August 27, 2025

Setting up a Factory in Thailand: Legal Requirements and Considerations

Setting up a Factory in Thailand: Legal Requirements and Considerations

Successfully establishing a factory in Thailand requires a good understanding of regulations and legal risks to ensure that the processes will go smoothly and mitigate legal risks as much as possible. This article provides an overview of the key legal requirements and considerations for setting up a factory in Thailand.

I. Initial Considerations & Due Diligence

Before embarking on the process, conduct thorough due diligence. This includes:

  • Industry-Specific Regulations: Different industries face different regulatory requirements. Reviewing the specific laws and regulations that apply to your manufacturing sector. For example, insurance, telecommunication, and land transportation are regulated by laws that have stricter regulations on foreign shareholding ratios.
  • Location Analysis: Evaluate potential factory locations based on the town zone map and verify whether the proposed factory is allowed to be built on such a location.
  • Environmental Impact Assessment (EIA): Certain industries require an EIA before construction can begin. It is suggested to check whether the proposed project requires an EIA.

II. Choosing the Right Business Structure

The choice of business structure will significantly impact your legal and tax obligations. Common options include:

  • Limited Company (Private or Public): This is the most common form for foreign investors. A limited company offers limited liability protection for shareholders.
    • Private Limited Company: Requires at least two shareholders. Foreign ownership is generally permitted, subject to certain restrictions under the Foreign Business Act (FBA).
    • Public Limited Company: Shares can be offered to the public under the requirements prescribed by the Securities and Exchange Commission. Subject to more stringent regulatory requirements.
  • Branch Office: An extension of the foreign company. The parent company is fully liable for the branch’s obligations.
  • Partnership (Registered or Limited): Less common for larger manufacturing operations due to liability considerations.

Considerations When Choosing a Business Structure:

  • Liability: The extent to which the owners/shareholders are liable for the debts and obligations of the business.
  • Tax Implications: Different business structures are subject to different tax rates and regulations.
  • Ownership Restrictions: The Foreign Business Act (FBA) restricts foreign ownership in certain sectors.
  • Administrative Requirements: The level of complexity involved in setting up and maintaining the business, such as annual financial statement filing, business report filing, work permit, business visa, etc.
  • Capital Requirements: The minimum capital required to establish the business.

III. The Foreign Business Act (FBA) of 1999

The FBA is a crucial piece of legislation that restricts foreign participation in certain business activities in Thailand. The FBA categorizes business activities into three lists:

  • List 1: Businesses that are absolutely prohibited to foreigners (e.g., newspapers, broadcasting).
  • List 2: Businesses related to national security or cultural heritage that require Cabinet approval for foreign participation (e.g., land transportation).
  • List 3: Businesses in which Thai nationals are deemed not yet ready to compete with foreigners. Foreigners can engage in these businesses, but they require a Foreign Business License (FBL). This list includes many manufacturing activities.

Key Implications of the FBA:

  • Foreign Business License (FBL): If your manufacturing activity falls under List 3 of the FBA, you will need to obtain an FBL from the Ministry of Commerce. The application process can be lengthy and requires detailed documentation.
  • Thai Majority Ownership: If the FBA restricts 100% foreign ownership of your business, you’ll need to structure your company with Thai shareholders holding at least 51% of the shares in order to operate without the FBL.
  • Nominee Shareholders: Using Thai nationals as nominee shareholders is illegal and can result in severe penalties.
  • Treaty Exceptions: Thailand has treaties with some countries that may provide exemptions from the FBA restrictions, such as the Thai-US Amity Treaty.

IV. Company Registration

Once you have chosen your business structure and addressed the FBA requirements (if applicable), you need to register your company with the Department of Business Development (DBD) of the Ministry of Commerce.

Steps in Company Registration:

  1. Reserve a Company Name: Submit three potential company names to the DBD for approval.
  2. File a Memorandum of Association (MOA): The MOA outlines the company’s objectives, registered capital, and the names of the shareholders.
  3. Convene a Statutory Meeting: The shareholders hold a meeting to approve the MOA, appoint directors, and allocate shares.
  4. Register the Company: Submit the required documents to the DBD, including the MOA, minutes of the statutory meeting, and identification documents of the directors and shareholders.

Required Documents for Company Registration (Generally):

  • Memorandum of Association (MOA)
  • Articles of Association
  • List of Shareholders
  • Minutes of the Statutory Meeting
  • Identification Documents of Directors and Shareholders (passports for foreigners)
  • Evidence of Registered Capital
  • Map Showing the Location of the Registered Office
  • Company Seal Registration (optional)

V. Board of Investment (BOI) Incentives

The BOI offers a range of incentives to encourage investment in Thailand, particularly in targeted industries and regions. These incentives can include:

  • Tax Holidays: Exemption from corporate income tax for a specified period (e.g., 3-8 years).
  • Import Duty Exemptions: Exemption from import duties on machinery, raw materials, and components.
  • Reduced Corporate Income Tax: Reduced corporate income tax rates after the tax holiday period.
  • Non-Tax Incentives: Incentives such as land ownership rights, streamlined visa and work permit procedures, and assistance with infrastructure development.

