Manufacturing company: The industrial sector in Thailand

First of all, a manufacturing company is by definition an industrial establishment which, with the help of machines transforms raw or semi-finished materials into finished products.

The qualification of a manufacturing company in the Thai Kingdom has several conditions. The establishment can be “any premises”, then the machines used must have at least 5 horses or with or without machinery employ at least 7 people, to produce manufactured products. Ministerial regulations specify the activities related to the manufacture of products, which are to produce, assemble, package, repair, maintain, test, improve, process, transport, store or destroy (any item listed).

In Thailand, the Factory Act of 1992 regulates the establishment and operation of manufacturing companies. It regulates surplus, expansion, safety standards and limits the adverse effects of pollution caused by factories. However, the law does not apply to the government plant which is managed by the Government, however the plant will apply the guideline of the law.

Manufacturing business structure

At first you will have to create your company and choose the structure. During a classic procedure, the persons who do not have the Thai nationality cannot obtain 100% of their company. Indeed, 51% of the social shares must be held by Thai nationals, against 49% for you. However, the industrial field is not concerned by this provision and thus by the ” Foreing Business act “, by this effect you have the possibility to hold 100% of the social shares of your factory.

Then, you will have to follow a classical procedure to register your company with the Department of Business and choose the name of your company. Then, the filing of the memorandum of association must be done within 30 days after the registration of the company name. After this filing, you will be able to draw up the Articles of Incorporation of your company, which will provide a founding charter for your manufacturing company in Thailand. A statutory meeting can then be held and you can register your manufacturing company with the Ministry of Commerce.
Finally, you will only have to register for VAT, register for social security and open a bank account.

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Board of Investment BOI for manufacturing company

Depending on the sector of activity (space industry, energy, food, textile, etc.), you can consider a BOI (Thailand Board of Investment) promotion by making an application.

The BOI considers two types of incentives for projects or activities:
Fiscal incentives: Reduction or exemption of import duties on machinery and raw materials and corporate tax exemptions.
In addition, the BOI offers tax and customs privileges depending on the location of your manufacturing company in Thailand, in certain special economic zones (SEZ) or in model cities of the “triangle of stability, wealth and sustainable development” (Pattani City, Yala and Narathiwat).
Other incentives: Allowing foreign workers and facilitated work permits, owning land etc.

Industrial activity and factory licensing

Factories are classified according to 3 categories:

Category 1: Manufacturing companies that do not require a license.

Use of machines with a power of between 5 and 20 horsepower and/or employment of 7 to 20 people for manufacturing.

Category 2: Manufacturing companies that require notification from government officials prior to commencing operations. Operators will be able to start operations once they have obtained a receipt from the Ministry of Industry acknowledging receipt of the notification. The plants will be required to follow the ministerial regulations.

Use of machinery with a power of between 20 and 50 horsepower and/or employ more than 20 to 50 people in manufacturing.

Category 3: Manufacturing companies that are required to obtain a license from the Department of Industrial Works of the Ministry of Industry, prior to commencing operations. In addition, and subject to the discretion of the Ministry, operators may require a certificate to construct certain parts of the plant.

Use of machinery of more than 50 horsepower and/or employing more than 50 persons in the manufacture, producing pollution.

The operator must notify the competent authority 15 days before the start of the trial operation of the plant, and again 15 days in advance of the actual start of manufacture of the plant. These notifications allow the Ministry to control the plant with regard to environmental protection, including pollution. Each licensee will be required to notify the Ministry of the following:

Any structural change: Relocation of machinery, or premises (notify the Ministry 7 days before) or expansion of the factory (additional approval to be applied for within 7 days incurring an administrative fee of 100,000 thb)
Any accident on the man or the company: An accident causing death, injury or illness resulting in an incapacity to work for more than 72 hours (notification to the ministry within 3 days) or an accident resulting in the stopping of activities for more than 7 days (notification to the ministry within 10 days)
Death of the licensee: the heir or administrator must apply to the Department within 90 days to transfer the license

