Japanese SMEs dealing with Thai counterparties, agents, and distributors often pause at the drafting stage and wonder how far they can rely on their usual Japanese-style templates. Thailand has no dedicated distributor protection statute, which means termination compensation does not arise unless expressly written into the contract. At the same time, the 2017 Trade Competition Act casts a surprisingly wide net over exclusivity, resale price maintenance, and vertical restraints. This second volume of the “Thai Contract Practice” series walks through the points most commonly overlooked when drafting sale, agency, and distribution agreements — the contract types Japanese SMEs handle most often in Thailand.
This volume builds on the basics covered in Volume 1 (language, governing law, formation, stamp duty), so readers new to the series may wish to start with Volume 1.
Sale Contracts Under the Thai Civil and Commercial Code
Sale contracts in Thailand are governed by the general provisions of the Civil and Commercial Code (CCC), Book III, starting at Section 453. Section 453 defines a sale as “a contract whereby a person, called the seller, transfers to another person, called the buyer, the ownership of property, and the buyer agrees to pay a price therefor.” This definition mirrors Section 555 of the Japanese Civil Code almost exactly.
When Does Ownership Transfer? — Section 458 and Its Exceptions
One distinctive feature of Thai law is that the timing of ownership transfer is set out explicitly in the statute. Section 458 provides that ownership of the property sold passes to the buyer at the moment the contract is concluded. Two exceptions apply:
- Conditional or term sales: ownership does not pass until the condition is fulfilled or the term expires
- Unascertained goods: ownership passes when the goods are identified through measurement, counting, weighing, or designation (Section 460)
Japanese law reaches a similar default result for specific goods under Article 176 of the Civil Code, but in practice Japanese parties almost always override this with clauses like “ownership passes on full payment.” The same override is possible in Thailand, but the default position is that ownership moves at the moment of contract formation. Keeping this starting point in mind helps avoid mismatches between delivery, payment, and title transfer.
Short or Excess Delivery — Section 465
Section 465 gives the buyer a statutory set of options when the seller delivers a quantity different from what was agreed. For short delivery, the buyer may reject, take the delivered quantity at a reduced price, or demand the missing portion. For excess delivery, the buyer may reject, accept only the contracted quantity, or take the whole. This is a common friction point when Japanese importers receive shipments from Thai suppliers, so it is worth pairing Section 465 with clear acceptance-inspection and tolerance clauses in the contract.
Warranty Against Defects — Sections 472 to 474 and the “One Year from Discovery” Rule
Section 472 imposes strict liability on the seller for defects in the goods sold, regardless of whether the seller was aware of them. Section 473 then carves out four defenses: the buyer knew of the defect, could have known through ordinary care, accepted obvious defects without objection, or bought through public auction.
Practically the most important point is Section 474’s limitation period: any claim based on a warranty defect must be brought within one year from the discovery of the defect. Japan’s revised Civil Code (effective 2020) also sets a one-year period from the time the buyer becomes aware of nonconformity, but Japanese law only requires notice to the seller, while Thai practice generally requires the actual filing of a lawsuit within the period. Assuming that a Japanese-style “send a claim letter first, litigate later” approach will preserve the clock can lead to running out of time in Thailand.
Stamp Duty — Pure Goods Sales Are Generally Outside the Schedule
As discussed in Volume 1, stamp duty is governed by the Thai Revenue Code. The schedule of instruments subject to stamp duty lists 28 categories, and a pure sale of goods is not among them. However, if the contract’s substance is characterized as an agency or service arrangement — for example, where the counterparty handles customer development, after-sales claims, or receives commissions — stamp duty may apply. Whenever a “sale” contract carries agent-like elements, the stamp duty analysis should be revisited.
Agency and Distribution Agreements — No Dedicated Distributor Protection Law
A common misconception among Japanese companies is that Thailand, like Belgium or Germany, imposes mandatory goodwill or clientele compensation on suppliers who terminate distributors. The reality is the opposite: Thailand has no dedicated distributor protection statute. There is no Thai counterpart to the EU-style laws that compel suppliers to compensate distributors for customer base or investment upon termination.
This works to the advantage of the supplier side — typically the Japanese parent company. The flip side is that nothing happens automatically on termination unless it is written into the contract: no compensation, no stock buy-back, no transition period. The Thai starting point is far removed from the protective framework Japanese companies may be used to under Japanese subcontracting or franchise-related statutes.
