Thailand has made significant changes to its statutory interest rate framework for the first time in almost a century. Since 1925, the statutory interest rate codified in Thailand’s Civil and Commercial Code (the CCC) has remained at 7.5% per year. But with Covid-19 having an unprecedented impact on the Thai economy, the Thai Government, via emergency decree, has reduced the statutory rate. While the decree is largely aimed at providing relief to hard-hit SMEs and individual debtors, the amendments have broader implications for doing business in Thailand.
The new interest rate revisions are contained within the Emergency Decree Amending the Civil and Commercial Code B.E. 2564 (2021) (the Emergency Decree), which was published in the Government Gazette on 10 April 2021, and came into effect on 11 April 2021. The Emergency Decree amends Sections 7 and 224 of the CCC, which stated the previous statutory interest rate of 7.5% per year.
The Emergency Decree makes three major changes. The first involves a reduction of the statutory interest rate from 7.5% per year to 3% per year in Section 7. The new 3% annual rate is subject to review every three years by the Ministry of Finance. The interest rate is subject to further change later by a royal decree.
The second change concerns money debts under Section 224 of the CCC. The previous version of Section 224 stated, among other things, that a money debt based on a default bears an interest of 7.5% per year. Under the Emergency Decree, the new actual statutory default interest rate is 5% per year. The 5% rate is based on a reduction of the Section 224 statutory default rate from 7.5% per year to 2% per year, which is then added to the new annual 3% rate stated in Section 7. The result is a 5% annual statutory default interest rate. Since the statutory default interest rate is based in part on the Section 7 rate, any future change to the Section 7 rate will also affect the statutory default interest rate.
The third change relates to instalment payments and is made pursuant to a newly enacted Section 224/1 of the CCC. The Emergency Decree provides that the default interest rate can only be applied to the defaulted instalment amount – not the unpaid principal. This is markedly different from the previous practice of charging default interest on the unpaid principal and the defaulted instalment payment amount. Moreover, under the new Section 224/1, a contract clause that applies the default interest rate to the non-defaulted principal is null and void. As such, contract parties can no longer agree on charging a default interest rate on the full unpaid principal
The new changes to the statutory interest rate framework affect financial loans, judgment debts (e.g. compensation for tort liability), and different types of commercial contracts. However, under the Emergency Decree, if an agreement already specifies the interest rate or a default interest rate, or if another specific law provides otherwise, the existing agreement and law would prevail. In other words, the parties can “contract out” the statutory rate. However, parties cannot opt to apply any default interest rate on total unpaid debts, regardless of any default. The new amended statutory interest rate framework applies to defaults and debts that are due on or after 11 April 2021.
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