Understanding Sales and Service Contracts in Thailand

Thailand has long been a hub for international businesses, offering a wealth of opportunities for growth and expansion. However, it’s essential to comprehend the local legal landscape—particularly when it comes to sales and service contracts. This guide breaks down the key things you need to know about sales and service contracts in Thailand, helping you protect your interests and build strong business relationships.

1. The Foundation: Thai Law and the Importance of Accurate Language

• Thai Law as the Governing Authority: If you create and sign a contract in Thailand, Thai law will most likely apply. That means the country’s legal system, including the Civil and Commercial Code (CCC), establishes the rules for interpreting and enforcing your agreement. Even if your business is based overseas, contracts made in Thailand must comply with Thai legal principles. It’s a lot like building a house: you must follow the local building codes, no matter where you’re from.
• The Necessity of a Thai Translation: While drafting the original contract in English is a common practice, a precise and accurate Thai translation is needed to present to the court if the party files the litigation claim against another.
• The Civil and Commercial Code (CCC): Your Contractual Handbook: The CCC serves as the primary legislation governing contracts in Thailand. It outlines fundamental principles such as offer, acceptance, consideration, breach of contract, and available remedies. It’s beneficial to familiarize yourself with the relevant sections of the CCC to understand your rights and obligations under Thai law. Treat it as your handbook for contractual matters. You don’t need to memorize it, but understanding its key principles is crucial.

2. Essential Elements: Building a Valid and Enforceable Contract

• Offer and Acceptance: Clarity is Paramount: Every contract starts with a clear offer and an equally clear acceptance. The offer should spell out all the important details—what’s being sold or provided, how much it costs, and when and how it will be delivered. The acceptance has to match the offer exactly; if someone changes a detail, it’s not an acceptance—it’s a counter-offer, and the negotiation continues. It’s like a dance where both partners need to be in sync.
  • Example: An offer states that the price for a product is $100. If the acceptance says, “I accept, but I will pay $95,” that’s a counter-offer, not an acceptance.
• Consideration: The Exchange of Value and Mutual Benefit: Consideration is what each side gives up or promises in the deal—money, goods, services, or even a promise not to do something.
• Intention to Create Legal Relations: A Binding Commitment: The parties must demonstrate a genuine intention to create a legally binding agreement. This intention is generally presumed in commercial transactions, but it’s crucial to ensure there’s no ambiguity regarding this aspect. It’s more than just a friendly agreement; it’s a serious commitment.

3. Key Contractual Clauses: Structuring a Robust and Protective Agreement

• Scope of Services/Sale: Defining the Boundaries of the Agreement: Spell out exactly what goods or services are included in the deal. Be as detailed as possible—list the specs, quantities, and quality expectations. For services, write down what tasks will be done, when they will be done, what the end results should be, and any ways you’ll measure performance. The clearer you are, the fewer challenges you’ll have later.
• Price and Payment Terms: Establishing the Financial Foundation: Specify the price, currency (Thai Baht or another agreed-upon currency), payment schedule (e.g., upfront payment, milestone payments, etc.), and acceptable methods of payment (e.g., bank transfer, credit card). Include provisions for late payment interest (as permitted by Thai law) and penalties. Be clear about when and how payments will be made.
• Delivery/Performance: Setting Timelines and Assigning Responsibilities: Outline the delivery schedule for goods or the timeline for service completion. Specify the place of delivery/performance and clearly define who is responsible for transportation costs, insurance, and associated risks. Include clauses addressing potential delays and their consequences. Anticipate potential problems and plan for them.
  • Example: State who is responsible if the goods are damaged during shipping.
• Warranties and Liabilities: Managing Risks and Defining Responsibilities: Clearly define any warranties related to the goods or services, including the duration of the warranty and the remedies available in case of breach. Limit your liability to the extent permitted by Thai law. Consider including clauses on force majeure (unforeseeable circumstances such as natural disasters or political unrest) that excuse performance in such events. This protects you from events outside your control.
• Termination: Defining Exit Strategies and Procedures: Outline the conditions under which the contract can be terminated by either party. This should include the notice periods required for termination and the consequences of termination (e.g., payment obligations, return of goods). Specify the process for ending the agreement.
• Dispute Resolution: Choosing a Method for Resolving Conflicts: Decide up front how you’ll handle disagreements—whether through negotiation, mediation, or arbitration. In Thailand, arbitration is often faster and less expensive than court. You may want to consider using the Thai Arbitration Institute (TAI) rules.
• Intellectual Property: Protecting Your Creative Assets: Address ownership and usage rights of any intellectual property involved in the sale or service. This is particularly important for trademark, logo, technology, and creative works. Clearly define who owns the IP and what rights each party has to use, modify, or distribute it. Protect your valuable creations.

4. Specific Considerations for Service Contracts in Thailand

• Work Permits and Visas: Ensuring Legal Compliance for Foreign Workers: If your service contract involves foreign personnel working in Thailand, ensure they have the necessary work permits and visas. Failure to comply with Thai immigration laws can result in severe penalties. This is a critical step to avoid legal issues.
• Tax Implications: Understanding and Complying with Thai tax: Understand the tax implications of providing services in Thailand, including value-added tax (VAT), withholding tax, and corporate income tax. Consult with a tax advisor to ensure compliance with Thai tax laws.

5. Due Diligence: Know Your Business Partner

• Counterparty Verification: Assessing Reliability and Stability: Conduct thorough due diligence on your counterparty to assess their financial stability, reputation, and legal compliance. You can also check whether your partner is a party to any litigation cases at the courts to learn more about their background (so-called litigation search). This can help you avoid entering into contracts with unreliable or untrustworthy parties. Research the company before you sign.

Conclusion:

Securing sales and service contracts correctly in Thailand requires being proactive, informed, and cautious. If you cover the key steps above, check out your business partners, and get expert advice, you’ll lower your risks and set your business up for success. Think of a good contract as an investment in your future success.