Background

Foreign investors have various Thai entity structures to consider as vehicles for foreign direct investment in Thailand.  However, they must conduct their business operations in compliance with the laws of the Kingdom of Thailand, particularly the Foreign Business Act B.E. 2542 (1999) (“FBA”).

As you may be aware, the FBA includes extensive schedules listing business activities restricted to foreigners. The types of restrictions vary depending on which FBA schedule applies, and there are also challenges involved in applying for the Foreign Business License/Certificate (FBL/FBC).  Foreigners who wish to engage in a restricted activity and who do not apply for an FBL or FBC will need to work with a Thai partner, who should be a bona fide investor in the business and not merely acting as a “nominee”.

In this article, we will focus primarily on the shareholding structures of Thai limited liability companies, the “nominee” issue, and the risks related thereto.

Thai Corporate Shareholding Structures

Thailand offers foreigners a variety of incentives to avoid the restrictions under the FBA, such as through the Board of Investment (“BOI”).  However, in cases where foreign investors do not meet the requirements set by the BOI or are ineligible for investment incentives, they may consider establishing a Thai entity instead with a bona fide Thai partner in order to be FBA compliant. In such entities, Thai nationals must hold at least a majority of the shares. In certain specific cases – such as where the company intends to own land in Thailand – the required Thai shareholding proportion will be at least 51%, and maybe even higher.

In practice, some foreign investors may struggle to find a bona fide Thai shareholder and may be tempted to use nominee arrangements, which carry legal risks. Unlike in other countries, such as China, where nominee shareholders are recognized and permitted under certain circumstances, nominee shareholding is strictly prohibited under Thai law.

 Definition of “Nominee” Arrangement

The Thai FBA contains a provision providing for criminal penalties for what is commonly called “nominee” shareholdings by Thai nationals and foreigners employing such “nominee” shareholders. Section 36 of the FBA provides as follows:

“Section 36. A Thai national or juristic person, not being a foreigner under this Act, who assists in or aids and abets or participates in the operation of a foreigner’s business specified in the Lists annexed hereto where such foreigner is not permitted to operate that business or who operates the business jointly with a foreigner in the manner holding it out as the former’s sole business or who acts as a foreigner’s nominee in holding shares in a partnership or a 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 both, and the Court shall order the cessation of the assistance or the aiding and abetting or order the cessation of the joint operation of the business or order the cessation of 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.”

 Criminal liability for violating the “nominee” prohibition in the FBA may apply to the Thai nationals acting as shareholders as well as the foreign directors, partners, or other persons authorized to act on behalf of the underlying company if they are found to have collaborated in the use of nominees or did not reasonably manage to prevent their use.

Furthermore, foreign nationals who received a license or other permission to operate a business restricted under the FBA can also face criminal liability if they act in a nominee capacity for other foreign nationals who engage in such restricted business and do not have such permission.

Thai Legal Scrutiny and Current Practice

There is little official guidance on how to interpret FBA Section 36 or what constitutes a “nominee”, although the term is frequently used by the Thai Ministry of Commerce and the media when reporting on alleged violations of the FBA. In determining whether a Thai national is acting as a “nominee” shareholder, the practical approach is to assess whether the Thai shareholder is a “genuine investor.” Thai authorities will closely examine the company’s structure and the underlying intent behind such structure, as well as any other supporting document showing the source of funds used for the capital contribution provided, in order to interpret and determine whether the arrangement involves “nominee” shareholding.

In practice, whether the Thai shareholder has the financial means to acquire the shares it owns in a company engaged in activities restricted under the FBA, and/or whether that Thai shareholder used his or her own money to acquire those shares, and/or the shareholding structure designation,  as well as the documentation for the establishment of the entities, all play a significant role on the determination on “nominee” issue.

New Developments to Prohibit the Use of Nominees

Thailand is currently expanding its efforts to address the nominee issue.

First, the Department of Business Development (DBD) plans to strengthen investigations into companies operating in the sectors of tourism, real estate, hotels and resorts, transportation and logistics, as well as e-commerce platforms and warehousing nationwide, to discover any nominee arrangements.

Second, last month the Thai government proposed amendments to the Anti-Mondy Laundering Act B.E. 2542 (“AMLA”), and the amendment draft has completed its period of public comments and may enter the Cabinet review stage. One of the key objectives of the amendments is to strengthen enforcement against the use of “nominees”, even though they do not use “nominee” in the amendment. In particular, the arrangement of “nominees” will be recognized as the predicate offense of anti-money laundering under the new amendment of AMLA, which may trigger more serious and complex Thai regulatory scrutiny. The draft also requires Thai companies to disclose information about their ultimate beneficial owners to enhance transparency.

Note: Predicate offense will be recognized as a basis or a component of anti-money laundering crime, upon which, the legal authorities will be much stricter on such offense so as to achieve a goal of legal scrutiny.

 Third, On June 1, 2025, Thailand’s Office of Central Company and Partnership Registration, part of the DBD, began a public hearing period to discuss a draft notification, outlining the criteria and supporting documents required for establishing partnerships and limited companies that include foreign nationals as investors or individuals with signing authority.

In cases where a partnership or joint venture includes non-Thai shareholders or partners, or where all investors are Thai but there are one or more non-Thai authorized directors or signatories, it is important to ensure compliance with legal requirements before proceeding with the investment process.

To avoid any ambiguity and misunderstandings, preparation on the Thai entity incorporation shall be well prepared by professional local legal counsel.

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This update is written for general information only. It does not constitute advice, and consultation with professional advisors is recommended.