The N- Word in Thailand

The N- word in Thailand

-New anti-nominee rules

Stephen Frost, Bangkok International Associates

Introduction: The Foreign Business Act (1999) contains provisions designed to deter foreign investors from using nominees to circumvent the foreign ownership limitations under the Act. The Land Act (1954) and regulations issued by the Ministry of the Interior contain similar provisions designed to prevent foreign purchasers of land from avoiding the limitations on foreign ownership of land. In 2012, the Central Partnerships and Companies Registration Office issued regulation 205/2555, which enables the authorities to scrutinize a wider range of companies than hitherto for the presence of nominees. In this article, we consider the scope of the new regulation.

Coming into effect: The regulation applies to all applications for registration of companies and partnerships submitted after 2 January 2013.

Powers conferred: Promoters registering a company or partners registering a partnership must now submit bank statements or other evidence to show the financial status of any Thai shareholders or partners, in an amount that corresponds to their investment in the company or partnership.

Which companies or partnerships are caught? The regulation will apply to:

(a)a partnership or company where Thai shareholders hold less than 50% of the shares; or

(b)a 100% Thai owned company that has a foreign signatory director who can either solely or jointly sign documents to bind the company.

Comparison with previous regulations: The table below compares the previous regulations regarding the obligation to supply evidence of Thai shareholders’ financial standing, with the new ones:

Companies and partnerships subject to the previous regulation / Companies and partnerships subject tothe new regulation
A partnership or company where the Thai shareholders/partners hold at least 40% but less than 50% of the shares/the partnership / A partnership or company where the Thai shareholders/partners hold less than 50% of the shares/the partnership
A partnership or company where the Thai shareholders/partners less than 40% of the shares/the partnership but a foreigner is an authorized director/partner / A 100% Thai owned company with a foreigner as sole or joint authorized director/partner

It can therefore be seen that the scope of the existing regulation has been widened to capture companies and partnerships that: (a) have Thai minority ownership or (b) are 100% Thai owned, but have a foreigner as sole or joint authorised director or partner.

Conclusion: It is common knowledge that Thai nominees are used to circumvent the foreign ownership rules of the Foreign Business Act or the Land Act. Whilst this regulation widens the number of businesses that may be subject to official scrutiny, one suspects that the use of nominees will continue. The reason for this is firstly, that the authorities fear the negative impact on foreign investment of taking action where the presence of nominees is detected, and are therefore reluctant to invoke their powers. The second reason is that no changes to the FBA or the Land Act have been made since their inception to confer even the slightest measure of liberalization. All service businesses are still regulated under the FBA, or industry specific legislation and majority foreign ownership of service businesses is only possible in a small number of business categories where substantial capital investment is made, or where there is specific exemption. Although the Land Act (passed as long ago as 1954!) contains provisions whereby foreigners may own up to one rai of land (roughly 400 square metres) for residential purposes, and up to 10 rai for commercial purposes, the enabling regulations to put these principles into practice have never been issued.

At a time when Thailand has many foreign managed service businesses employing thousands of Thais, and generating enormous tax income for the government, and ASEAN or GATS membership means that in the long run Thai investment rules must be liberalized, surely it is time to reconsider the scope of current business ownership restrictions with a view to encouraging foreign investment? And regarding land ownership, taking into account the thousands of foreigners who now live permanently in Thailand as employees or retirees, is it possible to allow one rai of land to be owned as a home?

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Bangkok International Associates is a general corporate and commercial law firm. For further information, please contact Stephen Frost by email at or telephone (66) 2 231 6201/6455.