Crackdown on foreigners using Thai nominees: DSI raid offices of law firm in Bangkok, Phuket and Samui

[transam]

 

[Wilson Smith]

On 8/17/2018 at 1:32 PM, Horace said:

I don't know how this law firm structured the companies, but using shares with different voting and economic rights is not a loophole.  Consider:

 

1.    The definition of an "alien" says nothing about voting rights or economic control.  It simply says that Thais need to hold 50+% of the shares.  If they wanted Thai shareholders to have voting rights and economic control, why didn't they draft the property law and FBA to say that Thais must have control over the company when they enacted the FBA?  They didn't.

 

2.  They expressly discussed requiring Thais to have superior economic and voting rights when the FBA was enacted 1998,  but decided not to do so because they feared it would scare off foreign investors.  To now suddenly change the law to provide that foreigners cannot have the economic and voting control, which the law has allowed for decades, is an expropriation of property.  Its not closing a loophole.  Its taking investments away from foreigners that were legal when they made them.  

 

3.  When a company is registered, its articles of association set out the economic and voting rights of the different classes of shares.  The Department of Business Development reviews the articles of association when a company it is formed and the nationality of its shareholders.  If they now change law so that companies that were approved and registered by the Department of Business Development are now illegal, the government is taking away investments from foreigners that it had approved.  How can any foreign investor ever trust the Thai government again?  And what about Thailand's obligations under bi-lateral investment treaties and the WTO?  Are they going to thumb their nose at them?

 

4.  Several Directors General of the Department of Business Development have spoke before foreign chambers of commerce saying that companies with different different classes of shares with different voting and economic rights are allowed under Thai law.  Such companies are not "Alien" (foreign) companies if foreigners have superior voting rights and economic rights.  Were they lying to entice foreign investors to invest in Thailand?

 

Putting aside these matters of principle, there is a major practical problem.  The biggest investors in Thailand are the Japanese.  The Japanese are responsible for over 50% of the investment in Thailand.  When there was talk about changing the rules that allow for different classes of shares with different voting rights and economic control, the Japanese forcefully spoke out against this proposal at a meeting of the foreign chambers of commerce following the Coup in 2014.  The Japanese Chamber was backed up by the Japanese Embassy, which said that if these changes were enacted, it would warn Japanese companies to not invest in Thailand and that many Japaneses companies already in Thailand would withdraw from Thailand.  Hundreds of thousands of Thais would lose good paying jobs.  The Thai government backed down and said it had no plans to change the rules.

 

Maybe this law firm was sloppy.  But if there is a plan to change the laws here to criminalize legal structures that are currently legal, it will be an economic catastrophe for Thailand.  Every senior Thai financial officials has acknowledged this, including Korn and Somkid.

 

We need to understand exactly what is happening here.  Did this law firm use a structure that is obviously illegal (such as having Thais sign documents acknowledging they are not real investors but are instead nominees) or is there a real change in government policy.  If its the latter, its not only contrary to international legal norms and standards of fairness, but it will also make Thailand's financial collapse in 1997 look like a small blimp compared to what will occur if these sorts of changes are made.

Before saying there will be a collapse. I think it could be looked at with companies that are doing real business and have an investment in facilities, etc. And then separately look at companies that were just set up to buy a house which are not really doing business. 

[Dogmatix]

5 minutes ago, Wilson Smith said:

Before saying there will be a collapse. I think it could be looked at with companies that are doing real business and have an investment in facilities, etc. And then separately look at companies that were just set up to buy a house which are not really doing business. 

 

I am sure they won't do this to real and substantial operating companies and, even if they did, it would certainly not cause a collapse.  The multinationals that have preference share structures already have tame Thai nominee shareholders who do well out of their "rental" payments and have no interest in running the businesses. They would just have to trust them more.  Something like this happened in Indonesia in the 70s.  The government gave a lengthy grace period and encouraged viable multinational subsidiaries to divest to Indonesians via a listing on the stock market, which meant they were actually able to retain management control with a minority stake. 

