Escrow Accounts in Thailand. An escrow account is a legal arrangement wherein a neutral third party temporarily holds funds, documents, or other assets on behalf of two or more parties involved in a transaction, until certain agreed-upon conditions are fulfilled. In Thailand, escrow arrangements are primarily used in real estate transactions, though they are also applied in project financing, business acquisitions, and contractual settlements.
Thailand’s modern legal structure for escrow services is relatively recent. The Escrow Act B.E. 2551 (2008) introduced statutory governance for escrow agreements, setting strict requirements on licensed escrow agents and permissible types of transactions. The act aims to protect both buyers and sellers from fraud, misappropriation, and non-performance—particularly in transactions involving large sums or delayed delivery.
1. Legal Basis for Escrow Arrangements
1.1 Escrow Act B.E. 2551 (2008)
This legislation defines the scope, responsibilities, and licensing requirements for escrow service providers. It governs:
-
Who can serve as escrow agents
-
The conditions under which escrow accounts can be used
-
Enforcement and penalties for misuse
The Act limits escrow transactions primarily to real estate and specific contract types approved by the Ministry of Finance or the Ministry of Commerce.
1.2 Supervision
The Ministry of Finance oversees the licensing of escrow businesses. The Bank of Thailand supervises licensed commercial banks that offer escrow services, while the Department of Business Development (DBD) plays a role in monitoring compliance for non-bank agents.
2. What Is an Escrow Agreement in Thai Law?
Under Thai law, an escrow agreement is a tripartite contract involving:
-
The buyer
-
The seller
-
The escrow agent (licensed by the Ministry of Finance)
The buyer deposits funds into a special escrow account, which the agent will only release to the seller once the pre-agreed contractual conditions are met (e.g., property transfer registration, compliance with due diligence, delivery of documentation).
This differs from informal “trust” arrangements, which are not legally recognized under Thai law, given that Thailand does not have a codified trust law regime.
3. Authorized Escrow Agents
Escrow agents must be licensed, and only the following institutions are eligible:
-
Commercial banks authorized by the Bank of Thailand
-
Finance companies
-
Authorized financial institutions as prescribed by the Ministerial Regulations
-
Specialized institutions (e.g., government-sponsored banks such as GH Bank)
-
Other entities that receive specific permission from the Ministry of Finance
Law firms, real estate agents, or developers themselves are prohibited from acting as escrow agents unless licensed.
4. Escrow in Real Estate Transactions
Real estate is the primary sector where escrow accounts are used in Thailand, particularly in:
-
Off-plan condominium sales
-
Land purchases involving foreigners
-
Developer-buyer transactions with staged payments
-
Property acquisition involving litigation or conditional transfers
4.1 Key Steps
-
Escrow Agreement Drafting: Sets out the obligations of each party, the conditions for fund release, dispute resolution, and the role of the escrow agent.
-
Deposit of Funds: The buyer deposits the agreed amount into the escrow account managed by the agent.
-
Fulfillment of Conditions: Includes title transfer, zoning approval, construction milestone, or due diligence satisfaction.
-
Release of Funds: Upon confirmation that all terms have been satisfied, the agent releases funds to the seller.
5. Regulatory Requirements and Limitations
5.1 Mandatory Use
Under the Condominium Act (No. 4) B.E. 2551, developers of off-plan condominium projects may be required or encouraged to use escrow accounts for buyer payments, especially if they intend to pre-sell units before construction is complete.
While not mandatory in all cases, use of escrow provides assurance to purchasers and can be a condition in:
-
BOI-promoted projects
-
Foreign quota condominium units
-
Real estate transactions involving installment payments
5.2 Scope of Escrow Permissibility
As of 2024, escrow is not universally allowed for all types of contracts. The Ministry of Finance has limited it to:
-
Real estate transactions
-
Specific types of service and procurement contracts
-
Project finance structures (case-by-case basis)
Other types of commercial contracts may require Ministerial approval to be eligible for escrow treatment under the Act.
6. Fees and Costs
Escrow agents charge service fees, which vary depending on the size, duration, and complexity of the transaction.
Typical ranges:
-
Flat fee: Between THB 10,000 and THB 100,000
-
Percentage fee: 0.1–0.5% of the transaction value
Fees may be shared by the buyer and seller, or paid solely by one party, as agreed in the escrow contract.
7. Dispute and Enforcement
Escrow agreements often include clauses for dispute resolution (arbitration or Thai court jurisdiction). If parties dispute whether conditions have been fulfilled, the escrow agent will generally:
-
Freeze the account
-
Notify all parties
-
Await a court order or mutual written agreement before disbursing funds
Thai courts recognize properly registered escrow agreements and can enforce their terms, including orders to compel release or restitution of funds.
8. Escrow vs. Nominee or Holding Structures
In the past, foreign investors often relied on nominee structures or unregulated fund-holding arrangements in real estate transactions. These raise significant risks:
-
Nominee shareholders are illegal under Thai land law and the Foreign Business Act.
-
Holding money via personal accounts of developers or agents has led to fraud and embezzlement.
Escrow accounts provide a regulated and enforceable alternative, especially in high-value or multi-party transactions, with transparency and regulatory protection.
9. Limitations and Practical Issues
While escrow accounts enhance transactional safety, they also present limitations:
9.1 Limited Market Adoption
-
As of 2024, less than 20% of real estate transactions in Thailand utilize formal escrow structures, largely due to:
-
Lack of awareness
-
Reluctance of developers to delay payment access
-
Additional costs and documentation
-
9.2 Complexity for Foreign Parties
-
Foreign nationals may face challenges in fund remittance, currency declaration, and tax implications.
-
Escrow agents may require source-of-funds documentation, especially for anti-money laundering (AML) compliance.
9.3 Unclear Conditions
-
Poorly drafted escrow agreements may lack clarity on when and how conditions are deemed fulfilled, leading to disputes.
-
Parties must define clear objective benchmarks (e.g., title registration, permit issuance) and specify required documentation.
10. Tax and Reporting Implications
Funds in an escrow account may have tax implications:
-
For the buyer: The source of funds must be declared, particularly if foreign exchange remittance is involved (important for foreigners acquiring condominiums).
-
For the seller: Escrow disbursement timing may affect withholding tax, specific business tax, and stamp duty liabilities.
Escrow agents are required to report suspicious transactions under Thailand’s Anti-Money Laundering Act B.E. 2542.
Conclusion
The use of escrow accounts in Thailand offers a secure and legally recognized mechanism to manage complex transactions, particularly in the real estate sector. Governed by the Escrow Act B.E. 2551, these arrangements provide neutrality, protect both parties from default, and reduce fraud risk—especially in off-plan property purchases and high-value deals.
However, escrow structures must be carefully drafted, registered with licensed agents, and implemented with an understanding of their limitations. Issues such as licensing, enforcement, foreign remittances, and condition clarity must be proactively addressed to ensure successful execution.