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A comprehensive overview of the strict prohibition on nominee structures in Thailand and its legal implications for foreign investors
Foreign investors wishing to set up a business in Thailand are often confronted with a particular structure known as a “nominee shareholder in Thailand”. A nominee mechanism involves a Thai citizen who holds assets, shares, or ownership rights in their own name on behalf of another party, typically a foreigner, without exercising actual control or bearing economic risk or benefit from those assets. Although clearly a quick and effective way of complying with the mandatory local control requirement, such an arrangement is in fact directly prohibited by law in Thailand.
Foreign business activities in Thailand are governed by the Foreign Business Act B.E. 2542. The use of nominee shareholders to circumvent these regulations is a clear violation of the law and may result in civil, administrative, and criminal penalties for both the foreign investor and the nominee. This practice is not considered a legal grey area or a matter of regulatory discretion, it is a direct offence that can jeopardize the company’s operations, potentially leading to its forced closure and other serious consequences.
Between September 1, 2024, and May 31, 2025, the committee conducted investigations into numerous cases of suspected nominee activity. As part of its annual inspections, the Department of Business Development (DBD) focused on sectors such as tourism, real estate, hospitality, and logistics. Several companies were flagged for engaging in nominee arrangements, prompting legal proceedings and further investigation by the Department of Special Investigation (DSI), the Central Investigation Bureau (CIB), and the Royal Thai Police. These investigations are ongoing and have not yet been concluded.
Thailand’s Ministry of Commerce is launching a new system called IBAS to better detect nominee businesses violating the Foreign Business Act. The tool will integrate data from multiple government agencies for more effective enforcement. Thousands of high-risk companies have already been flagged for further investigation. The goal is to prevent violations before they cause economic harm.
Table of Contents
What is a nominee shareholder in Thailand?
A nominee shareholder in Thailand refers to an individual or legal entity that holds shares in name only, on behalf of another party, without having actual ownership or voting rights. Such arrangements are commonly used to illegally bypass Thai regulations, which mandate that at least 51% of a Thai company’s shares be held by Thai nationals.
Section 36 of the Foreign Business Act B.E. 2542 (1999) stipulates that any Thai individual or legal entity who agrees to act as a nominee shareholder in Thailand, thereby enabling a foreigner to indirectly own a business in a restricted sector, is subject to criminal liability. This liability extends to both the Thai nominee and the foreign party involved. Under the Act, holding shares on behalf of a foreigner to circumvent legal ownership restrictions constitutes a criminal offence, punishable by up to three years’ imprisonment and/or a fine ranging from THB 100,000 to THB 1,000,000. In cases of continued non-compliance, additional daily fines may also be imposed.
Why do foreign investors use nominees shareholders in Thailand?
The nominee structure is frequently used by investors as an unlawful means to circumvent the restrictions imposed by the Foreign Business Act. This legislation limits foreign ownership in several sectors, including retail, agriculture, and various service industries. As outlined in Article 4, a company is classified as foreign if more than 49% of its shares are held by non-Thai nationals. To avoid the requirement of obtaining a Foreign Business License (FBL) or BOI promotion, some investors resort to using Thai nationals as nominee shareholders in Thailand.
How the use of nominee shareholders is strictly prohibited in Thailand?
The use of nominee shareholders in Thailand to conceal foreign ownership is explicitly prohibited. Section 36 of the Foreign Business Act imposes strict penalties on both foreign investors and Thai individuals or entities who hold shares on their behalf. These provisions are designed to uphold transparency and prevent the deliberate evasion of legal restrictions set forth under the Act.
Here is the text of the Section 36 of the Foreign Business Act: “A Thai national or a juristic person, not being a foreigner under this Act, who assists in or aids and abets or participates in the operation of a foreigner’s business specified in the Lists annexed hereto where such foreigner is not permitted to operate that business or who operates the business jointly with a foreigner in the manner holding it out as the former’s sole business or who acts as a foreigner’s nominee in holding shares in a partnership or a limited company or any juristic person with a view to enabling the foreigner to operate the business in circumvention or violation of the provisions of this Act, or a foreigner who allows such act to be committed by a Thai national or a juristic person that is not a foreigner under this Act, shall be liable to imprisonment for a term not exceeding three years or to a fine of one hundred thousand Baht to one million Baht or to both, and the Court shall order the cessation of the assistance or the aiding and abetting or order the cessation of the joint operation of the business or order the cessation of shareholding or partnership, as the case may be.”
Therefore, the use of nominee shareholders in Thailand to conceal foreign ownership is explicitly prohibited. Section 36 of the Foreign Business Act imposes strict penalties on both foreign investors and Thai individuals or entities who hold shares on their behalf. These provisions are designed to uphold transparency and prevent the deliberate evasion of legal restrictions set forth under the Act.
How do the authorities detect nominee structures in Thailand?
For companies suspected of using nominees shareholders in Thailand, the Department of Business Development and the Ministry of Commerce actively investigate by examining the financial capacity of Thai shareholders, the origin of funds and the contracts signed. If a shareholder is unable to justify their contribution or signs a blank share transfer, they may be considered a nominee.
What are the legal consequences of using a nominee shareholders in Thailand?
