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

[garyk]

13 minutes ago, stud858 said:

I havent seen anything written in a law Act that even suggests its illegal.

Its not illegal to marry a thai.

Its not illegal to provide for your wife.

Its not illegal for thai person married to falang to run business.

All good, unless some official wants to make up their own laws.

 

 

Humm interesting. So a foreigner can come to Thailand marry a Thai. Have her invest for him and him run the company in the background is legal?  Wow.

[stud858]

1 minute ago, garyk said:

Humm interesting. So a foreigner can come to Thailand marry a Thai. Have her invest for him and him run the company in the background is legal?  Wow.

He cant run the company.

She needs to run the company. Ie write documents, handle phone cslls, do tax, deal with staff, etc etc.

 

[jvs]

3 minutes ago, garyk said:

Humm interesting. So a foreigner can come to Thailand marry a Thai. Have her invest for him and him run the company in the background is legal?  Wow.

If he is dumb enough to put all of his money in her name and take his chances?All he stands to lose is 50%(or more)who is going to prove he is running the business?And who will really care?

[stud858]

3 minutes ago, jvs said:

If he is dumb enough to put all of his money in her name and take his chances?All he stands to lose is 50%(or more)who is going to prove he is running the business?And who will really care?

It doesnt have to risk all his money.

Pay the rent of shop, buy some initial stock, when profits are being made, the wife can withdraw into her name and share with her darling husband.

Probably a bit of a chance of a small loss if business doesnt succeed.

I see it a good pathway if you have an educated wife that can run a business.

 

The foreigner just needs to be a completely silent partner and give money to the wife, not the business.

 

[mogandave]

I could be wrong, but It’s my understanding if one marries a Thai, one can work for the business the Thai spouse owns.

[garyk]

39 minutes ago, mogandave said:

I could be wrong, but It’s my understanding if one marries a Thai, one can work for the business the Thai spouse owns.

Wow, interesting!

[eisfeld]

Of course he can work for his wifes company. Same as he can work for any other company. He just has to obtain the proper work permit - wife or not. But that's getting off topic and doesn't have much to do with the raid on this law firm.

 

More on topic: if a foreign husband controls a company and just uses his wife as the front to make it look like a Thai owns it then that's illegal (if someone were to crack down on it and prove it). But I doubt any law firm would recommend such a legal structure.

[Dogmatix]

3 hours ago, eisfeld said:

The link to the recent events with Chinese tour companies and especially the boat tragedy didn't really cross my mind but seem to totally make sense. I agree that cracking down on retired foreigners "owning" a villa doesn't seem like a pressing concern to me, at least it shouldn't be with all the other much bigger and important problems regarding land ownership (e.g. encroachment). Cracking down on the zero-baht chinese tourism business though might be a big enough concern to trigger actions like this raid.

 

About the ABB example: did their setup pre-date possibilities like BOI sponsorship or why did they opt to set up a corporate structure like that?

 

About the big Japanese companies like car manufacturers: I don't see a reason for them to not be able to have straight forward majority foreign ownership, fully supported by the government.

 

I don't know the ins and outs of the ABB Distribution case but the BOI was in existence long before it took place. I assume it did not qualify for BOI promotion because it was a distribution or logistics company not a manufacturing subsidiary. 

 

As I recall the foreign car manufacturers were allowed to get majority ownership up to 100% of all or parts of their businesses after the 1997 crisis, when the Thai Chinese rent seeking partners couldn't put up any more capital to salvage the businesses which would have gone bust.  There were some very acrimonious partings of the ways and some very unhappy Thai Chinese families who got diluted away to nothing when the foreign brand owners took the opportunity to make substantial capital increases. The local family that formerly controlled the Mazda and Suzuki brands, which became insolvent in the 1984 financial crisis, as well as the 1997 one publicly took a particularly nasty hit.  The BMW and Benz Thai Chinese families also got diluted away to nothing by the Krauts and moaned like hell that the Germans left them with a lot of unsaleable parts they had been forced to stock.  Most of the European and Japanese obviously couldn't get rid of these irritating and expensive rent seekers quick enough.  I think what happened is that nearly all manufacturing businesses got removed from the annexes in the transition from the 1972 Alien Business Revolutionary Decree to the 1999 FBA.  Exporting was also removed from the lists.  The car manufacturers may still have to have local shareholders for the parts of their businesses that are not specifically manufacturing and exporting.  I am not sure but I do know that Tesco does this.  In the same way retailing was exempted from the 1999 FBA, provided the investment was over B100m.    

