#escrowact

Escrow accounts have become an increasingly important risk‑management tool for high‑value transactions in Thailand. Whether you are buying an off‑plan condominium, structuring a cross‑border merger, or managing a construction project, an escrow arrangement offers a secure way to align incentives and minimise counterparty risk. Thailand’s escrow framework is governed by the Escrow Act B.E. 2551 (2008), which transformed escrow from a simple commercial convention into a statutory, regulated mechanism. This guide examines the legal foundations of escrow in Thailand, the types of arrangements available, the steps for setting one up, and the compliance issues that parties must navigate in 2026.

1. Legal Framework and Governing Law

Before the Escrow Act was enacted, escrow agreements in Thailand existed but lacked formal statutory backing, which led to enforceability problems and a risk of misappropriation. The 2008 Act filled that gap by providing a comprehensive statutory basis for escrow services, with particular emphasis on protecting buyers in immovable property transactions.

1.1 Key Provisions of the Escrow Act

Definition of escrow contract – The Act formally recognises escrow as a contract under which parties entrust funds, documents or other assets to a neutral third party until predetermined conditions are fulfilled.

Licensing requirements – Only licensed entities may act as escrow agents. The Act establishes a licensing regime supervised by the Ministry of Finance, with operational oversight by the Department of Business Development (DBD) and, for banks, additional rules from the Bank of Thailand (BOT).

Duties and liabilities – The Act sets out strict obligations for escrow agents, including the duty to segregate escrow property, to act impartially and to release assets only in accordance with the contract or a court order.

Enforcement and penalties – The Act creates civil and criminal liability for misconduct, including misappropriation, negligent release or failure to keep proper records.

1.2 Regulatory Authorities

Several bodies share responsibility for overseeing escrow activities in Thailand:

Ministry of Finance – Grants escrow licences and sets general policy.

Bank of Thailand (BOT) – Issues governance and operational rules for commercial banks that offer escrow services. The BOT also oversees anti‑money‑laundering (AML) and foreign‑exchange compliance.

Department of Business Development (DBD) – Handles licensing and compliance monitoring for non‑bank escrow providers.

Securities and Exchange Commission (SEC) – Regulates escrow arrangements involving securities or capital‑market transactions.

2. Who May Act as an Escrow Agent?

Under the Escrow Act, only licensed persons or juristic entities may operate as escrow agents. The principal categories are:

Commercial banks – The most common and most trusted type of escrow agent. Banks must obtain a licence from the Ministry of Finance and comply with BOT notifications that set governance and operational standards. For large‑value transactions, especially those involving foreign currency, a regulated bank is the preferred choice.

Finance companies – Licensed financial institutions other than banks may also act as escrow agents, subject to Ministry of Finance approval.

Licensed escrow companies – Non‑bank entities that obtain a specific escrow licence from the Ministry of Finance can operate as independent escrow service providers. Their numbers are limited, but they offer specialised services for complex, multi‑jurisdictional deals.

Law firms (limited circumstances) – Lawyers or law firms may act as escrow agents only if they have obtained Ministry of Finance approval. In practice, this is rare; most law firms that provide “escrow‑like” services do so through client trust accounts without formal escrow licensing. Such arrangements carry higher risk because they lack the statutory protections of the Escrow Act.

⚠️ Warning: Unlicensed individuals, real‑estate agents or developers who hold funds on behalf of clients without an escrow licence risk criminal liability, including fines and imprisonment under Section 29 of the Escrow Act. While informal “quasi‑escrow” practices exist, they offer no statutory protection and are not enforceable under the escrow framework.

3. Types of Escrow Arrangements in Thailand

Thai law recognises several categories of escrow, each suited to different transactional contexts.

3.1 Real Estate Escrow

Real estate is by far the most common use of escrow in Thailand. Escrow is widely used for:

Off‑plan condominium purchases – Buyer deposits funds into an escrow account, and the money is released only when the developer meets construction milestones, obtains final approvals or registers title transfer. This protects buyers against project delays, developer insolvency or diversion of pre‑sale proceeds.

Land purchases with deferred transfer – Funds are held until the seller delivers a clear Chanote title deed and all encumbrances have been removed.

Completed property sales – The buyer deposits the purchase price, and the agent releases it only after the Land Office registers the transfer in the buyer’s name.

Because Thai law does not mandate escrow for off‑plan sales, its use remains voluntary. Nevertheless, larger developments increasingly offer escrow as a buyer protection tool, particularly for international purchasers.

3.2 Mergers and Acquisitions (M&A)

In corporate transactions, escrow accounts serve several functions:

Purchase‑price holdbacks – A portion of the consideration (typically 10‑30%) is placed in escrow to cover warranty claims, indemnities or post‑closing adjustments.

