in a partly foreign owned Thai limited company
Thai companies with foreign participation and control in Thailand are often set up as majority Thai owned companies to be classified as Thai companies and not to be restricted by foreign ownership or foreign business restrictions. By using Thai nominee shareholders or proxies in the company foreigners circumvent foreign ownership and business restrictions and operate for foreigners prohibited and restricted business in Thailand.
Foreigner definition of Thai companies
Foreigner definition (section 4 FBA), a majority Thai owned company (Thai nationals owning the majority of the shares) is considered a Thai company. Foreigners are not allowed to use Thai straw men as shareholders to create a majority Thai owned company. The use of Thai nominee shareholders by foreigners to circumvent the FBA is illegal and could lead to criminal charges (sections 36 & 37 FBA). A minority foreign owned Thai company using Thai nominee shareholders is only on paper a Thai company but when investigated and the Thai shareholders are considered nominee shareholders then the actual owner of the shares is considered the foreigner and therefore the company foreign. The foreigner would be illegally operating a business in Thailand as a foreign company.
There is currently no clear definition of what constitutes a Thai nominee shareholders (see sample definition) and as long as the Thai government does not implement a stricter enforcement of existing anti-nominee laws these foreign controlled Thai companies can continue operating for foreigners prohibited or restricted businesses in Thailand.
Note: certain business licenses (for example TAT tourist license) required for operating specific businesses could additionally restrict foreign participation in a Thai company. A business licenses could require a majority Thai management (directors) in the limited company and could lower the allowed percentage of foreign shareholdings to 39% (foreigner definition under the Thailand Vessel Act).
Under present laws and regulations the indication for a nominee shareholder lies primarily in the source of the capital investment and the financial credibility of the Thai national shareholders when forming the Thai company or when transferring land to a company (often at the discretion of the officials involved). Currently the government makes it more difficult for foreigners to create a Thai limited company (business registration rules) and transfer land to a partly foreign owned company (ownership registration rules). Any foreign involvement in the company could lead to an investigation of the Thai shareholders, for example how they paid for their shareholding.
|Section 4 Foreign Business Act: "Foreigner" means:|
|For the purpose of the definition, the shares of a limited company represented by share certificates that are issued to bearers shall be deemed as the shares of foreigners unless otherwise provided by ministerial regulations.|
Anti Nominee Regulations
The extent and application of foreigner definition under Thai law is specified in regulations that must be applied by the land offices and business registration departments. The first anti-nominee regulations were issued in 2006 and aim to prevent the misuse by foreigners of nominee shareholders in a Thai company:
- First regulation for the Land Offices: under the May 2006 Land Office guidelines, before allowing a land transfer to a partly foreign owned company, every Thai shareholders in that company must; show evidence of sufficient income for his investment (e.g. work history, monthly salary), and if the capital investment is funded by a loan then evidence must be provided.
- First regulation for the Business Registration Offices: under the August 2006 Business Registration Rules (in case of a foreign shareholding or foreign management/ foreign managing director) the Thai shareholders must submit the evidences showing the source of the investment together with the application form of the business registration (copy of the bank statement of the most recent record of the last 6 months or; any document which issued by the Bank to certify the financial status of the shareholder or; copy of the evidence that shows the source of the investment that the Thai shareholder invested in the partnership or company limited).
Control and directors in a Thai company
There are currently no general restrictions on the nationality of directors who control a Thai limited company in Thailand. However certain business licenses require a higher percentage of Thai shareholders in the company and majority of Thai directors or a Thai managinf director (e.g. TAT license, boat license). Future law and regulations (e.g. planned but withdrawn revision of the FBA) could make the foreign director ineligible for re-election as the sole managing director and could restrict majority foreign voting rights in a Thai company.
The current practice is still that most foreigners (small and medium-sized businesses SMB's) operate restricted or prohibited businesses in Thailand through majority Thai owned but foreign controlled limited companies, but articles in the press about a possible crack down on illegal foreign run Thai companies will keep coming back (sample article 2007/ sample 2012) and possible changes to the 1999 Foreign Business Act (sample amendments) is still point of discussion in the Thai government.