To be eligible for BOI incentives, your project must meet specific criteria, such as:

  • Be in a targeted industry (e.g., advanced technology, value-added agriculture).
  • Be located in a designated investment promotion zone.
  • Meet minimum investment requirements.
  • Contribute to Thailand’s economic development.

VI. Land Acquisition, Factory Construction, and the Role of the Industrial Estate Authority of Thailand (IEAT)

When establishing a factory in Thailand, the location is critical. In certain areas, the businesses can enjoy benefits from the Industrial Estate Authority of Thailand (IEAT), which offers significant tax and non-tax incentives. Furthermore, BOI incentives are often tied to location.

Introducing the Industrial Estate Authority of Thailand (IEAT)

The Industrial Estate Authority of Thailand (IEAT) is a state enterprise under the Ministry of Industry. Its primary mission is to develop and manage industrial estates throughout Thailand, promoting industrial development and foreign investment. The IEAT acts as a facilitator, facilitating the process for businesses to establish and operate factories within its designated zones, which typically have a well-developed infrastructure system, including electricity, water, waste management systems, easy access to land, and/or sea logistic routes.

Benefits of Locating in an IEAT Industrial Estate:

  • Simplified Permitting: The IEAT offers a “one-stop service” for obtaining necessary permits and licenses, significantly reducing the administrative burden for investors. This includes assistance with factory licenses, building permits, environmental permits, and other regulatory approvals.
  • Ready-Built Infrastructure: IEAT industrial estates provide essential infrastructure, including:
    • Reliable electricity supply
    • Treated water supply
    • Wastewater treatment facilities
    • Roads and transportation networks
    • Telecommunications infrastructure
    • Security services
  • Strategic Locations: IEAT estates are strategically located throughout Thailand, often near major ports, airports, and transportation hubs, facilitating efficient logistics and supply chain management.
  • Environmental Management: IEAT estates are designed with environmental sustainability in mind, ensuring compliance with environmental regulations and minimizing the environmental impact of industrial activities. IEAT often provides centralized wastewater treatment and waste management services, simplifying compliance for individual factories.
  • BOI Incentives: Companies located in certain IEAT estates may be eligible for enhanced BOI incentives, such as additional tax holidays or exemptions.

Types of IEAT Industrial Estates:

The IEAT offers different types of industrial estates to cater to various industries and investment needs:

  • General Industrial Zones: These zones are suitable for a wide range of manufacturing activities.
  • Export Processing Zones (EPZ): These zones offer special incentives for companies that primarily export their products. Companies located in EPZs are typically exempt from import duties on raw materials and components used in the production of export goods.
  • IEAT Free Zones: These zones offer similar benefits to EPZs, with additional advantages such as simplified customs procedures and reduced regulatory requirements.
  • Specific Industry Zones: Some IEAT estates are designed to cater to specific industries, such as automotive, electronics, or food processing.

Land Acquisition and Factory Construction (Whether in or out of IEAT):

  • Land Ownership: Foreigners are generally prohibited from owning land in Thailand. There are a few exceptions, such as land acquired through investment promotion schemes, e.g., BOI or IEAT.
  • Leasehold: The most common option for foreigners is to lease land for a long term (up to 30 years, renewable). Register the lease agreement with the Land Department. Due diligence on the land title is critical.
  • Building Permits: You will need to obtain a building permit from the local authorities before constructing your factory. The application process requires detailed architectural plans and compliance with building codes. If within an IEAT, the IEAT can significantly assist with this process.
  • Factory License: According to the Factory Act B.E. 2535 (1992), most factories require a factory license from the Ministry of Industry. The requirements for obtaining a factory license depend on the size, type, and location of the factory. If within an IEAT, the IEAT official can significantly assist with this process.

Due Diligence within IEAT Estates:

While IEAT estates offer numerous advantages, thorough due diligence is still crucial:

  • Review IEAT Regulations: Understand the specific rules and regulations governing the industrial estate, including restrictions on activities, environmental requirements, and fees.
  • Land Measurement: Verify whether the actual land size is in line with the area specified in the Land Title Deed, and there is no construction of other parties encroaching on the land.
  • Assess Infrastructure Capacity: Verify that the estate’s infrastructure (e.g., electricity, water, wastewater treatment) can adequately meet your factory’s needs.
  • Land Lease Agreements: Carefully review the terms of the land lease agreement with the IEAT, including lease duration, rental rates, and renewal options.
  • Environmental Compliance: Ensure that the estate has a robust environmental management system in place and that your factory’s activities will comply with all environmental regulations.
  • Potential Restrictions: Confirm there are no unforeseen restrictions on your specific manufacturing processes within the estate.

Working with the IEAT:

  • Initial Consultation: Contact the IEAT to discuss your project and explore suitable industrial estate locations.
  • Application Process: Submit an application to the IEAT, providing details about your company, manufacturing activities, and investment plans.
  • Permitting Assistance: Work with the IEAT’s one-stop service center to obtain the necessary permits and licenses.
  • Construction and Operation: Construct your factory and commence operations in accordance with IEAT regulations.

