COUNTRY

Malaysia

MALAYSIA FREE TRADE ZONE

A free trade zone (also known as a free port) is a designated area in Malaysia where goods can be received, handled, manufactured, or repackaged and re-exported without any taxes or customs duties from the customs authority. Such goods are only subject to customs duties when it is shipped outside of the free zone to within Malaysia. 

Malaysia’s free zone is governed under section 3(1) Free Zones Act 1990 (Act 438). As per the free zone act definition, a free zone is a designated, secured area in which commercial and industrial activities are carried out and gazetted by the Minister of Finance.

The local government offers multiple different incentives for different Free Trade Zone in Malaysia. 

Customs authorities are usually only involved at the exit point facilitating customs processing and providing bonded warehousing for transshipment.

Types of Free Zone in Malaysia

In Malaysia, there are mainly two types of Free Zone.

Free Zone for commercial activity, Malaysia Free Commercial Zones (FCZ), which is allocated for carrying out commercial activity. (i.e, trading, grading, repacking, transshipments, and other value-added activities. Retail trade is, however, not allowed in the Free commercial zones.

Free Zone for Industrial activity, Malaysia Free Industrial Zones (FIZ), which is equipped with facilities suitable for export-related companies. These free zones are mainly used for manufacturing. A company wishing to qualify for operating in FIZ must at least export 60 to 80% of its output, and the company’s raw materials and components must be mainly imported. A company in FIZ can obtain approval from the Ministry of International Trade and Industry (MITI) and customs authority to reduce its export condition down to 60% from the default 80%. 

ADVANTAGES AND DISADVANTAGES OF MALAYSIA FREE TRADE ZONE

Advantages of Malaysia’s Free Trade Zone

The Malaysian government offers multiple benefits to foreign investors setting up a Company in the Malaysian free trade zone. Depending on your company’s business activities, a properly structured company in the Malaysia free zone will benefit in the following ways. 

Tax exemptions on customs duties, taxable services, and imports/exports activities.

As long as the company is not shipping the goods into Malaysia from the free zone, all goods are generally exempted from customs duties and import taxes. 

Companies using the free zone to process the goods and export them also qualify for the exemptions. 

Improved logistics arrangements

Most free zones in Malaysia offer state-of-the-art warehousing and reshipment facilities. A company located within the zone can tap into the strong supply chain and warehouse facilities. This will improve a company’s operations and reduce lead time on various processes. Companies are also allowed to hold goods in free trade zones indefinitely.

Free Zones in Malaysia is located close to deep seaports, airports, highways, and railways; the company can tap into efficient local infrastructure.

More flexible import and export procedures

Once a company qualified as a free zone company and secures the relevant license and permit, the paperwork involved in recurring import and export will be lesser. This will reduce a lot of time taken on administrative tasks. 

No restrictions on capital repatriation

There are no restrictions for a company in the free zone to repatriate capital out of Malaysia. 

Disadvantages of Malaysia’s Free Trade Zone

Higher operating costs and paid-up capital

A free zone company must meet the minimum requirements set by the authorities; these include leasing a warehouse or office in the free zone location and setting up a company with at least RM500,000 of share capital. The share capital will vary depending on the business activity of the company. 

Additional compliance requirements

Free zone companies might be subjected to random audits by the customs department. There are also additional compliance and reporting requirements for a free zone company. 

POPULAR FREE ZONES IN MALAYSIA AMONG (FOREIGN INVESTORS)

if you intend to expand within the South East Asia Market. Presently, there are approximately 27 Free Zones in Malaysia. Some of the more popular ones are listed below. 

  • Port Klang Free Zone or “PKFZ” (Trade and Logistics)
  • Pasir Gudang (Manufacturing)
  • Bayan Lepas (Logistics)
  • Kulim Hi-Tech Park (High Tech Manufacturing)

Port Klang Free Zone or “PKFZ” (Trade and Logistics)

This is a Free Zone located in Klang, Malaysia. It is one of the country’s largest gateway by sea into Malaysia. Port Klang Free Zone was established in 2004, and is approximately 1000 acres. The Free zone can facilitate large volumes of cargo distribution and consolidation. Local and international companies are permitted by the free zone authorities to establish their manufacturing facilities and engage in the production of goods mainly for export.

The area also provides industrial warehouses and offices for trade. Generally, Port Klang will be suitable for an international company/investor seeking to establish an international cargo distribution center.

Pasir Gudang Tanjung Pelepas Free Zone (Manufacturing)

The Pasir Gudang port is also referred to as PTP, Port Tanjong Pelepas. It was established in 1997 with a land area of approximately 810 hectares. PTP is located in Johor Bahru. In recent years, the authorities are also developing and expanding the area to accommodate additional businesses.

