Malaysia's LMW Overview: Guide to LMW Application Process

Introduction:

Malaysia's Licensed Manufacturing Warehouse (LMW) process continues to serve as a cornerstone for industries seeking to enhance manufacturing capabilities amidst the complexities of international trade. With streamlined customs procedures, tax incentives, and regulatory exemptions, the LMW scheme offers a myriad of benefits for businesses operating within Malaysia.

Understanding the LMW License Application Process:

The Licensed Manufacturing Warehouse (LMW) license allows companies to import machinery, raw materials, and components duty-free for manufacturing purposes. This license is subject to specific conditions and compliance with customs regulations.

1) Eligibility Criteria

Before applying for an LMW license, ensure that your company meets the following eligibility criteria:

• The company must be a registered business in Malaysia.

• The proposed warehouse facility must comply with local authority regulations.

• The company should engage in manufacturing activities that align with customs regulations.

According to Section 2 of the Customs Act 1967, “manufacture” is defined as follows:

1. Intoxicating Liquors:

   • Activities include distilling, brewing, fermenting, and bottling, as well as blending and compounding with the intent for human consumption, excluding compounds made for immediate consumption at the order of the purchaser.

2. Tobacco:

   • This includes processes that convert raw or leaf tobacco into products suitable for smoking, snuffing, or chewing, including cigarette production from manufactured tobacco.

3. Petroleum:

   • Activities include the refining process, which encompasses separation, conversion, purification, and blending of refinery or petrochemical streams.

4. Other Materials:

   • This encompasses the conversion of organic or inorganic materials into a new product through manual or mechanical means. This includes changing the size, shape, composition, nature, or quality of materials, as well as the assembly of parts into machinery or other products. It does not include the installation of machinery or equipment for construction purposes.

2) Prepare Required Documents & Submit Application

• Form JKED No. 1 (3 Copies)

• Copy of Certificate of Completion and Compliance (CCC)

• Copy of Business License / Certificate issued by the Local Authority

• Form A and D

• Memorandum and Articles of Association

• Complete List of Raw Materials/Components/Finished Goods of Import or Local Purchase, Tariff Code, and Total Duty Involved

• Floor Plan (Colour-coded)

• Other supporting documents

Complete the application form and submit it to the State Director of Customs of the controlling station. Ensure that you include all required documents to avoid delays. For more information regarding the required documents refer to “LMW Documents Checklist”.

3) Approval and Trial Run

The approval of the LMW application can be granted under the following conditions:

• Approval Conditions

  • The company's board of directors has successfully passed the security screening.

  • An application for factory site development has been submitted to the Local Authority.

• Importation Before License Issuance

  • Once the above conditions are met, the LMW is allowed to import machinery, equipment, and raw materials/components before the license is officially issued, subject to the following conditions:

  • Approval must be obtained from the State Director of Customs or Zone Operation Director.

  • The importation is covered by a bank guarantee, with the total amount based on the actual value of the customs duty and sales tax involved.

• Trial Run Conditions

  • A trial run of manufacturing activities is permitted for a reasonable quantity of raw materials, provided that:

  • There is no physical release or sale of finished goods, except through disposal methods authorized by the State Director of Customs or Zone Operation Director.

4) License Issuance

Once you have completed all necessary preparations and the State Director of Customs is satisfied, the official LMW license will be issued. The license fee is RM2,400.00 per annum. The license will be issued in JKDM Form No. 3 and will take effect starting from the first day of a month.

• For LMW that manufactures critical goods: A bank guarantee of 10% of the total customs duties and sales tax on raw materials and finished goods for one month must be provided.

• For LMW that manufactures goods other than critical goods: A general bond or bank guarantee must be provided based on the decision of the State Director of Customs or Zone Operation Director. The amount of the general bond or bank guarantee will be determined by the State Director of Customs or Zone Operation Director.

5) License Conditions

After receiving your LMW license, you must adhere to the following conditions:

• License Display

  • Prominent Display: Ensure that the approved LMW license and factory layout plan are clearly displayed at the premises.

• Authorized Storage

  • Permitted Items Only: Store only the raw materials, components, and finished goods that have been explicitly approved by the State Director of Customs.

• Record Keeping

  • Accurate Records: Maintain precise daily records of the quantities of raw materials, components, finished goods, and waste generated. These records should be readily available for inspection.

• Change Notification

  • Timely Reporting: Inform the customs authorities within 14 days of any changes in the company's board of directors or any significant legal changes affecting the business.

• Incident Reporting

  • Immediate Notification: Report any incidents such as fire, theft, or loss of goods to the customs authorities as soon as they occur.

• Compliance Monitoring

  • Ongoing Adherence: Regularly ensure compliance with all LMW conditions and any additional requirements set forth by customs authorities. Be prepared for inspections and audits.

By following these conditions, you can maintain compliance with customs regulations and avoid potential penalties. For more information on the conditions, refer “LMW License Condition”.

The Advantages of LMW:

A key advantage of the LMW process lies in its ability to attract foreign investment and stimulate economic growth. By providing an attractive environment for manufacturing activities, Malaysia's LMW scheme encourages multinational corporations to establish operations within the country. This not only drives job creation but also facilitates technology transfer and knowledge exchange.

LMW facilities serve as strategic hubs for companies aiming to capitalize on Malaysia's advantageous location as a gateway to the ASEAN market and beyond. Expedited importation of machinery, equipment, and raw materials enables smoother production processes, enhancing overall efficiency for industry players.

Challenges in LMW Procedure:

Despite its benefits, the LMW process presents challenges for industry players, particularly in maintaining compliance with regulatory requirements. Strict standards for facility management, customs procedures, and licensing obligations demand vigilant adherence to avoid license revocation and operational disruptions.

“The problem with these customs facilitation in Malaysia is that it is still using manual labor work instead of utilizing tech tools available in the market right now. We envisions a promising future for Malaysia's LMW process. The usage of technological advancements such as automation and digital connectivity will revolutionize LMW operations, fostering greater efficiency and transparency throughout the supply chain.”

Looking Ahead:

In conclusion, Malaysia's LMW process stands as a catalyst for manufacturing excellence and global competitiveness. Despite challenges, proactive measures and continuous innovation will ensure the continued success and relevance of LMW facilities in driving Malaysia's economic development on the global stage.