrow payments, the Thailand government can quite rightly interpret the 'deposit' as income and this may be subjected to VAT. Similarly, if not properly documented, the payment may be treated as a non-receipted expense and may not be allowed to offset the income. Admittedly, the chances of this occurring are reasonably low, but the consequences for the company who takes responsibility for the escrow receipt and disbursement are significant.

Of even more significance and probability however, is the issue of 'what happens if the disbursement of money is contested by either the buyer or seller?' For example, the buyer says "you should not have released the money on that date because -", or the seller says "you should have released the money to me by now and because you haven't, I am going to claim financial loss." These two examples and other similar situations are far more common and arise frequently because people interpret the conditions of the escrow disbursement in different ways. So who is right and who is wrong, and who is liable and who is not? Very important questions! And how are these questions answered? In countries where escrow laws exist, the answers are relatively easy to find and can be dealt with and resolved in accordance with the escrow laws of that country and the systems in place to deal with situations like this.

As explained above however, in Thailand there are no laws relating to escrow other than those that apply specifically to approved financial institutions. There is no legal system in place to deal with contesting a perceived mishandling of an escrow payment other than general arbitration. This means that the whole purpose of using an escrow service to provide security of the transaction is flawed and could possibly end up not providing that security at all. Without proper and known laws and processes for escrow, the risk to the company who accepts responsibility for the escrow disbursement is very high. Insofar as the buyer and seller are concerned, the risk is high also in that if the payment or non-payment is contested by either party, there is virtually no system nor process available to deal with it in the way they may think or the way they are used to having it dealt with in their own country. There are no underlying systems or even rules to deal with this situation in Thailand.

The Alternative

What occurs in Thailand and is common practice is that a buyer makes payments directly to the seller in accordance with agreed conditions as set out in a sales and purchase agreement. That agreement deals with (if prepared correctly) the conditions under which the seller may keep the money or be obliged to return the money. We provide a more detailed explanation of this process in another information post on this website, and I encourage you to read it at The Business Purchase Process in Thailand.




Ken Smith
Ken is from Australia and has been living abroad since 2007. He currently lives between offices in Bangkok and Pattaya (Thailand). Influenced by his parents while growing up in Melbourne, he has been involved in small business from an early age. He founded Bangkok Bar Sales in 2009 which became Asian Business Brokers in 2014. He was a senior manager with Asian Business Brokers until 2019 when he moved to Grab Real Estate to take up the inaugural General Manager position.


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Bibliography/Further Reading

• Asian Business Brokers (Thailand) News Article
• Mr Paul Bond, SB Law Asia

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