Formichella & Sritawat
February 2025
According to the latest news, the Department of Business Development (DBD) under the Thai Ministry of Commerce will probe thousands of Thai-registered companies in 2025 to crack down on foreign businesses using Thai nominees.
According to the Bangkok Post, “The department [DBD] will look into a total of 26,830 juristic persons in tourism; real estate; hotels and resorts; transport and logistics; and e-commerce platforms and warehouses nationwide, said Auramon Supthaweethum, the department’s director-general”.
According to The Nation, another Thai news outlet, Thai authorities plan to act against foreign businesses that use Thai nominees in the “short, medium, and long terms.” Additionally, various agencies of the Thai government will coordinate to monitor, investigate, and interrogate businesses “suspected of using a nominee, as well as pursue legal action against the nominees”
Under the Thai Foreign Business Act of 1999 (commonly called the “FBA”), nominee shareholding is a crime punishable by fines and imprisonment. The relevant authorities have broad investigation powers and consistently develop investigation techniques and tools.
There is ample online information on Thai companies’ foreign shareholding restrictions. The operative law is the Thai FBA. Key provisions of the FBA are Section 36, and Section 8, especially Part 3, which is considered in the legal community as a catch-all insofar as it covers just about every industry or type of business, with few exceptions, (as laid out in the article E-Commerce Licensing for Foreign Operators and Minority Shareholding Exceptions – Thailand), that no foreigner “may operate such businesses in respect of which Thai nationals are not yet ready to compete with foreigners…. unless upon obtaining permission” from the Thai government. This refers to a Foreign Business License discussed extensively from various online sources.
Applying for a Foreign Business License is a process, and the authorities have wide latitude regarding the information required and the outcome of the application process. Additionally, for regulated industries such as telecommunications, where a business operator is considered “foreign,” in addition to requiring a specific sector license, a Foreign Business License is also required (see related articles: Thailand’s Telecommunications Business Act, and Telecommunications Licensing and Data Centers in Thailand.
As the FBA imposes criminal penalties, investigations and evidence are necessary. Of course, the accused are afforded due process rights, a trial, and the right to appeal trial court determinations. Not only do criminal penalties apply, but financial loss is also a possible consequence.
As can be expected, numerous corporate structures have been developed since the passing of the FBA to protect the rights of foreign shareholders and investors. Some are considered legal, and others are not.
Often, loans are used to structure non-Thai control over Thai companies, which is not illegal, but the execution and terms of a loan must resemble the usual nature of a creditor and debtor. For example, in Supreme Court Decision No. 5457/2560, Plaintiff sued the Defendant for liability under a loan agreement and sued a second Defendant who was jointly liable as a guarantor. Both Defendants acknowledged the existence of the loan agreement between the first Defendant and the Plaintiff. Still, they argued that the loan agreement was a disguised transaction intended to facilitate the purchase of the first Defendant’s business. This arrangement aimed to circumvent certain restrictions imposed by the FBA because the Plaintiff is a non-Thai national.
The case raised the court’s curiosity about whether the first Defendant’s business purchase agreement was lawful, as it was determined the loan was used to establish a nominee relationship. Specifically, the deal was structured to avoid legal restrictions on foreign business operations by having a Thai national hold shares in name only.
The Court found that Plaintiff knowingly engaged in actions that violated the law by having a Thai national hold shares in name only on behalf of the foreign Plaintiff.
Even where a non-Thai is operating a business, although at the same time a minority shareholder, depending on the facts surrounding the formation of a company, there could be a violation of the FBA. In Supreme Court Decision No. 2252/2560, the Plaintiff, an offshore company, sued four Defendants for fraud. Defendants 1 to 3 agreed to jointly invest in purchasing land (in Thailand) for commercial real estate development. The Plaintiff invested in business terms of annual interest on the principal investment and profits as dividends. A Thai company was established (ThaiCo), with the non-Thai Plaintiff holding 35% of the shares.
The Defendants used the funds to purchase land registered under ThaiCo. The Court concluded that the Plaintiff was not a mere shareholder but the actual business operator of ThaiCo. As a foreign company under the FBA, the Plaintiff was prohibited from engaging in real estate business in Thailand.
Although these are just examples, the court’s position shows that it will carefully examine a company structure and the underlying intent of structures to interpret the FBA.
The information provided here is for discussion and informational purposes only. The content herein is relevant as of the date of this article, and we may or may not update the content herein. It is crucial to note that nothing in this article should be or can be relied on as legal advice. Given the potential legal complexities, it is always advisable to seek professional legal counsel.
For any questions, you may contact Formichella & Sritawat at [email protected]
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