Recent news about foreigners behaving badly in Phuket and Pattaya and many foreigners breaking the law on Koh Phangan highlights the importance of respecting the customs and laws of Thailand and the necessity of complying with Thai laws and regulations. In the past month, Thai media has been filled with reports of foreigners engaging in illegal work, using nominee shareholders to bypass laws on restricted jobs and land ownership, and, most egregiously, repeatedly mistreating locals. The fallout from these actions includes a response from authorities who have started in-depth investigations into foreign-owned and run businesses.
Lawyers for Expats Thailand have been telling people and warning people for sometime that this day was coming and the time is now here.
The Department of Business Development (DBD), has investigated over 400 companies in popular tourist areas such as Phuket, Bangkok, Chiang Mai, Surat Thani, and Chon Buri and this net is being cast out further a field to include companies who are suspected of having Thai shareholders or Directors acting as nominees for foreigners. Further checks will ensure that foreigners aren’t directly engaged in activities reserved for Thai nationals and are not circumnavigating the law for ownership of property in Thailand and running businesses illegally and using nominees.
There is currently a property boom in Koh Phangan and already we have seen some horror stories because of peoples ignorance to the property laws of Thailand and to the bad advice being handed out to foreigners.
If you do not want to be included in the above category of "Foreigners Behaving Badly"
Before you consider working ,setting up a business or buying property anywhere in Thailand simply contact Lawyers for Expats Thailand to arrange a Free Consultation.
There is no excuse because its Free.
The companies and businesses facing the most scrutiny is those using so-called ‘shop house legal services,’ although some visa agencies, tourist companies and property developers and legal service companies often run by “foreign business and legal consultants.” These individuals typically place company ownership in the names of their staff, spouses, or friends. This practice is particularly risky because even the laxest government officer can search the DBD database and easily find office cleaners and motorcycle taxi drivers listed as shareholders in companies’ worth tens of millions of Baht. There has been an instance where a single low-level staff member of one “legal consulting” company was a shareholder in hundreds of companies.
Lawyers for Expats Thailand have been warning foreigners for many years now about the dangers of using a Thai company to purchase property based on nominee shareholding.
Nominee shareholding explained.
Nominee shareholding, which involves appointing a random Thai or member of staff of the legal services company, to act as a shareholder on behalf of a foreigner in a Thai company, is considered an illegal practice in Thailand. Section 4 of the Foreign Business Act (FBA) defines a Foreigner as
Natural person not of Thai nationality.
Juristic person not registered in Thailand.
Juristic person registered in Thailand having the following characteristics.
Having half or more of the juristic person’s capital shares held by persons under (1) or (2) or a juristic person having the persons under (1) or (2) investing with a value of half or more of the total capital of the juristic person.
Limited partnership or registered ordinary partnership having the person under (1) as the managing partner or manager.
Juristic person registered in Thailand having half or more of its capital shares held by the person under (1), (2) or (3), or a juristic person having the persons under (1), (2) or (3) investing with the value of half or more of its total capital.
A majority Thai-owned company where Thai nationals own most (51% or more) of the shares by value is considered a Thai company. Foreigners are not allowed to use Thai straw men as shareholders to create a majority Thai-owned company. Using Thai nominee shareholders to circumvent the FBA is illegal and could lead to criminal charges (sections 36 & 37 FBA).
The FBA also prohibits foreigners from holding majority ownership in specific sectors, particularly agriculture, tour companies, retail, media, and telecommunications. As a result, some foreign investors may use Thai nominees to hold shares to comply with these ownership requirements while retaining effective company control.
Companies that breach the FBA can face fines of up to 1 million Baht and the imprisonment of the nominee.
Nominee shareholders are also rampant in landed property ownership. Under the May 2006 Land Office guidelines, before allowing a land transfer to a partly foreign-owned company, every Thai shareholder must:
show evidence of sufficient income for his investment (e.g., work history, monthly salary),
In addition, Section 94 of the Land Code Act states, ‘All the land which an alien (foreigner) has acquired unlawfully or without permission shall be disposed of by such alien within the time limit prescribed by the Director-General, which shall not be less than one hundred eighty days nor more than one year. If the land is not disposed of within the time prescribed, the Director-General shall have the power to dispose of it’.
Further, Section 96 of the Land Code Act: ‘When it appears that any person (including a juristic person) has acquired land as the owner in place of an alien or juristic person under the provisions of Section 97 and 98, the Director-General shall have the authority to dispose of such land and the provisions of Section 94 shall apply mutatis mutandis’.
While nominee shareholding may seem convenient for foreigners seeking to establish a company in Thailand or buy landed property, it poses significant legal and regulatory risks. If discovered, companies using nominee shareholders could face severe penalties, including fines, imprisonment, and the revocation of business licenses.
Unfortunately, there are no fixed definitions of a ‘nominee’, but the indicators are;
lack of management and control,
voting rights;
the flow of funds from dividends paid by the company to the shareholders; and
how was the capital financed (e.g., the money transferred from abroad to the Thai shareholders to buy shares)?
We have also seen issues where a nominee holding the majority of the shares wants to exert control over the company, even going so far as to demand half the profits of the operations or half the payment from a land sale. At a minimum, the nominee will ask for a substantial payment to exit quietly.
What can foreigners do?
Do not use a company to purchase land or landed property.
Contact www.lawyersforexpatsthailand.com to arrange a free consultation
When choosing a Thai partner, it must be someone financially secure and able to invest in the business. A red flag arises if a background check reveals that the Thai Partner works as a security guard or cleaner on a meagre salary. Foreigners can legally retain control of the company through voting classes and shareholder agreements. Still, they must be constructed appropriately based on business purposes and not be some simple template dragged off an internet search.
Foreigners can also look at obtaining BOI promotion, where 100% of the shares can be foreign-owned.
Lawyers for Expats Thailand promote BOI Board of Investment promotions (including companies and LTR visas.) This is reserved for specific industries that Thailand is looking to promote. Treaty of Amity companies allow Americans in Thailand to hold a majority stake; however, they still need to obtain a foreign business certificate enabling the company to carry on certain activities that haven’t been prohibited to foreigners.
Another option is to apply for a Foreign Business License under the Foreign Business Act. The license allows a foreign company registered in Thailand to carry out approved activities. Still, any activities on the prohibited list will not be approved and are reserved for Thais only.
If the company is to engage in import/export, manufacturing, or specific promoted industries and wishes to be based in an industrial estate, then the Industrial Estate Authority of Thailand (IEAT) offers additional ownership and control privileges, including the right to own land inside one of its estates.
The way forward
Is to follow the law in everything you do.
Do not use nominee shareholders it is dangerous and against the law.
If starting a business, the best way to start a business in Thailand is to speak to #lawyersforexpatsthailand a registered law firm dedicated to the needs of foreigners in Thailand.
For more information or to arrange a convenient time for a free consultation contact Brian Ramsden General Manager of Foreign Affairs
Lawyers for Expats Thailand
Tel 0956583038 WhatsApp and Line