 

In the Thai SET the NVDR structure means that you can own shares with economic benefit that reduce the total number of Thai voting shares outstanding shares outstanding which makes it easier to maintain control with a smaller stake of foreign registered shares.  When Pridyathorn, as finance minister, was on the war path about foreign ownership during the Sarayudh government I asked him a question at the FCCT about whether it was still OK for foreigners to own a majority stake of the residual voting shares in a company after netting out the temporarily non-voting NVDR shares.  Pridyathorn could understand the question, so he referred it to the DG of the DBD who also looked puzzled and had to think about it for a while. Finally he said that was OK because the FBA had no provisions to take into account temporary disenfranchisement of shares.  As far as the law is concerned a voting share is a voting share, regardless of whether it is able to vote or not. 

 

Anyway invoking the 1997 crash is a ludicrous comparison.  We are talking about a fairly small part of the economy, not an entire economy grossly over leveraged with foreign currency debt coupled with a run on the currency.  The downside for Thailand is that it could lose out further in its market share of ASEAN FDI which has already dwindled significantly in the last 20 years.  The significance of FDI to the economy is not so much the dollars brought into the capital account by the initial investment but the productivity and competitiveness gains brought in by foreign direct investors who tend to bring in innovation (not talking about the Asian ones that bring in second hand plant from somewhere else and re-export it to a cheaper country a few years later).    

[mogandave]

 
I am no accounting expert, but I don't see why it can't be classified as operating income....

You should let them know....

[Horace]

1 hour ago, Dogmatix said:

Holding companies are not permitted in Thailand. 

 

Curious?  I have never heard that before.  A holding company is simply a company that holds shares in another company or companies and derives income (dividends) from those companies.  What provision of Thai law prohibits holding companies?

 

I was also under the impression that the main, if not exclusive, business of many companies here is to rent out property.  If so, their main, if not exclusive, source of revenue will be rent.  Not challenging anyone, but curious - are you saying that creates accounting problems or problems with the Revenue Department?

[Dogmatix]

1 hour ago, Horace said:

 

Curious?  I have never heard that before.  A holding company is simply a company that holds shares in another company or companies and derives income (dividends) from those companies.  What provision of Thai law prohibits holding companies?

 

I was also under the impression that the main, if not exclusive, business of many companies here is to rent out property.  If so, their main, if not exclusive, source of revenue will be rent.  Not challenging anyone, but curious - are you saying that creates accounting problems or problems with the Revenue Department?

 

I just checked with the CCC and found that Section 1246, allowing the DBD to dissolve companies that are inactive or have no operations for a period of time has been dissolved. So it's probably quite OK now, which has paved the way for holding companies.  The main business of these companies is circumventing the Land Code to allow foreigners to own land. So it is logical that they should receive income in the form of rent for providing this service and the auditor will readily accept this as operating income.

[Horace]

19 hours ago, Dogmatix said:

I just checked with the CCC and found that Section 1246, allowing the DBD to dissolve companies that are inactive or have no operations for a period of time has been dissolved. So it's probably quite OK now, which has paved the way for holding companies.  The main business of these companies is circumventing the Land Code to allow foreigners to own land. So it is logical that they should receive income in the form of rent for providing this service and the auditor will readily accept this as operating income.

 

Thanks.  One slight clarification.  The main point of these companies is not  "circumventing the Land Code to allow foreigners to own land". (I am not sure what the "main point" of a company means, but I do know that companies in Thailand have "objects", and the owning of land and related activities would be objects of the company).  The main, and perhaps only business activity of the company, would likely be to own land and collect rent from owning land.  Under these circumstances, I would assume an auditor will treat the rent as taxable income.

Edited August 24, 2018 by Horace

[molecule engineer]

Those poor sods in Goa,some 10 years ago,thousands of them,lost the lot.  This is another lose-lose,whatever method employed will be swept away as worthless.  The best can be hoped for will be allowed to stay in the house,selling it/passing it on will not be allowed

[mogandave]

 
Thanks.  One slight clarification.  The main point of these companies is not  "circumventing the Land Code to allow foreigners to own land". (I am not sure what the "main point" of a company means, but I do know that companies in Thailand have "objects", and the owning of land and related activities would be objects of the company).  The main, and perhaps only business activity of the company, would likely be to own land and collect rent from owning land.  Under these circumstances, I would assume an auditor will treat the rent as taxable income.

