Thailand is currently facing a significant challenge in the form of illegal businesses operating through nominee schemes. This issue has been brought to light by various local business groups and authorities who are calling for stricter law enforcement to protect legitimate businesses and the economy.
Key Takeaways
- The number of nominee businesses where Thai nationals hold shares on behalf of foreign investors to circumvent local ownership laws is growing.
- Nominees usually hold shares on behalf of foreign investors, giving the appearance of compliance with Thai laws.
- The government has taken measures such as inspections, revoking licenses, and forming partnerships with other agencies to combat the issue of nominee businesses.
Recently a large Chinese-language billboard in Huai Khwang district, explicitly offering services to help customers obtain passports and citizenship for several countries, has reopened the controversy surrounding nominee businesses in Thailand.
Nominee schemes involve individuals or entities holding shares in a company in name only, without any real financial stake or interest. This practice is illegal in Thailand, as outlined in the Foreign Business Act of 1999 and the Land Act. Despite the clear legal stance, the enforcement has been lax, leading to an influx of illegal operations that exploit this loophole.
Nominee businesses, where Thai nationals hold shares on behalf of foreign investors to circumvent local ownership laws, have proliferated across various sectors. This practice has raised concerns among local business operators who fear that without stricter law enforcement, Thai producers and service providers could suffer significant damage.
Surawat Akaraworamat, vice-president of the Tourism Council of Thailand, highlighted the vulnerability of the country to illegal and nominee businesses due to lax law enforcement. He noted that these practices lead to corruption and bribery, unlike in developed countries.
The Tourism Department has warned that over a hundred tour operators are at risk of legal violations for using nominee or price-dumping strategies.
Mr. Surawat believes that the actual number of such companies could be higher, with Russian and Indian entities also engaging in these tactics. He pointed out that many of these foreign enterprises span the entire tourism supply chain, offering tours, restaurants, and hotels, which ultimately drain tourism income from Thailand.
The Federation of Thai Industries (FTI) is alert to the “nominee issue”, where Thai nominees are used by foreign (especially Chinese) entrepreneurs to run businesses in Thailand. This allows the foreign businesses to bypass regulations and compete unfairly with Thai SMEs that are already struggling to deal with the influx of Chinese goods into the Thai market.
The Thai government is being urged to implement stricter law enforcement to curb these practices. Without proper measures, local legal operators may be forced out of the industry, further exacerbating the economic impact on Thailand’s tourism sector.
How does the nominee scheme work?
The use of nominee shareholders by foreigners is a common practice to circumvent local laws that restrict foreign ownership in certain business sectors. This practice is particularly prevalent in industries such as tourism, real estate, and services.
The nominees hold shares on behalf of foreign investors, giving the appearance of compliance with Thai laws while the actual control and financial benefits remain with the foreigner.
Nominee arrangements can take various forms. In some cases, Thai nationals are paid a fee to hold shares without any real financial stake or involvement in the business. In other instances, complex legal structures are created to obscure the true ownership and control of the company.
The use of nominees is not limited to small businesses. Large foreign enterprises, particularly in the tourism sector, have been known to employ these tactics. For example, foreign tour operators may use Thai nominees to set up businesses that offer tours, restaurants, and hotels, effectively controlling the entire supply chain and squeezing out local competitors.
The Thai government is now under pressure to take decisive action. Strengthening law enforcement and closing legal loopholes could help curb the spread of illegal businesses and protect the interests of legitimate operators. As Thailand continues to recover from the pandemic’s impact on tourism, addressing the nominee problem is essential for ensuring a fair and sustainable economic future.
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