Setting Up a Factory in Thailand Doesn't Start with Land: The Order Foreign Investors Should Follow

When companies look into setting up a factory in Thailand, most start by viewing land, asking about prices and comparing industrial estates. That is natural, but it is the wrong order.

Location and price are the third question. Two others have to be answered first: can a foreign company carry on your business at all? And can your production process be carried out on this piece of land? Without answers to those two, every site visit may turn out to be wasted.

First: can a foreign company carry on your business?

A foreign investor in Thailand is, by status, not a local, and does not have exactly the same rights as one. Every country has rules that protect its domestic businesses, and Thailand is no exception. The main statute is the Foreign Business Act B.E. 2542 (the FBA).

One common misunderstanding should be cleared up first: investing in Thailand does not always mean finding a Thai joint-venture partner. No Thai law prohibits a foreign company from setting up a wholly foreign-owned subsidiary. What the FBA restricts is specific business activities, not foreign ownership as such.

The FBA sorts restricted businesses into three lists:

• List One: closed to foreigners entirely.
• List Two: businesses relating to national security, culture, and natural resources and the environment. These require permission from the Minister with Cabinet approval.
• List Three: businesses in which Thai nationals are not yet ready to compete with foreigners. These require permission from the Director-General with the approval of the Committee.

Manufacturing is not restricted as a whole, but the lists do contain manufacturing activities — for example, rice milling and flour production from rice under List Three, and sugar production from sugarcane under List Two. So "we are a manufacturer" is not enough to reach a conclusion.

To check your business against the FBA, four things need to be spelled out first:

• Business model: who you sell to, how you sell, and whether any services or trading activities come with it
• Production process: every step from raw material to finished product
• Product: what finally comes off the line
• Waste: what the process generates and how it is handled

These four items are not only for the FBA check. Site selection and each of the later permits will rely on them too.

Second: can your process be carried out on this land?

Site selection comes only after the business itself is confirmed to be permissible. And it starts with whether the law allows your factory on that land — price and transport come after.

Land-use zoning in Thailand is governed mainly by the Town Planning Act B.E. 2562. A factory's type is determined by its raw materials, process, finished products and use, and certain types of factory cannot be located in certain zones. That is why this has to be confirmed before a site is chosen.

In other words, on the same plot, a factory making product A may be allowed while a factory making product B is not. If the use does not conform, the operating permits will not be granted in the end.

So before choosing a site, confirm one thing: under the Town Planning Act, can this property be used for what you intend to do?

Third: how can a foreign company lawfully acquire this land?

If you plan to buy land or own the factory building, you first need to know the lawful routes by which a foreign company can acquire land. What matters is whether the land lies inside an industrial estate under the Industrial Estate Authority of Thailand (IEAT).

Inside an IEAT industrial estate

A company may apply to own land in the estate under Section 44 of the IEAT Act. The precondition is that IEAT land-use permission has already been obtained.

Outside an IEAT industrial estate

The BOI investment promotion application has to be completed first. Only then may the company apply to own land under Section 27 of the Investment Promotion Act, to the extent the BOI considers appropriate. BOI promotion does not carry an automatic right to buy land; a separate application is required after the promotion certificate is issued.

Land acquired by either route is tied to the business itself: a foreign company in an IEAT estate that ceases business or transfers it must dispose of the land within three years; under the BOI route the period is one year.

Note also that acquiring land and obtaining a factory licence are two separate matters. Once the land is secured, the factory licence still has to be applied for. The practical sequence of the various permits will be covered in a separate article.

What happens when the order is wrong

These three steps depend on one another: if the business is not permissible, choosing a site is pointless; if the use does not conform, acquiring the land is of no use. Viewing land and paying a deposit first means making the most expensive decision at the start and leaving the most basic checks to the end.

Conclusion

When assessing a factory in Thailand, follow this order:

Can we do it → Where can we do it → How do we acquire it

Before signing anything or paying a deposit, write down your business model, production process, product and waste, and check them against the law once. Every step after that will stand on firmer ground.

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Legal references

• Foreign Business Act B.E. 2542
• Town Planning Act B.E. 2562
• Industrial Estate Authority of Thailand Act B.E. 2522, Section 44
• Investment Promotion Act B.E. 2520, Section 27

This article is a general explanation. Individual cases must still be assessed on the actual business and the conditions of the land.

Questions about your own case? Connect with the author on LinkedIn.

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