Agent vs Distributor — A Legal, Not Just Semantic, Distinction
“Agent” and “Distributor” are fundamentally different legal concepts, and Thai practice mirrors the standard English-law distinction.
| Item | Agent | Distributor |
|---|---|---|
| Transacts in whose name | Supplier’s name (acts as agent) | Its own name and for its own account |
| Contract with end customer | Supplier contracts directly | Distributor contracts directly |
| Inventory risk | Supplier | Distributor |
| Revenue model | Commission | Margin between buy and resale price |
| Stamp duty | May be taxable as agency contract | Goods sale generally not taxable |
Contracts labeled “Distribution Agreement” sometimes read as agency in substance, and vice versa. The label on the cover page is not decisive — look at whose name carries the transaction, who bears inventory risk, and how the counterparty is paid.
Sole, Exclusive, or Non-exclusive
Exclusivity is another area where contracts often become ambiguous. The conventional usage is:
- Sole distributor: the supplier will not appoint other distributors, but may still sell directly itself
- Exclusive distributor: the supplier cannot appoint others and cannot sell directly — the strongest protection for the distributor
- Non-exclusive: multiple distributors may coexist
Contracts drafted by Japanese companies often combine “Sole and Exclusive” as a set phrase, which invites disputes later. Spell out which meaning is intended, or define the terms up front.
The 2017 Trade Competition Act — Antitrust Pitfalls
Thailand’s Trade Competition Act B.E. 2560 (2017) took effect on 5 October 2017, replacing the 1999 statute. The Trade Competition Commission (TCC) is the enforcement body, with the Office of the Trade Competition Commission (OTCC, commonly “TCCT”) as its secretariat. For Japanese distribution contracts, the following points deserve close attention.
Resale Price Maintenance Is Prohibited in Principle
A supplier cannot, as a general rule, fix the price at which a distributor must resell — either as a floor or as a set price. This is classic resale price maintenance (RPM). Setting a suggested retail price or a maximum retail price is generally permissible so long as it does not operate as de facto price fixing. Whether a “suggestion” crosses the line into effective enforcement is assessed case by case, so templates imported from a Japanese parent should be reviewed carefully against the official guidelines.
Exclusivity, Territory Restrictions, and Customer Restrictions
Vertical restraints such as exclusive purchasing obligations, territory restrictions, and customer restrictions may be unlawful when they foreclose market access or reduce consumer choice. That said, restraints that produce efficiency gains or economic progress without substantially restricting competition can be exempted. Franchise and authorized dealership arrangements are often treated as falling within the exemption space, provided the arrangement is structured carefully.
Penalties — Up to 10% of Annual Turnover
Administrative fines can reach 10% of the turnover for the year in which the violation occurred. The size of the potential fine alone means trade competition analysis cannot be an afterthought. It is entirely possible for a clause that raises no red flags under the Japanese parent’s standard template to be problematic once it is applied to Thai distribution — a Trade Competition Act review should be part of every distribution contract sign-off.
On 25 March 2026, guidelines concerning the competition-law assessment of multi-sided platforms (including e-commerce platforms) came into effect, and deserve attention where digital distribution channels are in play.
International Trade-Specific Issues — Incoterms, Foreign Currency, CISG
Cross-border sales between Japanese and Thai companies layer additional issues on top of the domestic law framework.
Incoterms 2020 Is Not Law
Trade terms such as FOB (free on board), CIF (cost, insurance, freight), EXW (ex works), and DDP (delivered duty paid) come from Incoterms 2020, published by the International Chamber of Commerce (ICC). The critical point is that Incoterms is not itself law; it is a set of trade usages that apply only when the parties incorporate them into their contract. Under Thai law, the provisions of the Civil and Commercial Code prevail unless the contract expressly incorporates Incoterms 2020.
A second point often overlooked: Incoterms 2020 allocates risk and costs, but says nothing about ownership transfer. Title still passes according to Section 458 CCC. “FOB Bangkok so title passes at the rail” is a misreading — risk passes at that point, but title follows the CCC unless otherwise agreed. Spell out the title transfer point expressly in the contract.
Foreign Currency Billing and BOT Regulations
Foreign-currency invoices are permitted in many circumstances, but the Bank of Thailand (BOT) foreign exchange regulations impose constraints. Following the December 2025 amendments, spot FX transactions equivalent to USD 200,000 or more require supporting documentation to be reviewed by the handling bank. Residents receiving foreign currency equivalent to USD 1 million or more from abroad must repatriate the funds, or deposit them into a permitted foreign currency account, within 360 days of the export or transaction date.
