Thailand’s economy is comprised of many sectors, with manufacturing being one of the more vital ones driving GPD growth. Recent amendments to Thailand’s Factory Act set out new standards for what it takes to establish a factory in Thailand.
Just like any other business, building and running a factory in Thailand requires compliance with numerous regulations, in particular the Factory Act B.E. 2535 (as amended from time to time)(“Factory Act”). The second and third amendments to the Factory Act were published in the Royal Gazette on 26 April 2019 and will come into force 180 days afterwards for the second amendment and one day afterwards for the third amendment (i.e., 27 April 2019).
This executive summary will highlight the essential modifications that may affect investors looking to establish a factory or who own an existing factory.
1.1 Meaning of “Factory”
Prior to the amendments, “Factory” was defined as a building, premises, or vehicle using machine or machines with total power or an equivalent of five horsepower or more, or which employs seven workers or more with or without machinery to manufacture, produce, assemble, pack, repair,maintain, test, improve, process, convey, keep, or destroy anything in accordance with the type or kind of factory as prescribed in the Ministerial Regulations.
The amendments changed the definition to mean building, premises, or vehicle using machine or machines with total power or an equivalent of fifty horsepower equivalent to or over fifty horsepower, or which employs fifty workers or more with or without machinery to operate the factory in accordance with the type or kind of factory as prescribed in the Ministerial Regulations.
As can be seen from these changes, the Factory Law now focuses on larger scale manufacturing by changing references in the definition of “Factory” from five horsepower to be fifty horsepower and from seven workers to fifty workers. As a result, smaller manufacturing operations will no longer be subject to the Factory Act.
1.2 “To Establish a factory.”
Prior to the amendments, establishing a factory was defined as the “construction of buildings for the installation of machinery to engage in factory operation or installation of machinery for engaging in factory operation in the buildings, premises, or vehicles to engage in such operation.”
Following the amendments, establishing a factory now means “installation of machinery for engaging in factory operation in the buildings, premises, or vehicles to engage in such operation or bring the employee to perform the factory business in case of non factory machine usage.”
As a result of the amendments, construction of a factory is no longer covered under the Factory Act as part of establishing a factory. Instead, establishing a factory is limited to situations where employees are brought in following construction in order to get the factory operational. A license is still required prior to operations if the factory is of factory type-3.
This change will also result in amendments to the regulations for determining the factory’s categorization. Hearings are currently being conducted on this point and it is expected that ministerial regulations governing all categories and types of factory will be issued (see here for further details: http://php.diw.go.th/rubfung/show.php)
- Cancellation on duty to renewal License
Prior to the amendments, maintaining a type-3 factory license required renewal every five years; otherwise, the factory’s operations could be suspended (Sec 15 of Factory Act). Following the amendments, however, there is no longer a requirements to renew the license.
There are, however, hearing s being conducted to consider a possible amendment to the annual fee, and if approved would then become a ministerial regulation. Failure to pay the annual fee would result in monthly penalties of 5%, and if such failure continues without reasonable cause, the authorities will have the power to suspend the operation. (Sec 43 of Factory Act). (see here for further details: http://php.diw.go.th/rubfung/show.php).
As a result of the amendments, current and potential factory owners will want to consider not only the amendments, but any subsequent ministerial regulations that are issued as a result.