Earn‑out escrows – Funds are released only when the target business achieves certain performance metrics.

Regulatory escrows – Consideration may be held pending shareholder approvals or foreign‑investment clearances.

3.3 Construction and Infrastructure

For construction projects, escrow can hold retention sums, milestone payments or performance guarantees. Release is conditional on certified completion events, defect‑free periods or inspection reports issued by an independent engineer.

3.4 Cross‑Border Trade

International buyers and sellers often insist on bank escrow arrangements to manage payment risk. Funds are released only when the seller provides shipping documents, certificates of origin or inspection results. Such escrows must comply with foreign‑exchange controls and AML rules.

3.5 Judicial Escrow

Under Section 222 of the Civil Procedure Code, courts may order that disputed funds be placed in escrow pending litigation. Judicial escrow is also used for court‑ordered deposits in civil cases.

3.6 Condominium Foreign Quota Management

For foreign buyers purchasing condominium units, escrow accounts are sometimes used to validate foreign‑exchange documentation and secure a proper fund trail for title registration. This ensures compliance with the Condominium Act’s 49% foreign ownership limit.

4. How to Set Up an Escrow Account – Step by Step

Establishing an escrow arrangement in Thailand follows a structured, contract‑driven process.

Step 1 – Agree on the Use of Escrow

The buyer and seller must expressly agree in the underlying contract (e.g., sale and purchase agreement, share purchase agreement) that escrow will be used. Escrow is never automatic; it must be expressly agreed.

Step 2 – Select a Licensed Escrow Agent

For high‑value or cross‑border transactions, a commercial bank is the safest choice. For smaller, bespoke deals, a reputable law firm with a client trust account may be acceptable, but the parties should insert strong indemnities and auditing rights.

Step 3 – Draft the Escrow Agreement

A valid escrow agreement must be in writing and signed by all three parties. It should include:

Names, roles and contact details of the buyer (depositor), seller (beneficiary) and escrow agent.

A precise description of the escrow property (funds, title deeds, share certificates, etc.).

Clear, objective release conditions – This is the single most important element. Conditions must be verifiable by documentary evidence, not subjective opinions. For example: “Release funds upon presentation of the updated Chanote registered in the buyer’s name and a certified Land Office transfer receipt”.

Evidence required to prove that conditions have been met (e.g., Land Office receipt, surveyor’s certificate, auditor’s report).

Payment and deposit mechanics (including SWIFT references and deposit dates).

Fee arrangements (who pays, how much, when).

Dispute‑resolution clause (Thai court jurisdiction or arbitration).

Interest allocation (typically credited to the buyer’s account).

Step 4 – Open the Escrow Account

The escrow agent opens a dedicated, segregated account. For real‑estate transactions, the agent must notify the Land Office so that title transfer cannot proceed until the escrow conditions are met.

Step 5 – Deposit Funds or Assets

The buyer deposits the funds into the escrow account (or delivers original documents to the agent). The agent acknowledges receipt in writing.

Step 6 – Monitor Conditions and Release

The agent monitors compliance with the release conditions. Once all conditions are satisfied and the required documentary evidence is presented, the agent releases the funds or assets to the beneficiary. Improper release (including early or negligent release) exposes the agent to administrative sanctions, licence revocation and criminal liability.

Step 7 – Close the Escrow

After full release, the account is closed. Any interest earned is distributed according to the agreement. All records are retained for regulatory review.

5. Critical Compliance and Regulatory Issues

5.1 Anti‑Money Laundering (AML) and Know‑Your‑Customer (KYC)

Banks acting as escrow agents are subject to strict AML and KYC rules. For any escrow involving foreign funds, the agent will require:

Source‑of‑funds documentation.

Proof of identity of the ultimate beneficial owner.

For property purchases, a valid Foreign Exchange Transaction (FET) Form (previously known as the Tor Tor 3). This document, issued by the receiving Thai bank, proves that foreign currency was transferred into Thailand and converted into Thai baht for the specific purpose of the transaction. Without a valid FET, the Land Office will not register title transfer.

5.2 Segregation of Escrow Property

The escrow agent must keep escrow funds separate from its own assets. Funds received must be deposited into a designated escrow account without delay (usually within one business day). If the agent commingles funds or fails to segregate them, the statutory protections of the Escrow Act may be lost.

5.3 Insolvency Risk

If the escrow agent becomes insolvent, funds that have not been properly segregated may be caught in the agent’s estate. For this reason, regulated commercial banks or trust companies are strongly preferred for large sums. Law‑firm trust accounts carry a higher insolvency risk unless the firm maintains separately ring‑fenced client accounts.