Before defaulting to “an international contract should be in USD,” it is worth confirming settlement currency, flow, and bank documentation with finance and tax teams together.
CISG — Thailand Is Not a Party; Japan Is
The United Nations Convention on Contracts for the International Sale of Goods (CISG) entered into force in Japan in 2009 (following Japan’s 2008 accession). Thailand remains a non-party as of April 2026. Within ASEAN, only Singapore, Vietnam, and Laos have joined.
As a result, CISG does not automatically apply to a sale between a Japanese company and a Thai company. It applies only if the parties expressly choose it as the governing law, or if they choose Japanese law and the contract otherwise meets CISG’s scope requirements — in which case Japan’s ratified treaty applies through Japanese law. Choosing Thai law eliminates CISG altogether. This analysis is closely tied to the governing-law discussion in Volume 1.
7% VAT Extension
Thailand’s standard VAT rate is nominally 10%, but has been reduced to 7% and the reduced rate is currently extended through 30 September 2026. Exports are zero-rated, as are sales within customs free zones.
Termination — Nothing Happens Unless You Write It In
As noted above, Thai law imposes no statutory termination compensation on suppliers. Termination clauses therefore need to be drafted on the premise that what is not written will not happen.
Termination Types and Notice Periods
Two termination types are standard:
- Termination for cause: triggered by breach, payment default, insolvency, or similar events
- Termination for convenience: either party may terminate on notice without cause
Thai law sets no statutory minimum notice period, but 3 to 6 months is common in practice. That said, terminating abruptly without a reasonable notice period may constitute a breach of the good faith principle under Section 368 CCC and expose the terminating party to damages. A clause that purports to allow termination “without notice or compensation” does not insulate the supplier from this risk.
Stock Buy-back, Outstanding Commissions, and Registration Unwinding
Three flashpoints at termination:
- Stock buy-back: whether the supplier will repurchase unsold inventory held by the distributor. Not a statutory obligation — specify it in the contract
- Outstanding commissions and open orders: how post-termination customer orders and unfinished transactions are handled
- Unwinding of registrations and permits: if the distributor holds import licenses, TISI (Thai Industrial Standards Institute) certifications, or pharmaceutical registrations in its own name, the contract should spell out a mechanism to transfer these back to the supplier on termination
Enforceability of Non-Compete Clauses
Post-termination non-compete clauses are enforceable only if they are fair and reasonable. Reasonableness in Thailand is assessed against factors such as:
- Whether there is a legitimate trade secret or customer information to protect
- Duration (one to two years is the usual benchmark)
- Geographic scope (limited to areas where the supplier actually operates)
- Nature of the activity restrained
- Whether compensation is provided (uncompensated restraints may be struck down as unreasonable)
Non-compete clauses in employment contracts are also subject to the Unfair Contract Terms Act B.E. 2540 (1997), which may cut back overly restrictive provisions. The same mindset — “keep it within reason” — is a safe approach when drafting distribution termination clauses.
Jurisdiction and arbitration clauses will be covered separately in Volume 5 of this series.
Summary — Five Issues to Check in Sale and Distribution Contracts
- Ownership transfer and warranty: Section 458 CCC moves title at contract formation by default; warranty claims must be brought within one year of discovery (Section 474)
- Stamp duty: pure goods sales are generally outside the schedule, but agency-flavored contracts may fall in
- 2017 Trade Competition Act: RPM, exclusivity, and territorial/customer restrictions are broadly caught, with fines of up to 10% of annual turnover
- No statutory termination compensation: Thailand has no dedicated distributor protection law — compensation, stock buy-back, notice, and non-compete must all be written into the contract
- International trade layer: Incoterms is an ICC trade usage rather than law, CISG does not apply of its own force, and foreign-currency settlement is subject to BOT rules
Coming Up in Volume 3
Volume 3 will turn to employment and service (independent contractor) agreements — the line between the two, and how the Thai Labour Protection Act, as mandatory law, shapes contract drafting for Japanese employers.
Contact
We advise on the drafting and review of sale, agency, and distribution agreements in Thailand from both a Japanese-law and Thai-law perspective. Thai-law-specific matters are handled in collaboration with Thai-qualified attorneys at our partner firm, JTJB International Lawyers. Please feel free to get in touch.
This article is for general informational purposes about Thailand’s legal system and does not constitute legal advice under Thai law. For specific matters, please consult a Thai-qualified legal professional. Our firm works in collaboration with JTJB International Lawyers’ Thai-qualified attorneys.