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Sohaib Ikram
Sohaib Ikram serves as the Director of Emerhub in Malaysia.
Did you know that obtaining a Licensed Manufacturing Warehouse (LMW) in Malaysia is a cost-efficient and time-saving option for expanding your manufacturing operations within the country? With this guide, we’ll provide an in-depth look at the benefits, eligibility criteria, key licenses, and compliance requirements for an LMW in Malaysia.
What is A Licensed Manufacturing Warehouse in Malaysia?
How Does A Licensed Manufacturing Warehouse Work
A Licensed Manufacturing Warehouse is a type of bonded warehouse licensed by the Royal Malaysian Customs Department. This licensed warehouse allows manufacturers to import raw materials, machinery, and components without paying import duties and taxes upfront until the goods are exported or sold. Additionally, the warehouse serves as a storage facility and allows for on-site manufacturing activities.
An LMW can carry out other business activities besides manufacturing. These activities are subject to approval from the State Customs Director or the Zone Operations Director and include:
- Product design
- Testing and commissioning
- Calibration and configuration
- Research and development
- Labeling, packaging, and repackaging
- Re-manufacturing, repairing and servicing
- Supply chain management
- Marketing activities (for International Procurement Centers (IPC) only)
- Distribution activities (for Regional Distribution Centers (RDC) only)
While engaging in these activities, your warehouse must maintain a direct connection to its manufacturing operations. Sales from these activities must not exceed 40% of total annual sales unless the company holds an IPC or RDC status.
Pros and Cons of Setting Up An LMW in Malaysia
While there are several benefits to setting up an LMW for your company in Malaysia, it is important to keep in mind that this business venture also comes with significant challenges for your foreign-owned company.
Emerhub’s local team can help you ensure compliance by navigating the challenges while providing you key insights on how to implement potential benefits:
| Pros | Cons |
| Cost Efficient: Allows for deferral of import duties and taxes Streamlined Customs Procedures: Simplified documentation process and expedited clearance of goods Tax Benefits: Tax exemptions from import duties and sales taxes on raw materials, components, equipment, and machinery directly used in the manufacturing process Value-Added Activities: Allows various value-added activities that enhance the manufacturing process, granting flexibility to innovate products 100% Foreign Ownership: For companies in Malaysia’s manufacturing industry, foreign business owners can own their companies entirely | Strict Assessments: The customs department has a strict evaluation and auditing process which makes establishing an LMW challenging Reporting: Regular monthly reporting is required according to customs regulations Export Quota: 80% of total production for foreign-owned LMWs must be for export Sourcing of Raw Materials: The components and materials used must be predominantly imported Special Approval for Local Sales: If a foreign-owned LMW generates more than 20% of its sales from the local market, it must seek special approval from MIDA. |
How to Set Up A Licensed Manufacturing Warehouse in Malaysia
Eligibility Criteria for Setting Up A Licensed Manufacturing Warehouse in Malaysia
In order to legally set up your LMW in Malaysia, your company must be registered and your business must have a manufacturing license issued by the Malaysian Investment Development Authority (MIDA). In terms of documentation for establishing a Licensed Manufacturing Warehouse in Malaysia, businesses need to provide the following:
- Cover letter addressed to the Customs Department
- Application Form (Form JKED No 1)
- Company Registration Documents
- Copy of Manufacturing License
- Business License
- Layout plans and flow of the manufacturing process
- List of machinery and raw materials used in production
- Input/Output Ratio Documentation
- ID copies and passport-sized pictures of directors
An important criterion to be eligible for an LMW is that at least 80% of the total value of your production must be for export. This is in place to ensure that an LMW primarily serves export-oriented manufacturing activities.
Additionally, your business must have a suitable facility that meets the security and operational requirements of the customs authorities. This includes designated areas for raw materials, production, and finished goods.
Overview of The Licensing Process For Establishing An LMW
Obtaining the key licenses and permits for setting up a Licensed Manufacturing Warehouse is essential to operate legally and avoid hefty penalties from the local customs department and authorities. The mandatory licenses are as outlined below:
- Manufacturing License: As your primary business will be engaging with manufacturing activities, it is mandatory to obtain a Manufacturing License. This license is issued by the Malaysian Investment Development Authority (MIDA) as regulated under the Industrial Coordination Act (ICA) 1975.
- Business License: Mandatory for all businesses operating in Malaysia, obtainable from the local district council.
- Warehouse Business Premise License: Mandatory for operating an LMW in Malaysia, submit applications to the local authority based on the location of the warehouse.
- Customs Approval: A final approval from the Royal Malaysian Customs Department will be necessary after your application is reviewed.
Emerhub can assist you in managing the application process for the required licenses by compiling the necessary documents, liaising with the local governing units and registering on your behalf.
Ensuring Ongoing Compliance For Your LMW in Malaysia
To continue operations, your business needs to stay compliant with the rules and regulations set in place by the Royal Malaysian Customs Department as well as local authorities. Failure to comply may result in hefty fines, suspension of operations, legal consequences, and revocation of your license.
The necessary compliance requirements include:
- Recordkeeping: Maintain an accurate record of all import, export, and manufacturing activities in the warehouse
- Reporting: Submit monthly and annual returns reports to customs authorities to ensure transparency and compliance
- Inspections: Allows regular inspection and audits of your facilities by customs officials, which can be at random
- Renewals: Renew the Licensed Manufacturing Warehouse annually, one month before expiration
Our expert consultants at Emerhub can help to ensure corporate compliance with these regulations through our tax and accounting services.
Interested in setting up a Licensed Manufacturing Warehouse (LMW) for your business? Fill out the form below and one of our Emerhub consultants will get in touch.
