Foreign Ownership Restrictions and Nominee Shareholders in Thailand: Legal Risks and Recent Investigations

In early 2024, Thai authorities intensified their scrutiny of companies suspected of operating through nominee structures. Reports in March indicated that the Department of Business Development (DBD), which operates under the Ministry of Commerce and oversees corporate registrations, had begun examining hundreds of businesses believed to be controlled indirectly by foreign investors. These inquiries extended across several provinces, including Bangkok, Chiang Mai, Surat Thani and Chon Buri.

Out of more than 400 companies initially identified, approximately three quarters—313 entities—were instructed to submit additional documentation so the authorities could verify the legitimacy of their shareholding structures. The investigations have not been limited to administrative review. The Department of Special Investigation (DSI), which handles complex criminal matters, has also been involved. Working together with the DBD and the Tourism Department, the DSI has opened inquiries into 59 companies in Phuket suspected of relying on nominee shareholders.

These developments highlight a long-standing issue within the Thai business environment: the use of nominees to circumvent foreign ownership restrictions.

Why Nominee Arrangements Exist

Thailand maintains legal limits on foreign participation in a number of business sectors. The principal legislation governing these restrictions is the Foreign Business Act (FBA). The law identifies specific activities that foreigners cannot conduct or that require official permission before they may operate in Thailand.

Under the FBA, a company is legally classified as “foreign” when foreign shareholders own 50% or more of its shares. When a company falls into this category, it may be required to obtain a Foreign Business License (FBL) or a Foreign Business Certificate (FBC) before it can legally engage in certain activities.

Because obtaining these approvals can be time-consuming and complex, some foreign investors attempt to structure their businesses so that Thai nationals formally hold a majority of the shares. In practice, however, the foreigners may still exercise effective control over the company. This arrangement is commonly referred to as a nominee structure.

Foreign ownership restrictions in the Land Code have also contributed to the prevalence of nominee arrangements. Since foreigners are generally prohibited from owning land in Thailand, certain investors have attempted to acquire land through Thai-majority companies whose shareholders are merely acting on behalf of foreign interests.

The Role of Nominee Shareholders

In many cases, foreign investors encounter difficulty identifying Thai partners who are willing to invest capital and genuinely hold a controlling interest in a business. As a result, some individuals turn to Thai nationals who agree to appear as majority shareholders without contributing funds or receiving real economic benefits.

Under such arrangements, the Thai individuals are registered as shareholders while the foreign investor retains control over the company’s decisions, profits, or voting rights. Although this structure may initially appear convenient, it creates significant legal exposure for both parties.

Foreign investors often seek to maintain control of the company through contractual arrangements that allocate decision-making authority, dividends or voting rights to them. However, when these arrangements effectively allow a foreigner to operate a business that is legally reserved for Thai ownership, the structure may violate Thai law.

Legal Consequences Under the Foreign Business Act

The Foreign Business Act contains provisions specifically designed to prevent attempts to bypass its restrictions. Thai nationals are not permitted to hold shares as nominees for foreigners when the purpose is to allow the foreigner to operate a restricted business.

Violations can result in serious penalties. Both the Thai nominee and the foreign investor who benefits from the arrangement may face criminal sanctions. These may include imprisonment for up to three years and fines of up to one million Thai baht.

Courts also have the authority to order the termination of nominee shareholding arrangements. If a company fails to comply with such an order, additional penalties may be imposed. Daily fines of 50,000 baht can be applied until the unlawful structure is corrected.

For many years, these risks were sometimes overlooked. Nominee arrangements were widely discussed and appeared particularly common in industries linked to tourism, especially in regions such as Phuket and Chiang Mai. As a result, some investors assumed enforcement was unlikely.

Recent investigations suggest that this assumption is no longer safe.

Increased Enforcement by Authorities

The coordinated actions of the DBD and the DSI in 2024 demonstrate that the authorities are taking a more proactive approach. By reviewing company records and requesting supporting documentation, regulators are seeking to identify businesses where the formal shareholding structure does not reflect the true control of the company.

