Since 2010, the Global Law Experts annual awards have been celebrating excellence, innovation and performance across the legal communities from around the world.
posted 2 hours ago
Thailand’s 2026 enforcement wave, tighter nominee‑verification orders from the Department of Business Development (DBD) and the Ministry of Commerce (MOC), combined with heightened merger‑control scrutiny, has reshaped how deal teams must design deferred‑payment mechanics in acquisitions. For any buyer, seller or PE sponsor negotiating contingent consideration, the central compliance question is now unavoidable: Will this earn‑out, escrow or deferred payment trigger Thai withholding tax, income‑tax reclassification or nominee‑enforcement action? This tax‑first playbook on earn‑out tax in Thailand provides the definitive structuring framework, covering characterisation rules, withholding and VAT calculations, escrow‑account design, beneficial‑owner checks, and model clauses, that practitioners need to close deals safely under the current regime.
Every recommendation below should be verified with qualified Thai tax counsel before implementation, as individual circumstances will vary.
Before the closing dinner is booked, deal teams should have answers to three questions that determine the tax and regulatory trajectory of every deferred payment. Failure to resolve these within the first 48 hours post‑close dramatically increases audit exposure and the risk of recharacterisation.
The DBD, operating under the MOC, has progressively tightened nominee verification Thailand requirements. Under the Foreign Business Act B. E. 2542 (1999) and subsequent ministerial orders, Thai companies with foreign involvement must demonstrate that Thai shareholders are genuine beneficial owners, not nominees holding shares on behalf of foreign parties. The 2026 enforcement orders expanded the scope of verification, requiring companies to produce updated shareholder registers, source‑of‑funds evidence and board‑resolution trails upon demand. For M&A transactions, this means any deferred payment routed through a Thai intermediary entity will face immediate scrutiny if the DBD suspects nominee arrangements. Practitioners should review the latest DBD and MOC orders directly for specific documentary thresholds.
For a broader discussion of these enforcement measures, see our coverage of how foreign property owners can protect themselves in Thailand after the 2026 nominee company crackdown and the updated overview of the Thailand Foreign Business Act (2026).
Thailand’s Trade Competition Commission (TCC) has signalled closer review of acquisition structures that use complex deferred‑consideration arrangements. While merger notification thresholds remain revenue‑based, the TCC increasingly examines post‑closing payment structures, including earn‑outs tied to market‑share metrics, as indicators of ongoing economic control. Deal teams should factor TCC notification timing into escrow‑release schedules.
Thailand does not impose a separate capital gains tax. Instead, gains from the sale of shares or assets are folded into the seller’s ordinary income and taxed under the Revenue Code. For Thai corporate sellers, this means corporate income tax (CIT) at 20 per cent on net profits. For individual Thai sellers, gains are subject to progressive personal income tax (PIT) rates of up to 35 per cent. Non‑resident sellers face withholding tax (WHT) on Thailand‑sourced income, with rates that depend on the character of the payment and any applicable double‑taxation agreement (DTA). The standard WHT rate on service fees paid to non‑residents is 15 per cent, while dividends attract 10 per cent WHT before treaty relief.
Value Added Tax (VAT) at 7 per cent applies to services performed in Thailand. These rates are published by the Thai Revenue Department.
What is deferred purchase price consideration? Deferred consideration is any portion of the purchase price not paid at closing, typically a fixed sum payable on a set date. An earn‑out, by contrast, is contingent consideration whose amount depends on the target’s post‑closing performance against agreed metrics (revenue, EBITDA, customer retention). The tax treatment of each turns on characterisation: purchase price, income, or service compensation.
The single most consequential tax decision in any Thai M&A earn‑out is characterisation. Thai tax authorities will examine substance over form. If the earn‑out is documented as additional purchase price for shares, the seller reports it as proceeds of sale. If, however, the seller retains operational control or provides management services during the earn‑out period, the Revenue Department may recharacterise the payment as service remuneration, taxable as ordinary income and subject to WHT. Industry observers expect this recharacterisation risk to intensify as the Revenue Department aligns its enforcement posture with the broader anti‑nominee campaign.
Under the Thai Revenue Code, income is generally assessable when it is received or becomes receivable. For earn‑outs, this means the seller may owe tax in the year a milestone is achieved and the payment becomes due, not at closing. Non‑residents are taxed only on Thailand‑sourced income. If the shares being sold are in a Thai company (or derive their value substantially from Thai assets), the earn‑out is almost certainly Thailand‑sourced, regardless of where the payment is actually received.
