by 
1st September 2024
Discover the step-by-step process for securing a manufacturing license in Malaysia. Learn about the regulatory requirements, benefits, and the essential role of MIDA in promoting the manufacturing sector under the Industrial Coordination Act of 1975.
The Industrial Coordination Act of 1975 (ICA) governs Malaysia’s industrial sector. Companies that are or plan to be active in the manufacturing business must comply with several regulations mandated by the Industrial Coordination Act of 1975.
The compliance criteria are implemented to make it easier for the appropriate authorities to regulate the manufacturing sector effectively. Additionally, it ensures that businesses only produce goods supporting a country’s social and economic goals. Further, it promotes the industrial sector’s orderly growth and minimizes practices like managing hazardous waste, pollution, and other environmental challenges that might damage society.
The ICA defines manufacturing activity as creating, modifying, mixing, ornamenting, completing, or otherwise changing any product or substance to use, sell, transport, deliver, or dispose of. Parts assembly and ship repair are also considered manufacturing operations, although those connected to retail or wholesale trade are not.
The production and processing of raw natural rubber of all types, including latex, skim, sheets, scrap, technically-specified rubbers, non-standard and modified rubber, or any other unvulcanized form of natural rubber prepared by any patented or technically specified procedure, as well as the milling of paddy into rice, are a few activities that are exempt from the ICA.
This article explores the Malaysian manufacturing sector’s regulatory compliance issue.
What Are the Requirements for Obtaining a Manufacturing License
When starting or expanding a business, there are many things to consider. One important decision is whether to manufacture products in-house or outsource production. If you decide to manufacture products, you will need to apply for and receive a manufacturing license from the government.
Regulatory Authority
Malaysia’s international trade industry competitiveness is promoted and strategically planned for by the Ministry of International Trade and Industry (MITI). The primary organization charged with supervising, advertising, and coordinating the growth of the manufacturing sector in the nation is the Malaysian Investment Development Authority (MIDA), which falls under the authority of MITI. MIDA is entrusted with assessing applications for various licenses, including manufacturing ones, and ensuring that all applicable laws, rules, and regulations are followed. The Industrial Coordination Act of 1975 outlines the conditions to be met to engage in any manufacturing activity. According to the Industrial Coordination Act 1975, anybody wishing to engage in industrial operations in Malaysia must apply for a license.
Requirements
The Guidelines from MIDA define “shareholders’ money” and “full-time paid workers” as follows:
- “Shareholders’ funds” are the aggregate amount of a company’s paid-up capital, reserves, balance of the share premium account, and balance of the profit and loss appropriation account.
- “Full-time paid employees” are all persons usually working in the establishment for at least six hours a day and at least 20 days a month for 12 months during the year and who receive a salary.
MIDA has published a Guideline on Application for Manufacturing License on its website, introducing the following criteria:
- Companies with shareholders’ funds of RM2,500,000 and above or engaging 75 or more full-time paid employees;
- Projects must have Capital Investment Per Employee (CIPE) of at least RM140,000.00;
- The total full-time workforce of the company must comprise at least 80% Malaysians.
- The project must be consistent with the national economic and social objectives and promote the orderly development of manufacturing activities in Malaysia.
Exemption from Manufacturing License
Companies that come within the Industrial Coordination (Exemption) (Amendment) Order of 1986 and do not satisfy the above-mentioned requirements may apply to MIDA for a confirmation letter by submitting an ICA 10 form, which obviates the need for manufacturing license approval. To
prevent confusion, the ICA 10 form applies to businesses that engage in manufacturing but do not fulfill the requirements of shareholders’ funds exceeding RM2,500,000 or 75 or more full-time workers.
The function of the Exemption letter is the same as the Manufacturing License. Here’s a list of documents needed for the application of a Manufacturing License or Exemption Letter:
- Valid Business License from the Local Authority (Majlis Perbandaran)
- SSM Company Profile
- Latest Audited Report / Management Account
- Company Profile
- List of Machinery and Function
- List of Raw Material, Quantity, and Name of Supplier
- List of Products, Quantity, and Name of Customer
- The list of Manpower divided into Management, Technical, Clerical, Admin, and Factory Worker
- Factory Layout Plan
How to Apply for a Manufacturing License in Malaysia
A manufacturing license is required for any business that wishes to produce goods in Malaysia, so it’s essential to understand the process of how to apply for one. This section will provide guidance on the process of applying for and obtaining a manufacturing license in Malaysia.
