Clearer definition of 'nominees' and foreign firms
The article below relates to proposed amendments to the Foreign Business Act (view amendment fact sheet) in December 2006 and 2007. In August 2007 the (previous) government withdrew its draft FBA for review and improvement. It is not known when and if the draft law will be resubmitted to the parliament.
The cabinet approved amendments to the 1999 Foreign Business Act (FBA) intended to curb the use of nominees to hold shares on behalf of foreign investors. Voting rights will under the new law be used as a main criterion in defining a partly foreign owned Thai company foreign. The amendments will apply to companies which operate under List 1 and 2, partly foreign owned Thai companies operating in businesses listed in List 3 of the FBA will be allowed to continue their business, but will have to report their nominee status. The objective of the planned revision of the Foreign Business Act is to give a clearer definition of 'nominees' and foreign companies. Companies controlled by foreigners in terms of management and/ or voting rights will under the new law be classified as foreign, even if the foreign direct shareholdings are in a minority.
Update note (April 2007); the government's legal advisory body dropped the ''grandfather'' clause that would allow foreign-controlled businesses operating in List 3 sectors to maintain majority foreign voting rights as this would be unfair to other companies.
The nominee problem is directly related to how a company is considered a foreign company. Under present law a partnership or company limited incorporated under Thai law is deemed foreign by the number of shares held by foreigners or the capital investments in the company (section 4 FBA). The test 'who invested the capital' in addition to the number of shares held by the foreigner is effectively a bar on the use of Thai nationals or holding companies as nominees, and since May 2006 the government has been enforcing regulations and require partly foreign owned companies to show the source of their funding under the Land Office guidelines (May 2006) and Business Registration Rules (August 2006).
The recent approved amendments aim to go a step further and includes voting rights as an additional criterion in defining a partly foreign owned company foreign under the Foreign Business Act. Foreign managed and/ or companies controlled by foreigners through voting rights will become foreign under the new law. The amendments to the Foreign Business Act follow the investigations by the Commerce Ministry and the Business Development Department into the legality of the Temasek shareholding structure and its use of nominee vehicles in the (foreign) takeover of the local telecom giant Shin Corp.
Companies will be allowed time to comply with the new rule by lowering and/ or restructuring their shareholdings and reduce their voting rights to below 50 percent when and if the amended FBA becomes law. The intention of the law is to bar both direct and indirect foreign ownership in Thai companies beyond legal limits and prohibiting the use of Thai nationals or juristic entities as nominees. The new amended FBA (the final version is still under consideration by the National Legislative Assembly) will have a direct effect for foreign controlled companies in list 1, 2 and 3. Amity treaty companies and companies granted a license under the FBA or Board of Investment will not be affected by the new rule as these companies operate in Thailand as foreign companies in the first place.
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