From “Common Practice” to “Rising Enforcement Risk”

Within the framework of the Foreign Business Act B.E. 2542 (“FBA”), restrictions on foreign participation in certain business sectors have historically created a structural gap between legal limitations and the commercial realities faced by foreign investors—particularly in service industries, real estate, and businesses subject to the restricted lists under the FBA.

In practice, this gap has often been “managed” through the incorporation of Thai companies with locally held shareholding structures that comply with statutory requirements, while internal arrangements allocate effective commercial control and economic benefits to foreign investors. Such arrangements, commonly referred to as “nominee structures,” have functioned not merely as legal constructs but as structural tools designed to reconcile regulatory constraints with business objectives.

Historically, nominee structures were widely perceived as an accepted market practice in certain industries, particularly in an environment where enforcement was inconsistent. As a result, many businesses assessed the associated risks as low but tolerable and adopted such structures as a practical solution.

However, recent developments reflect a significant shift in both regulatory policy and enforcement approach. Authorities have increasingly emphasized the substance of transactions over their legal form and have intensified scrutiny over shareholding structures that may circumvent the intent of the FBA.

As a consequence, nominee structures—once regarded as accepted workarounds—have become areas of heightened regulatory scrutiny, with increasing enforcement risk. This scrutiny extends beyond regulators to include joint venture partners, financial institutions, and auditors, all of whom are applying more stringent risk assessment standards.

In this context, the central question has evolved from a theoretical inquiry—whether nominee structures can be interpreted as compliant with the law—to a practical and strategic one: whether such structures remain viable in light of enforcement risk, financing constraints, and long-term business sustainability.

In other words, the issue of nominee structures is no longer purely a legal question, but a strategic decision shaped by the convergence of legal developments, enforcement trends, and evolving market expectations toward transparency and accountability.

Legal Framework: Substance over Form as the Governing Principle

Although nominee structures may be designed to comply formally with statutory shareholding requirements, Thai regulators and courts have increasingly adopted the principle of substance over form as the primary lens of analysis.

Under this approach, legal compliance is not assessed solely based on outward structure, but rather on the underlying economic reality and control dynamics. Within the context of the FBA, this principle is central to determining who is the true operator of a business and whether Thai shareholders are acting independently or merely as nominees.

The analysis typically focuses on three fundamental questions: who provides the actual capital, who bears the economic risks and rewards, and who exercises effective control over business operations.

In practice, the determination of substance relies on a holistic assessment of facts rather than any single document. For example, arrangements where Thai shareholders are funded by foreign investors through non-recourse or guaranteed loans may be interpreted as artificial constructs. Similarly, side agreements requiring Thai shareholders to act under foreign direction, or irrevocable proxies granting comprehensive voting control, may indicate that actual control resides with foreign parties.

Additional factors—such as the lack of genuine involvement by Thai shareholders in management, their limited understanding of the business, or disproportionate economic returns—may serve as circumstantial evidence supporting a finding of nominee arrangements.

Accordingly, substance over form operates not merely as a theoretical doctrine, but as a practical legal tool enabling authorities to look beyond formal structures and identify arrangements that effectively circumvent statutory restrictions. Where a structure fails to reflect genuine ownership and control, it may be disregarded in law.

In this environment, formal compliance alone is no longer sufficient. Structures must be capable of withstanding substantive scrutiny and demonstrating alignment with economic reality, failing which significant legal and commercial consequences may arise.

Enforcement Trends: From Passive Oversight to Active Enforcement

While enforcement of nominee-related restrictions under the FBA was historically inconsistent and often perceived as low visibility risk, recent years have seen a marked transition toward active enforcement.

This shift is driven by multiple policy considerations, including the protection of domestic industries, the prevention of regulatory arbitrage, and the broader objective of enhancing transparency within Thailand’s economic system to align with international expectations.

In practice, enforcement efforts have intensified in high-risk sectors such as real estate and restricted service industries, particularly those involving significant foreign participation. Regulatory scrutiny now extends beyond the incorporation stage to ongoing post-incorporation monitoring.

Investigations increasingly encompass source of funds, contractual relationships among shareholders, financial structures, and actual operational control. Coordination among authorities such as the Department of Business Development Thailand and the Department of Special Investigation has further enhanced enforcement capability.

Recent judicial trends also indicate a willingness by Thai courts to look beyond formal legal structures and rely on circumstantial evidence to determine the true nature of arrangements, reinforcing the application of substance over form.

Importantly, risks associated with nominee structures now extend beyond regulatory penalties to include reputational and transactional risks. In due diligence processes—whether for fundraising, joint ventures, or exits—such structures are increasingly treated as red flags.

Institutional investors and acquirers may respond by applying valuation discounts, imposing stringent contractual protections, or withdrawing from transactions altogether.

The transition to active enforcement has therefore fundamentally altered the risk landscape, transforming nominee structures from theoretical concerns into practical constraints on business operations, financing, and long-term value creation.

BOI and Foreign Business License: Sustainable Structural Solutions?

As enforcement risks increase, foreign investors are increasingly turning to transparent and legally recognized mechanisms, particularly investment promotion from the Board of Investment Thailand and Foreign Business Licenses (FBL) under the FBA.

BOI promotion offers significant advantages, including the ability for foreign investors to hold 100% ownership, along with tax and non-tax incentives. However, eligibility depends on policy priorities, typically favoring high-value, technology-driven, or strategically important industries.

By contrast, the FBL provides broader flexibility in terms of eligible business activities, but requires case-by-case approval. Applicants must demonstrate tangible economic benefits to Thailand, such as technology transfer or employment generation. The process is often time-consuming and uncertain.

Accordingly, while both BOI and FBL provide legally sustainable solutions, they are not without complexity. Their suitability depends on strategic considerations including timing, cost, and long-term business objectives.

Strategic Perspective: From Legal Compliance to Structural Integrity

In today’s environment, legal compliance alone is insufficient. Business structures must demonstrate structural integrity—meaning they are transparent, economically coherent, and capable of withstanding scrutiny from regulators, investors, and financial institutions.

Structural integrity has become a key determinant of bankability and investability. Transparent structures facilitate access to financing, partnerships, and exit opportunities, while nominee-like arrangements may hinder growth and transaction execution.

Although achieving structural integrity may involve higher upfront costs or operational constraints, these should be viewed as investments in long-term sustainability rather than burdens.

Conclusion: Nominee Structures Still Exist, But Are No Longer the Answer

While nominee structures continue to exist in practice, their long-term viability is increasingly questionable in light of evolving legal interpretation and enforcement trends.

The combined impact of substance over form and active enforcement has fundamentally reshaped the risk equation. What was once a manageable theoretical risk has become a tangible business risk affecting operations, financing, and valuation.

For investors with long-term ambitions in Thailand, the key question is no longer whether such structures are technically possible, but whether they are strategically advisable.

In an era where transparency and accountability are baseline expectations, the most effective structures are not those that conceal risk, but those that accurately reflect economic reality and withstand scrutiny from all stakeholders.

In this context, while nominee structures may still exist, they are no longer the appropriate answer for investors seeking sustainable growth.

Disclaimer

This article is prepared for general informational purposes only and does not constitute legal advice. The information herein may not be comprehensive or up to date. Readers are advised to seek professional legal counsel before taking any action. The publication of this article does not create a lawyer–client relationship. All rights reserved under the Copyright Act B.E. 2537 (1994).

Author: Pinprapus Chartikavanich
Date: 17 April 2026