I think if a company owns a hotel, apartments, commercial property or multiple units and are profitable it’s a much better argument than a company that owns one home and the only revenue is the rent the owner pay to himself

[Dogmatix]

1 hour ago, Horace said:

 

Thanks.  One slight clarification.  The main point of these companies is not  "circumventing the Land Code to allow foreigners to own land". (I am not sure what the "main point" of a company means, but I do know that companies in Thailand have "objects", and the owning of land and related activities would be objects of the company).  The main, and perhaps only business activity of the company, would likely be to own land and collect rent from owning land.  Under these circumstances, I would assume an auditor will treat the rent as taxable income.

 

I never said that auditors would not treat this income as taxable income.  In the case of my company the auditor said she could not treat it as operating income but as other income which is still taxable.  The test for operating income was what is the company's core business, which the auditor will want to know. Renting out unutilised space in your office, probably presumed to be until such as time as you need it for your business, cannot in all seriousness be considered as a core operating activity, although perhaps you could persuade your auditor that is the case.  If the company purchased a number of infinity pool villas in Samui, rather than just one which is also its office, and rented them out, then it would have a much better claim to be classified as operating income. 

 

I don't understand on what basis you can say that a foreigner who sets up a company to buy a house and then does no business has not set up the company purely with the objective of circumventing the Land Code. Do you mean to say that, if he were allowed to buy land in his own name, he would prefer to set up a shell company with the related hassle and expenses to own it anyway?

[Dogmatix]

1 hour ago, mogandave said:

 

I think if a company owns a hotel, apartments, commercial property or multiple units and are profitable it’s a much better argument than a company that owns one home and the only revenue is the rent the owner pay to himself

 

 

If a company in this situation were to be investigated, and it turned out to structured like the multinational subsidiaries with preference shares held by Thais who had the financial ability to buy the shares that pay dividends, they would, perhaps through gritted teeth, have to let it be.  If it just had a loose structure without preference shares and/or pledged shares with majority Thai shareholders who were just drivers and maids, it would be on much shakier ground would be perceived as worse than the single home owners because it would be doing an Annex 2 business reserved for Thai comapnies, as well as owning land. I think they might want to go after it.  Perhaps we will see some action of this type after the raid on DFDL, although I think those who are willing to pay DFDL's fees unlikely to use such a shaky structure.  On the other hand there must be plenty of these types of operator in Phuket who just set things up with a hope and a prayer, ripe for the picking and many of them are probably Chinese.  We might see the other big issue challenged which normally arises in smaller businesses, i.e. whether putting the shares in a Thai spouse's name passes muster.  I think it should but there are many Thais who would disagree with me.

 

If they ever come up with a logical solution to the FBA situation, they will probably free up the service sector for major investments of say over 500 million or a billion baht and toughen up the definition of foreign to prevent the use of nominees, preference shares etc, as they have been wanting to do for a long time.  The multinationals and foreign governments would be off their backs then and they could go after all the shell structures single houses, as well as Joe Bloggs' beach hut bar and restaurant as well as Joe Wu's chinese tourism business.  I think that would actually be good for the economy as it would encourage more FDI by innovative multinationals.  The economy doesn't need the single house owning companies or the small foreigner owned businesses. 

 

There are precedents for opening up sectors subject to a minimum investment.  The SEC imposed a minimum investment when it allowed majority owned securities companies and the DBD also imposed a lower limit on foreign owned retailed businesses which still stands today when it opened up the retail sector in the FBA to save Lotus, Big C and Makro from going to the wall when the CP had overstretched itself with foreign currency debt and was unable or unwilling to put more money in to save those businesses.  They came back and bought Makro back later but missed out on Big C to Charoen.   

[Wilson Smith]

A company that does not operate a business other then just owning a property. Each month they submit their company documents for the PND 1 and social security for people who really do not work for the company and the PND 30 states 0 revenue. How is this not a fraud?  And this does not even get into shareholders that never really invested into the company. 

[Horace]

2 hours ago, Dogmatix said:

I don't understand on what basis you can say that a foreigner who sets up a company to buy a house and then does no business has not set up the company purely with the objective of circumventing the Land Code. Do you mean to say that, if he were allowed to buy land in his own name, he would prefer to set up a shell company with the related hassle and expenses to own it anyway?