[janclaes47]

3 minutes ago, Dogmatix said:

I am not sure but I do know that Tesco does this.  In the same way retailing was exempted from the 1999 FBA, provided the investment was over B100m.

I don't think Tesco owns 100% straight out, but they do it through a legal construction of one or more Thai companies.

[Dogmatix]

On 8/28/2018 at 5:33 PM, OldSiamHand said:

The Securities and Exchange Act and the Thai SEC no doubt regulate securities businesses, but the FBA definitely covers their operations as well, and required an entity that otherwise complied with SEC regulations to also obtain a foreign business license.  The 40% limit you refer to is news to me.  I don't recall seeing that in the SE Act.

 

I stand corrected.  Now I come to think of it the 40% limit was an SET rule for members that went by the wayside after the 1997 crisis and foreigners were needed to bail out some of the insolvent SET members that were considered salvageable. Yes, securities companies were dropped from the FBA's Annex 3 in 2013 under the Yingluck government. That meant they no longer have to apply for a foreign business licence which is certainly something of a help.  My point was that they need to be licensed by the SEC which has the authority to decide whether foreigners can take them over or not.  While they were still under the FBA, it was only a technicality to get the foreign business licence, if foreigner ownership was already approved by the SEC.  So it was a useful amendment that reflected the way things had shifted but cannot be considered a major concession by the Commerce Ministry though the DBD because it had no authority over the securities comapnies, despite their inclusion in the law.    

[Dogmatix]

1 minute ago, janclaes47 said:

I don't think Tesco owns 100% straight out, but they do it through a legal construction of one or more Thai companies.

 

Correct me if I am wrong but my understanding is that they own a substantial majority of the pure retail parts of the business, since the 1999 FBA came in and allowed them to own 100%.  They diluted down the CP Group that had overstretched itself with foreign currency loans and couldn't or wouldn't put up any more capital into jvs like Lotus Tesco,  Makro and Big C as it was too busy keeping its core family businesses alive.   I believe that CP is at least nominally the majority shareholder of the businesses like logistics that still don't qualify for majority foreign ownership. 

[janclaes47]

5 minutes ago, Dogmatix said:

 

Correct me if I am wrong but my understanding is that they own a substantial majority of the pure retail parts of the business, since the 1999 FBA came in and allowed them to own 100%.  They diluted down the CP Group that had overstretched itself with foreign currency loans and couldn't or wouldn't put up any more capital into jvs like Lotus Tesco,  Makro and Big C as it was too busy keeping its core family businesses alive.   I believe that CP is at least nominally the majority shareholder of the businesses like logistics that still don't qualify for majority foreign ownership. 

 

Need to look it up, but I think Ekachai bought CP's shares, and Ekachai is partly owned by Tesco UK and Tesco Thailand and maybe some more Thai companies that are controlled by Tesco.

 

By the way, Big C wasn't owned by CP

[Horace]

9 hours ago, janclaes47 said:

I don't think Tesco owns 100% straight out, but they do it through a legal construction of one or more Thai companies.

 

The retail sale of goods is not subject to the FBA if the total capital is 100 million Baht or a minimum or 20 million Baht per store.  Originally the DBD said "capital" meant "registered capital" (significant because only 25% of registered capital needs to be paid-in), but then, a few years later, did a total reversal and said capital meant paid-in capital.  This interesting for two reasons.  First, because this not an "exemption" from the FBA; instead the FBA's restrictions simply do not apply if the minimum capital rules are satisfied.  Second, the DBD flat our reversed a prior decision on minimum capital that retailers had relied on setting up operations in Thailand.  Those type of reversals are always wonderful for creating the impression that Thailand is a safe investment environment and the rule of law actually means something. 

 

Someone above said this and I have said this as well, but I don't see why there is such an obsession with foreigners purportedly "evading" and "circumventing" the FBA.  Doesn't Thailand have more serious problems?  Say, a 300 million Baht loan by a massage parlor owner employing trafficked under age girls to a Thai ex-police chief?  A crappy education system? Just about everything to do with Koh Tao?

 

Just a thought, but wouldn't, but wouldn't it be a better use of Thailand's resources to go after these problems rather than foreigners with management control of businesses that employ Thais (and pay their taxes and comply with Thailand's pro-employee labour laws, unlike many Thai controlled businesses) or retired foreigners living in villas owned by Thai majority owned companies?  Why the venomous vigilante like attacks on foreign business operators and foreign retirees while other, real problems (think energy drink scion plowing down a police officer with no arrest warrant against him for five years after this death and then, when an arrest warrant is finally issued, simply flying out of the country "unnoticed") are essentially ignored and swept under the table?  Just a thought.

