The Industrial Coordination Act, 1975 (ICA 1975) governs Malaysia’s industrial sector. Companies that are or plan to be active in the manufacturing business must comply with the regulations mandated by the ICA 1975.

The ICA 1975 defines manufacturing activity as “the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal and includes the assembly of parts and ship repairing but shall not include any activity normally associated with retail or wholesale trade”.

According to the ICA 1975, any person engaging in any manufacturing activity with shareholders’ funds of RM2.5 million and above or employing 75 or more full-time paid employees is required to apply for a manufacturing license with the Ministry of International Trade and Industry (MITI). The said application is to be submitted through the Malaysian Investment Development Authority (MIDA), an agency under MITI in charge of the promotion and coordination of industrial development in Malaysia.

The government’s guideline for approval of industrial projects in Malaysia are based on the following criteria:

1. Projects must have Capital Investment Per Employee of at least RM140,000.00;
2. Total full-time workforce of the company must comprise at least 80% Malaysians. Employment of foreign workers including outsourced workers are subjected to current policies; and
3. Total number of managerial, technical and supervisory levels is at least 25% of total employment or having a value added of at least 40%.

The company can be considered for exemption from manufacturing licence by submitting online application to MIDA if the company employs less than 75 full-time workers and the company has not more than RM2.5 million of shareholders’ funds.

To kickstart the process of obtaining the manufacturing license after incorporated as a private limited company with the Company Commission of Malaysia (CCM), the company has to select the site of their factory. After that, the signed Sale and Purchase Agreement or Tenancy Agreement of the site would need to be stamped via payment of stamp duty to Inland Revenue Board of Malaysia. The stamped document is an important document to enable the application of local authority business license.

The company is required to obtain approvals from the following external departments before applying to the local authority for business license:

1. Department of Occupational Safety and Health (DOSH)  
2. Department of Environment (DOE)  
3. Fire and Rescue Department (BOMBA)  

   
Thereafter, the company may proceed to submit the application for the manufacturing license on MIDA’s website. Based on MIDA’s Client Charter, the expected duration to obtain the interim approval of manufacturing license is within 4 weeks of full information received. The interim approval letter sets out the documents that are required to be submitted to MIDA for the purposes of the issuance of the manufacturing licence. Once the interim approval letter is issued, the applying company is required to provide MIDA with all the necessary documents as specified in the interim approval letter before the manufacturing license is issued.

To ensure compliance with proper immigration procedures, the employment of expatriates working in manufacturing sector needs to be applied with MIDA. This includes companies required to obtain manufacturing licence as well as companies exempted from the manufacturing licence.

MIDA requires manufacturers to present their manufacturing license to obtain an exemption for import duty tax on raw materials and components used in the production of finished goods. It is advisable that the applications for manufacturing license, expatriate post and exemption of import duty for machinery and equipment to be submitted concurrently to avoid delay in the processing. Application for exemption of import duty for machinery and equipment shall be made before the items are purchased and imported and requires evidence of registration made earlier with the DOSH.

Manufacturers need to apply for the Certificate of Origin from the competent authorities for the purpose of certifying the place of growth, production, or manufacture of goods. It is required by the company when exporting to specific countries, when requested by the consignee for customs clearance, or when it is stipulated in a letter of credit. Certificate of Origin can be broadly classified into two types, namely Preferential Certificate of Origin and Non-Preferential Certificate of Origin. Preferential Certificate of Origin allows importer to claim for preferential tariff rates based on the Rules of Origin of each agreement entered into force whilst Non-Preferential Certificate of Origin cannot be used to claim for preferential tariff rates.
The issuance and acceptance of Certificate of Origin is subject to the fulfilment of the following criteria:

1. Manufacturers, exporters or traders must be registered with the CCM;
2. Products that are:
   • Manufactured in Malaysia and used 100% local materials: or
   • Manufactured in Malaysia through transformation process which alters the tariff code     classification at six (6) digit level; or
   • Contains at least 25% local materials.
   

Manufacturers may apply for Licensed Manufacturing Warehouse (LMW) which is a warehouse license primarily intended to cater for export-oriented industries to enjoy Custom duty exemption to all raw materials/components and machinery and equipment used directly in the manufacturing process of approved produce from the first stage of manufacturing till the finished product is finally packed ready for export. With this facility, LMW licensees can import duty-free raw materials, equipment or spare parts subjected to a given limit by tariff codes.

The criteria that must be fulfilled to apply a licensed manufacturing warehouse as stated below:

1. Manufacturers who own a Manufacturing License under the Industrial Co-ordination Act 1975 or have an exemption letter issued by MIDA.
2. Manufacturing that conforms to the manufacturing interpretation of Section 2(1) of the Custom Act 1967.
3. Manufacturers that exporting more than 80% of total value of finished goods for 12 months.
4. Manufactured goods that are excised duty such as vehicles, cigarettes, liquor and petroleum/petroleum product are not eligible to apply LMW facilities.

Kaizen, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professionals in Kaizen for further clarification.

See also：
Malaysia Company Incorporation Basic Package
Procedure and Fee for Registration of Limited Liability Partnership in Malaysia