Legal
Factory Set Up Thailand: Your 2025 Blueprint
13/12/2024
Opening a factory in Thailand can be an attractive opportunity for foreign investors due to the country’s strategic location, skilled workforce, and supportive government policies through agencies such as the Board of Investment and Industrial Estate Authority of Thailand.
Thailand’s recent appeal as a destination for foreign businesses to relocate their factories has significantly increased due to its neutral positioning amid the ongoing US-China trade tensions. Companies, particularly from China, are increasingly relocating to Thailand to take advantage of lower tax rates and reduced risks associated with higher taxes in the United States. This presents an attractive opportunity for businesses looking to export to the U.S.
This blog post explores key considerations for a factory set up in Thailand, including foreign ownership regulations, the benefits of Board of Investment (BOI) promotions, and other relevant factors.
Key points
- Foreign investors can own 100% of a factory in Thailand if they qualify for Board of Investment (BOI) or Industrial Estate Authority of Thailand (IEAT) promotions.
- The BOI and IEAT offer benefits like tax incentives, import duty exemptions, and streamlined visa processes for foreign-owned factories.
- Factories in Thailand are categorized into three types based on size and power usage, with different licensing and location requirements for each.
- Environmental compliance, including waste management, emissions control, and potentially conducting Environmental Impact Assessments.
- Safety regulations mandate employee training, regular equipment inspections, and emergency preparedness plans for factories.
Can Factories Be 100% Foreign Owned in Thailand?
Foreign investors can own 100% of a factory in Thailand under certain conditions. The Thai government allows 100% foreign ownership in various sectors, particularly those that fall under Board of Investment or Industrial Estate Authority of Thailand (IEAT) promoted activities.
The promotions on offer from the BOI and IEAT have been well received and Thailand has seen many 100% foreign owned companies start a manufacturing company and opening a factory in Thailand accordingly. There has also been a very noticeable influx of companies who used to produce goods in China moving their business to Thailand and opening a factory in order to take advantage of the tax incentives on offer.
Such businesses are taking advantage of and greatly appreciate the incentives and benefits offered, the skilled staff, the well established legal framework, environment and social conditions Thailand has to offer.
However, should the business in question not qualify for one of the above promotions, the company will require a local partner as they will be restricted from owning land and property such as factories.
If you are interested in opening a factory in Thailand, we always highly recommend undertaking proper research and consulting with our experts to understand the specific regulations that apply to their intended business activities. To talk to our experts, please click here.
What are the Benefits on Offer from the Government Agencies?
The BOI
Companies approved for a BOI promotion can take advantage of a range of special incentives and benefits to help their businesses.
The key advantages of a company obtaining a BOI promotion are as follows:
- 100% foreign ownership of a company
- Ability to undertake restricted business activities
- Freedom to hire foreign skilled experts
- Streamlined visa and work permit Applications
Another significant advantage to receiving a promotion from the BOI is the possibility of receiving tax benefits and/or Import Duty Exemptions or reductions.
- Possible Corporate Income Tax Exemption
- Import Duty Exemption or Reductions
- Reduction of Import Duties
The incentives regarding import duties are a significant advantage for companies who have factories. Companies promoted by the BOI can receive exemptions from import duties on machinery essential for their operations. This exemption is granted upon approval of their BOI promotion certificate, allowing businesses to import necessary equipment without incurring additional costs. Additionally, there are exemptions available for raw materials imported specifically for production purposes.
For more information about the benefits of a BOI promotion, please see our blog post here.
The Industrial Estate Authority of Thailand
The Industrial Estate Authority of Thailand extends a range of benefits, encompassing both tax and non-tax incentives, to eligible companies.
- 100% Foreign Ownership
- Ownership of Land
- Permission of stay for Foreigners: The IEAT allows companies operating within their zones to hire qualified foreign individuals,
- No Import/Export Conditions,
- Exemption from Environmental Impact Assessment.
Eastern Economic Corridor
The Eastern Economic Corridor (EEC) is a special economic zone that operates in the following Thai provinces, Chachoengsao, Chonburi, and Rayong. The EEC was designed to help push the “Thailand 4.0″ economic model”, which looks to move the Thai economy into a high-tech, value-based economy.
