Manufacturer Without a Factory – When Is a Company a Manufacturer under NACE 2025 and EU Law?
An increasing number of enterprises sell products under their own trademark without having manufacturing facilities of their own. Production is outsourced to external contractors, often outside the European Union, while the commissioning company retains control over the design, intellectual property, specifications and placing of the product on the market. This raises a key question: when should such a company be classified as a manufacturer rather than a mere trader? The answer is relevant not only for regulatory obligations, but also for statistical classification, access to EU funding and the legal status of the enterprise.
Global Production Models Have Changed the Concept of Manufacturer
Modern global trade and international commerce challenge traditional perceptions of the roles and functions involved in the production, supply and trade of goods. The legal framework of major markets is constantly trying to keep pace with the development and structure of international economic relations.
European Union law is no exception. Within the framework set by EU law, Bulgarian legislation regulates and implements new concepts and legal institutes into the national legal order.
Economic trends that have evolved over several decades have led to a situation in which industrially manufactured products are predominantly physically produced outside the markets in which they are consumed. At the same time, companies established in those markets often shape and define the parameters of the production process by providing the necessary know-how, intellectual property, raw materials or strict control.
In the context of the European Union’s single market, a typical manifestation of these relationships is the practice whereby a European company outsources physical production to a contractor from a country outside the Union, i.e. a third country, most often China, although not exclusively.
Such outsourcing, however, may go beyond a simple purchase of an ordered product. It may include precisely defined production parameters through the use of specific know-how, intellectual property rights, certain raw materials or controlled specifications.
Ultimately, although the products are not physically manufactured in the EU, the commissioning European company is often indicated as their manufacturer in commercial circulation, while the products themselves bear its trademark.
The legal qualification of the role of the European company in this commercial relationship with a third-country partner is highly significant for its activity on the single market. It is far from irrelevant whether the importing European company is treated as a party to a simple purchase-and-sale transaction or, in fact, as a type of manufacturer of the goods.
At first glance, the idea of treating as a “manufacturer” a commercial company that does not actually carry out the physical manufacturing process may seem counterintuitive.
EU Law Already Recognises the Manufacturer Without Its Own Factory
However, the recognition as “manufacturer” of traders without actual manufacturing facilities has already become firmly established in the regulation of obligations imposed on persons who place on the single market products physically manufactured outside the EU.
In this regard, it is worth referring to the definition of “manufacturer” under the Bulgarian Consumer Protection Act, § 13, item 3 of the Supplementary Provisions:
“Manufacturer” means any natural or legal person who:
a) professionally manufactures finished goods or substantially alters or modifies goods with a view to placing them on the market;
b) presents itself as a manufacturer by placing on the goods, their packaging or the technical or commercial documentation relating to them its name or company name, its production mark or another distinctive sign.
A similar approach can also be found in the Bulgarian Technical Requirements for Products Act, § 1, item 5 of the Supplementary Provisions:
“Manufacturer” means any natural or legal person responsible for the design and manufacture of a product and for its conformity with the requirements of the law, with a view to placing it on the market and/or putting it into service under its own name, or any person who changes, substantially modifies or remakes the product, or manufactures it for its own needs.
Although these legislative acts pursue different objectives, they all reveal a consistent trend: the law is gradually separating the concept of “manufacturer” from the physical performance of the manufacturing process.
It is therefore clear that, for the purposes of responsibility for the conformity of certain products with European requirements, the status of “manufacturer” is recognised and even imposed on European companies that place on the single market products which have not been physically manufactured using their own facilities.
However, classification as a “manufacturer” may create not only obligations and extended liability, but also positive opportunities.
Why Does This Matter in Practice?
Certain European funding programmes require applicants to have a principal economic activity classified as manufacturing in order to be eligible for financial support.
Paradoxically, the very same company that is recognised as a “manufacturer” for the purposes of product compliance, consumer protection and market surveillance may still be classified as a wholesale trader for the purposes of eligibility under EU funding schemes.
As already noted, one of the most frequently applied eligibility criteria in European funding programmes is the enterprise's principal economic activity code.
In Bulgaria, this activity code is declared annually in the Annual Activity Report submitted to the National Statistical Institute (NSI). The declaration is not merely formal. The NSI has the authority to request supporting evidence and, where it concludes that the declared activity does not reflect the actual economic activity of the enterprise, may amend the activity code assigned to the company.
This raises a practical question:
Should revenue generated from products bearing the trademark of a European company, but physically manufactured outside the European Union by an independent contractor, be classified as manufacturing revenue or trading revenue?
The answer may determine whether an enterprise is recognised as a manufacturing business or merely as a trader, with potentially significant consequences for its regulatory status, statistical reporting and access to European funding opportunities.
What Does NACE 2025 Say About Factoryless Goods Producers?
The concept intended to address precisely these borderline situations is that of the Factoryless Goods Producer (FGP), which has also been incorporated into the Bulgarian Classification of Economic Activities (NACE Bulgaria 2025).
Pages 23 and 24 of the Bulgarian classification provide that, where an enterprise outsources the entire manufacturing process to an external contractor, it will generally still be classified as carrying out manufacturing itself.
In the specific case of manufacturing activities, however, this classification is subject to additional requirements. In order to be classified within Section C – Manufacturing, the principal must not only own the finished product but must also satisfy at least one of the following conditions:
- it owns the raw materials, materials or intermediate goods incorporated into the production process; or
- it owns the intellectual property products (IPP) and more than 50% of the raw materials used in production.
If these conditions are not met, the Bulgarian NACE 2025 provides that the principal is deemed to purchase finished goods from the contractor with the intention of reselling them and should therefore, as a rule, be classified within Section G – Wholesale and Retail Trade.
