Recently, the Thai market has attracted substantial foreign investment due to its unique location and developing economy. However, behind this boom lies a serious offense – the problem of “nominee shareholders”. A Thai court recently sentenced 23 foreign nominees to imprisonment and fined them 200,000 baht, highlighting the government’s commitment to combatting nominee shareholders and the risks involved.

What is a “nominee shareholder”?

A nominee shareholder is a foreigner who borrows a Thai person’s identity to register a company or own real estate in Thailand, allowing the foreigner to gain control. While this practice appears legal, it circumvents foreign investment restrictions. Under the Foreign Business Act of 1999, certain industries and real estate can only be held by Thai citizens, but foreigners use nominee shareholders to bypass these regulations.

Recent cases: 23 nominees sentenced

On October 10, 2024, Thailand’s Department of Special Investigation announced a major case in Phuket. Twenty-three foreign nominees were sentenced and fined for illegally aiding foreigners in holding Thai real estate. With the help of legal and accounting firms, these nominees set up companies that used Thai identities to hold shares. This allowed foreigners to bypass Thailand’s strict foreign investment restrictions, especially in real estate.

Investigations reveal that these companies evade Thai regulations and illegally own real estate by altering shareholder registers instead of registering with the Land Office. This practice undermines Thailand’s legal system and causes the government to lose billions of baht in tax revenue annually.

Legal risks and consequences of nominee shareholders

1. Exposure to criminal liability

Both Thais and foreign investors involved in nominee shareholder behavior may face legal recourse. Recent cases show that 23 foreign nominees received 10-year sentences for illegally assisting foreign investors in Thailand. These sentences were later reduced to five years with two years’ probation due to a good guilty plea. Each nominee must still pay a fine of 200,000 baht. This highlights the Thai government’s zero-tolerance approach to nominee shareholder behavior, with potential for harsher penalties in the future.

2. Loss of property and investment

Once a proxy holding is discovered, the company and real estate may face confiscation or forced dissolution. Companies controlled by foreigners through nominee holdings and properties held in Thai names can be seized under the law. Additionally, the foreign investor will lose any benefits from nominee holdings and may incur significant fines and litigation costs.

3. Joint and several liability of Thai citizens

Thai citizens acting as nominee holders, despite potential financial gain, will face serious legal consequences once their actions are revealed. In addition to criminal penalties, the surrogate’s reputation and future economic prospects will be negatively affected. Participation in surrogacy is not only illegal, but may also seriously hamper an individual’s future career development and life opportunities.

Government response

The Thai government is increasingly serious about nominee shareholders, and the sentencing of 23 nominees signals this shift. Authorities will intensify efforts to investigate and punish illegal nominee shareholding, particularly in the real estate sector with many foreign investors. The government also plans to implement stricter regulations to ensure foreign investments are legal and to curb nominee shareholder issues.

Enhanced company registration and review mechanism

The Thai government has stepped up its scrutiny of the company registration process, especially for foreign-owned companies. The government requires companies to provide detailed information on shareholders to ensure transparency and prevent shareholding through Thai nominees. Meanwhile, Thailand’s Department of Business Development (DBD) is conducting stricter background checks on newly registered companies to verify compliance with regulations regarding shareholder structure.

Interdepartmental Cooperation to Combat Illegal Shareholding

To effectively combat nominees, various Thai government departments, including the DBD, Land Department, DSI, and DOR, are collaborating closely. Through information sharing and joint operations, they can quickly identify suspicious corporate structures and investment behaviors, allowing for early intervention in investigations. This cross-departmental cooperation has increased enforcement efficiency and reduced loopholes.

Stepping up tax audits

The Thai tax authorities have also stepped up tax audits of real estate transactions, especially cross-border transactions involving large assets. The government is increasing tax scrutiny to check for tax evasion by nominee companies and illegal profits. Additionally, it plans to introduce a more transparent tax regime for real estate transactions to minimize opportunities for tax avoidance through nominee holding.

Raising Public Awareness

The Thai government also actively promotes public awareness of nominee shareholder behavior. Through media campaigns and legal education, the government informs the public about the legal risks and consequences of nominee shareholder behavior, urging Thai citizens to avoid participation to prevent legal disputes or criminal liability. Such measures not only help to prevent nominee shareholding, but also reduce the occurrence of criminal acts.

Nominee shareholders pose not only a legal loophole but also a serious threat to Thailand’s economy and social equity. This case sends a strong message that attempts to exploit legal loopholes to bypass regulations and harm national interests will face severe sanctions.

For foreign investors who want to invest in Thailand, understanding and complying with Thai laws and regulations is the key to successful and legal business. By investing in Thailand through legal channels, you can protect your own interests and contribute to Thailand’s economic development.