 I am saying that a majority Thai owned company that rents out one property or ten is not violating the Land Act.  The law prohibits Aliens from owning land (absent BOI promotion, etc.), and a company is an Alien if a majority of shares are owned by a foreigner.  If the Thais are "agents" of a foreigner, that is also a violation of the Land Act.   And if you believe in nominees, you need to provide a clear definition of exactly what constitutes a "nominee".  Good luck with that.

 

 

[Horace]

29 minutes ago, Wilson Smith said:

A company that does not operate a business other then just owning a property. Each month they submit their company documents for the PND 1 and social security for people who really do not work for the company and the PND 30 states 0 revenue. How is this not a fraud?  And this does not even get into shareholders that never really invested into the company. 

 

What Thai law says a company must have employees?

 

Here, assume the shareholders did pay for their shares (e.g., there is a copy of the cleared check). Assume the shareholders can show that they have the financial means to make the investment.  Assume they are getting a return on the shares that is at or above the market rate of similar investments.  Say they are getting 10% per year on their shares. 

 

When there good return on their investment (10% per year), how can you say they are not bona fide investors?  I'd love to get a fixed 10% return on my investments.   Why should Thais be denied the right to get this sort of return on their investments.  And if they are getting that sort of return, they are real (bona fide) investors.  And if they are bona fide investors, how can you say they are nominees?  

 

If you take this position, aren't you also restricting the rights of Thais to make bona investments with a high rate of return?

Edited August 24, 2018 by Horace

[mogandave]

 
What Thai law says a company must have employees?
 
Here, assume the shareholders did pay for their shares (e.g., there is a copy of the cleared check). Assume the shareholders can show that they have the financial means to make the investment.  Assume they are getting a return on the shares that is at or above the market rate of similar investments.  Say they are getting 10% per year on their shares. 
 
When there good return on their investment (10% per year), how can you say they are not bona fide investors?  I'd love to get a fixed 10% return on my investments.   Why should Thais be denied the right to get this sort of return on their investments.  And if they are getting that sort of return, they are real (bona fide) investors.  And if they are bona fide investors, how can you say they are nominees?  
 
If you take this position, aren't you also restricting the rights of Thais to make bona investments with a high rate of return?

So in addition to the tax you need to pay on the market value rent, you have to pay out 10% of the value of the investment out to shareholder, and they’ll have to pay tax on that..

[Horace]

7 minutes ago, mogandave said:

So in addition to the tax you need to pay on the market value rent, you have to pay out 10% of the value of the investment out to shareholder, and they’ll have to pay tax on that..

 

Yes.  Never said this was cheap.  And never recommended that anyone invest in Thai property.  

 

 

[mogandave]

 
And never recommended that anyone invest in Thai property.  
 
 

Thai “company”

[Horace]

2 minutes ago, mogandave said:

 

Thai “company”
 

 

 

My apologies.  You are correct.  Its an investment in a Thai company.

[Dogmatix]

1 hour ago, Horace said:

 

What Thai law says a company must have employees?

 

Here, assume the shareholders did pay for their shares (e.g., there is a copy of the cleared check). Assume the shareholders can show that they have the financial means to make the investment.  Assume they are getting a return on the shares that is at or above the market rate of similar investments.  Say they are getting 10% per year on their shares. 

 

When there good return on their investment (10% per year), how can you say they are not bona fide investors?  I'd love to get a fixed 10% return on my investments.   Why should Thais be denied the right to get this sort of return on their investments.  And if they are getting that sort of return, they are real (bona fide) investors.  And if they are bona fide investors, how can you say they are nominees?  

 

If you take this position, aren't you also restricting the rights of Thais to make bona investments with a high rate of return?

 

Again you are talking about the types of foreign controlled businesses that lobby with the foreign chambers of commerce.  That is the ones like AIS and DTAC that have lawyered their structures up to the eyeballs and have wealthy "nominee" Thai shareholders happy with their rental income, all at vast expense but their businesses are large enough to make the cost worthwhile.  What we are talking about is Joe Bloggs who put most of his savings from a career on the oil rigs into a nice house in Samui via company structure recommended by the law firm related to the developers that uses maids, drivers and/or accounting and law firm employees as shareholders who used the foreigner's money to buy the shares and wouldn't be able to prove they had enough money to invest themselves.  They would probably flip very quickly anyway, if put in a padded cell in a DSI safe house.  In this situation we are getting into territory where criminal prosecution under the FBA would be a real possibility with serious criminal penalties for the alien and the Thai nominees and the possibility that the company could be dissolved, not to mention criminal penalties under Section 113 of the Land Code, depending on how the court decides to interpret the word "tua thaen" and/or forced sale of the land. 

