The cabinet has approved a plan to reform the 1999 Foreign Business Act to address the widespread practice of foreigners of using nominee Thai properties land for sale shareholders to evade the 49% foreign shareholding limit set under the law.

The definition of foreign companies will now be expanded to include either majority shareholdings, both direct and indirect, as well as firms where foreigners hold a majority in terms of voting rights.

The revised act will allow existing businesses some time to make the adjustments that are required, but it is worth being well-prepared for that time. Below I have outlined some details:

1. Existing businesses with foreign voting rights of 50% percent or more will be allowed to continue operations under the following conditions;
- Businesses under List 3 are eligible to continue operations provided they report to the Ministry of Commerce within one year of the enactment of the amended act.
- Businesses under List 1 and 2 of the revised Act that report within a year and have reduced their foreign voting right below 50% within two years of the enactment of the amendment.

2. Existing businesses where both foreigners hold less than 50% total shares and controlling interests will be allowed to continue operations normally.

Based on the above, I would like to make a few notes on some important issues that will need good preparation and planning

The Nominee issue
According to the amendment, existing companies in breach of the majority shareholding limit must report to the Ministry of Commerce within 90 days of the amendments announcement and restructure their operations within one year.

An insider has told me that it will take at least six months before they can do the official announcement, therefore, companies using “nominee” shareholders should restructure their shareholdings now so that they do not have to report to the government as breaching the law.

For those in List 3
Companies are not forced to change the structure of their voting rights after solving “nominee’ issue, all they have to do is to inform the government within one year that you are the existing business under List 3 after that they can continue the business normally until the day they close down. But why close down anyway? Much better to sell your valuable majority voting right shares to another foreigner that wants to do business here.

Property developers

Property developers selling land or homes will have to restructure the company as follows:

- Selling land – The company should set up a joint venture with Thai shareholders, so that they are a Thai company and eligible to buy and sell the land under the provisions of List 1.
- Selling Homes – If you are in the construction business and using “nominees” and “voting right control”, once you have solved the nominee issue, you can continue the business with voting right control, but the company should only act as a subcontractor in building homes for your customers.
- Holding a small piece of land through a Thai company – If your company is on List 3, you should restructure your “nominee” shareholding before the amendment is enacted you will be able to continue the business and hold the land with major voting rights as your company is already operating under the restrictions of the Land Laws, which require you to have more than 50% Thai shareholders. You are therefore already a Thai company, no matter how the voting right are divided.