VII. Environmental Regulations

Thailand has strict environmental regulations to protect the environment and public health.

  • Environmental Impact Assessment (EIA): Certain types of factories are required to conduct an EIA before they can be approved. The EIA assesses the potential environmental impacts of the factory and proposes mitigation measures.
  • Effluent Discharge Standards: Factories must comply with effluent discharge standards for wastewater and air emissions.
  • Hazardous Waste Management: Factories that generate hazardous waste must comply with regulations for the storage, transportation, and disposal of hazardous waste.

VIII. Labor Laws and Regulations

Compliance with Thai labor laws is essential for ensuring a fair and productive workforce.

  • Employment Contracts: Employment contracts must comply with the Labor Protection Act.
  • Minimum Wage: Thailand has a minimum wage, which varies by province.
  • Working Hours and Overtime: The Labor Protection Act regulates working hours, overtime pay, and holiday entitlements.
  • Social Security: Employers and employees must contribute to the Social Security Fund.
  • Work Permits and Visas: Foreign employees need to obtain work permits and visas to work legally in Thailand. The process is often tied to a minimum capital investment and the number of Thai employees.

IX. Tax Considerations

Thailand has a corporate income tax rate of 20%. Understanding the tax implications of setting up a factory in Thailand is crucial for effective financial planning.

  • Corporate Income Tax (CIT): Tax on company profits.
  • Value Added Tax (VAT): A 7% tax on the sale of goods and services.
  • Withholding Tax: Tax withheld on payments made to foreign companies or individuals.
  • Double Taxation Agreements (DTAs): Thailand has DTAs with many countries, which can help reduce tax liabilities.

X. Customs and Import/Export Regulations

  • Import Duties: Import duties are levied on goods imported into Thailand. The rates vary depending on the type of goods.
  • Export Procedures: Exporters must comply with customs regulations and obtain the necessary permits and licenses.
  • Free Trade Agreements (FTAs): Thailand has FTAs with several countries, which can reduce or eliminate import duties on goods traded between those countries.

XI. Intellectual Property Protection

Protecting your intellectual property (IP) is crucial for maintaining a competitive advantage.

  • Trademarks: Register your trademarks in Thailand to protect your brand name and logo.
  • Patents: Obtain patents for your inventions to protect your technology.
  • Copyright: Protect your original works of authorship, such as designs and software.
  • Enforcement: Take legal action against infringers to protect your IP rights.

XII. Repatriation of Profits

Foreign investors are generally allowed to repatriate profits from Thailand, subject to certain exchange control regulations.

  • Foreign Exchange Regulations: Comply with the Bank of Thailand’s foreign exchange regulations when transferring funds into and out of Thailand.
  • Withholding Tax on Dividends: Dividends paid to foreign shareholders are subject to withholding tax.

XIII. Ongoing Compliance

Setting up a factory is just the first step. Ongoing compliance with Thai laws and regulations is essential for maintaining a successful operation.

  • Annual Audits: Companies are required to have their financial statements audited annually.
  • Tax Filings: File tax returns and pay on time.
  • Labor Law Compliance: Ensure ongoing compliance with labor laws, including wage payments, working hours, and social security contributions. These regulations are changing frequently, so close monitoring is advisable.
  • Environmental Compliance: Monitor and maintain compliance with environmental regulations.
  • Corporate Governance: Adhere to good corporate governance practices.

XIV. Seeking Professional Advice

The legal and regulatory landscape in Thailand can be complex. It is highly recommended that you seek professional advice from lawyers, accountants, and consultants who have experience in assisting foreign investors in Thailand.

 

RELATED INSIGHTS

Dealing with Trademark Infringement in Thailand: A Practical Guide

Dealing with Trademark Infringement in Thailand: A Practical Guide I. Introduction Trademark infringement is a persistent problem in Thailand, ranging from the blatant counterfeiting of luxury goods to the subtle imitation of established brands. This illegal activity undermines legitimate businesses, deceives consumers, and damages the overall economic environment of the country. Moreover, it decreases motivation to create local brands, as

Read More

Legal Update – Employee Welfare Fund

Legal Update: Implementation of the New Employee Welfare Fund in Thailand Effective October 1, 2025 We would like to inform our clients and partners about the upcoming enforcement of the Employee Welfare Fund under Thai labor law, scheduled to start on October 1, 2025. This new regulation aims to strengthen social security protections for employees and establish a mandatory savings

Read More

Legal Guide: Share Transfers of the Limited Company in Thailand

Legal Guide: Share Transfers of the Limited Company in Thailand Introduction Share transfers are a fundamental aspect of investment, facilitating the transfer of ownership within the limited company. In Thailand, the process of transferring shares is governed primarily by the Civil and Commercial Code (CCC) and the company’s Articles of Association. This article provides an overview of the legal basics,

Read More
Scroll to Top
LEGAL CONCEPT

If you’d like to contact us by email, please fill out the form below and we’ll get back to you within 24 hours.