Applications
Anyone planning to engage in manufacturing must apply for a manufacturing license. A single application may be made under Section 4 of the Industrial Coordination Act of 1975 for one or more items made at one or more manufacturing locations, but a separate license must be granted for each manufacturing location. The proposal will only be approved if it supports the orderly development of manufacturing operations in Malaysia and is compatible with the nation’s economic and social objectives. The applicant is responsible for ensuring that any data provided in support of the application is true, correct, and accurate.
A manufacturing license application filed through the conventional track will usually require four weeks to be approved by MIDA; however, an application for the same submitted using MIDA e-Manufacturing Licence or e-ML will typically take two days.
Interim Approval Letter
Before issuing the manufacturing license, MIDA issues a letter of temporary permission. The interim permission letter outlines the paperwork submitted to MIDA for issuing the manufacturing license. According to MIDA’s Client Charter, the applicant will get the interim permission letter four weeks after providing all necessary information. When sent, the applicant must give MIDA the needed paperwork listed in the interim approval letter, along with the interim approval letter, for MIDA to issue the manufacturing license certificate.
Benefits of Having a Manufacturing License in Malaysia
A manufacturing license entitles the owner to several incentives and advantages in Malaysia. In addition to Reinvestment Allowance and other perks, Pioneer Status and Investment Tax Allowance are the main tax incentives for businesses operating in the manufacturing industry.
Pioneer Status
A manufacturing business that receives Pioneer Status benefits from a five-year temporary exemption from paying income tax. With the exemption period starting on its production day, when its output level exceeds 30% of its capacity, it is taxed on 30% of its statutory revenue. Unused capital allowances from the pioneer era may be carried forward and subtracted from the company’s post-pioneer revenue.
For seven consecutive years, accumulated losses from the pioneer era may be carried forward and subtracted from the company’s post-pioneer revenue. A Tax Exemption from 70% to 100% of Statutory Income For 5 to 10 Years is available to companies with “Pioneer Status.” Depending on the kinds of promoted products/activities, a company that receives Pioneer Status may benefit from varying levels of tax exemption. Companies that engage in an elevated activity or create a heightened good may qualify for either Pioneer Status or an Investment Tax Allowance, regardless of whether they operate in the manufacturing, agriculture, hotel and tourist, or any other industrial or commercial sector.
Investment Tax Allowance (ITA)
Like Pioneer Status, ITA will confer varying degrees of exemption on a company depending on the kinds of advanced goods/activities it engages in. A business may apply for ITA as an alternative to Pioneer Status.
A company granted ITA under the Promotion of Investments Act, 1986, for manufacturing services and the service sector is entitled to an allowance of 60%-70% on its qualifying capital expenditure (factory, plant, machinery, or other equipment used for the approved project) incurred within five to ten years from the date the first qualifying capital expenditure is incurred.
The manufacturing company can offset this allowance against 70% of its statutory income for each assessment year. This means the ITA is granted on 60% of the qualifying capital expenditures incurred over five years and is used against 70% of the statutory income, while the remaining 30% is taxed at the applicable CIT rate. Any unused allocation may be carried over to succeeding years until it is used up ultimately. The corporation tax rate, in effect, will be applied to the remaining 30% of its statutory revenue.
Reinvestment Allowance (RA)
RA is offered as a financial incentive to Malaysian resident manufacturing and some agricultural businesses that invest in growing, automating, modernizing, or expanding into complementary goods within the manufacturing sector. However, the requirement that these businesses have existed for at least 36 months governs this provision.
Others
Holders of manufacturing licenses are also eligible for the government’s various incentives, such as exemptions from import duties for raw materials and machinery under the Customs Duties (Exemption) Order 2017 and the Sales Tax (Persons exempt from Payment of Tax) Order 2018, which are granted at the Minister of Finance’s discretion.
Subject to the relevant restrictions, holders of manufacturing licenses are eligible for all of the abovementioned incentives. To receive these benefits, MIDA would ultimately require manufacturing license holders to show their manufacturing license.
Consequences of Doing Any Manufacturing Activity Without a License
Anyone who engages in manufacturing activities without a manufacturing license issued under the Industrial Coordination Act of 1975 is guilty of an offense and faces a fine of up to RM2,000 or a jail sentence of up to six months, as well as an additional penalty of up to RM1,000 for each day that the default persists.
MIDA imposes stringent compliance requirements on the manufacturing sector’s laws, rules, and regulations. All individuals involved in manufacturing activities must be aware of and follow all applicable laws, rules, and regulations, including applying for a manufacturing license or the ICA 10 Confirmation Letter, as MIDA continuously monitors, promotes, encourages, and coordinates the development of the manufacturing industry in Malaysia.
This comprehensive guide covers all aspects of obtaining a manufacturing license in Malaysia, from requirements to benefits and consequences of non-compliance. If you need any further adjustments or additional sections, feel free to let us know!
