Ministry implements rigorous review process for business to deter Thai nominee deals
The Commerce Ministry’s Department of Business Development has launched a more thorough investigation into businesses set up under nominee arrangements. This practice has been found to be common in the property, tourism and resort industries.
Nominee arrangements see Thai partners holding shares on behalf of foreigners, often to bypass the requirement of foreign business licences stipulated in the 1999 Foreign Business Act.
To prevent nominee arrangements, the department has introduced a more thorough review process during business registration. This entails assessing financial documents issued by banks to certify or demonstrate the financial capacity of Thai shareholders or nominees partnering with foreigners. The aim is to ensure that Thai individuals have the financial capability to invest independently.
Meanwhile, Jitakorn Wongkhatekorn, the Department of Business Development’s deputy director-general, recently revealed details on investigations conducted this year. A total of 439 businesses over three targeted categories – tourism, real estate and hotel/resort – have been examined. The businesses were based in nine provinces, namely Chiang Mai, Chiang Rai, Phuket, Surat Thani, Chonburi, Rayong, Prachuap Khiri Khan, Phetchaburi and Bangkok.
The department collaborated with partner agencies such as the Department of Tourism, Department of Special Investigation (DSI), Tourist Police and the Immigration Bureau to conduct the investigation.
Initial findings show potential nominee regulation violations in Chiang Mai and Chonburi in 269 companies. Of them, 60 were real-estate firms, six related to tourism, four hotels/resorts and 184 other businesses such as wholesale/retail, transportation and agriculture, among others. Ongoing analysis seeks to determine the investment value and other relevant data.
The engagement of nominees in businesses often involves the Thai “partner” receiving benefits, giving consent or seeking legal counsel to circumvent the law. The government underscores that Thai individuals should not be part of arrangements that help foreigners run businesses while evading or breaking the law.
Some law and accounting offices also recommend or hire Thai persons to hold 51% of shares in foreign-run businesses, while the foreigner holds 49%. This allows the companies to maintain Thai legal status and conduct business without requiring foreign business licenses.
Investigations will continue if Thai individuals are found to have deliberately supported foreigners in violating nominee regulations.
This year’s plan includes inspecting businesses governed by the Alien Business Act, particularly those where foreigners hold less than 50% of shares or possess high decision-making authority such as voting rights, profit distribution or return of capital upon business termination.
Investigators will also scrutinise the source of funds used in business operations, including loans made to foreigners under abnormal conditions.
Since 2015, the department has examined nominee entities using three formats: asking shareholders and legal entities to clarify facts (4,087), inspecting legal entity offices (1,902), and identifying behaviour that may fall under the nominee category (191 cases).
Legal entities found in breach of nominee regulations have been referred to the DSI for legal proceedings.
As of last year, 66 cases involving legal entities, those providing assistance and Thai individuals acting as nominees for foreign individuals have been prosecuted. Penalties include imprisonment of up to three years and/or fines ranging from 100,000 to 1 million baht, in addition to daily fines ranging between 10,000 and 50,000 baht until the violation ceases.
Nominee arrangements have been prevalent in major tourist destinations, offering substantial benefits to foreigners seeking to circumvent legal constraints. This in turn is potentially harming to both the Thai economy and law-enforcement efforts.