The Thai Department of Special Investigations (DSI) has recently announced plans to crackdown on foreign companies using Thai nominee shareholders to bypass Thai laws and control Thai companies. The foreign nationals use Thai nominee shareholders to run business operations that are restricted to foreigners or to purchase land and property. The procedure is currently prohibited by the Foreign Business Act and the Land Act.
What is a Nominee Shareholder?
A nominee shareholder is an individual or entity that his holding shares on behalf of the actual owner. There is a confidential agreement between the nominee shareholder and the actual owner for the management of the shares. The nominee shareholder is listed on the shareholder agreement instead of the actual owner. The actual owner is provided complete anonymity in relation to the ownership of the shares in the company.
How is it used for forming companies?
Under Thai law, a foreign national can only be majority owner of business operation that is not prohibited by the Foreign Business Act, a business that has been prioritized by the Board of Investments, or allowed by bilateral treaty agreements.
Some foreign nationals have used Thai Nominee Shareholders to bypass the restrictions on business ownership. The used of Thai Nominee Shareholders to bypass the Foreign Business Act has been criminalized. The foreign national and any Thai nationals who aids in hiding the true ownership of a Thai company is liable for up to three years in prison and 1 million baht fine.
How is it used to purchase property?
Under the Thai Land Code Act, foreign nationals are prohibited to acquire and own land in Thailand. There is an exemption if a foreign national invests 40 million baht into specific assets or Thai government bonds which allows them to purchase up to 1 rai of land. However, the foreign national is not allowed to transferable by inheritance so it is just a life estate and not full ownership.
Some foreign nationals have transferred purchased property and transferred the property to their Thai family members such as their spouse or children. Other attempt to use Nominee Shareholders to form a Thai company and purchase property under the Thai company.
However this has been curtailed since companies will now have to demonstrate the source of the funds that is used to purchase property effectively preventing foreign nationals from purchasing property through nominee companies or shareholders. Under the Land Code Act, a company is considered “foreign” if more than 49% of its capital owned by foreigners or more than half of its shareholders are foreigners.
What are the alternatives?
The use of shareholder nominees is not allowed to circumvent Thai law to form a company or to purchase land. There are some unscrupulous individuals who will push shareholder nominees as a way to bypass the legal restrictions on foreign ownership. The problem is that foreign nationals have difficulty to protect their property rights since they are illegal entities.
Foreign nationals can form and own a company in Thai by obtaining a foreign business license or by filing for a Board of Investments exemption. There are a wide varieties of business that are available to foreigners in Thailand. If the foreign national wants to part of a business that is restricted by the Thai government, they can form a true partnership with a Thai national.
Thailand allows companies formed under the Board of Investments to own land for the purpose of conducting the BOI business operation. Other options include a long term lease with rights of renewal for the land. If the foreign national is interested in a condominium, there are provisions in the law that allow them to own condominium units.
Before forming a business or purchasing property in Thailand, it is important to consult with an experienced business and property attorney. In Thailand, real estate agents and business agents are not licensed. They only have a self-interest in selling you the property or business.