[mogandave]

 
The retail sale of goods is not subject to the FBA if the total capital is 100 million Baht or a minimum or 20 million Baht per store.  Originally the DBD said "capital" meant "registered capital" (significant because only 25% of registered capital needs to be paid-in), but then, a few years later, did a total reversal and said capital meant paid-in capital.  This interesting for two reasons.  First, because this not an "exemption" from the FBA; instead the FBA's restrictions simply do not apply if the minimum capital rules are satisfied.  Second, the DBD flat our reversed a prior decision on minimum capital that retailers had relied on setting up operations in Thailand.  Those type of reversals are always wonderful for creating the impression that Thailand is a safe investment environment and the rule of law actually means something. 
 
Someone above said this and I have said this as well, but I don't see why there is such an obsession with foreigners purportedly "evading" and "circumventing" the FBA.  Doesn't Thailand have more serious problems?  Say, a 300 million Baht loan by a massage parlor owner employing trafficked under age girls to a Thai ex-police chief?  A crappy education system? Just about everything to do with Koh Tao?
 
Just a thought, but wouldn't, but wouldn't it be a better use of Thailand's resources to go after these problems rather than foreigners with management control of businesses that employ Thais (and pay their taxes and comply with Thailand's pro-employee labour laws, unlike many Thai controlled businesses) or retired foreigners living in villas owned by Thai majority owned companies?  Why the venomous vigilante like attacks on foreign business operators and foreign retirees while other, real problems (think energy drink scion plowing down a police officer with no arrest warrant against him for five years after this death and then, when an arrest warrant is finally issued, simply flying out of the country "unnoticed") are essentially ignored and swept under the table?  Just a thought.

Again, I think you are being disingenuous. I have been following this thread, and as far as I know, no one has indicated foreigners operating legitimate businesses had anything to worry about.

You keep making this stuff up, much like when you compare companies like Toyota with shell companies that only exist to facilitate foreign ownership of real property.

Is your position so weak you have to resort to intentionally confusing the two?

I do not want to see anyone lose their property, but the idea there will be a huge backlash resulting in legitimate companies pulling out of Thailand because some people involved with circumventing the law get caught is ridiculous.

[Horace]

1 hour ago, mogandave said:

Again, I think you are being disingenuous. I have been following this thread, and as far as I know, no one has indicated foreigners operating legitimate businesses had anything to worry about.

You keep making this stuff up, much like when you compare companies like Toyota with shell companies that only exist to facilitate foreign ownership of real property.

Is your position so weak you have to resort to intentionally confusing the two?

I do not want to see anyone lose their property, but the idea there will be a huge backlash resulting in legitimate companies pulling out of Thailand because some people involved with circumventing the law get caught is ridiculous.

 

OK, I will ignore the gratuitous ad hominem attacks and keep this simple and civil.  I am hoping you are capable of doing the same.

 

You assume some businesses are legitimate while others are not.  Where in Thai law do you find a find a definition of the term "legitimate" business". Be specific. How is a company operating in the service sector or a company that owns land any less "legitimate" than Toyota? 

 

You claim I am "confusing the two".  If I am really confusing the two, there there must be a principled basis for distinguishing between legitimate and illegitimate businesses that is written into Thai law.  Tell us all what that distinction is?  Give us all a cite to the Thai law that make this distinction.

 

You assume that businesses are "circumventing" the law, but you never explain how they are circumventing the law when they are complying with all of the written requirements for registering a business, paying taxes and conducting their business.  Explain that?  Provide specific cites to Thai law.

 

If these businesses are really illegitimate businesses circumventing the law, why did the Thai authorities register them in the first place?  Its apparent in the registration papers what the business will do, who owns the business, the shareholding rights of the shareholders of the business and the nationality of the shareholders.   If company buys land, all of these details about the company are provided when the land acquisition is registered with Land Department. Why aren't land purchase registrations rejected if this is all illegitimate?  The same is true when they operate a business. If they were "illegitimate businesses", why did the Thai authorities register them in the first place?  Why did they allow them to do so for decades?  

 

Finally, why is this such a big deal?   Why the DSI raids on businesses engaged in legal activities (e.g., rendering services, operating restaurants) and foreign retirees with all of the other shenanigans we see here?  Aren't their more important problems in Thailand?

 

[Wilson Smith]

33 minutes ago, Horace said:

 

OK, I will ignore the gratuitous ad hominem attacks and keep this simple and civil.  I am hoping you are capable of doing the same.

 

You assume some businesses are legitimate while others are not.  Where in Thai law do you find a find a definition of the term "legitimate" business". Be specific. How is a company operating in the service sector or a company that owns land any less "legitimate" than Toyota? 

 

You claim I am "confusing the two".  If I am really confusing the two, there there must be a principled basis for distinguishing between legitimate and illegitimate businesses that is written into Thai law.  Tell us all what that distinction is?  Give us all a cite to the Thai law that make this distinction.

 

You assume that businesses are "circumventing" the law, but you never explain how they are circumventing the law when they are complying with all of the written requirements for registering a business, paying taxes and conducting their business.  Explain that?  Provide specific cites to Thai law.

 

If these businesses are really illegitimate businesses circumventing the law, why did the Thai authorities register them in the first place?  Its apparent in the registration papers what the business will do, who owns the business, the shareholding rights of the shareholders of the business and the nationality of the shareholders.   If company buys land, all of these details about the company are provided when the land acquisition is registered with Land Department. Why aren't land purchase registrations rejected if this is all illegitimate?  The same is true when they operate a business. If they were "illegitimate businesses", why did the Thai authorities register them in the first place?  Why did they allow them to do so for decades?  

 

Finally, why is this such a big deal?   Why the DSI raids on businesses engaged in legal activities (e.g., rendering services, operating restaurants) and foreign retirees with all of the other shenanigans we see here?  Aren't their more important problems in Thailand?

 

 

I will start by using the word IF.

 

If someone opens a company because they would like to own land and/or a house. And IF this person puts put 100% of the money. And IF later the % of shares of this person are lower then any other shareholder listed in the company (even if they actually know or do not know the other shareholders). IF the company does have employees that do not work at the actual company address or do not even work at all, or IF the person who originally put the  funds doesn't know the employees. Even IF this company pays all taxes, submits all monthly documents such as PND 30, 1, SS. They are breaking the law every month and through further investigation would prove to be an illegitimate and be fraud.  

 

Now what would happen IF this was discovered, not sure. However anyone who is thinking about opening up a company to buy land should be aware all could be lost (without much recourse).   

 

[Gulfsailor]

54 minutes ago, Horace said:

If these businesses are really illegitimate businesses circumventing the law, why did the Thai authorities register them in the first place?  Its apparent in the registration papers what the business will do, who owns the business, the shareholding rights of the shareholders of the business and the nationality of the shareholders.   If company buys land, all of these details about the company are provided when the land acquisition is registered with Land Department. Why aren't land purchase registrations rejected if this is all illegitimate?  The same is true when they operate a business. If they were "illegitimate businesses", why did the Thai authorities register them in the first place?  Why did they allow them to do so for decades?  

 

When you ask why are companies with a foreign control/share permitted to register a land purchase; On Samui they certainly aren't. What happens is that a company is set up with no foreign shares and no foreign director. Company then purchases the land and land department thinks everything is dandy. Immediately after the land purchase the foreigner gets 49% of the shares with preferential voting rights and becomes the sole director. 

Its pretty clear what the purpose of such company is, and designating such as an illegitimate business is reasonable in my book. 

Most of my friends who owned property in Samui through a company have changed the ownership structure in the past 12 months, going to either a lease, usufruct, finding a private Thai nominee, or transfer Thai owned shares to Thai people who could actually proof they had the resources and reasons to invest in said company.  The local lawyers, who set it up initially with nominee shareholders who were just employees from the law firm or friends and relatives of the gardener, were warned a crackdown was imminent and companies owning land and having foreign control/shares would be checked thoroughly. 

[Horace]

1 hour ago, Gulfsailor said:

On Samui they certainly aren't. What happens is that a company is set up with no foreign shares and no foreign director. Company then purchases the land and land department thinks everything is dandy. Immediately after the land purchase the foreigner gets 49% of the shares with preferential voting rights and becomes the sole director. 

 

No familiarity with what happens on Koh Samui. 

 

I know that in Bangkok, in the years after the financial crisis when Thailand had not yet recovered, if foreigners held 49% of the shares or less in a company and Thais held more than 50% of the shares, that company could easily buy property.  No questions asked.  These sales were openly promoted at seminars where senior Land Department officials spoke at foreign chamber of commerce meetings.  The focus was purely on restoring value to the Thai property sector.  No one looked at voting or economic rights.  The Land Department only cared about the nationality of the shareholders.  Not only that, Thai banks - yes, Thai banks - would provide mortgages to finance land purchases by these companies after the Thai bank's own lawyers reviewed the company structure.   

 

I appreciate that practices can change, and almost certainly have changed since the financial crisis.  That's fine.

