Key takeaways
- Foreign investment must satisfy the FBA framework, land law, BOI rules and AML requirements at the same time. The structure must have a genuine business rationale and real documentation.
- Nominees and concealment of beneficial owners are legal risks. Cross-border structures require advice from lawyers and tax advisers in each country concerned.
Chapter 20 Foreign investment in the Thai real estate business
Legal issues The Foreign Business Act divides businesses into three lists. Trading in land is a prohibited business, and many types of services require a licence. A company in which foreigners hold half or more of the shares is treated as a foreigner under this law, while land law has separate tests for land held by juristic persons. Treaties or investment promotion may open up certain business activities, but this does not mean land can be held automatically.
What the developer must do Analyse each business activity separately, such as development for sale, leasing, hotel management and brokerage, and check whether a Foreign Business License or Certificate is required. Check the shareholding proportions, the source of investment funds and actual control. Preference shares should be used only for a genuine financial purpose and with a legal opinion.
Key risks A structure in which Thai shareholders have no real economic interest, or which grants voting rights that give foreigners control of a company holding land, may be examined as nominee holding and found unlawful. The possible consequences include criminal penalties, fines, orders to dissolve the business and forced disposal of the land. No structure should be seen as a shortcut to holding land.
Chapter 21 BOI privileges for real estate projects
Legal issues Development of real estate for sale is generally not a BOI target activity, but some specific activities may be promoted, depending on the category and the conditions in force at the time of application. The privileges may include tax benefits, machinery duty relief, the bringing in of skilled personnel, and land ownership for the promoted activity. These privileges are tied to the project, its conditions and compliance with the promotion certificate. They are not general rights of the company.
What the developer must do Check the activity category against the current BOI announcement before including it in the financial plan. Separate the revenue and accounts of the promoted activity from other activities. Appoint someone responsible for reporting, keep evidence of investment and employment, and obtain approval before changing any conditions. BOI advisers and lawyers should review before any transaction involving assets that carry the privileges.
Key risks Revocation of privileges may require back payment of tax or duty with surcharges, and may affect rights to hold land or employ foreign personnel. Mixing real estate sales revenue with the promoted activity may cause the privileges to be denied. The privilege tables in the source documents should not be used without checking the latest announcements.
Chapter 22 Cross-border investment structures
Legal issues When an investor holds through an overseas company, the points to check are Thai law restricting ownership and business activities, the taxes of each country, double taxation treaties, beneficial ownership, the Principal Purpose Test, substance, UBO, transfer pricing and the anti-avoidance rules of the shareholder's country. The choice of jurisdiction should consider the business rationale, regulation, banking, reporting and reputational risk.
What the developer must do Prepare a shareholder chart down to the individual beneficial owners. Record the business rationale. Prepare tax residence documents, and ensure that real decision-making and personnel are consistent with the place of incorporation. Obtain opinions from lawyers and tax advisers in both Thailand and overseas. Intragroup transactions need arm's length documentation, and the CFC rules applying to the shareholders should be checked.
Key risks A company with no economic substance may be denied treaty benefits. Concealing beneficial owners creates AML risk and problems opening bank accounts. Multi-layered structures carry high costs and reporting burdens, and do not resolve land restrictions or nominee holding. Because of international information reporting, plans should not be based on the assumption that information will not be disclosed.
Chapter 23 Joint ventures with foreign investors
Legal issues A JV may be set up as a joint venture company or under a contractual arrangement. The key documents are the JV Agreement and the Shareholders Agreement. The main issues are the investment, the board, reserved matters, funding default, deadlock, ROFR, tag-along, drag-along, put/call options, valuation, governing law and dispute resolution. The SHA must be consistent with Thai law, the company's articles of association, foreign ownership restrictions and bank conditions.
What the developer must do Define the business plan and the amount each party must contribute clearly. Have the assets contributed valued independently. Set out the deadlock resolution sequence, from negotiation and escalation to mediation and, finally, a mechanism for exiting the joint venture. Choose a court or arbitration forum that is practically enforceable, and have cross-border lawyers draft the documents. Sample documents should not be used without adapting them to the deal.
Key risks Overly broad reserved matters leave the project unable to make decisions. Buy-sell share mechanisms may favour the party with more money. Emergency capital increases when costs overrun are often a point of conflict. Brand fees and related-party transactions must be negotiated on verifiable value. The shareholding and control rights must not amount to nominee holding.
Chapter 24 Raising funds from overseas investors
Legal issues A private placement with a fund or institutional investor requires a term sheet, a subscription agreement, company warranties and investor protection rights such as a board seat, veto, anti-dilution, pre-emptive right, liquidation preference and exit right. Offers across borders require a check of the securities rules of the investor's country, such as Regulation S or Rule 144A where the US is involved, and a check that special rights are enforceable under Thai law.
What the developer must do Carry out internal due diligence before giving warranties. Ensure that financial information and litigation disclosures are consistent. Negotiate investor rights so that they fit bank conditions. Keep accurate evidence of the remittance of funds into Thailand, their purpose and the remitter from the outset, because this affects repatriation. Dividends require a resolution, tax compliance and complete documents. Lawyers in the relevant jurisdictions should review the documents.
Key risks A full-ratchet or an overly strong liquidation preference may affect the founders and the next funding round. Inaccurate warranties lead to claims for compensation. Advertising to the general public may amount to an offer that requires authorisation. Some rights must be designed to be consistent with Thai company law and foreign ownership restrictions.
Chapter 25 Anti-money laundering law and transparency
Legal issues Businesses that receive money from overseas face risks of money laundering, questions over the source of funds, and sanctions. An organisation must check whether it is a reporting entity under Thai law. Even if it is not, banks and counterparties often request KYC, CDD, UBO and source of funds information. Additional measures apply to high-risk customers, such as PEPs, persons from high-risk countries or those with complex structures. CRS and FATCA are information exchanges that affect investors.
What the developer must do Prepare a risk-based AML policy. Specify customer documents. Screen for sanctions and related parties before accepting money. Train the sales team to recognise unusual signs. Appoint a compliance officer and set up an escalation channel. Keep records for the period required by law. When there is suspicion, consult experts before taking action, and do not tip off customers that a report has been made where the law prohibits it.
Key risks The risks are receiving money from unlawful sources, banks refusing transactions, asset seizure and freezing, and prosecution. Signs such as a sudden change of buyer, transfers from multiple sources, or an inability to explain the source of funds must be examined. The use of nominees also increases AML risk. Reporting deadlines and penalties must be checked against current law.
This content is a general summary and not legal advice. Laws and announcements may change; consult a lawyer before applying it to a real case.