5.4 Foreign Currency and Exchange Controls

Thai banks can hold foreign‑currency escrow accounts (e.g., USD, EUR), but such accounts are subject to the Foreign Exchange Control Act. Conversion risk is borne by the depositor, and all remittances must comply with BOT foreign‑exchange rules.

5.5 Tax Treatment

Withholding tax – Interest earned on escrow deposits is generally subject to 15% withholding tax, unless a double‑taxation treaty provides relief.

VAT – Escrow services provided by banks are generally exempt from VAT. When provided by non‑bank licensed agents, the standard 7% VAT rate may apply.

Capital gains – Funds released from escrow do not, by themselves, trigger capital gains tax; the underlying transaction determines tax liability.

6. Common Pitfalls and Disputes

Despite the statutory framework, escrow arrangements in Thailand are not immune to problems. The most common failure points are:

Ambiguous release conditions – Vague language (e.g., “when the seller performs all obligations”) leads to disputes. Approximately 30% of escrow disputes arise from unclear trigger conditions.

Agent misconduct – Negligent or improper release of funds before conditions are met can result in liability for the agent.

Failure to segregate – Commingling escrow funds with the agent’s own assets undermines the protection of the Escrow Act.

Missing FET forms – For foreign buyers, the absence of a valid FET form can block title registration, even if funds are already in escrow.

Insolvency of the agent – If the agent is a law firm or an unregulated entity, funds may be lost in bankruptcy.

To mitigate these risks, parties should:

Use a licensed commercial bank as the escrow agent for high‑value transactions.

Draft release conditions with surgical precision, using objective documentary triggers.

Include a dispute‑resolution ladder in the escrow agreement (e.g., negotiation → independent expert → arbitration).

Retain the right to audit the agent’s segregated account records.

For foreign buyers, ensure that the FET form is obtained before funds are released.

7. Conclusion

Escrow accounts in Thailand have evolved from an informal commercial tool into a regulated, statutory mechanism for risk mitigation. The Escrow Act B.E. 2551 provides a clear legal framework, defines who may act as an escrow agent, and imposes strict duties of impartiality, segregation and proper record‑keeping. While the use of escrow remains voluntary in most sectors, it is increasingly adopted in off‑plan property sales, M&A transactions, construction projects and cross‑border trade.

For buyers, sellers and investors, the message is clear: escrow turns execution risk into a codified, low‑surprise process. However, success depends on choosing a licensed agent (preferably a commercial bank), drafting precise release conditions, and complying with all AML, foreign‑exchange and tax requirements. In a jurisdiction where informal “trust” arrangements carry significant risk, a properly structured escrow account offers the strongest legal protection available.

Escrow accounts in Thailand represent a sophisticated, legally structured mechanism for mitigating risk in high-value transactions. Governed primarily by the Escrow Act B.E. 2551 (2008) , an escrow arrangement provides a secure method for a neutral third party—a licensed escrow agent—to hold funds or documents on behalf of transacting parties, releasing them only upon the strict fulfillment of pre-agreed, objective conditions . While not yet mandatory for most transactions, the framework offers a powerful tool for enhancing transparency and security, particularly for foreign investors navigating Thailand's legal landscape . This article provides a comprehensive, in-depth examination of escrow accounts in Thailand, covering the legal foundations, types of agents, essential agreement components, practical applications, and strategic considerations for 2026.

The Legal Foundation: The Escrow Act and Its Requirements

The cornerstone of escrow in Thailand is the Escrow Act B.E. 2551, a statute designed to promote transparency and protect parties, especially in real estate and other large-scale transactions . The Act establishes a clear, regulated framework, distinguishing it from informal holding arrangements.

Key Provisions of the Act

Licensing Requirement: Only entities licensed by the Ministry of Finance can legally operate as escrow agents . This is a critical distinction; an unlicensed party holding funds is not a statutory escrow agent under the Act.

Scope of Application: The Act permits escrow arrangements for real estate, the sale of movable property with deferred transfer, construction projects, financial guarantees, and other civil contracts with payment contingencies .

Statutory Duties: The Act imposes strict fiduciary duties on the escrow agent, including the obligation to safeguard and segregate escrow property (no commingling with the agent's own funds), monitor the fulfillment of conditions, and disburse funds or assets only upon strict compliance with the agreement . The Escrow Act (No.2) amendment in 2019 widened permitted transactions and clarified procedures for handling condominiums as immovable property .

The Escrow Agreement: Essential Elements and Drafting Precision

An escrow arrangement is a tripartite contract between the depositor (e.g., buyer), the recipient (e.g., seller), and the escrow agent . Its effectiveness hinges on the precision of its terms. Vague language is the single most common source of disputes .

Core Components of a Robust Escrow Agreement

Identification of Parties and Escrow Property: Clearly name all parties and exactly define the property being held—whether a specific sum in a named bank account, original title deeds, share certificates, or other documents .

