Foreign Business Act - Increasing Investigations and Recent Decisions on Nominee Issues
The Foreign Business Act B.E. 2542 (1999) (“FBA“), which came into effect on 4 March 2000, regulates the conduct of business in Thailand by a foreign person, foreign juristic person, or Thai registered company with half or more than half of its share capital owned by foreigners. At present, the FBA’s test of foreign status does not look at issues of control and management of the company. However, care should be taken to ensure that the Thai shareholders are not regarded as “nominees” of the foreign shareholders, which would constitute a criminal offence under the FBA.
There is no clear guidance in the FBA on what is a “nominee”. However, some guidance can be taken from the guideline and enforcement actions of the Department of Special Investigation (“DSI“), which also has the jurisdiction to investigate certain offences under the FBA. The criteria include the type of issued shares (e.g. whether a preference share structure is being used), rights of the Thai shareholders, management control over the company, the source of funds invested in the company by the Thai shareholders, dividends and returns to Thai shareholders (i.e. whether they are reasonable), etc.
In a press release published on its website on 22 August 2024, DSI announced that it would be transferring a case against an executive of a major South Korean construction company to the public prosecutor for prosecution, alleging that the individual “facilitated Thai employees to act as Thai nominee shareholders, holding shares to meet the shareholding proportion required by law without actually paying for the shares”. The statement confirms that, in the view of investigating officials, a key factor in confirming the existence of genuine Thai investors is that they have paid for their own shares from their own source of funds and with clear evidence of such payment maintained.
Another recent nominee case, published on DSI’s website on 10 October 2024, involves allegations against a law and accounting office that was found to be a key player in acting as a middleman for many companies. The office provided services for company registration, accounting, tax consulting, and work permits, using Thai nationals as nominees. These nominees were listed as directors or shareholders in place of the actual foreign owners, allowing foreign entities to operate businesses without permission and/or hold real estate. It is particularly significant in the real estate sector, where nominee arrangements were used to avoid registering property sales and transfers with the Land Office, thereby enabling foreigners to hold land ownership illegally. According to DSI, this practice has resulted in the loss of over 10% of the assessed property value in taxes and fees, amounting to billions of baht annually.
In the above case, on 11 September 2024, the Criminal Court issued a judgment sentencing 23 defendants to imprisonment for jointly assisting or supporting foreigners in conducting business prohibited under the FBA without permission. Foreign defendants were also convicted for allowing Thai nationals to assist or support their business activities in violation of the same law. The court sentenced the defendants to 10 years in prison. However, due to their guilty pleas, which were beneficial to the case, their sentences were reduced by half to only five years of imprisonment. Additionally, as the defendants had no prior criminal records, the court suspended the prison sentences for two years and imposed a fine of 200,000 baht per defendant. They were also required to undergo probation for one year, and the companies involved were ordered to be dissolved. Failure to comply with these orders would result in an additional daily fine of 10,000 baht for the entire period of non-compliance.
New Measures Regulating e-Commerce Transactions Using Cash on Delivery
The Consumer Protection Act (No. 4) B.E. 2562 (2019) (“CPA“) is the primary consumer protection legislation in Thailand, protecting consumers engaging in both offline and online transactions. The Office of the Consumer Protection Board (“OCPB“) is the main regulator in this regard.
OCPB has recently stepped in to provide greater regulation in response to a substantial volume of complaints related to e-commerce transactions using cash on delivery, particularly regarding product mismatches and fraudulent orders. For context, in Thailand, cash is still a very important mode of payment for goods upon delivery, although the use of “PromptPay” and “QR code” payments are increasing. Credit card usage is still relatively low in the country.
In response to these issues, OCPB introduced the “Dee-Delivery” regulation, which will take effect on 3 October 2024. Its provisions include, for example: (i) the obligation to issue a payment receipt in the required form immediately upon delivery, with non-compliant business operators subject to a criminal penalty of imprisonment not exceeding one year, or a fine not exceeding THB200,000, or both, under section 57 of the CPA; (ii) requirements for a five-day holding period and refund rights; and (iii) a right to inspect the goods before making payment.
