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Sohaib Ikram
Sohaib Ikram serves as the Director of Emerhub in Malaysia.
For business owners and investors looking to expand their operations into ASEAN markets and beyond, Malaysia’s Free Trade Zones (FTZs) offer significant advantages such as tax incentives, streamlined customs procedures, and much more.
This guide will walk you through the key aspects of Malaysia’s free trade zones, including their types and benefits.
Overview of Free Trade Zones (FTZs) in Malaysia
What is a Free Trade Zone in Malaysia?
Free Trade Zones (FTZs) in Malaysia, also referred to as Free Zones, Free Ports, or Special Economic Zones, are specific areas where normal trade barriers such as tariffs, duties, and import quotas are eliminated for most goods and services.
These zones operate under the Free Zones Act (1990), providing an organized framework for foreign and local investors to establish export-driven businesses with fewer restrictions.
In Malaysian Free Trade Zones, most goods can be imported, handled, manufactured, or repackaged without custom duties or taxes. Custom duties only apply when goods are shipped from the free zone into mainland Malaysia.
As per the Free Zones (Exemption of Goods) Order 1998, certain goods are subject to duties and taxes, such as the following:
- Forklifts
- Cranes
- Construction materials/ building equipment
- Explosives and chemials
- All goods and services not used directly in the activities approved under the first and second schedules of the Act.
- Intoxicating liquor, tobacco products, and cigarettes (applicable only to the Tasik Kenyir Duty-Free Zones.
Key Regulatory Bodies Involved in Malaysian Free Trade Zone Operations
Malaysia’s FTZs are governed by multiple regulatory bodies who ensure smooth operations and compliance with state and federal regulations. They are authorities such as:
- Free Zone Authority: Appointed for each FTZ to administer, maintain, and operate the zone.
- The Companies Commission of Malaysia (SSM): Oversees company registrations within the zone.
- The Royal Malaysian Customs Department: Oversees customs procedures for FTZ businesses in Malaysia.
- Malaysian Investment Development Authority (MIDA): Promotes investment and provides regulatory support.
- Ministry of Finance: Responsible for declaring and designating new FTZs based on the country’s economic goals.
Types of Free Trade Zones in Malaysia
If you are looking to expand or operate your companies in Malaysia’s free trade zones, selecting the right FTZ type is crucial to positively impact operating costs, logistics, and overall business efficiency. Essentially, your choice between a Free Industrial Zone (FIZ) or a Free Commercial Zone (FCZ) can significantly impact your operational costs and overall efficiency.
There are two types of Free Trade Zones in Malaysia, designed to support different business activities and industries:
1. Free Industrial Zones (FIZs): Primarily for manufacturing companies that import raw materials, process them, and export the finished products. Companies in FIZs must export at least 80% of their production, and may sell up to 20% domestically with approval.
2. Free Commercial zones (FCZs): Designed for commercial activities such as trading, bulk breaking, grading, repacking, relabelling, and transhipment. Retail trade is generally prohibited in FCZs with a few exceptions.
List of Major Free Trade Zones in Malaysia and Their Benefits
When establishing your company in Malaysia’s Free Trade Zones, carefully consider factors such as your planned business activities, location of free zone, infrastructure, tax incentives, and industry focus.
Following are the free trade zones in Malaysia and their key benefits:
Port Klang Free Zone (PKFZ)
The Port Klang Free Zone (PKFZ) is an integrated Free Commercial Zone (FCZ) and Free Industrial Zone (FIZ).
It’s in Selangor, Malaysia, boasting a strategic position near key transportation hubs–Port Klang, the 12th busiest port in the world and Kuala Lumpur International Airport–offers excellent connectivity by air, sea, and land.
This makes PKFZ an ideal hub for shipping, logistics, and regional distribution activities thanks to its extensive transportation links and high regional distribution needs.
Pasir Gudang Free Industrial Zone
The Pasir Gudang FIZ in Johor serves as a hub for transportation, logistics, shipbuilding, and petrochemical industries.
With focus on heavy industrial and maritime sectors, this zone offers reduced customs processing times and tax exemptions on raw materials, and equipment. This makes the zone highly cost effective for large-scale industrial operations requiring substantial infrastructure and supply chain support.
Bayan Lepas Free Industrial Zone
Known as the “Silicon Valley of the East,” the Bayan Lepas Free Industrial Zone in Penang Island homes major multinational corporations like Intel, AMD, Bosch, Motorola, and Hewlett-Packard.
Its strategic location and excellent infrastructure shape a well-developed industrial ecosystem suitable for high-tech manufacturing and innovation.
The zone offers attractive tax incentives and streamlined customs procedures and access to a skilled workforce that supports the electronics and semiconductor industry. These unique advantages have made it one of Malaysia’s premier hubs for technology and advanced manufacturing.
Port of Tanjung Pelepas Free Zone
This Free Commercial Zone (FCZ) is located in Johor, provides efficient cross-border movements particularly to Singapore via a dedicated Green Lane access.
It is positioned along one of the world’s busiest shipping lanes, the Malacca Straits with close proximity to a major port terminal, the Port of Tanjung Pelepas, PTP. This makes it efficient for facilitating high-frequency shipping which is ideal for industries requiring rapid inventory turnover and efficient distribution such as warehousing and light manufacturing.
Digital Free Trade Zone (DFTZ)
The Digital Free Trade Zone (DTFZ) is located in Kuala Lumpur, Malaysia aiming to boost the country’s e-commerce and digital economy.
It consists of three main components: an e-fulfillment hub near Kuala Lumpur International Airport for efficient logistics, a satellite services hub in Kuala Lumpur Internet City for end-to-end support, and an e-services platform connecting businesses to various digital services.
This zone directly supports small and medium enterprises (SMEs) to participate in global trade by providing access to Alibaba’s OneTouch platform, its exclusive B2B promotions, and enhanced cross-border trading.
Emerhub’s team of experts can help you assess which zone aligns best with your business objectives, and assist with your company’s setup in your preferred zone in compliance with local regulations.
Setting Up Your Company in a Malaysian Free Trade Zone with Emerhub
To set up business operations in a free trade zone, you must register your legal entity and secure approvals from relevant authorities depending on your planned business activities. Therefore, it’s highly advisable to partner with local experts such as Emerhub who understand the market and your business needs.
Our local experts will handle the entire process on your behalf from initial market research to company incorporation, licensing, and compliance.
Ready to start your business in one of Malaysia’s Free Trade Zones? Fill out the form below and we’ll put you in touch with one of our experts to kickstart the process!
