Alien 'ownership' And The Fba

[Nadia 2]

Land purchase via a TLC leads to a highly insecure 'ownership' under present law and it could become a costly ownership. What does as a brief introduction the FBA say (effective March 2000)? The risks below are independent from the risks mentioned in the previous topic 'alien ownership and the Land Code' and risks under the Cicil and Commercial Code.

1) The TLC must be carrying on some form of business (and pay annual taxes). Dormant companies are not allowed in Thailand.

2) Foreign nationals are allowed (in very simplistic wording) to have control over the activities of a legitimate Thai majority owned company (though; a - for specific businesses a specific number of Thai and/ or resident directors is required, and b – every year the foreigner must retire from office and must be re-elected and must be eligible for re-election (1152 CCC)). However foreigners operating a business (the landholding TLC must be active) in Thailand are restricted by the FBA. Under the FBA there are certain activities that foreigners (whether individuals or juristic entities ) cannot do in Thailand. Businesses falling outside the Foreign Business Act (list 1, 2 and 3) may, subject to restrictions under other laws, be operated freely by foreigners provided the minimum capital at the start of the business operation is at least two million baht.

3) Landholding companies are set up as a Thai majority owned companies and most foreigners assume that it is a Thai juristic entity which is free to purchase land.... Section 67 CCC ; 'A juristic person enjoys the same rights and is subject to the same duties as a natural person, ....'. Could the juristic person set up by the foreigner deemed foreign and therefore be restricted under present law? As a matter of law foreign means (see the website of the Ministry of Commerce section 4 (http://www.dbd.go.th/eng/law/fba_e1999.phtml)); 'A juristic person (the limited company) registered in Thailand having half or more of its capital shares held by the person under (1), (2) or (3), or a juristic person having the persons under (1), (2) or (3) investing with the value of half or more of its total capital'. Thus, even though a company may have its capital shares held by a majority of Thai nominees (which is illegal in the first place), if the majority of the value of the total capital of the limited company was invested by a foreigner, the company would be deemed to be foreign under present law and therefore restricted by the FBA and not allowed to own or develop land.

4) Businesses not permitted for foreigners (the landholding TLC is deemed foreign) to operate - without exemption - due to special reasons in list one is land trading . Land trading means, according to the Foreign Business Bureau in Bangkok, 'any sale and purchase of land by the company'. The Land Code defines 'Trade in Land' as 'the acquisition and disposition of land for commercial profit by the sell, exchange or conditional sell (hire-purchase) of land'.

5) The only substantial business that most landholdings companies will have is the sale and purchase of the land and often the commercial use of the land in the form of a lease to the foreign director (very doubtful). In addition, the landholding company must be allowed to own and invest in land in accordance with its objectives and Articles of Association. From the foregoing, and in respect of the nature of the land holding company's activities, the FBA including the anti nominee provisions are applicable (this in addition to the risks under the Land Code). There is no reason to assume why foreigners who forms a company to circumvent the law (void) and which purpose is in the first place the purchase of land should be excluded from the provisions in the FBA......

6) The foreigner who uses nominees (foreigners cannot say I only have formed company to own land) as the promoters in the company to circumvent the FBA risk a fine from 100,000 to 1,000,000 Baht and imprisonment of up to three years. In addition the 'business' (company) shall be ordered to close down the business or be ordered to terminate the illegal shareholding. The nominees are considered to be just as guilty as the foreigner and risk the same penalties (sections 36 & 37 FBA).

Thai law is at present poorly enforced but obviously this does not offer any guarantees for the future..... The only thing to go by in Thailand is the law...