Doing Business in Thailand

Note: This post is not entirely new. This subject was first posted as a Page called “Nominee Issue”. I’m about to modify the look of the blog and decided that some of the subjects discussed in pages would now be treated as posts. Of course I updated the content of this post to reflect the current situation.

This post is a continuation of my previous post on the nominees issue and i will try here to explain how  does one make the distinction between a real shareholder on a nominee.

How to differentiate a Thai Partner from a Thai Nominee?

This is a difficult question because there are no clear-cut answers. Indeed, it is not always easy to determine where the limit is between a Thai partner and a nominee; or when a Thai stops being a partner to become a nominee.

What if the Thai partner receiving the loan is the foreign investor’s wife or relative?

Is it then illegal to do business with a spouse or to loan money to Thai spouse?

I mean on the one hand foreign citizens who have Thai wife are supposed to justify that they have enough money to support their Thai spouse or themselves in order to obtain a married visa. But at the other end of the spectrum a foreign citizens may not help his wife to purchase a land or gave her shares in his company without being suspected of trying to circumvent the law, where is the logic in this?

What if a foreign investor wants to choose a partner who does not have sufficient funds to invest in the business?

If the foreign investor offers to finance his Thai partner, does it make a nominee of this Thai partner?

For 35 years, loan agreements between Thai and Foreign shareholders of a company were an accepted practice. In an enquiry started in 2007, the Ministry of Commerce has expressed the opinion that the existence of a loan between a foreign partner and the Thai partner could be construed as evidence that the Thai Partner is a nominee.

Holding Structure

What if an individual Thai shareholder is only present at the level of a holding company, which holding company invests in the company that operates the controlled business? What if the capital of the holding company is only of 500,000 THB, (the Thai individual shareholder having paid for his shares) and the holding company finances the rest of its investment through loans from the holding company to the operating company (the holding company having itself borrowed or received advances from the holding foreign partner).

Will the Thai partner in the holding company be deemed a nominee if he can proves he paid for his shares? Will the Thai holding company itself be deemed to be a nominee of the operating company?

In other words, it is not always possible to say with certainty when a Thai shareholder ceases to be a partner and becomes a nominee?

Do many businesses use nominees?

We have to qualify the question differently. As I said above what constitutes a nominee is not always clear-cut. So instead, why not ask the question do many businesses use Thai shareholders “that might be deemed Nominees?”

To be honest I do not have the exact figure and I do not believe anyone has it but I think that we are dealing here with an issue that would implicate thousands and thousands of businesses where foreigner have invested together with Thai partners.

If the use of Thai nominees is illegal, why did it spread so much?

As I said above, it is not always easy to determine where the limit is between a Thai partner and a Thai nominee.

Furthermore, as already explained in my previous post foreign investors do not always have the option to look for a real Thai partner. Finally, and as you will see if you read my post on the Foreign Business Act and Foreign Business Licenses the process to obtain a Foreign Business license is so complicated and time consuming that people might be tempted to take shortcuts.

Most of all Thai successive governments have known for a very long time that the use of Thai shareholders may be deemed nominees had widely spread and have failed for 35 years to act on this knowledge should not be surprised that a practice that is illegal became an accepted business practice?

On the same subject please read my post: The disclosure requirement applicable to Thai shareholders

Note: This page is an excerpt of Rene Philippe Dubout next book: “How to Safely Invest Into Thailand” to be published in December 2009

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

© Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact

Originally posted 2009-10-13 03:15:26.

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5. Investing in Thailand: Nominees Issue, the witch hunt?
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