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Q：
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What is the function of Free Trade Zones in Malaysia?
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A：
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Free Trade Zones in Malaysia are regions gazetted by the government according to the Free Zones Act 1990 to promote trade and attract foreign investment by offering tax incentives, duty exemptions and simplified regulations.
There are two types of free trade zones, i.e. Free Industrial Zone and Free Commercial Zone.
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Q：
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What is a Free Industrial Zone (FIZ)?
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A：
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A FIZ is primarily designed for businesses engaged in manufacturing products for export.
To establish a FIZ in Malaysia, a company must import all their raw materials and export a minimum of 80% of its production, unless it has obtained permission from the Ministry of International Trade and Industry to lower this requirement to 60%.
Companies situated in a FIZ benefit from exemptions on import duties, sales tax, excise duties, and service taxes for raw materials that are directly used in production. Conversely, taxes and duties are imposed on imported items that are not directly used in the manufacturing process, such as office furniture, logistics equipment, and air conditioning units.
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Q：
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What is a Free Commercial Zone (FCZ)?
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A：
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A FCZ is established to enhance commercial and trade activities in Malaysia, such as trading (except retail trade), grading, repackaging materials sourced from other FIZs, relabeling, bulk breaking, and transshipping.
Due to the nature of the activities, FCZs are typically situated near the country’s ports. Companies operating within FCZs are exempt from import duties, excise duties, sales tax, and service tax on all imports that are later re-exported or re-packaged for sale, similar to the benefits offered in FIZs.
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Q：
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What are the advantages of Free Trade Zone?
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A：
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Tax free environment.
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Simplified import and export procedures.
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There are no strict foreign exchange controls, allowing investors to repatriate their earnings abroad without any restrictions.
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Well connected air, sea and road networks.
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What are the disadvantages of Free Trade Zone?
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Extensive rules and regulations to be complied with regulatory audits by the Customs Department.
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Significant paid-up capital requirement depending on business activities.
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Specific permits or licenses are necessary.
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Must maintain a physical office in the FTZ which may increase the operating cost.
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