CONCEPT AND OBJECTIVES

A Free Zone is an area declared by the Minister of Finance under the provision of Section 3(1) of the Free Zones Act 1990. It is mainly designed to promote entrepot trade and for the use of manufacturing industries producing goods essentially for export. The Free Zones comprise of a free commercial zone for commercial activity which includes trading (except retail trading), breaking bulk, grading, repacking, relabelling and transit, and a free in-dustrial zone for manufacturing activity.

The activities and industries therein are subject to minimal customs formalities and for this reason in law, it is deemed a place outside the Principal Customs Area except in respect of prohibition of imports and exports under Section 31 of the Customs Act 1967.

Goods and services of any description (subject to the Free Zones Act 1990) except those specifically and absolutely prohibited by law, may be brought into, produced, manufactured or provided in a free zone without payment of any customs duty, excise duty, sales tax or service tax. The Minister of Finance may, by order published in the Gazette, exclude any goods or services from entering the Free Zone. For goods and services excluded, they are subject to customs duty, excise duty, sales tax and service tax as if the Free Zone is in the Principal Customs Area.

ESTABLISHMENT OF FREE ZONES

The Minister of Finance is vested with the power under Section 3(1) of the Free Zones Act 1990 to declare by notification in the Gazette any area in Malaysia to be a free commercial zone or a free industrial zone and every such notification shall define the limits of such zone. The choice of sites and types of manufacture is generally determined by the Ministry and Agencies dealing with industrial development, namely the Ministry of International Trade and Industry, Ministry of Finance, Malaysian Industrial Development Authority.

ELIGIBILITY FOR LOCATION IN FREE ZONE

Companies which can be considered for location in the Free Zone, are those whose entire products are wholly for export. In exceptional circumstances the Ministry of International Trade and Industry may allow companies exporting not less than 80% for location in the Free Zone.

APPOINTMENT OF FREE ZONE AUTHORITY

The Minister may appoint the following body as the Zone Authority to administer, maintain and operate any free zone which has been declared under Section 3(1) of the Free Zones Act 1990.

1. Any statutory body established or constituted by or under a federal law; or

2. Any department of the Government of Malaysia; or

3. With the consent of the State concerned, any statutory body established or constituted by or under a State law; or

4. Any department of the Government of a State; or

5. Any company.

 

RESPONSIBILITY OF THE ZONE AUTHORITY

The Zone Authority is charged, interalia, with the following responsibilities:-

1. To erect and maintain two parallel perimeter fences or walls along the boundary of a free zone with entry and exit points.

2. To illuminate the perimeter fences or walls, the exit and entry points and the area along the perimeter of the free zone from 6.30 p.m to 7.30 a.m the following day.

3. To provide customs office and examination stations at the gate.

4. To ensure the operators comply with the Free Zones Act and its regulations.

5. To submit the annual report dealing with it’s activities and policies to the Minister of Finance.

6. To control the movement of persons and goods entering or leaving the Free Zone.

7. To safeguard customs duties and dutiable goods stored within the Free Zone.

8. Compliance with any other directions of the Director General of Customs.

APPLICATION FOR APPROVAL TO OPERATE WITHIN FREE ZONE

1. Any person wishing to carry out any activity within a free zone shall apply to the Authority using a form FZ No. 4.

2. The approval granted shall be in form FZ No. 6.

3. The approval is subject to such terms and conditions imposed by the Zone Authority.

4. A copy of the approval is to be extended to the Director General of Customs.

PERMISSION TO ERECT BUILDINGS

1. An application to erect any building, hold any tenancy or lease of property in the Free Zone must be made on form FZ No. 5.

2. The Authority will grant the approval on form FZ No. 6 and a copy of the approval shall be extended to the Director General of Customs.

3. No alteration or addition shall be made to the building or structure without the written permission of the Zone Authority.

RESPONSIBILITY OF OPERATOR IN A FREE ZONE

1. For the purpose of protecting revenue and for the proper functioning of a Free Zone, the Zone Autho-rity may require an operator to maintain full and proper records of all activities carried out by the operator in the free zone. The record shall contain details of :-

i) all goods received at the place of premises where the activities are carried out;

ii) all goods taken into any part of a Principal Customs Area from a free zone;

iii) all goods released for consumption, sale or manufacture within the free zone, or for export;

iv) waste stocks and its manner of disposal;

v) losses through spillage, evaporation and other causes; and

vi) the balance of all goods stocked at the place or premises where the activities are carried out.