 

But I find it alarming that structures that were considered legal and accepted by the Land Department (when they were absolutely familiar with the structure of the companies) to buy land, are now considered "illegal" and at risk of expropriation by the government.  Yes, you can change the policies going forward.  But you cannot fairly force foreigners to divest themselves of these holdings based on allegedly illegal nominee structures when the authorities themselves - when Thailand was having serious financial problems - came out confirmed that the structures and transactions were perfectly legitimate.   

 

If they can expropriate property when this occurs, then the rule of law in Thailand is meaningless and they can expropriate foreign investments whenever it suits their interests.  Will big investors notice?  Yes, they will.  Why? Because  the country managers of some of Thailand's largest foreign investors bought property using these very structures.   The rule of law matters if you hope to attract foreign investment.

[Wilson Smith]

41 minutes ago, Horace said:

 

No familiarity with what happens on Koh Samui. 

 

I know that in Bangkok, in the years after the financial crisis when Thailand had not yet recovered, if foreigners held 49% of the shares or less in a company and Thais held more than 50% of the shares, that company could easily buy property.  No questions asked.  These sales were openly promoted at seminars where senior Land Department officials spoke at foreign chamber of commerce meetings.  The focus was purely on restoring value to the Thai property sector.  No one looked at voting or economic rights.  The Land Department only cared about the nationality of the shareholders.  Not only that, Thai banks - yes, Thai banks - would provide mortgages to finance land purchases by these companies after the Thai bank's own lawyers reviewed the company structure.   

 

I appreciate that practices can change, and almost certainly have changed since the financial crisis.  That's fine.

 

But I find it alarming that structures that were considered legal and accepted by the Land Department (when they were absolutely familiar with the structure of the companies) to buy land, are now considered "illegal" and at risk of expropriation by the government.  Yes, you can change the policies going forward.  But you cannot fairly force foreigners to divest themselves of these holdings based on allegedly illegal nominee structures when the authorities themselves - when Thailand was having serious financial problems - came out confirmed that the structures and transactions were perfectly legitimate.   

 

If they can expropriate property when this occurs, then the rule of law in Thailand is meaningless and they can expropriate foreign investments whenever it suits their interests.  Will big investors notice?  Yes, they will.  Why? Because  the country managers of some of Thailand's largest foreign investors bought property using these very structures.   The rule of law matters if you hope to attract foreign investment.

Law is a law. It was never considered legal! Looking the other way or not having a law enforced is a different topic. Foreigners cannot own land. Setting up only for the sake of going around a law is illegal (any county). Signing monthly documents each month that are fraudulent even if a government official told you to do it that way. You keep saying "they cannot do that" , they meaning the land department, the government, etc, THEY can do anything they want and when they decide to do as they want and someone has false shareholders, fake employees and no revenue then there is not much to stand on.  Go into with eyes wide open!!!!

[Dogmatix]

6 hours ago, Horace said:

 

The retail sale of goods is not subject to the FBA if the total capital is 100 million Baht or a minimum or 20 million Baht per store.  Originally the DBD said "capital" meant "registered capital" (significant because only 25% of registered capital needs to be paid-in), but then, a few years later, did a total reversal and said capital meant paid-in capital.  This interesting for two reasons.  First, because this not an "exemption" from the FBA; instead the FBA's restrictions simply do not apply if the minimum capital rules are satisfied.  Second, the DBD flat our reversed a prior decision on minimum capital that retailers had relied on setting up operations in Thailand.  Those type of reversals are always wonderful for creating the impression that Thailand is a safe investment environment and the rule of law actually means something. 

 

The same thing happened with the capital required for work permits that used to be registered capital of B2m and is now paid-up capital of B2m.  The law says "capital" which officials were generous enough, for reasons better known to themselves, to interpret as "registered capital" for some time, even though registered capital is totally meaningless, as it just means the company has paid the nominal fee to the DBD for the right to pay up that much capital. However, there is no obligation to pay up the capital ever.  I don't think that switching to a more rationale interpretation of "capital" in either of these instances made anyone think that Thailand was not a safe place to invest or lacked rule of law.  Some companies were just lucky enough to get away with the less stringent but not entirely rational interpretion for some years. 

 

Having a certain paid-up capital for licensing or investment approval makes sense and is very common around the world.  It may even be the way to go for Thailand to free up the services sector further.      

[mogandave]

Law is a law. It was never considered legal! Looking the other way or not having a law enforced is a different topic. Foreigners cannot own land. Setting up only for the sake of going around a law is illegal (any county). Signing monthly documents each month that are fraudulent even if a government official told you to do it that way. You keep saying "they cannot do that" , they meaning the land department, the government, etc, THEY can do anything they want and when they decide to do as they want and someone has false shareholders, fake employees and no revenue then there is not much to stand on.  Go into with eyes wide open!!!!