Thailand Competition Regulator Announces Preventive and Enforcement Measures to Combat the Issue of Importation and Distribution of Substandard, Low-Priced Foreign Goods Flooding Thailand
According to the press release No. 8/2024 dated 30 August 2024 by Thailand competition regulator Trade Competition Commission of Thailand (“TCCT“), on 28 August 2024, TCCT met with the Ministry of Commerce to discuss solutions and countermeasures to combat the issue of importation and distribution of substandard, low-priced goods from foreign countries into Thailand. The two key measures proposed and discussed were as follows.
- Preventive measures. Business behaviour will be closely monitored for whether it exhibits characteristics which fall, or which pose a risk of falling, into the category of unfair trade practices, e.g. (i) setting prices to eliminate competitors (predatory pricing); or (ii) setting prices below cost (sales below cost), for the purposes of destroying competition to the extent that other business operators are forced to exit the market. TCCT will proceed to investigate these matters and take enforcement measures if required.
- Enforcement measures. The Trade Competition Act B.E. 2560 (2017) (“TCA“) will be strictly enforced. If a business is found to be violating the TCA:
- The individuals involved will be summoned for questioning.
- If there is reasonable cause to suspect such violations, entry and inspections will be conducted at the business premises, production sites, and sales locations, etc.
- Evidence will be searched for and seized, and legal prosecution will be taken, under the TCA.
- If an offence is found to have been committed, penalties may be imposed for violations, including criminal and administrative penalties (e.g. imprisonment for up to two years and/or a fine not exceeding 10% of the annual revenue in the year that the offence was committed, etc).
First Determination in an Anti-circumvention Investigation Issued
Circumvention occurs when companies seek to avoid payment of anti-dumping or countervailing duties applicable to the merchandise they plan to import by using different means of circumvention (e.g. a minor alteration or transshipment) to change the country of origin of the products. Anti-circumvention measures (“AC Measures“) are regulatory determinations used to impose additional duty in circumstances where circumvention has been found. In Thailand, the Anti-Dumping and Countervailing Act B.E. 2542 (1999) (“AD Act“) was amended in 2019 to implement an AC Measure provision.
Thailand issued its first determination in an anti-circumvention investigation on 2 August 2024 in the Committee on Dumping and Subsidies’ Notification of Determination (“Notification”). The Department of Foreign Trade (DFT) conducted the investigation over concerns that 17 Chinese steel companies were potentially circumventing anti-dumping measures over the import of flat hot-rolled steel in coils and not in coils by adding alloy elements, thus allowing these to be classified under different tariff codes. Consequently, the Notification was issued to expand anti-dumping measures to cover flat hot-rolled steel in coils and not in coils with added alloy elements under the 17 tariff codes indicated in the Notification.
Pursuant to the AD Act, there are five forms of circumvention: (i) slight modification, (ii) transshipment, (iii) channelling, (iv) completion, and (v) assembly operations. In this case, the committee reviewed the evidence and determined that the import of such goods involves circumvention through a slight modification of flat hot-rolled steel in coils and not in coils to avoid duties, without changing the product’s essential characteristics.
Draft Liability for Defective Products Act (Lemon Law)
Following several rounds of public hearings and revisions, the Draft Liability for Defective Products Act (“Draft Act“), also known as the “Lemon Law”, has completed its most recent public hearing phase from 24 May 2024 to 26 June 2024. The Draft Act is currently under review by the Office of the Consumer Protection Board (“OCPB“) before being submitted for Cabinet approval.
This marks the latest development in a process that began several years ago, with earlier drafts and revisions shaping the current version of the Draft Act.
The Draft Act, which was proposed by OCPB, addresses growing concerns over product quality and reliability in Thailand. The legislation aims to close existing gaps in consumer protection laws by introducing liability provisions that cover additional types of product defects beyond those exclusively related to safety risks.
For more information, click here to read our Legal Update.
Please note that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice
