Chinese Businesses Evading Taxes May Face Legal Action Under Thai Law

In recent years, the expansion of Chinese businesses in Thailand—particularly in key tourist destinations such as Chiang Mai, Phuket, and Pattaya—has raised growing concern among Thai citizens. The issue extends beyond just the widespread use of Chinese language on store signs and service menus; troubling reports have surfaced regarding tax evasion practices by Chinese investors, which could have long-term impacts on Thailand’s economy and tax revenue.

According to reports from provincial revenue department officials, some businesses are operating under so-called “nominee” structures, where Thai nationals are listed as shareholders in name only, while all actual management and funding come from Chinese nationals. This has been observed in restaurants, tour companies, and certain real estate ventures.

Additionally, authorities have found that some of these businesses underreport their income or fail to register for Value-Added Tax (VAT), despite serving large numbers of customers—especially Chinese tourists—who often pay in cash or through Chinese payment apps like Alipay and WeChat Pay. These methods bypass Thailand’s financial system, making government oversight and tax enforcement more difficult.

Economic experts have warned that such practices could result in hundreds of millions of baht in lost tax revenue annually, while also creating unfair competition for legitimate Thai businesses that comply with tax laws.

Today, Wongsakorn Law Office highlights the potential legal consequences for Chinese investors engaging in tax evasion. Thailand’s Department of Business Development and Customs Department have begun monitoring suspicious transactions more closely in several regions. They are also preparing to tighten nominee scrutiny measures and collaborate with financial authorities to trace international capital flows.

Forms of Tax Evasion by Chinese Businesses in Thailand

• Use of Thai Nominees as Shareholders
  Some Chinese businesses in Thailand utilize Thai nationals as nominal shareholders in order to circumvent foreign ownership restrictions, such as those outlined in the Foreign Business Act B.E. 2542 (1999). This law requires that certain types of businesses must have at least 51% Thai ownership.
• Avoidance of VAT Registration
  Certain Chinese-owned enterprises underreport their actual income or completely avoid registering for Value-Added Tax (VAT), in violation of the Value-Added Tax Act B.E. 2535 (1992). Under this law, any business generating more than 1.8 million baht in annual revenue is required to register for VAT.
• Use of Chinese Payment Systems
  Some businesses accept payments through Chinese mobile applications such as Alipay and WeChat Pay. These transactions bypass the Thai financial system, making it more difficult for government authorities to monitor financial flows and enforce tax compliance.

Impacts on the Local Economy

1. Loss of Tax Revenue
Tax evasion by Chinese businesses results in the Thai government losing hundreds of millions of baht in tax revenue each year. This directly affects the country’s ability to fund national and local development projects.

2. Unfair Competition
Thai entrepreneurs who comply with tax laws must pay their fair share, while Chinese businesses that evade taxes can reduce operating costs and offer goods or services at lower prices. This creates an unfair competitive advantage and puts law-abiding Thai businesses at a disadvantage.

3. Market Distortion
Tax evasion undermines fair market mechanisms. Prices of goods and services no longer reflect actual production costs, potentially leading to lower product quality and harm to consumer welfare.

Relevant Laws on Tax Evasion by Foreigners in Thailand

1. The Revenue Code (Tax Law)
If any business—whether Thai or foreign—intentionally evades tax (e.g., fails to register for VAT, underreports income, or issues false tax invoices), the following sections may apply:

• Section 90/4 (Value-Added Tax Act)
  Failing to register for VAT when annual revenue exceeds 1.8 million baht is punishable by a fine of up to 5,000 baht. If the business still fails to register after official notice, it may face business closure or license revocation.
  
• Section 39 (Revenue Code)
  Anyone who evades or attempts to evade taxes is subject to a fine ranging from 2,000 to 200,000 baht, imprisonment for up to 7 years, or both.
  
• Section 90/7 (Fraudulent Tax Invoicing)
  Issuing false tax invoices or intentionally evading tax can lead to a fine of double the evaded tax amount, plus a 1.5% monthly surcharge.

2. Foreign Business Act B.E. 2542 (1999)
Foreign nationals operating businesses in Thailand without permission, or using Thai nationals as “nominees” to hold shares in restricted sectors, are violating this law.

• Section 36
  The use of nominees to circumvent foreign ownership laws is punishable by imprisonment for up to 3 years, a fine between 100,000 and 1,000,000 baht, or both.
  
• Additional Penalties
  The court may revoke business rights and order the deportation of the foreign individual involved.
  

3. Anti-Money Laundering Act B.E. 2542 (1999)
Using foreign payment platforms such as Alipay or WeChat Pay to conceal income or bypass Thailand’s financial system may fall under money laundering offenses.

• Sections 3 and 5
  Income derived from tax evasion may be classified as “assets related to a predicate offense.” Penalties include up to 10 years of imprisonment and/or a fine of up to 200,000 baht.

4. Immigration Act B.E. 2522 (1979)
Foreigners working in Thailand without proper authorization—such as using a tourist visa to conduct business—are in violation of immigration laws.

• Sections 37 and 75
  Violating visa conditions (e.g., working while on a tourist visa) can lead to fines, visa cancellation, and deportation.

 Don’t Risk Business Closure  Consult a Lawyer to Ensure Proper Tax Compliance

While many Chinese-owned businesses in Thailand have been suspected of tax evasion or exploiting legal loopholes, in practice, some of these issues may stem from a lack of understanding of Thai laws or misinterpretation by foreign business owners.

 “Having a legal advisor or attorney from the start is essential.”

Benefits of Having a Legal Advisor

• Review of Company Registration Compliance
  A lawyer can ensure that shareholder structures, company formation, and business objectives comply with the Foreign Business Act B.E. 2542 (1999).
• Tax and Accounting Consultation
  In collaboration with certified accountants, legal advisors can help you properly set up systems for VAT, corporate income tax, and required tax filings to avoid future penalties or backdated fines.
• Legal Guidance on Payment Systems
  For businesses using Chinese payment apps like Alipay or WeChat Pay, a lawyer can help legally integrate these systems within Thai financial regulations, ensuring full transparency and compliance.
• Visa and Work Permit Assistance
  Many foreign entrepreneurs use tourist visas for business, which is illegal. A lawyer can help obtain the proper Non-B Visa, Smart Visa, and Work Permit in accordance with the Immigration Act B.E. 2522 (1979).
• Legal Representation in Case of Disputes
  If investigated or accused of tax evasion or nominee arrangements, legal counsel can represent you during audits, help resolve disputes, and defend your case in court.

Additional Legal Advice for Foreign Entrepreneurs

• Always seek legal consultation before starting a business in Thailand.
  
• Do not use a Thai nominee as a shareholder without real management control.
  
• Work with a lawyer and accountant to plan taxes before launching operations.
  
• If audited, let your lawyer handle communications with authorities to protect your legal interests.

Wongsakorn Law Office specializes in assisting foreign entrepreneurs with legal and regulatory compliance in Thailand. Our experienced team of lawyers and legal assistants provide tailored advice, with a proven track record of success and client satisfaction.

 Foreign businesses can consult us with confidence — we handle all cases with professionalism and care.👉 >> Contact Us <<

Reference :  มาตรา 38_64 | กรมสรรพากร – The Revenue Department (rd.go.th)

Written by : Wararat Wongpothisarn (Internship Student in Chinese Language)