Certain corporate structures may draw particular attention. For example, if a foreign individual acts as the sole director of a company whose shares are predominantly held by Thai nationals, authorities may question whether the company is effectively foreign-controlled. In such circumstances, the company may be treated as a foreign entity and therefore required to obtain a foreign business license.

These developments indicate that investors should exercise caution when establishing or acquiring businesses in Thailand.

Risks in Corporate Acquisitions

Nominee issues are not limited to newly established companies. They can also arise in the context of mergers and acquisitions. A foreign investor purchasing shares in a Thai company may inadvertently inherit legal exposure if the company’s Thai shareholders are merely acting on behalf of foreign interests.

This risk exists even when the acquisition involves only a minority stake. During the due diligence process, it is therefore essential to review the company’s ownership structure carefully. Investigators typically examine whether Thai shareholders have made genuine financial contributions and whether they receive proportional economic benefits.

If evidence suggests that a shareholder is acting as a nominee, resolving the issue should be addressed before completing the transaction. One possible solution is to replace the nominee with a legitimate shareholder who genuinely invests in the company.

However, the process can become complicated. In some situations, a nominee shareholder may demand compensation in exchange for transferring shares—even if those shares were originally acquired without any financial investment. Such disputes can create financial exposure or even affect control of the company.

Land Ownership and Nominee Companies

Nominee arrangements are not limited to business activities regulated by the Foreign Business Act. They also arise in relation to land ownership.

Thai law generally prevents foreigners from owning land directly. In response, some investors have attempted to hold land through companies that appear to be majority-owned by Thai nationals but are effectively controlled by foreign interests.

Authorities, including the Department of Lands and the DSI, have increased their scrutiny of these structures. Although the penalties under the Land Code are typically less severe than those imposed under the FBA, the consequences can still be significant.

If land has been acquired in violation of the law, the authorities may require the property to be sold. Forced sales can result in financial losses, particularly if the owner is required to dispose of the asset within a limited timeframe.

Additional Considerations Under the Civil and Commercial Code

Corporate structures involving land ownership may also raise issues under the Thai Civil and Commercial Code. Companies are expected to operate with the objective of generating profit. When a company holds residential land but does not appear to conduct business activities related to that property, authorities may question the company’s purpose.

In such cases, the Revenue Department may review whether the company is deriving income from the property. If no lease agreement exists, the authorities may assess taxes based on an estimated market rental value.

Furthermore, if a company’s activities involve renting land or property, those activities could potentially fall within the scope of the Foreign Business Act. This could lead to additional regulatory scrutiny.

Lawful Approaches for Foreign Investors

Despite these restrictions, foreign investors can still establish businesses and invest in Thailand through lawful structures. One option is to partner with a Thai shareholder who genuinely contributes capital and holds a legitimate majority interest in the company.

Certain exemptions also exist. For example, investors may apply for a Foreign Business License or benefit from promotion granted by the Board of Investment (BOI) in specific circumstances.

With regard to property, although foreigners cannot normally own land outright, they can legally lease land for long periods and own buildings constructed on that land, provided that all legal requirements are properly followed.

Conclusion

The investigations launched in 2024 demonstrate that Thai authorities are paying closer attention to companies suspected of using nominee shareholders to circumvent foreign ownership rules. Agencies such as the Department of Business Development and the Department of Special Investigation are actively reviewing corporate structures across the country, particularly in sectors linked to tourism and real estate.

These enforcement efforts reflect a broader trend toward greater regulatory oversight. With improved access to data and more coordinated investigations between agencies, authorities are increasingly able to identify arrangements where Thai shareholders are acting on behalf of foreign investors.

For individuals seeking to do business in Thailand, the message is clear. Shortcuts that attempt to bypass legal restrictions can expose both foreigners and Thai participants to significant penalties, including fines, imprisonment and the potential loss of assets.

Foreign investors should therefore ensure that their business structures comply with Thai law from the outset. Establishing genuine partnerships, obtaining the necessary approvals and structuring property investments carefully remain the most reliable ways to operate successfully within Thailand’s legal framework.

The information contained in this article is for general informational purposes only and should not be construed as legal advice. You should seek professional advice for your specific situation.