Penalties for engaging in nominee arrangements are stringent. Foreign investors may face fines of up to THB 1,000,000, forced business closure, and deportation. Violators can be sentenced to up to three years in prison, along with monetary fines. In addition, authorities have the power to order the dissolution of the company involved.
What is the position of the Thai courts on nominee shareholders?
Thai case law is consistent: any structure based on a nominee is null and void. Judges prefer a real economic analysis: if it is proven that the Thai shareholder has no real investment, the company will be considered foreign. According to Supreme Court’s precedent, a shareholder is unable to justify their contribution or signs a blank share transfer, they will be considered a nominee.
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What are the legal options for foreign shareholders?
It is possible to obtain a foreign business licence (FBL), although the procedure is lengthy and strict. The FBL is an official authorisation granted by the Department of Business Development under the Foreign Business Act B.E. 2542. It allows a majority foreign-owned company to operate in sectors listed as restricted (lists 2 and 3), provided that it can demonstrate that the proposed operation will not adversely affect the national economy and that it will even bring benefits.
Another legal route is the Board of Investment (BOI). This government entity encourages foreign investment by granting 100% ownership, tax benefits and easier access to work permits. BOI companies are exempt from the Foreign Business Act.
How can you protect yourself against the illegal use of a nominee shareholder in Thailand?
It is essential to ensure that the funds held by each Thai shareholder are of legal origin and to document everything transparently. Avoid any secret clauses or private documents that could be interpreted as evidence of a hidden agreement.
What are the concrete effects of using a nominee shareholders in Thailand on business life?
The use of nominee shareholders in Thailand is not a theoretical violation; rather, it results in real and dire ramifications for companies on a day-to-day basis, both functionally and legally.
First nominee arrangements conflict with the requirement in Thailand’s Foreign Business Act (FBA) that foreigners not own over 49 percent of shares in certain types of businesses without specific exemptions or approvals. By attempting to evade these regulations with nominee systems, companies can face legal consequences, such as getting shut down, or facing huge compensations.
In addition, nominee shareholders in Thailand means corporate governance loses its transparency and credibility. Which ultimately serves to obfuscate the real ownership of a company, which can lead to further lack of accountability, misrepresentation of stake ownership, and fast ones pulled in corporate organization. This lack of transparency creates confusion both in the matter of shareholders’ rights and in the issue of voting process on one hand, and in the rightful apportioning of dividends on the other, as the true beneficial owners are masked within the nominee framework.
Moreover, companies that operate under nominee arrangements may experience considerable difficulty obtaining financing, as banks and other financial institutions generally demand a transparent ownership and control system. The threat of a lawsuit against the company becomes a deterrent to potential investors or partners who might not want to do business out of the fear of being associated with illegality or negative publicity.
Moreover, nominee structures may also make tax evasion possible as the identity of the real owner and the person who operates the company may be obscured, resulting in income being underreported, taxes not paid and the letter of the law not followed concerning responsibilities to sign contracts under Thai law. Such acts may attract attention and action from the government authorities, including the Department of Business Development (DBD), the Revenue Department and others regulatory officials, all of which actively pursue and penalize such irregular structures.
And finally, a business executing nominee strategies’ long-term sustainability is threatened. If caught, the company could be subject to forced dissolution, fines or even criminal charges for breaching Thailand’s foreign ownership laws. This would not only put at risk the financial strength of the company, but also would undermine confidence among its shareholders, clients and business partners.
What impact does this have on mergers and acquisitions?
In the context of an acquisition, the audit must also extend to a review of the company’s shareholders. Identifying a nominee shareholder in Thailand can lead to the cancellation of the transaction or negatively impact the company’s valuation. Therefore, a thorough legal due diligence is essential.
Are any reforms planned?
The current trend, driven by initiatives from the OECD (Organisation for Economic Co-operation and Development) and the FATF (Financial Action Task Force), is toward increased transparency. As a result, the use of nominee shareholders is strictly prohibited and will remain so. Authorities are also planning to strengthen enforcement and oversight measures to detect and prevent nominee arrangements more effectively.
What is the role of law firms?
Law firms are also at the heart of structuring international investments in Thailand. They offer tailored legal solutions, draft essential contracts and verify that operations comply with the Foreign Business Act B.E. 2542 (1999).
In addition, they manage applications for Foreign Business Licences and BOI promotion. They prepare files, communicate with the authorities and secure projects. If disputes arise, they defend companies before the competent courts and administrations, in particular the Department of Business Development (DBD).
Conclusion
In conclusion, Sections 35 to 37 of the Foreign Business Act impose strict penalties for any attempt to establish a front company. The Act explicitly prohibits the concealment of beneficial ownership, with Section 36 specifically addressing the use of nominee structures. Operating through companies with nominee structure in Thailand is both illegal and highly risky, as the law prescribes severe consequences for such violations.
It is therefore strongly recommended to pursue lawful options such as obtaining a Foreign Business License (FBL), securing BOI promotion, or forming transparent and compliant partnerships. Ensuring the legal security of your investment with the guidance of an experienced law firm is essential. At Benoit & Partners, we assist our clients throughout every step of their establishment in Thailand.