Thai nominee shareholders in partly foreign owned companies in Thailand
Source: Thai Laws pertaining to the Foreign Business Act
Thai companies with foreign participation and control are often set up as majority Thai owned companies to be classified as Thai companies and therefore not to be restricted by laws governing foreign ownership or foreign business restrictions in Thailand.
By using Thai nominees or proxies in the Thai company foreigners circumvent foreign ownership and business laws and operate for foreigners prohibited and restricted business. Control and voting rights are under the present Foreign Business Act not used as a criterion in defining a Thai incorporated company foreign (section 4 FBA).
The use of Thai nominee shareholders by foreigners to circumvent the Foreign Business Act is illegal (sections 36 & 37 FBA), however, there is currently no clear or enforced definition of what exactly a Thai nominee shareholders in an existing Thai company is. Under present law 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. Often in first instance at the discretion of the officials involved who can refuse registration, or must forward the case to the police.
In the end 'Thai nominee shareholder, or not a Thai nominee shareholder' in a Thai company under the Foreign Business Act must or is to be determined by the judgment of a court.
Business and land office regulations
When forming the Thai company with foreign shareholdings or when transferring land to a company with a foreign shareholder there are currently 2 regulations which aim to prevent the use of nominee shareholders by foreigners:
- Under the 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
- Under the 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).
There are currently no general restrictions on the nationality of directors who control a Thai limited company in Thailand. Certain business licenses require a majority of Thai directors, e.g. TAT license. New laws and regulations (e.g. planned and approved but again withdrawn revision of the FBA) could restrict foreign management and majority foreign voting rights in a Thai company.
The current practice is still that foreigners circumvent foreign ownership restrictions or operate prohibited businesses in Thailand through majority Thai owned limited companies but foreign controlled companies. To set up a compnany for this purpose often requires a circumvention of the law by only in a later stage including the foreigner in the company.