How to start a factory in Thailand
Many believe that setting up a factory in Thailand is a bureaucratically complicated and difficult process. However, regulations for manufacturing are a lot more straightforward than for a number of domestic businesses in Thailand, and if the manufacturer does the right thing at the right time, the whole process can be straightforward and relatively quick. Especially if you go through the BOI.
Options for Foreign Manufacturers
The options available to companies from overseas who wish to manufacture in Thailand are broadly to either buy land and build their own factory in Thailand, or to lease a ready-made factory. A further option is to have a developer build a factory to the company’s specification for either lease or purchase.
Foreign Ownership of Land
Whilst in Thai law there is a general proscription against foreign companies or individuals buying land in Thailand, one of the main exceptions relates to manufacturing. A 100% owned foreign company wishing to manufacture via their factory in Thailand may buy freehold land for this purpose either by having the project promoted by the Board of Investment (BOI) or, even if the project is not so promoted, by setting up on one of the many public industrial estates, that is, those developed by or in partnership with the Industrial Estate Authority of Thailand (IEAT), part of the Ministry of Industry.
However, if buying land under the exemption from BoI or IEAT, the exemption is only valid for the project approved by BoI or IEAT. Once the company ceases manufacturing under that approval, the company must sell the land, and cannot retain the land as an investment or use it for any other purpose (unless that purpose is similarly approved).
Industrial Estate Authority of Thailand
In order for an industrial area in Thailand to be called an “industrial estate” it must be developed by, or in conjunction with IEAT. If not, it must be called an “industrial park”, “industrial zone” or other name depending on its regulatory position.
The advantage of selecting an industrial estate are:
- It indicates a certain standard of infrastructure and maintenance
- IEAT as developer or partner guarantees the continuation of the industrial estate as an industrial estate and of the maintenance services provided
- Off-industrial estate locations will generally require the manufacturer to obtain an Environmental Impact Assessment (EIA), which is generally not required on an industrial estate
- IEAT provide a number of advantages which may be particularly valuable to the manufacturer who does not have BoI privileges.
- Land on industrial estates tends to be more expensive than off-estate locations, but the price reflects the advantages of the location and the level and standard of infrastructure provided. Furthermore, buying on an industrial estate avoids the risk of off-estate land being rezoned, which can hamper future expansion plans.
It worth noting that whilst IEAT provides industrial estates of a certain standard, some of the industrial parks and zones, whilst regulatory matters may be more complicated, provide facilities at least on a par with industrial estates. Also, industrial estate/park/zone operators will mostly be very helpful to their customers on the procedure for setting up.
In order to establish a factory in Thailand, approval is generally required from a number of regulatory bodies, both at local and national level. Whilst this can be a complicated process for off-estate locations, on industrial estates, IEAT are the single regulator providing what they call a ‘one stop service’.
For most standard small or medium sized standard manufacturing processes, one of the simplest and quickest ways to set up your business in Thailand initially is to lease a standard factory. These are provided by industrial estate developers or specialist factory developers, normally on 3-year leases with options to renew.
The total time taken from first visit to having a completed operational factory will vary considerably. To identify and buy land, appoint a contractor and deal with regulatory matters is likely to take 12 to 18 months. Leasing a ready-built factory in Thailand could bring this down to 3 to 6 months. This assumes, in both cases, that the required information is provided, and formal application made, in a timely manner. It is worth bearing in mind that to obtain a permanent electrical supply is likely to take the better part of 2 months from application, and application requires a locally registered company and address (i.e. leased or bought premises).
Director, Industrial Services at Colliers International