 

I personally think that the view both the FBA and the Land Code are essentially unenforceable scraps of paper and that foreigners are free to violate both with impunity using the flimsiest of corporate structures, based on these clever, sophistic arguments, is unrealistic based on these clever sophistic arguments about definitions.  Again I am not talking about the likes of AIS and DTAC here. I am talking about Joe Bloggs and his one house company with obviously Thai nominee shareholders, no staff and no business.  Anyone who does this should, at the very least, consider they are running a fat tail risk - i.e. a risk with a low probability but with catastrophic downside, if it crystalises. A farang retiree targeted by the DSI would face massive legal bills, if he chose to fight his corner, and might find his escape route to his home country cut off, if his passport were impounded  or worse still, if were considered a flight risk and denied bail.  I would personally not shed a tear about people who have been warned for years but deliberately set out to breach the FBA and the Land Code, nor would their embassies. They might end up going home penniless years later.  

 

You have heard the pros and cons.  Now the choice is yours.  

[pennine]

On 8/17/2018 at 11:05 AM, jvs said:

You are over reacting!!This comes around every once in awhile.If they would really go after every company set up buying houses for foreigners it would be really really big!!!

There is absolutely no way the would take your property away from you.They would give you a certain time in which you would have to sell or put in some other name.I do not believe in these panic reactions.

But can you imagine what would happen to property values if they were all forced to sell at the same time?

[Dogmatix]

1 hour ago, pennine said:

But can you imagine what would happen to property values if they were all forced to sell at the same time?

 

There would be no noticeable impact in Bangkok and other large cities because  shell owned houses are not concentrated there. Also no impact on blue chip developers like Land and Houses which don’t target this market. The impact would be felt in places like Hua Hin where there are concentrations of of shell owned property. I guess there would be not much interest in the properties, so owners might have to try to find individual nominees (who might all be scared off) sell them for next to nothing or simply up sticks and abandon them. This is all assuming a very worst case scenario which I feel is unlikely.

[Horace]

On 8/24/2018 at 5:44 PM, Dogmatix said:

I personally think that the view both the FBA and the Land Code are essentially unenforceable scraps of paper and that foreigners are free to violate both with impunity

 

You are putting the cart before the horse, and that seems to be common with several posters here.  You are assuming that someone one is claiming that "foreigners are free to violate [the FBA and the Land Act] with impunity". 

 

Don't you first need to actually look at what the laws says and know the facts in the first place before concluding that there is a violation of the FBA and Land Act?  Isn't it intellectually dishonest and deliberately confusing to start by assuming that foreigners are violating the law and then take about the consequences of violating the law?  

No one has yet explained how a Thai majority company can be considered an "Alien" under either FBA or the Property Act without proof that the Thai shareholders are "nominees" or, in the case of the Property Act, an "agent" of foreigner.  

 

Explain how Thai law can treat a Thai shareholder as a "nominee" when the concept of "trust" cannot be employed to do so?  How is a Thai shareholder an "agent" or a "nominee" if he or she is free to vote his or her shares as he or she deems fit without needing any consent or approval of the other shareholders?

Edited August 26, 2018 by Horace

[xylophone]

Here's a link to the relevant law:

 https://www.thailandlawonline.com/thai-real-estate-law/thai-land-law-land-code-act#96

 

Section 74 In recording rights and legal acts by the competent authority under Section 71, the competent authority shall have the power to interrogate the parties and summon persons concerned to give oral testimony or send relevant written evidence as may be necessary and then proceed as may be appropriate under the circumstances.

If there is reason to believe the recording of such rights and legal acts is in evasion of the law or there is reason to believe the purchaser is purchasing on behalf of an alien, instructions shall be asked of the Minister whose word shall be final.