Scenario: Buyer acquires 100 per cent of a Thai target for THB 100 million at closing, plus an earn‑out of up to THB 30 million payable if EBITDA exceeds THB 50 million in year one. The seller’s original cost base is THB 40 million.
Domestic corporate seller (Thai company):
Foreign corporate seller (non‑resident, no DTA):
Thailand has an extensive DTA network. Many treaties allocate taxing rights over capital gains from share sales to the seller’s residence country, potentially eliminating Thai WHT. However, treaties frequently include a “land‑rich” or “immovable property” exception: if more than 50 per cent of the target’s asset value derives from Thai immovable property, Thailand retains taxing rights. For cross‑border earn‑out tax planning, sellers should obtain a tax‑residency certificate from their home jurisdiction and provide it to the Thai buyer before the first deferred payment is made.
The withholding tax earn‑out Thailand framework depends entirely on how the payment is characterised. The table below summarises the key distinctions.
| Entity type | Withholding & reporting obligations (Thailand) | Practical implication for earn‑out routing |
|---|---|---|
| Thai company (resident seller) | No WHT on share‑sale proceeds paid to a Thai corporate seller; CIT self‑assessed at 20% on net gain | Use Thai escrow; ensure seller beneficial owner is verified; document purchase‑price treatment in SPA and corporate filings |
| Foreign seller (non‑resident) | WHT of 15% on service fees; 10% on dividends; treaty rates may reduce or eliminate; buyer files PND 54 | Obtain tax‑residency certificate; consider treaty relief; include protective WHT gross‑up clause; document that payment is purchase price, not service income |
| Nominee / intermediary entity | Increased scrutiny post‑2026 (DBD/MOC beneficial‑owner checks); risk of reclassification as Thai‑sourced income of true beneficial owner | Avoid routing payments to nominees; perform beneficial‑owner verification; include repatriation and KYC conditions in escrow instructions |
If any element of the earn‑out is characterised as consideration for services performed in Thailand, VAT at 7 per cent applies. The Thai buyer (as the payer) is required to self‑assess reverse‑charge VAT on service fees paid to non‑residents. This is an additional cost that must be modelled into net‑proceeds calculations for the seller. Where the earn‑out is purely deferred purchase price for shares, no VAT applies.
Holding deferred consideration in an escrow holding Thailand structure, a Thai commercial‑bank trust account, provides the strongest documentary trail for Revenue Department audits. Offshore escrows (e.g., Singapore or Hong Kong trust accounts) may be commercially preferred by foreign sellers but create repatriation complexity and weaken the evidentiary chain for Thai tax purposes. Industry observers expect the Revenue Department to view offshore escrows with greater suspicion, particularly where nominee entities are involved in the flow.
Where a DTA reduces or eliminates Thai WHT, the SPA should include a mechanism for the buyer to apply the treaty rate at source, supported by the seller’s tax‑residency certificate. A protective gross‑up clause should require the buyer to pay additional amounts so that the seller receives the full earn‑out net of any unanticipated WHT. This shifts the risk of Revenue Department reclassification to the buyer, a negotiation point that often determines whether the deal closes on agreed economics.
Escrow release should be tied to objectively verifiable events to minimise disputes. Recommended triggers include:
The nominee verification Thailand regime demands that escrow instructions include specific beneficial‑owner verification steps. The following checklist should be embedded in the escrow agreement:
The typical escrow flow proceeds as follows: (1) buyer deposits earn‑out funds with the Thai escrow agent at closing or upon milestone confirmation; (2) the escrow agent holds funds in a segregated account, performs BO verification and confirms WHT compliance; (3) upon delivery of audited metrics, absence of indemnity claims, and refreshed BO certification, the escrow agent releases funds to the seller (net of any WHT); (4) the buyer files PND 54 with the Revenue Department confirming the withholding.
“The Contingent Consideration shall be calculated as [X]% of the Target’s audited EBITDA for the Measurement Period (1 January 20[XX] to 31 December 20[XX]), less the EBITDA Threshold of THB [Y] million, subject to a maximum aggregate Contingent Consideration of THB [Z] million (the ‘Cap’). The Contingent Consideration shall constitute additional purchase price for the Sale Shares and shall not be characterised as compensation for services, employment remuneration or any other payment.”