No, it’s clear that if they decide to crack down on the cheaters foreign investment will stop, the Japanese will pull all their investments and the Thai economy will be rocked to its core!!!!

[OldSiamHand]

6 hours ago, Horace said:

Just a thought, but wouldn't, but wouldn't it be a better use of Thailand's resources to go after these problems rather than foreigners with management control of businesses that employ Thais (and pay their taxes and comply with Thailand's pro-employee labour laws, unlike many Thai controlled businesses) or retired foreigners living in villas owned by Thai majority owned companies?  Why the venomous vigilante like attacks on foreign business operators and foreign retirees while other, real problems (think energy drink scion plowing down a police officer with no arrest warrant against him for five years after this death and then, when an arrest warrant is finally issued, simply flying out of the country "unnoticed") are essentially ignored and swept under the table?  Just a thought.

 

It's a very good "big picture" thought IMHO, however the authorities apparently have other priorities.  Getting back to the raid in question, has there been any updates on why it was carried out?  I'm still guessing it is still a one-off (disgruntled investor/competitor/client) and does not reflect any change in policy by the higher ups.  

[Wilson Smith]

1 hour ago, mogandave said:

 

No, it’s clear that if they decide to crack down on the cheaters foreign investment will stop, the Japanese will pull all their investments and the Thai economy will be rocked to its core!!!!
 

 

The 2 points have nothing to do with each. The can enforce a law that was not enforce before. And they could shoot themselves in the foot regardless. 

[Horace]

1 hour ago, OldSiamHand said:

It's a very good "big picture" thought IMHO, however the authorities apparently have other priorities.  Getting back to the raid in question, has there been any updates on why it was carried out?  I'm still guessing it is still a one-off (disgruntled investor/competitor/client) and does not reflect any change in policy by the higher ups. 

 

Good question, and we still don't have an answer.  

 

I don't doubt the claim about what they do in Koh Samui now.  But we still don't know why they raided DFDL.

 

My policy concern is this: if older structures that were legal back in 1997/1999 are being treated as though they are illegal now, that is a big problem.  Remember,  shortly after the financial collapse of 1997 the Land Department not only knew exactly how these structures were formed, but senior Land Department officials sat on panels where they were openly discussed.  That is quite different from the situation described in Koh Samui, where it sounds as though lawyers or property agents were engaged in some unlawful, or at least sharp, practices to deceive the authorities.   And, of course, DFDL was presumably not dealing with 20 year old company structures (I guess).

 

I know some here claim that these structures have always been illegal, but that is simply untrue.  No one said that 20 years ago. More important, no one has yet cited a law that says they are illegal.  All I see is the loose use of terms like "sham company". etc., without any reference to a law that defines a "sham company" or even mentions "sham companies".    

 

I also see references to practices (not new laws) that have been implemented since 2006, and that seems legitimate.  I can understand new guidelines that prohibit foreign investment in new structures set up going forward.  But if the law is being retroactively changed and new laws are being applied to structures that were openly accepted as legal 20 years ago, that is an expropriation.  

 

And of course there is still the big question about why the DSI needs to be brought into this.  I would have also thought the authorities had other priorities. 

[mogandave]

Governments initiate programs all the time with good intent, and all goes well for a while, then some some smart lawyers figure out their clients can benefit from it in a way not originally intended.

The laws are usually adjusted at some point, clients take a hit and the lawyers start looking for something new.

I think there is little chance the government would swoop in confiscate people’s property, but they could well mandate the companies be dissolved in a specific time frame.

India declared all there 500 and 1,000 INR bills valueless and gave everyone a month or two to get it all exchanged, and compelled people to pay taxes on it.

This was about a year or two ago, and (as far as I know) there has been no significant reduction in outside investment.

[Arkady]

2 hours ago, Horace said:

 

No familiarity with what happens on Koh Samui. 

 

I know that in Bangkok, in the years after the financial crisis when Thailand had not yet recovered, if foreigners held 49% of the shares or less in a company and Thais held more than 50% of the shares, that company could easily buy property.  No questions asked.  These sales were openly promoted at seminars where senior Land Department officials spoke at foreign chamber of commerce meetings.  The focus was purely on restoring value to the Thai property sector.  No one looked at voting or economic rights.  The Land Department only cared about the nationality of the shareholders.  Not only that, Thai banks - yes, Thai banks - would provide mortgages to finance land purchases by these companies after the Thai bank's own lawyers reviewed the company structure.   