 

As it says in the preamble, foreigners are only allowed to own land in Thailand pursuant to a treaty with a foreign country (there are no such treaties) or under section 96 bis which theoretically allows it when the foreigner invests 40 million Baht into the country but with so many restrictions (especially as to location) that it is not a practical option in reality.

 

Given that the law to all intents and purposes makes it illegal for a foreigner to own land, forming a "dummy' company (which is actually not a company as it does not conduct any business) with the sole purpose of allowing a foreigner to own land in defiance of the law, makes it equally illegal.

 

  A property-related website summarizes it as follows:

 

 Note that a Thai company formed as a front for foreign property ownership is illegal and leads to unlawful foreign ownership (because of its purpose and Thai nominee shareholding structure). A company that owns a real estate property must be a normal active company running a business and show business activity, hold yearly shareholding meetings, file yearly balance sheets and correct accounting, and as a partly foreign owned company must comply with foreign business laws. It cannot be a dormant property holding company merely holding land on behalf of the foreigner (that would be illegal). 

 

This was from another poster on a similar forum and whereas Horace wants to stick with his "trust/nominee" argument, a couple of friends and other folk in Thailand have lost their properties, not because of Intervention by the law, but because fraud was committed and when they tried to fight their case, they didn't have one because their set up was ruled illegal in the first place! 

 

But it's legal...……...yeah right. 

Edited August 26, 2018 by xylophone

[Dogmatix]

19 hours ago, Horace said:

 

You are putting the cart before the horse, and that seems to be common with several posters here.  You are assuming that someone one is claiming that "foreigners are free to violate [the FBA and the Land Act] with impunity". 

 

Don't you first need to actually look at what the laws says and know the facts in the first place before concluding that there is a violation of the FBA and Land Act?  Isn't it intellectually dishonest and deliberately confusing to start by assuming that foreigners are violating the law and then take about the consequences of violating the law?  

No one has yet explained how a Thai majority company can be considered an "Alien" under either FBA or the Property Act without proof that the Thai shareholders are "nominees" or, in the case of the Property Act, an "agent" of foreigner.  

 

Explain how Thai law can treat a Thai shareholder as a "nominee" when the concept of "trust" cannot be employed to do so?  How is a Thai shareholder an "agent" or a "nominee" if he or she is free to vote his or her shares as he or she deems fit without needing any consent or approval of the other shareholders?

 

The Interior Ministry reached a certain point in these deliberations in 2006 which is evident from the letters sent from the ministry to Land Department offices since that date. On the subject of shell companies with Thai nominee shareholders, the drift of the ministry is to consider any company suspected of being a front for foreign land ownership as alien. The test that land officers are directed to conduct is to summon the Thai shareholders and/or directors and ask them to show their sources of funds and explain the business objectives of the company that would involve a sum equal to or greater than its entire capital in a residential property. There is no mention of legal definitions of nominees, trusts or agents.  The ministry simply directs land officers to determine whether it is credible that the Thai shareholders are real shareholders investing their own money in a company that is a real business.   They don't care whether the nominee Thai shareholders have the right the vote or receive dividends.  They are only interested in whether they invested their own money or not.  The minister has absolute discretion under the Land Code to consider a company as alien and reject its application to purchase land.  Further the director general of the Land Department has the power to order divestment of land by an entity determined at the discretion of the minister to be alien without the need to resort to Section 113 that prescribes criminal penalties and makes reference to a "Tuathaen".

 

That is where the most powerful ministry in the land, which has a substantial legal department is with regard to its thinking about sham companies established to facilitate the ownership of land by foreigners.  Typically the ministry's legal experts do not recommend a course of action that is at variance with existing laws and unenforceable.  This is ample evidence of this, without going into detail, in studying the way the Nationality Act is enforced by the ministry by studying its variance ministerial regulations and guidelines.  The absence of a trust law, with the exception of the 2007 Trust for Transactions in the Capital Markets Act means that trusts may not be set up by individuals as juristic entities to hold assets outside the confines of that capital markets law.  This has no relevance to nominee arrangements for the illegal ownership of land by foreigners, particularly the simple one house shell companies with no operating business and without preference share, pledges or other types of clever lawyering we have been focusing on.  Even if there were a general trust law in Thailand, it is unlikely that these foreign law breakers and their Thai nominees would want to enter into a formal trust agreement.  There are many farang legal experts, who cannot read Thai, who base their arguments solely the reading of statutory laws but are ignorant of  the many ministerial letters, directives and specific court rulings that are not translated into English.

