Doing Business in Thailand

Three years after its enactment in August 2006 the requirement of disclosure of Thai shareholders source of investment at the time of company incorporation is still confusing many foreign investors who do not always understand when and why do Thai shareholders have to disclose the source of their investment when they invest into a company with foreign investors. In this article i do not address the issue of when a foreigner may or may not own more than 49% of a business in Thailand.

In what cases do Thai shareholder needs to disclose the source of their investment?

For clarification purpose we drafter a table that shows when the requirement is not applicable and when it is applicable.

When does the disclosure requirement apply?

The disclosure requirement of Thai shareholders source of investment

-         Only applies at the time of incorporation of the company and only to company that have been registered after the 14 August 2006.

Is not applicable to post incorporation formalities:  For example it is possible after the initial incorporation of the company to:

-         To increase the ratio of foreign shareholding from 39 to 49% without the Thai shareholders having to be subjected to any disclosure requirement.

-         To add foreign directors or to give none authorized foreign directors the right to become authorized signatory, or even sole authorized signatory without the Thai shareholders having to be subjected to any disclosure requirement.

What is the content of the disclosure requirement?

Whenever the disclosure requirement applies each Thai shareholders will have to provide at least one of the following documents evidencing the source of his funds, regardless of the value of their shareholding:

* Copies of deposit passbooks or bank statements disclosing transactions over the past 6 months
* A letter issued by a bank certifying the financial position of the shareholder
* Copies of other documents evidencing the source of funds (i.e. loan documentation)

Does the requirement apply to Thai shareholders that invest into foreign owned companies?

No as stated in the table above Thai shareholders who invest into a company which share capital is majority owned by a foreign investor (for example a manufacturing company) are not compelled to disclose the source of their investment.

Does the requirement also apply to the foreign investor?

No; foreign investors are not compelled to disclose the source of their investment.

Does this mean that foreign investors cannot anymore hold 49% of a Thai company?

Not at all, it simply mean that if they own 40% or more at the time of incorporation of the company their Thai shareholders will have to disclose the source of their investment.

Is this regulation effective in preventing Thai to become nominee?

Not really, I mean this is typically one of those pieces of regulation, which are issued to solve a problem without solving it. The reason this regulation was enacted was to make it more difficult for foreign investors to use Thai nominee’s shareholders when incorporating new companies.  But it does not solve the problem.

It suffices to escape the controlling requirement to fly under the radar. Indeed, Thai shareholders of a company that do not have a foreign authorized director and a foreign shareholder holding 40% or more of the company shares escape scrutiny. And nothing could stop this company to be later on restructured.

Is it the only Disclosure Requirement Applicable to Thai Shareholders

No, there is also another Disclosure Requirement that is more in depth and that is applicable to company that purchase land. This disclosure requirement is handled by the Land Department and we will discuss it in another post.

Note: This post is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010

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 2009-10-21 01:47:12.

Related posts:

1. Corporate: Disclosure requirement of Thai shareholders
2. Buying Land: Disclosure Requirement of Thai Shareholders
3. Business Registration: Company Registration Step by Step
4. Company Registration: New Companies Registration in 2009
5. Doing Business in Thailand: Thai PLC and Nominees definition
6. Doing Business in Thailand: The Nominee Issues (Part 2)
7. Thai Private Limited Company: Shareholders Voting Rights
8. Doing Business In Thailand: The Nominees Issue (part 1)