 

I appreciate that practices can change, and almost certainly have changed since the financial crisis.  That's fine.

 

But I find it alarming that structures that were considered legal and accepted by the Land Department (when they were absolutely familiar with the structure of the companies) to buy land, are now considered "illegal" and at risk of expropriation by the government.  Yes, you can change the policies going forward.  But you cannot fairly force foreigners to divest themselves of these holdings based on allegedly illegal nominee structures when the authorities themselves - when Thailand was having serious financial problems - came out confirmed that the structures and transactions were perfectly legitimate.   

 

If they can expropriate property when this occurs, then the rule of law in Thailand is meaningless and they can expropriate foreign investments whenever it suits their interests.  Will big investors notice?  Yes, they will.  Why? Because  the country managers of some of Thailand's largest foreign investors bought property using these very structures.   The rule of law matters if you hope to attract foreign investment.

 

Officials politely turning a blind eye at foreigner chambers of commerce meetings over 20 years ago wouldn't amount to a legal precedent, even if they were important in Thailand's legal system.  At any rate there is no official document stating that Land Dept officials considered the structures legal at the time.

 

If rule of law matters so much to foreign investors they should adhere strictly to the law and not look for loopholes to circumnavigate it or not be unhappy if Thailand decides to enforce its laws properly.

 

[Horace]

30 minutes ago, Arkady said:

Officials politely turning a blind eye at foreigner chambers of commerce meetings over 20 years ago wouldn't amount to a legal precedent, even if they were important in Thailand's legal system.  At any rate there is no official document stating that Land Dept officials considered the structures legal at the time.

 

If rule of law matters so much to foreign investors they should adhere strictly to the law and not look for loopholes to circumnavigate it or not be unhappy if Thailand decides to enforce its laws properly.

 

 

The law says "Aliens" cannot engage in activities restricted under the FBA (absent certain exceptions) or own land (absent certain exceptions).  The term Alien, at least in the FBA, is defined by the nationality of the shareholders.  It does not refer to voting control or economic rights.  In fact, the Thai legislature considered adding control or economic benefit in 1998, but decided against doing so.  That was deliberate decision.

 

Can you now point to a specific Thai law that says the courts should look at voting control or economic benefit - or something else more than the nationality of the shareholders - when determining if a company is an Alien?  Criminal penalties apply for violations of these laws, so a reference to the "spirit" of the law does not work. Also, a policy enacted, say, in 2006, cannot affect a company formed in 1999. 

 

If there is a specific law that says this, I would like to see it?  Provide a cite.  Please also explain why the Department of Business Development allowed these companies to be registered when the shareholders were listed by nationality and the company's objects listed activities subject to the FBA?  Finally, why did the Land Department allow these companies to buy land in the first place when it was apparent in the company registration documents that foreigners controlled the company and had superior economic rights (in other words, I am not talking about the scam that apparently occurred in Koh Samui in more recent times).  I am talking about before 2006. I must have asked these questions a dozen times, and no one has yet provided a plausible answer.  Can you do so?

[Dogmatix]

4 hours ago, Gulfsailor said:

When you ask why are companies with a foreign control/share permitted to register a land purchase; On Samui they certainly aren't. What happens is that a company is set up with no foreign shares and no foreign director. Company then purchases the land and land department thinks everything is dandy. Immediately after the land purchase the foreigner gets 49% of the shares with preferential voting rights and becomes the sole director. 

Its pretty clear what the purpose of such company is, and designating such as an illegitimate business is reasonable in my book. 

Most of my friends who owned property in Samui through a company have changed the ownership structure in the past 12 months, going to either a lease, usufruct, finding a private Thai nominee, or transfer Thai owned shares to Thai people who could actually proof they had the resources and reasons to invest in said company.  The local lawyers, who set it up initially with nominee shareholders who were just employees from the law firm or friends and relatives of the gardener, were warned a crackdown was imminent and companies owning land and having foreign control/shares would be checked thoroughly. 

 

A very good point.  This must be one of the key issues today.  The Interior Ministry slammed the door on new registrations of land to companies even suspected of having foreign shareholders or directors, unless the Thai shareholders could convince officials they were using their own funds and had had a plausible business reason to buy the land, in 2006.  Without follow up and cooperation between the Land Dept and the DBD it has been too easy for cheaters to have the shares transferred to them after the land registration. 

