The factory license under the Factory Act
A factory is defined as any premise that uses machinery equivalent to five horsepower or more, or that employs seven or more people, with or without any machine, for manufacturing, producing, assembling, packing, repairing, maintaining, testing, improving, processing, conveying, storing or destroying anything included in the classes or types of factories presently listed in the Ministerial Regulations.
Factory license and zoning regulations
Generally, a factory can be set-up in industrial-zoned land outside of industrial estates (“purple zone”) or dedicated Industrial Estates. In theory, it is also possible to build a factory in the“green zone”, that means on not zoned land, but this will result in certain restrictions and limitations. The “red zone” is allowed to be used for commercial purpose, but is not authorized to be used for a factory.
There might be the possibility to get a special permission from any governmental body which releases, dispenses or in other way exempts the investor from binding laws in the given case. As a general rule, such dispense is only possible in pre-defined cases. Neither the officials nor other governmental body has the overall flexibility to override existing laws and regulations. The relevant authority might be the Subdistrict Administrative Organization (“SAO”). In theory, SAO should not issue such permission since the factory matters are governed by the Factory Act. However, in Thailand’s industry practice, another approach is not uncommon.
New or used factory licenses
If an existing factory building is acquired or leased, it has to be carefully checked whether it has an existing factory license and such license can be transferred to the new investor or has to be applied new from scratch. A new factory license has to be applied in case the investor erects his own factory.
Typical criteria for the factory is the size and layout of the building, supply of utilities, labor and infrastructure, proximity to customers and suppliers, the status under the zoning laws and, if applicable, under certain BOI requirements and, of course, the price tag.
Factory license renewals
Even if the license is not granted under any specific limitation in time, under Section 14 of the Factory Act a permit shall be valid until the last day of the fifth calendar year as from the year of commencement of the engagement in the business. The permit shall be deemed to expire on the date of issuance of a new permit or of dissolution of the factory business.
According to Section 15 Factory Act, in renewing a permit, a recipient of a permit shall file an application before the expiration of a permit. The renewal fee amounts THB 100,000. Upon such application, the applicant shall be deemed to be the recipient of a permit until a final order refusing a renewal of a permit is given. Also, the renewal requirements are easier to fulfill than a new application. There is a certain level of preservation of the status quo and right of continuance (grandfathering).
Under the factory license, the permission is often granted „to operate a business by starting up operating factory business within 360 days henceforth“. This time-frame might be rather short. The renewal provisions as mentioned below are primarily applicable to the renewal after five years. This is not directly applicable to the case that the 360-days-condition is not fulfilled. Therefore, it would be a valid legal argument that the grandfathering benefits under Section 15 Factory Act are not applicable for the 360-day extension. The law firm is regularly involved in the construction of commercial buildings and the application of construction and factory licenses.