The classification further explains that the Bulgarian methodology follows the conceptual definition of a Factoryless Goods Producer (FGP) contained in the System of National Accounts 2025 (SNA 2025).
This reference is of particular importance because it suggests that the Bulgarian classification was intended to implement—not replace—the concept developed within the international statistical framework.
Where Do NACE 2025 and the Original European Concept Diverge?
The conceptual definition contained in SNA 2025 describes a Factoryless Goods Producer as:
"...a principal that controls the production of a good by undertaking the entrepreneurial steps and providing the technical specifications required to produce the good, but that outsources all or most of the material transformation process required to produce the output..."
Furthermore, the definition provides that the Factoryless Goods Producer:
"...supplies inputs of intellectual property such as product design ... but outsources both the acquisition of all or most of the material inputs and the manufacturing process..."
This wording is highly significant.
Whereas the Bulgarian NACE 2025 requires the principal to own the raw materials used in production, the original SNA 2025 employs the verb "supplies".
From both a linguistic and legal perspective, these concepts are not synonymous.
To supply raw materials does not necessarily require ownership at every stage of the production chain. Rather, it refers to ensuring that the necessary inputs are provided or made available for the manufacturing process.
This distinction lies at the heart of the legal issue addressed in this article.
"Owns" or "Supplies" – One Word, Significant Legal Consequences
Since the Bulgarian NACE 2025 expressly refers to SNA 2025 as the source of the Factoryless Goods Producer concept, the divergence in terminology raises a legitimate question as to whether the Bulgarian text faithfully reflects the concept set out in the original source.
At the core of this issue lies a seemingly subtle but legally significant distinction. The Bulgarian classification requires the principal to own the raw materials incorporated into production. By contrast, the English-language version of SNA 2025 consistently uses the verb "supplies."
From a legal perspective, these two concepts are fundamentally different.
Ownership implies the existence of property rights over the raw materials at a particular point in the production chain. Supplying, on the other hand, does not necessarily require ownership. A company may ensure that the required materials are available for production through various commercial arrangements without ever becoming their legal owner.
The distinction is particularly important in modern international manufacturing structures. It is common for the contracting manufacturer to procure materials on behalf of the principal or for materials to be delivered directly to the manufacturing facility under contractual arrangements that do not involve a transfer of ownership to the commissioning company.
Consequently, requiring ownership rather than merely the provision of production inputs imposes a substantially stricter condition than the one contained in the original SNA concept.
Such an interpretation may place Bulgarian Factoryless Goods Producers at a competitive disadvantage compared with businesses operating under the same international concept in other jurisdictions.
Rather than assessing whether an enterprise effectively controls the production process and assumes entrepreneurial responsibility for the product, the Bulgarian wording may lead to an additional requirement that is not expressly found in the original SNA definition.
This distinction is not merely theoretical.
It may directly affect:
- the statistical classification of the enterprise;
- the determination of its principal economic activity;
- eligibility for European funding programmes requiring manufacturing activities;
- the legal assessment of the company's business model by public authorities.
Given that NACE 2025 expressly relies upon SNA 2025, there are strong arguments that the original English-language concept should play a decisive role when interpreting the Bulgarian classification in cases where inconsistencies arise.
Accordingly, it may reasonably be argued that the concept of supplying production inputs should not automatically be interpreted as requiring legal ownership of those inputs throughout the production chain.
Conclusion
The concept of the Factoryless Goods Producer reflects the realities of modern global manufacturing, where entrepreneurial control over production is increasingly separated from the physical transformation of materials.
European regulatory frameworks have already recognised that a company may qualify as a manufacturer despite not owning or operating manufacturing facilities of its own. The Bulgarian NACE 2025 seeks to incorporate this concept but appears to introduce a stricter requirement by referring to the ownership of raw materials rather than their provision.
Whether this divergence reflects a deliberate legislative choice or an imprecise implementation of the original SNA terminology remains open to discussion.
Nevertheless, the distinction may have significant practical consequences for enterprises whose business models rely on outsourced manufacturing, particularly where statistical classification determines access to public funding or affects their regulatory position.
Each case should therefore be assessed individually, taking into account the actual organisation of the production process, the allocation of contractual responsibilities, the ownership and use of intellectual property, and the economic substance of the business model rather than its formal structure.
Where the classification of a company's activity as manufacturing may be decisive for regulatory compliance or eligibility for European funding programmes, obtaining a comprehensive legal assessment before communicating with the competent authorities is strongly advisable.
Frequently Asked Questions (FAQ)
When should a company seek legal advice regarding Factoryless Goods Producer status?
Legal advice is advisable where a company outsources manufacturing while retaining control over product design, technical specifications, intellectual property or branding, particularly if its classification as a manufacturer may affect regulatory obligations or eligibility for public funding.
Can a company defend the position that it qualifies as a manufacturer under NACE 2025?
Potentially, yes. The answer depends on the specific business model, contractual arrangements, control over production, ownership or provision of production inputs, intellectual property rights and the economic reality of the manufacturing process. Each case requires an individual legal assessment.
How can legal counsel assist in determining the correct classification?
A legal assessment typically includes a review of the company's manufacturing model, contractual relationships with contractors, intellectual property arrangements, procurement of production inputs and the applicable national and European legal framework. Where appropriate, legal opinions may be prepared and representation provided before the competent authorities.
Which documents should be reviewed before determining Factoryless Goods Producer status?
Relevant documents generally include manufacturing agreements, technical specifications, intellectual property documentation, supply chain agreements, procurement arrangements for production inputs, internal business processes and documentation relating to the company's economic activity classification. A comprehensive review of these materials is essential for assessing whether the conditions for classification as a Factoryless Goods Producer are met.
