Due diligence in Thailand is a critical process that involves verifying, investigating, and assessing the legal, financial, and operational standing of a party or property before entering into a business transaction. Whether acquiring real estate, forming partnerships, buying a company, or signing contracts in Thailand, conducting due diligence protects investors and businesses from hidden liabilities, legal pitfalls, and financial loss. Unfortunately, skipping due diligence remains a common mistake, especially among foreign investors unfamiliar with local laws and practices. This oversight can expose parties to significant risks.
Here are the most common risks of skipping due diligence in Thailand:
1. Hidden Ownership and Title Issues
One of the most prevalent risks in Thailand, particularly in real estate transactions, is unclear or disputed land ownership. Many foreigners enter into agreements for condominiums, villas, or land plots without verifying the title deed’s validity. In some cases:
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The land may not be legally transferable.
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The seller may not be the legitimate owner.
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The title deed may have encumbrances, such as mortgages or usufruct rights.
Skipping title deed verification and land office checks can result in the buyer losing both the money and the property. Due diligence can uncover liens, co-owners, or inheritance claims that may affect the transaction.
2. Acquisition of Hidden Debts and Liabilities
When purchasing a business or investing in a company, failing to perform financial and legal due diligence can result in the buyer inheriting undisclosed debts or legal liabilities. These may include:
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Unpaid taxes
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Pending litigation
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Employee claims
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Unreported debts to suppliers
In Thailand, debts may not be automatically transferred, but asset purchases or share transfers can still lead to complex legal entanglements. Without verifying audited financial statements, tax history, and litigation records, investors may be caught off guard after the deal is closed.
3. Regulatory and Licensing Non-Compliance
Many businesses in Thailand are required to obtain licenses or approvals from regulatory bodies. These may include:
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Foreign Business License (FBL)
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BOI (Board of Investment) approvals
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FDA certifications
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Environmental Impact Assessments (EIA)
Failure to investigate whether a business complies with these regulations can lead to business closure, fines, or license revocation. For example, acquiring a factory that operates without proper zoning approval or environmental clearance can bring future legal action or government penalties.
4. Violation of Foreign Ownership Restrictions
Thailand imposes restrictions on foreign ownership in several sectors, including real estate and certain categories of businesses under the Foreign Business Act (FBA). For example:
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Foreigners cannot own land in Thailand directly.
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Foreign ownership in many businesses is capped at 49%.
Without proper legal advice and due diligence, foreign investors may unwittingly enter into nominee arrangements that are illegal under Thai law. If discovered, these arrangements can result in criminal penalties, cancellation of ownership rights, and even deportation.
Due diligence helps clarify the legal ownership structure and ensures compliance with Thai investment laws.
5. Partnership with Untrustworthy Local Partners
Many foreign entrepreneurs rely on Thai partners when entering the market, particularly in restricted business sectors. Skipping background checks and contract reviews exposes investors to fraud, mismanagement, or dishonest practices. Common issues include:
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Misappropriation of company funds
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Forgery of documents
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Conflicts of interest
Due diligence should include reviewing the Thai partner’s reputation, business track record, and any history of litigation. Background checks can also be performed through local legal firms or public databases.
6. Purchase of Encumbered or Non-Compliant Properties
In the real estate sector, some properties may be constructed without proper permits or in violation of zoning laws. This is especially common in resort areas such as Phuket, Pattaya, and Koh Samui. Risks include:
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Building on forest reserve or public land
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Failure to obtain environmental or building permits
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Construction that exceeds allowed height or area
Without proper due diligence involving site visits, land office checks, and permit verification, buyers may purchase a property that faces demolition orders or non-transferable titles.
7. Overpayment Due to Inflated Valuation
Another financial risk of skipping due diligence is overpaying for an asset, property, or business based on inflated valuations. Unscrupulous sellers may present falsified documents, exaggerated revenue forecasts, or manipulated asset valuations to increase the purchase price.
Conducting an independent valuation and reviewing the financials with a qualified Thai accountant can prevent paying more than the asset is truly worth.
8. Overlooking Cultural and Contractual Nuances
Thailand has unique business and legal customs. A failure to understand local legal practices, language use in contracts, and non-verbal cultural cues can cause confusion or disputes later. Many contracts are written in Thai, and what may appear enforceable in English could have no legal standing if not properly translated or signed in accordance with Thai civil law.
Due diligence should include the review and translation of contracts by a qualified bilingual Thai lawyer. This ensures that the terms reflect the intended obligations and protect both parties under Thai law.
9. Exposure to Litigation and Dispute
Skipping legal and corporate due diligence can result in unforeseen litigation. This includes:
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Breach of contract claims
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IP infringement
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Employment disputes
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Tax violations
Lawsuits in Thailand can take years to resolve and may involve complex proceedings in the Civil Court or the IP and International Trade Court. Avoiding these pitfalls through early investigation and contract vetting is far more cost-effective than dealing with post-deal legal battles.
10. Loss of Time and Opportunity
Ultimately, skipping due diligence can result in lost time, money, and market opportunity. Legal entanglements, bad investments, or problematic properties can derail expansion plans or strain investor confidence. The cost of conducting proper due diligence is minor compared to the financial and reputational damage that can result from a bad transaction.
Conclusion
Due diligence is not just a procedural formality in Thailand — it is a crucial step in mitigating legal, financial, and operational risks. Foreign and local investors alike should engage professionals such as lawyers, accountants, and consultants to thoroughly investigate all aspects of a transaction. From verifying land ownership and checking business licenses to reviewing contracts and investigating financial history, due diligence provides the clarity and security needed to proceed with confidence. Skipping it can turn an otherwise promising venture into a legal and financial nightmare.
