Foreign Business Act: Manufacturing For Hire
Manufacturing is generally not restricted by the Foreign Business Act of 1999 which means that foreigners are allowed to operate such businesses in Thailand without having to apply for a Foreign Business License. However, one unclear point regarding manufacturing is whether manufacturing products according to specific customer orders is restricted to foreigners under the Foreign Business Act on the rationale that such a business would be considered a “service” business under Section (21) of List Three of the Act. In September of 2007, the Department of Business Development (DBD) issued an advisory opinion that addressed the issue based on the following facts:
- Company A was a juristic person registered in Thailand with a majority of its shares owned by foreigners. Company A received promotion from the Board of Investment (BOI) for the business activity of manufacturing dies, jigs and tools, parts for machines and automobiles according to BOI category 5.49. Most of the manufacturing was export. As for the procedure for the promoted business activity, it was as follows:
- Customers would issue orders for the production of molds or parts used for molds according to models sent by the customer.
- Company A would issue an quotation along with a sample.
- Once confirmation was received from the customer, Company A would then proceed by (1) creating a design for the production process, (2) designate the entire process of manufacturing and sourcing raw materials and equipment for manufacturing, (3) begin manufacturing according to the procedure and standards specified, (4) examine the manufactured pieces and assembling the pieces according to the specified plan, (5) manufactured pieces that pass examination will then be sent to the customer along with a tax invoice.
- The manufacturing process and machinery used by Company A were authorized according to its BOI promotion certificate. Company A requested advice regarding whether its business activity, as described above, would be considered “manufacturing for distribution” (unrestricted) or “manufacturing for hire” (restricted).
The DBD was of the view that if Company A manufactured products according to a model specified by a customer, then it would be considered a manufacturing for hire, which is a service business under Section (21) of List Three of the Foreign Business Act, which is restricted from foreign investment. Foreigners that will engage in such a business activity would be required to apply for a Foreign Business License before being allowed to operate the business. However, if Company A has received promotion from the Board of Investment, then it may apply for a Foreign Business Certificate according to Section 12 of the Foreign Business Act instead.
Foreign business laws in Thailand are complex. Foreign investors are advised to consult with competent legal counsel before engaging in business.
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