Doing Business in Thailand

The hot potato of the moment is the Thai Nominees issue and there has not been one day for the past two weeks without an article or another in Thai press on the subject.

Today there is an article in the Nation about the nominees issue in Phuket. This issue, is complicated enough in itself and the least we could expect from the Nation (a very good newspaper) is an article on the subject which makes sense.

Firstly there is no such a thing as the “business nomination law”. Secondly there is no law in Thailand, that would stipulates that foreign investors may not hold more than 49% of any businesses they invest into.

What there is the Foreign Business Act which regulates the business activities which are fully prohibited or which exercise by foreign investors in the form of a majority foreign owned business is submitted to the obtaining of permission that is to say a foreign business license or certificate depending of the circumstances?

Now the activities which are prohibited or restricted are listed in the FBA list 1, 2 and 3. To the contrary any activity which is not listed into the FBA attachments list 1, 2 and 3 may be exercised by foreign investors in the form of a 100% foreign ownership. For example, among businesses that may be exercised under the form of a 100% foreign investment are most manufacturing businesses. In other words, it is incorrect to say that foreign investors may not hold more than 49% of any business they invest into.

Secondly, the nation article also mention that “foreigners’ later gain control over Thai illegally, and enjoy a lower tax burden than when holding a minority ownership”. This is the strangest explanation I have ever seen. There is no correlation between ownership of a company and the amount of taxes said company will paid. Foreign or Thai are subjected to the same tax rates.

Thirdly, the reporter says that “there are now 19,653 joint Thai foreign businesses in Phuket, which have invested around THB 62,000,000”. I have a problem with this figure because it would mean that each Thai foreign Joint Venture in Phuket has invested a total of 3,154.75 THB (or 92 USD each).  I guess that the figure of foreign investment in Phuket must be more in the range of several billions THB

What is true is that foreign investors may not hold more than 49% in a company that own land.

Actually the requirement is of the double majority and a company that own land must have 51% of Thai shareholders holding together 51% of the company shares. It is also true that the Land Law provide sanctions that are applicable to those that would be in violation and that have purchased land through Thai companies with Thai shareholders that may be deemed nominees.

What is also true is that “land trading” is a business that is prohibited to foreign investor under the Foreign Business Act List 1. This means that foreign investors may only own 49% participation into said business and that if they exercised said business with company that have Thai shareholders that may be deemed as Thai nominees they would also in addition face sanctions under the FBA Section 37 and followings.

There is definitively a problem in Thailand about how many foreign investors have structured their businesses and this issue has to be solved but starting a witch hunt and reporting nonsense as the Nation did this morning is certainly not the best way to deal with it.

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

Originally posted 2009-09-02 05:51:07.

Related posts:

1. Doing Business In Thailand: The Nominees Issue (part 1)
2. Doing Business in Thailand: Thai PLC and Nominees definition
3. Investing in Thailand: what is a Foreigner under the FBA?
4. Investing in Thailand: Obtaining a Foreign Business License
5. Investing in Thailand: The US-Thai Amity Treaty
6. Investing in Thailand: Prohibited or controlled businesses
7. Thailand Property: Nominees under watch
8. World Bank:Thailand ranks 12th/183 for ease of doing business