First of all, the premises must be located away from public spaces and dwellings and must not cause noise nuisance to others. For all these reasons, the operator must obtain a license from the Department of Industrial Works, along with the following documents:

➤ The application form for a license
➤ Affidavit of the company
➤ A plan or diagram showing the industrial area
➤ A plan detailing the machinery, certified by an engineer or a person designated by the Department of Industry
➤ A plan detailing the plant building, certified by an engineer or person designated by the Department of Industry
➤ A plan, layout or written explanation detailing all measures to prevent noise pollution; potential damage, hazards to others and the environment (waste control, pollution etc.)

The applicant who wishes to build outside Bangkok, must submit his application to the Provincial Industries Office or in some cases to the Tambon Administration Organization.

Once the application is submitted to the competent authorities, a governmental agent will proceed with an inspection of the factory site and all its infrastructures, as well as a control of the polluting agents. The agent will then give a report of all the elements controlled to the Ministry, within 30 days following the request. After receiving the report, the Ministry will give its answer within 50 days, and if approved, you can receive your license to start your economic activities.

The license will be valid for a period of 5 years, and renewable before the expiration of the license for a total price of 100 000 baht additional.

CAUTION: If the application is submitted within 60 days after the expiration date, then the applicant will have to pay an additional fine of 20,000 Thai baths. And if the applicant fails to apply for renewal after 60 days of the expiration date, the application will be treated as a new license application.

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The industry licensing process

Step 1: The authorization to use the land

The procedure will take about 1 day and the required documents are as follows:

➤ 3 copies of the submitted application
➤ 10,000 Thai Baht license fee (excluding VAT)
➤ For an individual: (3) copies of registration of establishment (landowner) and copy of passport or identity card
➤ For a legal entity: (3) copies of company registration and affidavit, dated within 6 months

Step 2: Authorization to establish a factory (construction, lease and renovations)

The procedure will take about 50 days and the required documents are as follows:

➤ (3) copies of the application
➤ Fees and permit to build the factory
➤ 20 Thai baths

Step 3: Permission to start operations

The procedure will take about 18 days and the required documents are as follows: (3) copies of the permit application.

For each step, other documents will be requested depending on your situation.

Environmental taxes

According to Article 67, paragraph 2 of the Thai Constitution, any project or activity that may seriously damage the environment, natural resources, biological diversity and health shall be prohibited unless it is authorized after an inspection by the competent authorities.

Under this article, the Ministry of Natural Resources and Environment, through the approval of the Cabinet and National Environment Board (NEB), has announced a list of 11 industrial activities, which are likely to produce a severe impact on the environment and health, and for which an impact study must be conducted.

Factories in certain industrial sectors will have to pay environmental taxes, whether on their products, permits or excise duties (e.g. oil).

Hazards related to the industrial sector

Any plant that poses a serious danger to the public or to property in the plant or its vicinity may be ordered to immediately cease operations or to make the necessary modifications to stop the danger.

The Department shall have the power to order the relocation of all or part of the plant to a location that does not pose a threat to man or property. The Department will have the opportunity to inspect any suspected malfunction and may take action accordingly.

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In conclusion, the Factory Act, regulates the activities, organization, structure, limits and everything that has to do with factories. In addition, the Ministry of Industry has the power to inspect, amend regulations, close down factories and issue licences. Moreover, it promulgates all the provisions that must be respected.

You will be able to create your own company, owning 100% of the shares even if you do not have Thai nationality. The industrial sector is particularly open to foreign companies and allows for tax exemptions and benefits in kind (work permits for foreigners).

Then, in order to start your economic activities you will have to obtain a license, under certain conditions (category 3). In addition, the industrial sector is highly regulated and requires the payment of environmental taxes in order to preserve the environment, natural resources, biological diversity and health.