Part of the Free Zone is allocated to warehousing, logistic, and other distribution-related activities. The remaining free zone is equipped with modern facilities used for storing goods, redistribution, packing, grading services, etc. Most investors prefer PTP mainly due to its proximity to Singapore. The Port of Tanjung Pelepas is often used as a distribution base for international export.

Bayan Lepas free zone (Logistics and technology)

Bayan lepas free zone is located in Penang, Malaysia. The Freezone was incorporated in 1972 and is also one of the first Freezones of Malaysia. Bayan Lepas free zone has had a reputation for being the Silicon Valley of the East in the early years. Bayan Lepas free zone is nearly 1,000 acres and is home to popular brands such as AMD, Intel, Hewlett Packard, Clarion, National Semiconductor, and Hitachi, among others. Like most other Free Zones, the Bayan Lepas Free zone offers multiple facilities and benefits.

Kulim Hi-Tech Park (High Tech Manufacturing)

Kulim Hi-Tech Park is a free zone located in Kedah, Malaysia. It is known for attracting high-technology companies. It was officially open to investors in 1996. The park is approximately 4,510 acres and close to Port. It is currently home to companies such as Osram and other similar brands.

COMPARISON OF POPULAR FREE ZONES IN MALAYSIA

Free Trade Zones Pasir Gudang Port Klang Port Tanjung Pelepas (PTP) Bayan Lepas Kulim Hi Tech Park
Industry focus Manufacturing Logistics Logistics Manufacturing Hi-Tech Manufacturing
Entity Structure Sdn Bhd Sdn Bhd Sdn Bhd Sdn Bhd Sdn Bhd
Average time required to secure permits and license 3 to 4 months 3 to 4 months 3 to 4 months 3 to 4 months 3 to 4 months

Requirements To Set Up A Free Trade Zone Company

  • Depending on the business activity, a Company must have at least RM 500,000 to RM 1 million in paid-up capital before qualifying to apply for free trade zone license.
  • The company must secure a specific permit and license to operate in Free Trade Zone. Generally, the process of application will take at least 4 months.
  • The company must also maintain a physical office within the Free Zone

How To Register A Company In Malaysia’s Free Trade Zones

An investor can register a Company in Malaysia Free Trade Zone in these 3 simple steps

  • Incorporate a Malaysia Sdn Bhd.
  • Ensure the company meets the paid-up capital, permit, license, and physical office requirements.
  • Apply with the Malaysia Customs (SMK and Dagang) and specific free zones authorities

The process of applying for the license will usually take at least 3 to 4 months. Our team recommends our clients plan earlier to avoid any disruptions in the process. 

Interested in setting up a free zone company but not sure how to proceed? Contact Relin Consultants for a free non-obligatory consultation.

FAQs

What are the types of free trade zones in Malaysia?

Malaysia Free Commercial Zones (FCZ) and Malaysia Free Industrial Zones (FIZ) are the two types of free trade zones. Both zones were set up to focus on different industries within the country.

What is the popular free trade zone in Malaysia?

Some of the more popular free trade zones are Port Klang Free Zone or “PKFZ” (Trade and Logistics), Pasir Gudang (Manufacturing), Bayan Lepas (Logistics), and Kulim Hi-Tech Park (High Tech Manufacturing).

How to set up a business in Malaysia's free trade zones

Free trade zones offer 100% foreign ownership in Malaysia. Any investors can set up free trade zones by incorporating a Malaysia Sdn Bhd and applying for a license/permit from the free zone authorities.

What is LMW?

LMW refers to a Licensed Manufacturing Warehouse. It was established under the provision of section 65/65A of the Customs Act 1967.

Any person intending to warehouse and manufacture approved products on the same premise must secure an LMW license. The license was established primarily to cater to export-oriented industries.

Can a company in free trade zone be wholly foreign-owned?

Yes, a company in the free trade zone can be wholly foreign-owned. There are no foreign shareholding restrictions in Malaysia except for selected industries.

What is the performance of Malaysia's free trade zone?

Malaysia’s free trade zones have experienced steady growth in performance over the last decade, coupled with the cheaper currency. More and more investors are setting up a company in the free zone.

Why should businessmen consider establishing an entity within Free Trade Zone in Malaysia?

Businessmen establishing an entity within the free trade zones can enjoy multiple tax exemptions, which result in cost savings and tap into the local infrastructure to expand the company.

How many free trade zones are there in Malaysia?

There are 27 free trade zones across Malaysia as of 2023.

Which countries have a free trade agreement with Malaysia?

Australia, Chile, India, Japan, New Zealand, Pakistan, and Turkey have a free trade agreement with Malaysia. 

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