Drafting note: Expressly characterising the earn‑out as purchase price is essential for Thai tax purposes. Include a separate recital confirming that the seller has no obligation to provide services during the Measurement Period as a condition of earning the Contingent Consideration.
“The Escrow Agent shall release the Escrow Amount (or the relevant portion) to the Seller within [10] Business Days of receipt of: (a) the Earn‑Out Certificate signed by the Independent Accountant; (b) written confirmation from the Buyer that no Indemnity Claim Notice has been delivered; (c) evidence of WHT compliance (PND 54 filing receipt); and (d) a refreshed Beneficial Ownership Certificate from the Seller.”
Drafting note: The requirement for a refreshed BO certificate at each release addresses the 2026 nominee‑verification regime. The escrow agent should be authorised (but not obligated) to withhold release if it has reasonable grounds to believe a nominee arrangement exists.
“If any Deduction is required by law to be made from any payment of Contingent Consideration, the Buyer shall pay such additional amount as is necessary to ensure that the Seller receives a net amount equal to the full amount of the Contingent Consideration that would have been receivable had no such Deduction been required. The Buyer shall indemnify the Seller against any Tax assessed on the Seller arising from the Buyer’s failure to withhold and remit WHT in accordance with the Revenue Code.”
Drafting note: Buyers will typically resist an uncapped gross‑up. Negotiate a cap equal to the difference between the treaty‑rate WHT and the domestic‑rate WHT, so the gross‑up applies only if the Revenue Department successfully challenges treaty relief. This limits buyer exposure while protecting the seller’s net economics.
“The Seller warrants that all payments received under this Agreement constitute purchase consideration for the Sale Shares and that the Seller has not entered into, and will not enter into, any arrangement that would cause any such payment to be recharacterised as service income, employment income or any other category of assessable income under the Revenue Code.”
Drafting note: Pair this warranty with a post‑closing tax indemnity requiring the seller to hold the buyer harmless for any additional tax, penalties or interest arising from a successful recharacterisation claim by the Revenue Department. Specify that indemnity claims may be satisfied first from the escrow balance before recourse to the seller directly.
Caution, seller retention of control: If the seller retains board seats, exercises veto rights over operational decisions, or provides management services during the earn‑out period, the entire structure is vulnerable to recharacterisation. Limit the seller’s post‑closing involvement to information rights and observer status only.
The seller should negotiate audit rights over the target’s financial records during the earn‑out Measurement Period. Standard provisions grant the seller (or its appointed accountant) access to the target’s books, records and management for the purpose of verifying earn‑out metrics. The buyer should cooperate in good faith but may restrict access to commercially sensitive information unrelated to the earn‑out calculation.
Arbitration is often too slow and expensive for earn‑out measurement disputes. Expert determination, appointing an independent Big Four accounting firm to resolve disputes over metric calculations, is faster and binds both parties. The SPA should specify the appointing body, the expert’s terms of reference and the timeline for determination (typically 30–60 days). The expert’s decision on the calculation should be final and binding absent manifest error.
A clear indemnity waterfall prevents procedural disputes from derailing post‑closing relations. The recommended sequence is: (1) buyer delivers an indemnity‑claim notice specifying the breach and estimated loss; (2) seller has a response period (typically 20–30 business days); (3) if the claim is undisputed, the escrow agent deducts the claimed amount from the next scheduled release; (4) if disputed, the contested amount remains in escrow pending expert determination or arbitration; (5) any remaining escrow balance is released to the seller after expiry of the final indemnity period (typically 18–24 months post‑closing).
This article was produced by Global Law Experts. For specialist advice on this topic, contact Kittirut (Kevin) Luecha at Legalese, a member of the Global Law Experts network.
Find the right Legal Expert for your business
Sign up for the latest advisor briefings and news within Global Advisory Experts’ community, as well as a whole host of features, editorial and conference updates direct to your email inbox.
Naturally you can unsubscribe at any time.
Global Advisory Experts is dedicated to providing exceptional advisory services to clients around the world. With a vast network of highly skilled and experienced advisors, we are committed to delivering innovative and tailored solutions to meet the diverse needs of our clients in various jurisdictions.
