Investment in Thailand

Detail sought on sources of foreign funds

Source: Bangkokpost - 1 August 2006

Thai Company Rules tightened


New business registration rules (read up: translation 2006 business registration) will require all new companies with foreign shareholdings of more than 40% to declare their sources of funds, according to the Commerce Ministry. The new policy, which will take effect on Aug 15, is aimed at guarding against the problems of nominee shareholders and increasing transparency in the corporate registration process.

Orajit Singkalavanich, the director-general of the ministry's Business Development Department, said the rule would also apply to new companies that are controlled by foreign entities, even if their direct shareholdings are less than 40%.

Shareholders must submit evidence of financing used to hold shares, including bank statements and other documents.

Authorities have taken a stricter line on the practice of nominee shareholders following the takeover of Shin Corporation by Singapore 's Temasek Holdings earlier this year. Temasek effectively has full control of Shin through the use of nominee companies, such as Kularb Kaew, despite the fact that Thai law limits foreign ownership at 49%.

Sources at the Business Development Department said a preliminary study found that Kularb Kaew was a proxy of Temasek, and did not qualify as a Thai company. The investigation is expected to be finalised this month.

A recent land scandal on Koh Samui has also raised public questions over the use of nominee shareholders by foreigners to bypass property ownership limits.

Ms Orajit said the department hoped the new rules would discourage the use of nominees by requiring Thai shareholders to prove that they are not acting as simple nominees on behalf of foreign buyers and have the financial means to actually hold shares.

"The department will examine all of those documents before giving approval," she said. "We have learned that Thais have acted as nominees for foreign investors to avoid compliance with the Foreign Business Law, which limited foreign stakes at 49%. Tighter requirements [for proving] one's financial status will help us sort out this problem."

Companies violating the rules would face dissolution. Complicit shareholders also could face fines of up to one million baht and/or jail terms of up to three years.

In the future, the Business Development Department plans to examine existing registered companies with foreign shareholders to determine whether they breach the new rules or not.

Ms Orajit admitted that mistakes had been made in the past, in part due to department policies aimed at facilitating the establishment of new companies.

In any case, she said the new procedures, while requiring more documentation for new registrations, would not necessarily result in longer waiting periods for approvals.

The department also wants to amend local laws to revise the definition of foreign businesses in order to cut down on existing loopholes.