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Why is Thailand’s Factory Act essential for international investors?
In Thailand, the industrial sector plays a central role in the country’s economic growth and attractiveness for foreign direct investment. The Factory Act in Thailand, or Factory Act B.E. 2535 (1992), is the main legal basis for establishing, operating and controlling industrial activities in Thailand. This law was enacted to replace previous regulations from 1969, 1975 and 1979. The main objective of this text is to balance industrial development with environmental protection, public safety and social order.
It is therefore important for any foreign investor wishing to set up or acquire a factory in Thailand to be familiar with the legislation in force, as this will enable them to obtain a licence, comply with the law and be informed of the penalties incurred in the event of non-compliance.
It is important for foreigners to check whether it is possible to set up a factory with the Board of Investment (BOI) in order to benefit from various advantages.
Table of Contents
What is a factory according to the Thailand Factory Act?
What is the legal definition of a factory?
Section 5 of the Factory Act in Thailand defines a factory as a place that uses machinery with a total power of at least five horsepower or employs at least seven workers to manufacture, assemble, repair, test or store goods. The law provides a broad definition to include, in addition to fixed industrial buildings, vehicles fitted out for industrial purposes.
What activities are covered by the Thailand Factory Act?
The activities covered include all industrial operations, including the packaging, processing, storage and destruction of goods. However, an exception applies to state-controlled enterprises. For reasons of national security, these are partially exempt under Section 4, but are still required to comply with similar standards.
What are the different categories of factories covered by the Thailand Factory Act?
How does the law classify factories?
According to Section 7 of the Factory Act in Thailand, factories are classified into three categories.
Category 1 factories represent a low risk. As such, they can start operating as soon as they are set up without any notification or authorisation. However, they must comply with all technical and environmental standards.
Category 2 factories must formally notify the competent authority of their activities before commencing operations. Although much less stringent than a licence application, this notification allows the authorities to keep a register of establishments and carry out minimal checks on their activities.
Category 3 factories are those whose activities will pose significant risks to safety, public health or the environment. In this case, a licence must be obtained before operations can begin. Obtaining this licence is subject to specific rules and involves an in-depth analysis of the industrial project.
This classification is determined on the basis of several criteria: the level of risk, the environmental impact and the administrative control requirements.
What obligations arise from each category?
Depending on the category, factories are not subject to the same obligations.
Category 1 factories, which can start operating without prior notification or authorisation, are the simplest to operate. However, they must strictly comply with the technical, environmental and safety criteria set out in ministerial regulations and as provided for in Section 10 of the Factory Act in Thailand. No formalities are required at this stage, which speeds up the commissioning of these low-impact factories.
Category 2 factories are subject to a higher level of control. According to Article 11, the operator must inform the administration of the opening of the factory before any activity. This notification must be complete and comply with all regulatory requirements. A competent official will be responsible for registering it and will then issue an acknowledgement of receipt. In the event of missing documents or errors in the notification, the situation must be rectified within seven days. Any change of ownership or even the closure of the plant must also be reported.
Category 3 plants are subject to the strictest regime. Article 12 requires a licence to be obtained before each start-up. The application is subject to a thorough analysis by the licence grantor, based on the criteria set out in Articles 8 and 32: environmental impact, safety of facilities, compliance of machinery and compliance with local standards. In addition, additional conditions may be required to obtain such a licence. This category involves increased monitoring throughout the operation of the factory.
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What rules apply to the installation and operation of a factory?
What are the steps for obtaining a Category 3 licence?
To set up a Category 3 factory, you must submit an application to the competent authority, the ‘license grantor’. The application must contain all the information required by Article 8, including environmental, technical and safety requirements. If some information is still missing, the competent authority may still issue a provisional certificate.
What happens after the licence is obtained?
As soon as the licence is issued, the operator must notify the administration of the actual start of operations, 15 days before they begin (Article 13).
In addition, they are required to notify the administration of any testing periods for the machinery, including the planned date and duration.
In accordance with Article 14 of the Factory Act in Thailand, the licence remains valid for five years from the date the factory commences operations. It may be renewed provided that all regulatory criteria are met.
This renewal application must be submitted before the licence expires and, if it is submitted within 60 days of the expiry date, industrial activity may continue, but the operator will be required to pay a penalty of 20% of the renewal fees.
Submitting an application after this deadline requires the operator to submit a new licence application.
How does factory supervision work under the Thailand Factory Act?
What are the powers of the administrative authority?
Section 35 of the Act grants designated officials sufficiently broad powers of inspection, including access to premises, seizure of documents and questioning. In the event of non-compliance, they may order corrections (Section 37) or suspend operations (Section 39). In the most serious cases, the Ministry may even order the permanent closure of the factory.
What are the rights of operators in the event of a dispute?
Section 41 provides that any order of suspension or closure may be challenged before the Minister within 30 days.
It should be noted, however, that the appeal does not have suspensive effect, unless the Minister decides otherwise.
What are the obligations in the event of changes or transfer of the factory?
Can a factory be moved or enlarged?
It is possible to expand or relocate a factory, but only with prior authorisation. Article 18 requires an application for extension for any significant modification to the structure or power of the machinery.
If the operator wishes to make minor increases, they must still notify the authorities within seven days (Article 19).
What should be done in the event of the sale or death of the operator?
In the event of a sale, the operator has seven days to notify the transfer of the factory (Article 21).
In the event of death, the heirs have 90 days to request the transfer of the licence (Article 22).
What penalties are provided for under the Factory Act in Thailand?
Which offences are punishable by criminal penalties?
An operator may be subject to criminal penalties if they do not have a licence (Section 50), if they have expanded without authorisation (Section 52) or if they have refused to comply with a suspension order (Section 55). In such cases, the operator faces a penalty of up to two years’ imprisonment and a fine of THB 200,000.
In addition, Articles 48 to 54 provide for other offences punishable by fines, such as failure to notify or report accidents.
Who is criminally liable?
According to Section 63 of the Factory Act in Thailand, company directors are held criminally liable in the same way as the legal entity.
Conclusion
The Factory Act in Thailand is an essential legal basis for any industrial company operating in Thailand. This law and its text ensure entrepreneurial freedom while channelling it through a strict administrative framework. It is therefore essential for all foreign investors in Thailand to fully understand the obligations set out in Articles 7 to 63, to plan all administrative procedures in advance and to adopt an optimal compliance strategy. To avoid any complications, consulting a law firm with a permanent presence in Thailand will enable you to secure the formalities, operations and implementation of your industry in the country.