Thailand Foreign Investment – Circumvention of Thailand’s Restrictions on Foreign Investment

Thailand Foreign Investment

Legal Risks of Nominee Shareholding in Thai Corporate Entities


The forerunner of circumvention, the commonplace vehicle employed by renowned foreign MNCs and lesser SMEs all the same is the joint venture with local partner to form a corporate entity and to the effect of, the ‘naturalization’ of an otherwise statutorily-deemed “Alien” / “Foreigner” to become a Thai entity.

Risks of severe legal ramifications & repercussions, albeit observably dormant risks are inherent in such ‘naturalization’. Some of these risks, without limitation, are set out below, with the overarching legal insinuation that these structures effectively allow the otherwise foreign entities to avoid the attraction of most foreign business restrictions (use of such structures to hold land is also dealt with briefly below) particularly the Thai Foreign / Alien Business Act (“FBA“), and essentially – a circumvention of the law.

1. Nominee Shareholding & Circumvention of the Law

Section 36 of the Foreign / Alien Business Act B.E. 2542 (A.D. 1999):

A Thai national or juristic person that assists a foreigner in avoiding the Foreign Business Act by means of holding shares as a nominee or being a nominal owner of the company, shall [including the foreigner so allowing the Thai nationals or juristic persons to commit this offence] be liable for a fine of THB100,000 to THB1,000,000 and/or imprisonment of up to 3 years.”

Vis-à-vis, liabilities & stipulated possible penalties for circumvention of the FBA is shouldered by the Thai nominees, the actual foreign entity(ies) utilizing the Thai nominees and responsible authorized directors, directors & senior management of the same and includes:

  • Fine of THB100,000 – THB1,000,000;
  • Imprisonment of up to 3 years; and/or
  • Termination or dissolution of business and / or the Thai private limited company.

In addition, the parties mentioned above may face the relevant sanctions under other primary legislation such as the Civil & Commercial Code, criminal sanctions under the Thai Penal Code, specific sanctions under industry-specific legislation and / or other sanctions under related ‘common’ law.

2.   Nominee Shareholding & Legal Feasibility

An especially pertinent consideration is the actual tact of nominee shareholding, especially in face of its clearly spelt out unlawfulness, and what risks the foreign investor runs vis-à-vis uncooperative nominees or a rebellion / mutiny by the local joint venture partners.

Vis-à-vis the majority shareholding exercising their inherent rights in a manner adverse to the minority foreign ownership:

  • Foreign investor may be completely barred from exercising its rights in Court, whereby a derivative suit / derivative action is the only available recourse to protect the minority foreign ownership from the Thai partners. Further, if the minority foreign ownership prevails in Court, remedies & recompense are awarded to the company and not the minority foreign ownership.
  • Vide Civil & Commercial Code, it is to be noted that derivative actions generally have the requirement that it be shown that the minority shareholder is exercising its right of action in Court for the benefit of the company and that the company and not the shareholders have suffered as a result. This could well be an issue.
  • Another method is where the ‘beneficial owner’ that is the foreign minority wishes to recall the shares from the nominees, the foreign minority may do so by virtue of law because such shares were held in ‘trust’. Thereto, while the shareholder list is evidence in Thai law, but may be contested whether the shareholder(s) so listed are the actual owners. Such contest may be evidenced by proof of the source of funds having purchased the shares, and such evidence is admissible in Court to prove the identity of the ‘beneficial owners’ [Supreme Court Judgments Nos. 10274/2551 and 6735/2548].

It is important to note that the concept of ‘trusts’ are generally not recognized and do not accord well with the Courts. It may well be that these causes of action in case of default may not be plausible nor viable to the foreign minority what with its underlying unlawfulness making it effectively prima facie conceding to a Court of Law of such underlying illegality.

3. Nominee Shareholding, Practical Difficulties & Further Circumvention

There are further practical, corporate governance and accounting difficulties which come with such a structure, for instance, accounting-wise with regards to the declaration and payment of dividends. In this example, while this may be further accommodated by tailored accounting practices, the inherent gene of circumvention may branch out to further circumvention in this and other respects, adding to the myriad of unlawful elements.

4. Nominee Shareholding & Circumvention of Foreign Land Ownership Restrictions

Another pertinent issue to highlight is that foreign ownership of land (save for very limited exceptions) is prohibited. This restriction (enshrined under Section 97 of the legislation set out below)  is effectively avoided as the ownership of the land, being held by the subject entity, vests in a Thai entity when however in reality, the land is owned by the foreign minority.

The Act Promulgating the Land Code B.E. 2497 (A.D. 1954) as amended up till Land Code Amendment Act (No. 12) B.E. 2551 (A.D. 2008) (“LC“) prescribes liabilities & sanctions for circumvention of restrictions on the foreign ownership of land:

  • Foreign individuals are liable to fines not exceeding THB20,000 and / or terms of imprisonment not exceeding 2 years (Section 111 LC)
  • Company is liable to a fine not exceeding THB50,000 (Section 112 LC)
  • Nominees are liable to fines not exceeding THB20,000 and / or terms of imprisonment not exceeding 2 years (Section 113)
  • Land being held by subject entity shall be disposed by the nominee within the period of time specified by the Director-General of the Department of Lands which shall be not less than 180 days and not more than 1 year. The Director-General shall have the power to dispose of such land if the time limit elapses.
  • Further, there is criminal liability for the offence of furnishing false information to a competent official in view of recording a false statement in official documents – a term of imprisonment not exceeding 3 years and / or a fine not exceeding THB6,000 (Section 276 Thai Penal Code).

If the Thai company subsequently converts into a foreign company (by way of purchase of shares or otherwise) – the reconstituted company has to dispose of the land within 1 year from the date of such reconstitution.

These are just the legal risks, foreign investors have to always bear in mind the risks of the counterpart, empowered by majority shareholding, being uncooperative or rebelling. While there exists a plethora of devices where the minority retains control (vide preference shares, directorship, articles of association, etc.) – this remains a risk, especially as the foreign investor’s hands are somewhat shackled by, once again, the underlying illegality of circumvention.

N.b.   Another common way employed by foreign investors to circumvent Thai foreign land ownership restrictions is the use of back-to-back 30 year leases, with the additional ‘safety’ of an usufruct Agreement / superficie Agreement. This strategy however, is inherently unenforceable by law as an attempt to circumvent the Land Code and is therefore riddled with legal risks.


While the employment of such structures is conceded as being widely commonplace in Thailand, and there exists a number of facades to “minimize” risks of detection (there are claims that legal risks may be minimized too) – years of such structures being in existence with a large majority having faced little or no problem may offer some proof of the dormancy of such risks or conversely the inaction of the authorities in enforcement. Notwithstanding, and also in consideration to the minority that have faced severe legal repercussions or internal hostility – these remain inherent risks which (i) resemble a weak point in a structure that may blow up in face of challenge; and (ii) represent a form of compromise in terms of a corporation’s foundation which may be used as a bargaining chip in negotiations involving the entity with the shady gene.



For more information on the foregoing, or on Thailand-bound investments in general, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at


This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

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Filed under Thailand Business Investment & Corporate Legal, Thailand Company Incorporation