What Business Activities are Eligible for a Promotion from the EEC?
While the BOI offers a broad range of promotions spanning across many different industries, the EEC is much more limited in scope. Eligibility for the EEC is only available to companies who undertake activities under the Thailand 4.0 vision:
- next-generation automotive,
- intelligent electronics,
- advanced agriculture and biotechnology,
- food for the future,
- high-value and medical tourism, and digital technologies,
- Automation and robotics,
- Aviation and logistics
- Biofuel and biochemical
- Defence
- Education & HR
What Benefits are Offered by the EEC?
Projects within the EEC are eligible for the following attractive incentives:
- 100% foreign ownership of a company
- corporate tax exemptions of up to 15 years,
- exemption from import duties,
- matching grants.
Foreign employees who work for companies that have been granted a promotion from the EEC are also eligible for the EEC visa which has the following benefits:
- All EEC visa holders will be granted a work permit
- A flat Personal Income Tax Rate of 17% (instead of the progressive rate up to 35%).
- 10 Year validity
- Multiple entry visa
- Use of the Fast-Track Channel at selected airports.
For more information as to whether the BOI or EEC is more suited for your business, please see our article here.
Where Can a Company Open a Factory in Thailand?
Foreign investors considering building a factory in Thailand should evaluate various location options, each with distinct advantages and disadvantages. The three primary categories of locations for factory construction are:
Industrial Estates
Industrial estates are the most suitable option for factory construction. These areas are specifically designated for industrial use and are typically managed by the Industrial Estate Authority of Thailand or private entities. Key benefits include:
- Infrastructure Support: Industrial estates provide essential utilities such as water, electricity, and sewage systems, which are essential for factory operations.
- Strategic Location: Many industrial estates are situated near seaports and transportation hubs, facilitating efficient logistics and supply chain management.
- Regulatory Advantages: Factories in industrial estates often enjoy expedited licensing processes and may qualify for additional incentives from the Board of Investment (BOI) if located in designated promotion zones.
Examples of some industrial estates in Thailand include:
WHA Eastern Seaboard Industrial Estate (Chonburi): This estate is strategically located near major transport links and is known for its highly developed infrastructure across various industries.
Amata City Rayong (Rayong): A prominent industrial estate that hosts numerous manufacturing companies, particularly in the automotive and electronics sectors.
Bang Chan Industrial Estate (Bangkok): Located on the eastern outskirts of Bangkok, it offers convenient access to the city and surrounding areas.
Lat Krabang Industrial Estate (Bangkok): Another key estate near Suvarnabhumi Airport, facilitating logistics and distribution.
Purple-Zoned Land Outside Industrial Estates
The second option is purple-zoned land, which is designated for industrial use but located outside of formal industrial estates. This option offers:
- Easier Licensing: Investors typically face fewer challenges in obtaining construction licences, provided their plans align with regulatory standards.
- BOI Promotion Eligibility: Factories on purple-zoned land can also qualify for BOI incentives, similar to those in industrial estates.
However, investors must independently manage public utilities and waste disposal, which can complicate operations.
Examples include:
Nava Nakorn Industrial Zone (Pathum Thani): This area is known for its electronics manufacturing and provides good access to major highways.
Hi-Tech Industrial Estate (Ayutthaya): Situated in a region known for technology and electronics, it allows for factory construction with fewer regulatory hurdles.
Rojana Industrial Park (Ayutthaya): Offers purple-zoned land with the potential for BOI promotion, making it an attractive option for investors.
Non-Industrial Zoned Land (Green Zone)
The least favourable option is constructing a factory on non-industrial zoned land, or “green zone.” This choice presents significant challenges:
- Size Limitations: Government regulations restrict factory sizes to under 50 horsepower, limiting the scope of industrial activities.
- Bureaucratic Hurdles: Converting green-zoned land to purple-zoned status is a lengthy process involving community consultations and government approvals.
Understanding the Factory Act in Thailand
Investors who are interested in opening a factory in Thailand must be aware of the provisions contained within the Factory Act. The Factory Act act governs the construction, operation, and safety standards of factories in Thailand.