 

So far the ministry has denied numerous applications to register land by sham companies. It is very obvious that its legal department is not concerned that this could produce a rash of cases in the Administrative Court that it might lose and none have occurred to my knowledge.  I am sure they would not have proceeded with this action that has been going on for 12 years already, if they thought there was a risk of losing cases in the Admin Court.  My belief is that the  ministry is confident of its legal position in enforcing the Land Code against sham companies with simple structures that are not lawyered up and have no business operations (not considering renting out the house to the foreign land owner as a business operation) but has thus far decided to act with constraint and merely attempt to reduce the number of new land registrations to sham companies and giving warnings to unravel existing nominee structures.  One day they might be placed under pressure to take affirmative action to rid what nearly 100% of Thais view as the evil of illegal foreign land ownership.

 

Placing confidence on clever legal definitions gleaned by farang legal experts would be risky in a Thai court.  Remember the rulings of the Constitutional Court that when virtually the same of judges found Sanan guilty of assets concealment and then turned around and found Thaksin guilty two weeks later using essentially a different definition of assets concealment. Also imagine the outcry from the general public, if courts started acquitting cases brought against sham companies under the FBA and the Land Code and it was made clear to the public that these two laws were essentially unenforceable.  At the very least that would demand an immediate revision of the FBA and a toughening of the penalties for nominees with clear definitions under the Land Code.

 

You can take all of the above seriously or you can dream on in the bubble of your definitions in your infinity pool villa in Samui owned through a "man of straw" company.    

 

[xylophone]

3 hours ago, Dogmatix said:

 

The Interior Ministry reached a certain point in these deliberations in 2006 which is evident from the letters sent from the ministry to Land Department offices since that date. On the subject of shell companies with Thai nominee shareholders, the drift of the ministry is to consider any company suspected of being a front for foreign land ownership as alien. The test that land officers are directed to conduct is to summon the Thai shareholders and/or directors and ask them to show their sources of funds and explain the business objectives of the company that would involve a sum equal to or greater than its entire capital in a residential property. There is no mention of legal definitions of nominees, trusts or agents.  The ministry simply directs land officers to determine whether it is credible that the Thai shareholders are real shareholders investing their own money in a company that is a real business.   They don't care whether the nominee Thai shareholders have the right the vote or receive dividends.  They are only interested in whether they invested their own money or not.  The minister has absolute discretion under the Land Code to consider a company as alien and reject its application to purchase land.  Further the director general of the Land Department has the power to order divestment of land by an entity determined at the discretion of the minister to be alien without the need to resort to Section 113 that prescribes criminal penalties and makes reference to a "Tuathaen".

 

That is where the most powerful ministry in the land, which has a substantial legal department is with regard to its thinking about sham companies established to facilitate the ownership of land by foreigners.  Typically the ministry's legal experts do not recommend a course of action that is at variance with existing laws and unenforceable.  This is ample evidence of this, without going into detail, in studying the way the Nationality Act is enforced by the ministry by studying its variance ministerial regulations and guidelines.  The absence of a trust law, with the exception of the 2007 Trust for Transactions in the Capital Markets Act means that trusts may not be set up by individuals as juristic entities to hold assets outside the confines of that capital markets law.  This has no relevance to nominee arrangements for the illegal ownership of land by foreigners, particularly the simple one house shell companies with no operating business and without preference share, pledges or other types of clever lawyering we have been focusing on.  Even if there were a general trust law in Thailand, it is unlikely that these foreign law breakers and their Thai nominees would want to enter into a formal trust agreement.  There are many farang legal experts, who cannot read Thai, who base their arguments solely the reading of statutory laws but are ignorant of  the many ministerial letters, directives and specific court rulings that are not translated into English.

