Last week, the Department of Special Investigation (DSI) carried out a raid on an accounting and law firm in Phuket following allegations that the company was involved in illegal activities as a proxy for foreigners. The DSI’s intervention came after a prolonged investigation into the firm’s operations, which uncovered potential wrongdoing in facilitating the acquisition of Thai companies and real estate by foreigners, contravening Thai laws.
The recent incident tarnished Phuket’s reputation, and the DSI’s actions against the firm send a clear message that authorities are cracking down on flagrant illegal commercial practices. For individuals who utilized their services, it is highly probable that their businesses will be shut down, and their property holdings seized.
The firm is managed by a Thai woman and her British husband. During the raid, the DSI confiscated numerous documents and electronic devices for further examination, and the managers were apprehended for questioning.
The company is suspected of appointing its employees as proxies to hold shares on behalf of foreigners, with over 70 companies involved. Out of these, 66 companies dealt with real estate, including 44 exclusively focused on real estate holdings, 14 providing additional services alongside real estate, and eight operating in the tourism sector, which is restricted to Thai nationals under the Foreign Business Act B.E. 2542 (1999). The combined value of the real estate investments was estimated at THB 440 million (USD 12,600,000).
Use of proxies in Thailand
The illicit use of proxies by foreigners has long been a concern in Thailand as it enables foreign individuals to bypass restrictions on foreign ownership of certain businesses. Such practices are illegal under Thailand’s Civil and Commercial Code, Foreign Business Act B.E. 2542, and various other regulations. Individuals involved in proxy arrangements are subject to criminal and civil penalties, including imprisonment for up to three years and fines ranging from THB 100,000 to THB 1 million.
Historically, the prevalence of this arrangement arose due to weak enforcement and challenges in discerning the true intentions of shareholders when establishing companies. Coupled with foreigners’ difficulties in navigating Thai corporate law and language barriers, opportunistic businesses have taken advantage of this illegal service.
Apart from the fact that it is illegal under Thai law, proxy structures also entail several other drawbacks. One major concern is that investors relinquish control over their capital, company, assets, profits, and clients when using such arrangements. Even with supposedly secure documents and contracts, the fact that proxies are illegal renders these arrangements potentially void in case of disputes.
Fortunately, there are several legitimate options available for foreigners seeking full ownership of businesses in Thailand. For business operators, as long as there is no intent to engage in restricted business activities under the Foreign Business Act, qualified foreign investors can establish Trade and Investment Support Offices, Representative Offices, Board of Investment-promoted companies, businesses under a Foreign Business License, and, for US citizens, Treaty of Amity companies. Regarding home ownership, there are additional complexities, but condominiums (foreign quota) pose minimal risk, and alternative investment structures can be considered. The key takeaway is that these “legal consultants” offering seemingly too-good-to-be-true solutions and quick ways to circumvent Thai laws may result in the loss of one’s entire investment.
An important consideration for foreign investors is to always consult legal professionals when establishing a company in Thailand, rather than relying solely on companies offering “legal consultation” often bundled with accounting, real estate, travel agency, and tour services.