If you are interested in owning land or landed property (e.g. a house or villa) in Thailand, and you wish to set up a Thai Co. Ltd., then it pays to fully understand what is meant by the term “nominee” before choosing the shareholders for your company.
A crackdown on foreigners owning land, villas and houses is extremely likely at some point in the future. Such enforcement has happened before, and there is no reason to doubt it will happen again.
The last crackdown was in 2006, but since then many foreigner owners and their inexperienced lawyers have become more complacent. They don’t seem to take seriously the potential threat of the government once again enforcing the laws against nominee shareholders.
Ideally, if you own property through a Thai Company, it has been structured correctly, and is being run as a legitimate businesses, adhering to all Thai corporate and tax laws. If so, you should have no problem.
However, many lawyers believe that the use of nominee shareholders is once again being scrutinised by the authorities. If your company was set up using nominee shareholders, you should think seriously about restructuring it and finding real shareholders.
Remarkably, even though most lawyers are aware of ongoing investigations by the authorities into land being owned by non-trading companies, controlled by foreigners, and employing nominee shareholders, the practise is now more widespread than ever before.
What Exactly is a Nominee?
Nominee shareholders are often referred to as proxies, agents, or even as straw men (because they are generally accepted to be fictitious or even fabricated shareholders).
If they even exist, they are involved in the company in name only, were paid for the use of their name, have no other role or duty, and may not even be locatable today.
In Thailand, the authorities view a nominee as someone acting as a “front” for the real buyer, usually a foreigner.
Although Thailand doesn’t have its own legal definition of a nominee, this is what the Oxford Dictionary states:
“A person or company, not the owner, in whose name a stock, bond, or company is registered.”
The more comprehensive definition below is compliments of a corporate services company in the BVI (where the practice is common, and legal):
“A nominee shareholder is a third party, unrelated to the actual business, who is registered as the holder of shares but whose main purpose is to offer secrecy to the real owner of the company by shielding them from being acknowledged as the true owner of that company”.
If a Thai company has foreign shareholders, any Thai shareholders must also have a financial stake in the company. Being a name on a piece of paper with no actual interest in the company is simply not allowed.
What Constitutes a Nominee in The Eyes of The Authorities?
A blatant use of nominees for a Thai company is easy for the authorities to recognize, but exactly what constitutes a nominee is potentially subjective.
If the accountancy firm setting up your Thai Company uses some lowly clerks within their company, that is going to raise suspicions. But if you then cannot identify them by name or show they invested in your company, and they serve no verifiable role within your company, it will definitely be called blatant use of nominees.
The same applies to maids, gardeners, chauffeurs, friends, associates, accountants, architects, or anyone similarly used in name only.
In most cases where nominees have been used, it is not difficult to establish that the only investment in a foreign-controlled company has been made by the foreigner. It is also easy to ascertain that the local shareholders have no roles or duties to perform within the company.
Doing things correctly takes more time and effort, but it is by no means impossible. It is actually not difficult for foreigners to find Thai nationals who may wish to invest in their company.
Are Thais Allowed to be Shareholders in a Foreign Controlled Company if it Owns Land?
Provided they have a financial stake and interest in the business, there is nothing to prevent Thai nationals from being legitimate shareholders in such a company,
The primary reason Thais are allowed to be involved in a foreign controlled company is to encourage foreigners and locals to work together. Such joint ventures benefit the economy, the Thai people and also the foreigners.
Unfortunately, in most cases where foreigners use Thai Companies to buy property there is no actual cooperation between the local and foreign shareholders.
If a company owns land or landed property in Thailand, it must be a trading company that is actually does business, generates revenue and pays taxes. It must also pay dividends to its shareholders, including the Thai nationals.
If no dividends are being paid to Thai shareholders, this will also draw unwanted attention to the company, and point to shareholders who are not stakeholders in the business.
Which Laws Govern the Use of Nominee Shareholders?
Both the Foreign Business Act and the Land Code Act explicitly state that the use of nominees is not allowed under Thai law.
Section 96 of the Land Code Act states that it is illegal for nominees to be owners of land on behalf of a foreigner.
Similarly, the Foreign Business Act of 1999 prohibits Thai nationals from holding shares on behalf of foreigners.
It is important to note that these laws apply both ways – it is illegal for foreigners to engage the use of nominees under either of the above laws, but it is equally illegal for Thai nationals to act as nominees.
The Thai authorities have never clearly defined what constitutes a “nominee”, although it is obvious that they intend to curtail – if not stop altogether – the use of this practice throughout Thailand.
Those foreign buyers who refuse to pay the higher legal fees to do things properly may one day regret that decision should their own nominee shareholders be come under scrutiny.
What Are The Penalties for Using Nominees?
If a foreigner is found to have used nominees in a company that owns land or landed property, they will be forced to disband the company, and will have one year to dispose of the property.
If they do not do this within one year, the Director General of the Land Department is thereafter authorised to dispose of the land on behalf of the foreigner. The Land Department may also retain a fee of 5% of the gross sale price (before deductions or taxes).
How Much Does Your Accountant/Lawyer Charge to Set Up You Thai Company?
The parameters seem to have become blurred over the last few years, and many law and accountancy firms within the Thai community seem to think that using their staff members as nominees is perfectly acceptable.
While this is better than turning rural rubber planters or rice farmers in Khon Kaen into corporate shareholders (as was common prior to 2006), if the authorities decide to investigate these companies, they may have a different opinion of the legality.
In many cases these are accountancy firms, with little legal knowledge and few qualifications in the field of corporate law, involved in setting up Thai companies. Typically this is done at very little cost.
If your accountancy firm charges only a nominal fee to set up a Thai Company, and they offer to take care of the shareholders for you, then you should probably think twice about whether this is the best way to go.
If you plan to go the route of setting up a Thai Company to buy land or landed property in Thailand, then make sure you do things properly.
There are a few simple steps to follow, and making sure you have legitimate shareholders is one of them. If done correctly, you are unlikely to experience any trouble in the years ahead. It may cost more to do, but it is certainly worth it.
It is possible that the authorities will once again crack down on foreigners owning land, villas and houses. And one of the first things they look at is who your shareholders are and whether they have invested in your company.