 

It is not inconceivable that there will be scrutiny of these companies in the future.  It is hard to say what action would be taken when they found some suspects.  My guess is the Land Dept would use the minister's discretion, as per the Land Code, to order them to sell the land within 180 days.  They would be free to do sale and lease back arrangements, provided the Thai buyers were genuine.  They could also appeal the decision in the Admin Court and hope for an injunction to delay the Land Dept order till after the court case. If they do have a crack down of this nature, I don't think it would create a backlash from genuine foreign investors.  You have foreigners, who knew that the Land Dept would not approve a land transfer with the ultimately intended shareholding structure in place, deliberately setting out to deceive government officials by hiring temporary Thai nominees.  If they just have to restructure to the structure they should have set up in the first place, that would not be expropriation and they will still have the enjoyment of the property.  Anyone setting up such a structure after 2006 must have known about the Land Dept directives, or why would they use smoke and mirrors to make it look as if the shareholders are all Thai?  So they should have accepted that it might not be a long-term solution and they might one day have to restructure or just sell out.

 

At the end of the day foreigners are not allowed to own land in Thailand which is true of many other countries too. 

[Dogmatix]

Incidentally I just received a call from friends who say they have got stuck in a huge queue at CW Immigration renewing NON-B visas.  Immigration officials apologised and are working OT to try to get down the backlog.  They say they have been ordered to give extra scrutiny to small companies that have foreign staff because there are too many sham companies just set to provide foreigners with WPs and NON-B visas.  My friends have a small company but it is a genuine one and doesn't own any land. They have been for asked original copies of stuff like their licence they have never been asked for before.  

 

This is probably a quid pro quo because some relaxed conditions from the March Working of Aliens Decree are starting to come in re WPs and Immigration obviously wants foreigners to take the rough with the smooth, i.e. you get some easier conditions but we are going to check in more detail that small companies employing foreigners are real businesses. 

 

Immigration is a world unto itself and also has the chance to re-check visa applications every year.  However, this type of thinking is rather common in government, i.e. we will make concessions but we close the loopholes at the same time, and it is not entirely unreasonable.  The FBA and illegal land ownership issues will be resolved one day and my guess is that there will be some type of quid pro quo of this type.   

[Dogmatix]

54 minutes ago, Horace said:

 

The law says "Aliens" cannot engage in activities restricted under the FBA (absent certain exceptions) or own land (absent certain exceptions).  The term Alien, at least in the FBA, is defined by the nationality of the shareholders.  It does not refer to voting control or economic rights.  In fact, the Thai legislature considered adding control or economic benefit in 1998, but decided against doing so.  That was deliberate decision.

 

Can you now point to a specific Thai law that says the courts should look at voting control or economic benefit - or something else more than the nationality of the shareholders - when determining if a company is an Alien?  Criminal penalties apply for violations of these laws, so a reference to the "spirit" of the law does not work. Also, a policy enacted, say, in 2006, cannot affect a company formed in 1999. 

 

If there is a specific law that says this, I would like to see it?  Provide a cite.  Please also explain why the Department of Business Development allowed these companies to be registered when the shareholders were listed by nationality and the company's objects listed activities subject to the FBA?  Finally, why did the Land Department allow these companies to buy land in the first place when it was apparent in the company registration documents that foreigners controlled the company and had superior economic rights (in other words, I am not talking about the scam that apparently occurred in Koh Samui in more recent times).  I am talking about before 2006. I must have asked these questions a dozen times, and no one has yet provided a plausible answer.  Can you do so?

 

The Land Dept was not giving carte blanche to these companies to buy land before 2006.   The directive before that for many years was that whenever a company with shares held more than 40% by foreigners applied to transfer land the case should be referred to the Director General personally for investigation to see whether this was a front for a foreigner to own land, in which case the transfer was blocked, or if it was a genuine company with a real business and real Thai shareholders investing their own money.  Thus the official policy of the Land Dept has actually been to try to prevent sham companies with nominee Thai shareholders from registering land for 30 years or more.  However, the enforcement before and after 2006 has not been applied once the land has been registered and foreigners have been free to increase their shareholdings to 49% and put in preference shares after the event. Nevertheless, hearsay evidence land officials acquiescence to the concept of shell companies aside, there is documentary evidence that the Land Dept has had mechanisms in place to prevent them from buying land for decades. Anyone who bought land through before 2006 is likely to have reduced the foreign shareholding to less than 40% before the transaction and increased back to 49% aftewards (don't ask me how I know this), which would be prima facie evidence that they knew exactly that they were circumnavigating the Land Dept's policy to prevent purchases by sham companies.  

 

We should not be surprised or hurt, if the government looks for a way to enforce the policy on companies that change their shareholding structures after buying land in the same as they do beforehand. Most governments would take exception to foreigners taking the p*ss out of their laws and regulations in this way.