Objective Release Triggers: Conditions for release must be based on objective, verifiable documents, not subjective opinions. For example, "upon presentation of the updated Chanote issued in the Buyer's name and a certified Land Office transfer receipt" is far preferable to "upon satisfactory completion of the transfer" . Common triggers include Land Office receipts, surveyor certificates, auditor reports, or signed delivery notes .

Release Mechanics: Specify who signs the release instruction (e.g., joint signatures, or one party upon providing the required certification) and the timeline for the agent to act (e.g., "within three business days of receipt") .

Dispute Resolution and Holdback Process: Define what happens if parties disagree. A "dispute ladder" might involve negotiation, then an independent expert, and finally arbitration or court proceedings . The agreement should instruct the agent to retain funds pending a court order or arbitral award .

Fees, Expenses, and Interest: Clearly state who pays the escrow agent's fees, how and when they are deducted, and how any interest accrued on the funds is to be allocated (typically to the buyer/depositor) .

Agent Indemnity and Liability: Include a standard clause indemnifying the agent for actions taken in good faith, while preserving remedies for gross negligence or fraud .

AML/KYC and Document Requirements: Acknowledge that the agent will conduct KYC/AML checks. The agreement should assign responsibility for providing necessary documents, such as source-of-funds evidence and FET forms for foreign buyers .

Practical Applications of Escrow in Thailand

Escrow accounts are employed across a range of high-stakes transactions to manage risk and build trust.

Real Estate Transactions

This is the most common use for escrow in Thailand . For off-plan condominium purchases, an escrow account can protect a buyer's deposit by staging payments based on verified construction milestones. Funds are only released to the developer upon completion of each stage, reducing the risk of loss from project delays or developer insolvency . For a standard property sale, the buyer can deposit the full purchase price into escrow, with instructions to release it to the seller only upon the successful registration of the transfer of the land title deed (Chanote) at the local Land Office .

Mergers and Acquisitions (M&A)

In corporate transactions, escrow is frequently used to manage post-closing risks. A portion of the purchase price may be held in escrow for a specified period (e.g., 12-24 months) to cover any indemnity claims arising from a breach of the seller's representations and warranties . It can also secure funds for post-closing adjustments or earn-out payments .

Construction and Development

Escrow accounts can be used to manage payments to contractors, ensuring that funds are released only upon certified completion of project milestones or after the end of a defects liability period. This aligns the contractor's incentives with the project owner's .

International Trade

For cross-border transactions, an escrow account can secure payment for goods pending the presentation of shipping documents (e.g., a bill of lading, certificate of origin) or successful inspection and acceptance testing .

Special Considerations for Foreign Buyers and Cross-Border Deals

For international parties, escrow offers an additional layer of security when dealing with an unfamiliar legal system . However, specific compliance issues arise.

FET Form and Source of Funds

Thai banks and the Land Office strictly enforce foreign exchange regulations. For a foreign buyer remitting funds to purchase property, they must obtain a Foreign Exchange Transaction Form (FET Form) from their receiving Thai bank . This document proves that foreign currency was brought into Thailand for the specific purpose of the purchase and is mandatory for registering the transfer of ownership. An escrow agreement should allocate responsibility for obtaining and delivering this documentation and should only authorize the release of funds upon production of the FET Form .

Title Deed Custody

To prevent fraud, the escrow arrangement can include the simultaneous deposit of the original land title deed by the seller alongside the buyer's funds. The agreement would then instruct the escrow agent to release the funds only when the updated title deed in the buyer's name is presented .

Currency and Governing Law

For cross-border deals, parties must decide on the currency of the escrow account. Major Thai banks can hold foreign currency accounts, but this is subject to the Foreign Exchange Control Act, with conversion risks borne by the depositor . While the escrow agreement will typically be governed by Thai law, it is crucial to ensure that any dispute resolution clause, such as arbitration, is enforceable internationally under conventions like the New York Convention .

Conclusion

Escrow accounts in Thailand, firmly established by the Escrow Act B.E. 2551, provide a robust and transparent method for securing high-value transactions. By placing funds and documents with a licensed, neutral third party and tying their release to objective, verifiable conditions, parties can significantly reduce counterparty risk and fraud .

For international investors, particularly in real estate and M&A, utilizing a regulated escrow agent—most commonly a commercial bank—is a prudent strategy. It not only aligns with international best practices but also ensures compliance with critical local requirements like the FET form, facilitating a smoother and more secure transaction process . While challenges like cost and limited awareness persist, the legal framework is sound, and its use is likely to grow as Thailand's economy continues to integrate with global markets . The key to a successful escrow lies in choosing a reputable, licensed agent and drafting a meticulously detailed escrow agreement with clear, objective release triggers .