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How to Set Up a Manufacturing Company in Malaysia?

Given the innumerable benefits that the Malaysian business ecosystem provides, manufacturers around the world are inclined to set up a manufacturing company in Malaysia. This article is a discourse on how to set up a manufacturing company in Malaysia.  

What Is A Manufacturing Company In Malaysia?  

A manufacturing company in Malaysia is one that is involved in carrying out the manufacturing activity. According to Malaysia’s Industrial Co-ordination Act of 1975, “manufacturing activity” is defined as the making, blending, altering, finishing, ornamenting or otherwise treating or adapting any article or substance with a view to its sale, use, delivery, disposal or transport; and includes the assembly of parts and ship repairing. Manufacturing activity will not include any activity that is normally associated with retail or wholesale trade.  

Approvals and Licenses to Set Up a Manufacturing Company in Malaysia  

Application to Ministry of International Trade and Industry: Malaysia’s statutory law Industrial Co-ordination Act of 1975 mandates the investor to apply for a manufacturing license with the Ministry of International Trade and Industry (MITI).

Submission of application to Malaysian Industrial Development Authority: The application for the manufacturing license shall be submitted to the Malaysian Industrial Development Authority (MIDA), which is an agency under the MITI. MIDA is responsible for the promotion and coordination of industrial development in Malaysia.

Statutory Requirements: The Industrial Co-ordination Act, 1975 of Malaysia prescribes the following statutory requirements for the companies who wish to apply for a manufacturing license:

1. Shareholder’s funds should be of a minimum of 2.5 million Malaysian Ringgit; or
2. The company should engage at least 75 or more full-time employees

Here, the “shareholders’ funds” refers to the aggregate amount of the company’s paid-up share capital, reserves, the balance of profit and loss appropriation account where:

• Paid-up share capital shall be in respect of ordinary shares and preference shares and will not include any amount in respect of bonus shares if such bonus shares were issued from the capital reserve created by revaluation of fixed assets.
• Here Reserves shall not comprise of any capital reserves that have been created by revaluation of fixed assets and provisions for depreciation, replacement or renewals and diminution in the value of assets.  

Further, “full-time paid employees” refer to the all the persons who are normally working in the manufacturing establishment for at least six hours a day and at least 20 days a month for twelve months during the year. Such full-time paid employees should also be receiving a salary for the said work.

Approvals for setting up a Industrial Projects in Malaysia     

The following criteria need to be met by the promoters in order to obtain government approvals for Industrial projects in Malaysia:

• The capital investment per employee (CIPE) for the industrial project must be at least Malaysian Ringgit 140,000; and
• 80 per cent of the full-time workforce should comprise of Malaysians. Further, employment of foreign workers including the outsourced workers is subject to the existing policies of the government; and
• The managerial staff, technical and supervisory staff at all levels of the establishment should account for at least 25 per cent of the total employment or having a value-added (VA) of at least 40 per cent.  

Exemptions Available To Set Up a Manufacturing Company in Malaysia      

Those companies whose shareholders’ fund does not exceed 2.5 million Malaysian Ringgit and who do not employ more than 75 full-time paid employees are eligible to apply for an exemption from the manufacturing license.   

Those companies that have been exempted from acquiring Manufacturing license is confirmed through an exemption letter assigned to them by the appropriate authority.

Such companies are eligible for the various facilities that have been granted by the government, such as exemptions from import duties for machinery and equipment and raw materials under Customs Duties (Exemption) Order 2017 and Sales Tax (Persons exempted from Payment of Tax) order 2018.

These companies are also eligible for investment incentives under the Promotion of Investments Act 1986 and the Income Tax Act 1967^[1]. These incentives are available if the companies fulfil all the required criteria and conditions.    

Benefits of Setting up A Manufacturing Company in Malaysia      

Following are some of the benefits that manufacturing companies:

• Malaysia is one of the leading hubs of manufacturing in the ASEAN nations. It is a leader in manufacturing of solar equipments etc. Additionally, low business costs and a trained and competitive workforce make Malaysia an attractive manufacturing destination for the world.
• Tax incentives such as 100 per cent exemption for the first five years along with investment tax allowance make Malaysia cost-effective for manufacturing.
• Malaysia is being seen as an alternative destination for manufacturing among the other nations because of the US-China trade war.  

Conclusion 

With the abovementioned benefits and the business-friendly ecosystem offered by Malaysia, the Malaysian manufacturing sector has attracted foreign investment which accounts for around 60 per cent of the total number of investments approved by the Malaysian Investment and Development Authority. Apart from the abovementioned statutory requirements, promoters need to incorporate a fully foreign-owned subsidiary, obtain other government approvals and licenses, secure office and industrial space, and hire locating agents and suppliers for raw materials in order to set up a manufacturing company in Malaysia.    

Read Our Article: Procedure of Company Incorporation in Malaysia