What is the Definition of a Factory?
As per the Factory Act, a factory is defined as any establishment that employs 7 or more workers or utilises machinery with a total power of 50 horsepower or more. This includes activities such as manufacturing, assembling, packing, and processing various products.
What are the Licensing Requirements for a Factory?
Before starting their business operations, factory owners must apply for a factory licence from the Ministry of Industry. The Factory licence is a mandatory requirement and ensures compliance with safety and environmental standards. The licensing process includes an assessment of the factory’s potential impact on the environment and surrounding communities.
Categories of Factories:
Factories are categorised into the following three types:
Category 1: Factories that can operate immediately without prior notice. A Category 1 factory typically operates with 5 to 20 horsepower and employs 7 to 20 workers and is prohibited from being located within 50 metres of sensitive areas such as schools, temples, hospitals, and government offices.
Category 2: Factories that require notification to the authorities before starting operations. A Category 2 factory operates with 20 to 50 horsepower and employs 20 to 50 workers and is prohibited from being located within 50 metres of sensitive areas such as schools, temples, hospitals, and government offices.
Category 3: Factories that must obtain a licence before commencing operations. A Category 3 factory operates with over 50 horsepower or employs more than 50 workers and is prohibited from being within 100 metres of sensitive areas such as schools, temples, and hospitals. They must also be situated in appropriate zones that can accommodate their operations without causing nuisance to nearby properties.
Please note, the factory licence does not expire until the factory ceases operations.
What are the Compliance and Reporting Requirements for a Factory Set Up?
Factory owners must satisfy various compliance requirements under the Factory Act, including:
- Environmental Standards: Factories must implement measures to control pollution and waste disposal, ensuring compliance with environmental regulations set by the Ministry of Industry.
- Safety Regulations: The Factory Act mandates safety protocols for machinery and worker safety, requiring regular inspections and maintenance of equipment.
- Reporting Obligations: Owners must maintain accurate records and report any changes in operations, such as modifications to machinery or increases in production capacity, to the relevant authorities within specified timeframes.
Environmental Standards
Factories in Thailand are required to implement specific measures to control pollution and ensure compliance with environmental regulations. Key aspects include:
- Waste Management: Factories must develop and implement waste management plans that outline how they will handle, store, and dispose of hazardous and non-hazardous waste. This includes:
- Segregating waste at the source to facilitate recycling and proper disposal.
- Ensuring that hazardous waste is treated and disposed of in accordance with national regulations.
- Emissions Control: Factories must monitor and control emissions to air and water. This may involve:
- Installing pollution control equipment such as scrubbers, filters, or treatment systems to reduce emissions of particulate matter, volatile organic compounds (VOCs), and other pollutants.
- Regularly testing emissions to ensure they comply with the limits set by the Ministry of Industry and other relevant environmental authorities.
- Environmental Impact Assessments (EIAs): For certain projects, especially those classified under Category 3, factories may be required to conduct an EIA before commencing operations. This assessment evaluates the potential environmental impacts of the factory and identifies measures to mitigate adverse effects.
- Compliance with Environmental Laws: Factories must adhere to the regulations set forth in the Environmental Quality Act and other related legislation. This includes obtaining necessary permits for activities that may impact the environment.
Reporting and Record-Keeping
Factories are required to maintain accurate records of their environmental performance, including:
- Waste generation and disposal methods.
- Emission levels and compliance with environmental standards.
- Results of any environmental monitoring or assessments conducted.
Safety Regulations
The Factory Act mandates specific safety protocols to protect workers and ensure safe machinery operation. Key elements include:
- Safety Training: Factory owners must provide comprehensive safety training for all employees, covering:
- Proper use of machinery and equipment.
- Emergency response procedures, including evacuation plans and first aid.
- Personal protective equipment (PPE) requirements and usage.
- Regular Inspections: Factories must conduct regular safety inspections and maintenance of equipment to ensure it operates safely. This includes:
- Routine checks of machinery to identify wear and tear or potential hazards.
- Maintaining safety guards and emergency shut-off systems on equipment.
- Documenting inspection results and any corrective actions taken.
