At GPS Legal, we get many inquiries about starting a business in Thailand. We often find that these entrepreneurs have received misleading or even completely erroneous information. We would like to take this opportunity to address these misconceptions.
Nominee Structures are NOT LEGAL for a Foreign Business in Thailand
Section 35 of the Foreign Business Act explicitly states:
A Thai national or a juristic person [i.e. an individual or registered entity], not being a foreigner under this Act, who assists in or aids and abets or participates in the operation of a foreigner’s business … where such foreigner is not permitted to operate that business or [where said Thai person] operates the business jointly with a foreigner in the manner holding it out as the [Thai person’s] sole business or who acts as a foreigner’s nominee in holding shares in a partnership [or] limited company or any juristic person with a view to enabling the foreigner to operate the business in circumvention or violation of the provisions of this Act, or a foreigner who allows such act to be committed by a Thai national or a juristic person that is not a foreigner under this Act, shall be liable to imprisonment for a term not exceeding three years or to a fine of one hundred thousand Baht to one million Baht or to both, and the Court shall order the cessation of the assistance…the aiding and abetting, … [or] the joint operation of the business, or [the] shareholding or partnership, as the case may be. In the case of violation of the order of the Court, the violator shall be liable to a fine at the daily rate of ten thousand Baht to fifty thousand Baht throughout the period of the violation.
This means that if any Thai person or entity participates in a business in name only to fulfill a legal requirement for a business to be considered Thai, then that party and anyone else involved is breaking the law and could be punished with imprisonment and/or hefty fines.
Nevertheless, there are many out there who will suggest a nominee structure as a perfectly legal way to set up a business in Thailand. It is not. Besides being illegal, you are giving up control of your company, assets, profits, and clients to someone that you must implicitly trust but may ultimately not have your best interests at heart. Do not be lulled into a false sense of security by documents or contracts that presumably legitimize the nominee or protect your interests – since the fact of the nominee itself is illegal, the supporting documents or contracts are in turn void or unenforceable.
If you have a Thai partner who has legitimately invested and partnered with you, then a majority-Thai owned company is a perfectly viable entity. Further, your interests and control of the company can be protected through legally sound shareholding structures and shareholder agreements, including assigning reduced voting rights and a rebalanced share of profits in favor of the minority foreign shareholder. Alternatively, if you do not have the benefit of a local investor, there are a variety of majority-foreign owned structures that you can pursue.
Opening a Majority Foreign Owned Business in Thailand is NOT Difficult
As discussed in a previous article, there are several options for foreigners to start a business in Thailand without needing a Thai partner (or nominee), which are legal, transparent, scalable, and affordable.
Cost center entities include a Foreign Representative Office to fulfill quality control, market research or customer support roles, or a Regional Office to administratively oversee nearby branch office operations around Asia. Revenue generating entities include a Branch Office as a wholly owned extension of an overseas parent company or a full-fledged Foreign Limited Company or Limited Partnership.
Foreign entities that trade and compete in the local marketplace and whose business objectives fall into any of the three lists of restricted businesses, will require a Foreign Business License. While there are some sectors in which foreigners are generally prohibited from pursuing in Thailand, it is not a long list, and furthermore, applying for a Foreign Business License is not an overly arduous process.
Additionally, Thailand’s Board of Investment (BOI) offers various tax and non-tax incentives and privileges to qualifying foreign-owned companies. This is also not an arduous process and is one that many foreign investors overlook—often because their “business advisors” want them to pursue a nominee structure so that these very advisors can profit from being engaged as the nominee.
GPS Legal Can Help You Set Up Your Foreign Business in Thailand
Build your business from the start on a solid foundation, not a house of cards. If you have a friend or an advisor who tries to convince you that a nominee structure is perfectly legitimate, please note that there have been, and will continue to be, crackdowns on both businesses and advisors alike.
GPS Legal will help you decide which structure is best for your business goals in Thailand. Please contact us for more information.