 

So far the ministry has denied numerous applications to register land by sham companies. It is very obvious that its legal department is not concerned that this could produce a rash of cases in the Administrative Court that it might lose and none have occurred to my knowledge.  I am sure they would not have proceeded with this action that has been going on for 12 years already, if they thought there was a risk of losing cases in the Admin Court.  My belief is that the  ministry is confident of its legal position in enforcing the Land Code against sham companies with simple structures that are not lawyered up and have no business operations (not considering renting out the house to the foreign land owner as a business operation) but has thus far decided to act with constraint and merely attempt to reduce the number of new land registrations to sham companies and giving warnings to unravel existing nominee structures.  One day they might be placed under pressure to take affirmative action to rid what nearly 100% of Thais view as the evil of illegal foreign land ownership.

 

Placing confidence on clever legal definitions gleaned by farang legal experts would be risky in a Thai court.  Remember the rulings of the Constitutional Court that when virtually the same of judges found Sanan guilty of assets concealment and then turned around and found Thaksin guilty two weeks later using essentially a different definition of assets concealment. Also imagine the outcry from the general public, if courts started acquitting cases brought against sham companies under the FBA and the Land Code and it was made clear to the public that these two laws were essentially unenforceable.  At the very least that would demand an immediate revision of the FBA and a toughening of the penalties for nominees with clear definitions under the Land Code.

 

You can take all of the above seriously or you can dream on in the bubble of your definitions in your infinity pool villa in Samui owned through a "man of straw" company.    

 

Wonderfully constructed and explained may I say. Well done.

[mogandave]

Again, any argument formulated around the English translation means little in court.

Laws are written in Thai, and the “official” translation is provided for convenience only.

[The manic]

40 minutes ago, xylophone said:

Wonderfully constructed and explained may I say. Well done.

we're doomed!

[xylophone]

25 minutes ago, mogandave said:

Again, any argument formulated around the English translation means little in court.

Laws are written in Thai, and the “official” translation is provided for convenience only.

Good point and I had constructed this below in the early hours of this morning when I couldn't sleep, and I ties in with your post...………

 

One poster, seems to be focusing on such things as “trusts”, nominees and other interpretations of English language as regards to Thai law, but let’s skip around that for the moment because IMO these interpretations matter not if certain aspects of forming a company are employed here.

 

So starting from the fact that a farang wants to buy a property and land so approaches a lawyer and the lawyer suggests setting up a company in order to do so. The farang has the funds available for this purchase and the lawyer draws up company documents stating that three of his friends are “shareholders” in this new company, thereby owning 51% as a minimum and allocating an amount of shares on this document to these people.

 

The moment this lawyer registers this company as the buyer of the property, it becomes illegal because the document states that the three friends are shareholders and hold a certain amount of shares, when of course this is not true as they are not real shareholders because they have not invested their own funds in the company, they will not be getting a return on their “investment” (because they haven’t made one) and they are not shareholders of an actual company which produces something, employs the requisite number of Thais and which holds shareholder meetings, because the company is a sham company.

 

The company is therefore a front or a sham which ever you want to call it and a few years ago the government tightened up the regulations on such “shareholding” and sham companies and stated that such companies could be investigated and if all of the above elements were in place, action could be taken and confiscation of the propert/land was a probability/option as well as fines for the bogus shareholders.

 

So to recap, the moment the company is registered as the so-called owner of the property, the law has been broken by virtue of its component parts not meeting the key elements of Thai law.

 

And no amount of arguing about “trusts” or the meaning of nominees or whatever makes any difference here.

Edited August 27, 2018 by xylophone

[eisfeld]

32 minutes ago, xylophone said:

as well as fines for the bogus shareholders.

And now let's think one step further: What incentives do the "lawyers" now have if they find themselves in such a situation? They either sell their shares (which might not be so easy) or they transfer the property to someone else while making a nice profit at the same time. The foreigner can cry all day because he can't claim that it was his land really. It's a really messy situation, especially if the foreign entity employed tricks like having shares with more voting rights etc.

 

The intent of the law was clear (even if I don't like it for obvious reasons): Thailand doesn't want foreigners to own land. Any any legal trickery to work around that will only work so long as the Government doesn't try to fight against that practice. And good luck winning against the Government.

[NCC1701A]

we are 29 pages and 426 posts into is topic and all you need to hear is "Yes you can" or "No you can't".

 

That tells you all you need to know about this subject.