2. The record can only be destroyed with the approval of the Zone Authority after consulting the Customs.

3. An operator has to submit the monthly return to the Zone Authority before the 10th of each month giving details as to matters specified in paragraphs 1(i) to 1(vi) for the month immediately preceding.

4. No operator shall destroy any goods without the approval of the Authority.

 

GOODS PERMITTED INTO A FREE COMMERCIAL ZONE

1. Goods of any description may be brought into a Free Commercial Zone for retail trade or otherwise without payment of customs duty, excise duty or sales tax.

2. The Minister may, by order, prohibit any goods or class of goods from being taken into a Free Commercial Zone.

GOODS PERMITTED INTO A FREE INDUSTRIAL ZONE

1. The following types of goods may be brought into the Free Industrial Zone without payment of customs duty, excise duty or sales tax:-

i) Goods of any description which would be used directly for the manufacture of other goods; or

ii) Goods manufactured in any part of the Principal Customs Area which are meant for export.

GOODS MANUFACTURED IN A FREE INDUSTRIAL ZONE

1. Goods manufactured within a Free Industrial Zone shall not be taken out of such zone except:-

i) For export; or

ii) With the approval of the Authority afte consultation with the Director General of Customs to be taken into a Free Commercial Zone.

2. Goods manufactured in a Free Industrial Zone shall not be used or consumed in such zone without the written permission of a proper officer of customs not below the rank of Assistant Director of Customs and Excise.

GOODS NOT ELIGIBLE FOR DUTY/TAX EXEMPTION

i) Forklifts.

ii) Materials for machinery and factory cleaning purposes

iii) Office equipments /furniture. Wearing apparel for factory workers.

iv) Fire fighting and pollution control equipment

v) Construction/building equipments

vi) Petroleum / petroleum products

vii) Tyre.

viii) Explosives and chemicals

ix) Air conditioning equipments

x)    Manufacturing aids

xi)    All goods and services which is not used directly in manufacturing activity approved under the First Schedule and Second Schedule of the Free Zone Act 1990.

HANDLING OF GOODS

FARMING OUT/SUBCONTRACT WORK

Farming out or subcontract is the sending of semi-finished goods and raw materials from one factory to another factory for further processing. After the permitted period the manufactured goods together with the waste must be returned to the sender.

Movement of semi- finished goods and Approving Authority raw materials Authority raw materials

i) from Free Industrial Zone to another State Director of Customs Free Industrial Zone

ii) from Free Industrial Zone to Licensed State Director of Customs Manufacturing Warehouse

iii) from Free Industrial Zone to a factory State Director of Customs in the Principal Customs Area

CONDITIONS IMPOSED FOR FARMING OUT/SUBCONTRACT

i) Submit bankers guarantee.

ii) Submit monthly return.

DISPOSAL AND DESTRUCTION OF MANUFACTURING WASTE AND SCRAP

Waste resulting in the manufacturing process in the Free Zone can be destroyed in the said zone without prior approval from the customs but a written approval from the Zone Authority is required. However, to avoid pollution, such destruction should not take place within the said zone but has to be taken out into an incinerator in the Principal Customs Area. Under such circumstances the manufacturers have to liaise with the Zone Authority to get written approval from the customs. Supervision by a Senior Officer of Customs for the destruction of goods is at the rate of $10.00 an hour subject to a minimum of $50.00 a day.

If the waste or scrap is to be sold in the Principal Customs Area, customs duty and sales tax, if any, must be paid. Tariff classification for duty purposes will be based on the identity of waste or scrap itself. Its dutiable value will be determined on the basis of the definition of 'value' under the Customs Act 1967.

CONCLUSION

All facilities and incentives provided by the Government under the Free Zones Act 1990 obviously show the active and positive roles enacted by the government to encourage export oriented industries.

Further enquiries relating to Free Zones Act may be directed to the nearest customs office or to:

Royal Customs and Excise Headquarters,