- Emergency Preparedness: Factories must develop and implement emergency response plans that address potential hazards, such as fires, chemical spills, and equipment failures. This includes:
- Conducting regular emergency drills to ensure employees are familiar with procedures.
- Providing adequate emergency exits and signage throughout the facility.
- Reporting Accidents and Incidents: Factory owners must report any workplace accidents or incidents to the relevant authorities within a specified timeframe. This includes documenting the incident, investigating the cause, and implementing corrective measures to prevent future occurrences.
Reporting Obligations
Factory owners have specific obligations regarding record-keeping and reporting changes in operations. Key aspects include:
- Accurate Record-Keeping: Owners must maintain comprehensive records related to:
- Production processes, including quantities produced and types of materials used.
- Environmental performance, including waste management and emissions data.
- Safety inspections and training records.
- Reporting Changes: Factory owners must report any significant changes in operations to the relevant authorities, including:
- Modifications to machinery or equipment that may impact safety or environmental compliance.
- Increases in production capacity or changes in the types of products manufactured.
- Any changes in the factory’s operational processes that could affect emissions or waste generation.
- Timeframes for Reporting: The Factory Act specifies timeframes within which changes must be reported. Typically, factory owners are required to notify authorities within 15 days of implementing any significant changes.
- Compliance Audits: Authorities may conduct regular audits to verify compliance with environmental and safety regulations. Factory owners should be prepared to provide documentation and records during these audits.
Violations and Penalties
Failure to comply with the Factory Act can result in severe penalties, including:
- Operating Without a Licence: This can lead to imprisonment for up to two years and fines up to THB 200,000 (approximately USD 5,916).
- Environmental Violations: Factories exceeding noise or pollution standards may face substantial fines and operational restrictions.
How can Belaws help?
For more information about starting a factory business in Thailand why not talk to one of our experts now?
Please note that this article is for information purposes only and does not constitute legal advice.
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Frequently asked questions
What are the benefits of setting up a factory in Thailand?
Setting up a factory in Thailand offers advantages such as a strategic location, a skilled workforce, and supportive government policies, including tax incentives and import duty exemptions through the Board of Investment (BOI) and Industrial Estate Authority of Thailand (IEAT) promotions.
Can foreign investors own 100% of a factory in Thailand?
Yes, foreign investors can own 100% of a factory in Thailand if they qualify for BOI or IEAT promotions, which provide various benefits including full ownership and tax incentives.
What types of factories are recognized in Thailand?
Factories in Thailand are categorized into three types based on size and power usage:
- Category 1: Operates without prior notice, typically with lower horsepower.
- Category 2: Requires notification to authorities before starting operations.
- Category 3: Must obtain a license before commencing operations.
What are the licensing requirements for opening a factory?
Factory owners must apply for a factory license from the Ministry of Industry, which ensures compliance with safety and environmental standards. The licensing process includes an assessment of the factory’s potential impact on the environment.
What incentives does the BOI offer to approved companies?
Companies approved for BOI promotion can benefit from 100% foreign ownership, corporate income tax exemptions, import duty exemptions on machinery and raw materials, and streamlined visa processes for foreign employees.
What is the Eastern Economic Corridor (EEC) in Thailand?
The EEC is a special economic zone aimed at promoting high-tech industries under the “Thailand 4.0” economic model, offering incentives such as corporate tax exemptions and eligibility for EEC visas for foreign employees.
What environmental compliance measures must factories adhere to?
Factories must implement waste management plans, control emissions, conduct Environmental Impact Assessments (EIAs) when necessary, and comply with regulations set by the Ministry of Industry and other environmental authorities.
What safety regulations are mandated by the Factory Act?
The Factory Act requires safety training for employees, regular equipment inspections, emergency preparedness plans, and reporting of workplace accidents to ensure safe operations.
Where can factories be located in Thailand?
Factories can be established in industrial estates designed for industrial use, purple-zoned land outside industrial estates, or non-industrial zoned land (green zone), each with varying regulatory requirements and advantages.
What should investors consider before opening a factory in Thailand?
Investors should conduct thorough research on local regulations, potential locations, available incentives from government agencies like BOI and IEAT, and compliance requirements under the Factory Act to ensure successful operations.
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