by 
15th November 2024
Learn the key requirements for obtaining a manufacturing license in Malaysia, benefits like tax exemptions, and why a license from MIDA is essential for legal operations and growth in the manufacturing sector.
How to Obtain a Manufacturing License in Malaysia: Requirements and Benefits
To operate legally in Malaysia’s manufacturing sector, companies meeting certain criteria must secure a manufacturing license from the Malaysia Investment Development Authority (MIDA). The license requirement, as outlined by the Industrial Coordination Act (ICA) of 1975, supports Malaysia’s goal of achieving structured and sustainable growth in the manufacturing industry. Not having a manufacturing license when required can result in fines, imprisonment, and further penalties, making compliance crucial for manufacturers in Malaysia.
Key Manufacturing Activities Requiring a License
According to ICA, manufacturing encompasses the following activities: manufacturing, making, altering, blending, finishing, and other treatments to articles intended for sale, transportation, or disposal. It also covers the assembly of parts and ship repairs. However, retail and wholesale trades are excluded from these requirements. Additionally, certain activities are exempted from requiring a manufacturing license, including:
- Milling of oil palm fresh fruit into crude palm oil
- Production and processing of raw natural rubber and latex in various forms
- Milling of paddy into rice
Requirements for Obtaining a Manufacturing License
In 2019, MIDA introduced updated eligibility criteria for the manufacturing license application. The following are necessary conditions:
- Capital Investment Per Employee (CPE): The minimum CPE for the project must be RM140,000.
- Local Workforce Requirement: At least 80% of the full-time workforce must be Malaysians. Additionally, 25% of employees in managerial, technical, or supervisory roles must have a degree, diploma, or certificate, or the added value of the product should be 40%.
Additionally, the company must meet one of these basic criteria:
- Shareholders’ Funds: Minimum of RM2,500,000 in shareholders’ funds
- Full-time Employees: Employ at least 75 full-time paid employees
Exemption Conditions
For companies with fewer than 75 employees or shareholders’ funds below RM2.5 million, MIDA allows an exemption from the manufacturing license requirement. These companies may submit an ICA 10 form to obtain an exemption letter. However, once they meet the capital or workforce thresholds, they must apply for a manufacturing license as the exemption letter does not replace the official manufacturing license.
Why a Manufacturing License is Important
A manufacturing license provides more than just regulatory compliance. It opens the door to several benefits, including:
- Import Duty Exemptions: Exemptions on import duty for raw materials and components, reducing production costs.
- Pioneer Status (PS): Offers tax exemption of 70% to 100% of statutory income for five to ten years.
- Investment Tax Allowance (ITA): This allowance provides 60% to 100% on qualifying capital expenditure over five to ten years for equipment, machinery, factory investments, and other expenses related to the approved project.
These benefits encourage growth, reduce costs, and support long-term expansion for manufacturing businesses.
The Application Process
MIDA’s Client Charter states that applicants can expect interim approval within four weeks of submitting all necessary documentation. After receiving the interim approval letter, companies must complete the documentation process to finalize the manufacturing license application.
Conclusion
For foreign and domestic manufacturers in Malaysia, understanding and adhering to the licensing requirements under the Industrial Coordination Act is essential for both compliance and business growth. A manufacturing license from MIDA not only ensures legal operations but also opens doors to tax incentives and allowances that benefit the company’s bottom line.
