Free Trade Zones (FTZs) in Malaysia are government-designated areas established under the Free Zones Act 1990, aimed at promoting trade and attracting foreign investment through tax incentives, duty exemptions, and streamlined regulations.

These zones allow for exemptions from customs duties, excise taxes, and sales taxes on goods that are imported, exported, or manufactured within the area. The objective is to foster export-oriented manufacturing and support various trading activities, including trading, bulk breaking, grading, repacking, and relabeling.

There are two categories of free trade zones: Free Industrial Zones (FIZ) and Free Commercial Zones (FCZ).

1. Free Industrial Zone (FIZ)
   
   The FIZ in Malaysia is designated for businesses that manufacture goods primarily for export.
   
   To qualify for a FIZ, a company must export at least 80% of its output and ensure its raw materials are mainly imported. It can request approval from the Ministry of International Trade and Industry to reduce the export threshold to 60%.
   
   Companies located within a FIZ enjoy benefits such as exemptions from import duties, sales tax, excise duties, and service taxes on raw materials used in production. However, taxes and duties apply to imported goods not directly related to production, such as office furniture, logistics equipment, and air conditioning units.
   
   Key FIZs in Malaysia include the Bayan Lepas Free Industrial Zone and Pasir Gudang Free Industrial Zone.
   
   
2. Free Commercial Zone (FCZ)
   
   Contrary to FIZ, FCZ in Malaysia aim to improve commercial and trade operations, including trading, grading, repackaging materials from other free zones, relabeling, bulk breaking, and transhipping.
   
   Similar to FIZ, companies in FCZ are not required to pay custom duties, sales tax, or service tax on imports that are intended for re-export or repackaging for sale to different consumers. mirroring the advantages provided in FIZ.
   
   Several major FCZ in Malaysia are the Port of Tanjung Pelepas Free Zone, Port Klang Free Zone, and the Digital Free Trade Zone.
   
   
3. Advantages of Malaysia Free Trade Zones
   
   

   (1)	Tax Exemptions on Customs Duties, Taxable Services Thanks to backing from government officials across different industries, businesses in Malaysia's FTZ enjoy special tax incentives and lower or waived custom duties. Moreover, they can utilise the skilled workforce at reasonable prices, enabling them to uphold good quality production while maximizing efficiency in expenses.   If the company does not import goods into Malaysia from the free zone, all goods are typically not subject to customs duties or import taxes. Businesses that utilise the free zone for manufacturing goods and exporting them are also eligible for the exemptions.
   (2)	Simplified import and export procedures There are minimal customs regulations in FTZ to aid Multinational Corporations (MNCs) in exporting goods. The FTZ will benefit from reduced costs for export activities due to exemption from import duties on raw materials and equipment used in manufacturing. Once a company is designated as a free zone company and obtains the necessary license and permit, the paperwork required for ongoing imports and exports will be reduced. This will significantly decrease the amount of time spent on administrative duties.
   (3)	No strict foreign exchange controls, allowing investors to repatriate earnings abroad Businesses in FTZ can carry out transactions in foreign currencies, which enhance global commerce and investments. Foreign investors in FTZ have the freedom to repatriate capital out of Malaysia without requiring permission from the Central Bank.
   (4)	Well-connected air, sea and road networks FTZs are typically equipped with modern infrastructure, including roads, utilities, and telecommunications. Furthermore, FTZs are strategically located near key ports, airports, highways, and railways, enabling the smooth transportation of goods and raw materials while reducing transit times.

   
   
4. Disadvantages of Malaysia Free Trade Zones
   
   

   (1)	Extensive rules and regulations to be complied with The Customs Department is authorised to carry out regulatory audits in accordance to the rules and regulations. Free zone companies could face unexpected inspections from the customs department. A free zone company also must meet additional compliance and reporting requirements.
   (2)	Significant paid-up capital requirement A free zone company needs to fulfill the basic criteria outlined by the authorities, which involve renting a warehouse or office within the free zone area and establishing a company with a minimum share capital of RM500,000. The amount of share capital will vary based on the company's business operations.
   (3)	Specific permits or licenses are necessary The company needs to obtain a designated permit and license in order to conduct business in the FTZ. Typically, it will require a minimum of 4 months for the application process.
   (4)	Must maintain physical office in FTZ The company is required to keep a physical office within the allowed FTZ. Having an office in the free zone could lead to higher operating expenses.

In conclusion, FTZs in Malaysia represent a vital component of the country's trade strategy. By offering tax incentives and simplifying customs processes, these zones not only attract foreign investment but also enhance Malaysia’s competitiveness in the global market. As the global economy continues to evolve, FTZs will likely play an increasingly important role in fostering economic growth and development in Malaysia.