1. Foreigners who Violate FBA at Risk of Losing Legal Protection
Most foreign investors are aware that a foreigner may not own a land plot in Thailand under the Land Code and may not engage in a restricted activity of land trading under the FBA. In attempt to circumvent this restriction, many have created creative structures, but little known, these routes come with the high price - you're at risk of losing your legal protection although the counterparty clearly cheats on you.
The recent Supreme Court’s judgment lays down an interesting precedent on legal protection of the foreign party who violates the FBA in the case where the counterparty cheats on the foreign party. In this case, one BVI Co. agreed to co-invest to buy land plots in Phuket with a plan to develop residential houses and commercial buildings for sale to public. Under an agreement, the BVI Co. agreed to invest Baht 129 M in this project with 7% yearly interest, and the counterparty agreed to pay the foreign party the remuneration of US$ 3 M as well as 40% of the profit. For this purpose, the parties incorporated one Thai limited company (the “Development Co.”) with the registered capital of Baht 2 M and the BVI Co. held 35% of the shares in this Development Co. Three individuals became directors of the Development Co. The BVI Co. remitted Baht 129 M to the Development Co. The three directors of the Development Co used the remitted fund to purchase two plots of land, which were later subdivided into nine plots.
Apparently the project did not turn out well and the BVI Co. filed a criminal charge against three directors of the Development Co. on counts of (i) mismanagement of other person’s property and (ii) recording false/incorrect statements in corporate documents. The directors who were entrusted with the management of property belonging to the BVI Co. dishonestly did an act contrary to their duty by any means whatsoever so as to cause damage to the benefit on account of being property of the BVI Co.
The court, however, concluded that the aforementioned actions were results of BVI Co’s engaging in the restricted business (land trading business). The court held that the BVI Co. was a beneficial owner of the fund used in a purchase of land plots for trading and the BVI Co. was deemed to be an operator of land trading business. Moreover, the BVI Co. was held to be a foreigner under the FBA and since the FBA prohibited any foreigner from engaging in a restricted activity of land trading, the BVI Co. was therefore in violation of the FBA.
In conclusion, the BVI Co. was not a lawful/statutory injured party under the Criminal Procedural Code. As a result of this interpretation, the BVI Co. did not have any power to file any criminal charge against the three directors of the Development Co. The court dismissed BVI Co.’s criminal charge filed with the court and released the defendants (Development Co.’s three directors).
Take Away
This judgment indicates that if any foreign investor collaborates with a Thai nominee to operate any restricted activity(ies) under the FBA and when the Thai nominee happens to cheat on the foreign investor, the foreign investor might not be able to take any criminal action against the Thai nominee.
2. New Tax Deduction for Individual Taxpayer’s Equity Investment in Startups
The Ministerial Regulation No. 337 (B.E. 2561 (2018)) issued by virtue of the Revenue Code Re Exemption of Revenue Tax was issued by the Minister of Finance to offer a new tax deduction for individual taxpayer’s equity investment in startup companies and juristic partnerships incorporated in Thailand. This Ministerial Regulation was introduced to encourage individual taxpayers to invest in the shares in a formation or a capital increase of a limited company or a juristic partnership that is an accredited startup. An equity investor in the startup may claim a tax deduction up to Baht 100,000 per one calendar year.
The Ministerial Regulation imposes the below conditions:
1. The startup must engage in any of 11 target industries.
2. The startup must primarily use technology as a base in a manufacturing process or a provision of services according to the criteria set forth by the National Science and Technology Development Agency (“NSTDA”) and has been accredited by NSTDA.
3. An individual taxpayer must make an equity investment in NSTDA’s accredited startup in 2018 or 2019.
4. An amount of the equity investment may be claimed as a tax deduction on an actual basis but not exceeding Baht 100,000 in one tax (calendar) year.
5. The individual taxpayer must hold the shares in the startup for a period of not less than two years continuously from the date that the individual taxpayer makes a share subscription payment, unless one becomes disable or passes away.
6. The individual taxpayer must subscribe and pay for new shares in an incorporation or a capital increase of the startup. (Any purchase of shares by the individual taxpayer from an existing shareholder of the startup is not qualified for this deduction.)
7. The individual taxpayer must comply with criteria, methods and conditions specified by the Director General of the Revenue Department.
8. The startup must be registered under Thai law from October 1, 2015 to December 31, 2019.
While Baht 100,000 is very minimal, this tax deduction will make an equity investment in a crowd funding more attractive for many investors.
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We trust the newsletter will be informative, enriching and useful for you and your business.
Should you require more information, please do not hesitate to contact us.
Yours faithfully,
Narit Direkwattanachai, LLM (Cambridge)
Attorney at Law
T: 086 785 0793
E: narit@naritlaw.com
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