Objective

Basically the purpose of introducing Section 65A, in addition to Section 65 of the Customs Act, 1967, is to enable manufacturing process to be carried out in licensed warehouses. Manufacturing operation therein is subjected to minimal customs procedures. It is primarily intended to cater for export oriented industries. The Licensed Manufacturing Warehouse can be set up speedily and anywhere in the Principal Customs Area without any need to be near to ports of entry unlike the Free Zones establised under the Free Zones Act, 1990. Industries may thus be induced to be located in rural areas. Raw materials / components directly used in the manufacturing process are exempted from payment of customs duty and sales tax.

Location of Licensed Manufacturing Warehouse

A company wishing to have Licensed Manufacturing Warehouse facilities should be located in less developed area so as to be in line with the Government Policy to disperse export oriented and labour-intensive industries to less developed areas. However, in this respect, a certain degree of flexibility is exercised. If there are compelling reasons to select a specific area, not in a less developed area, on account of the special nature of manufacturing operation, etc. the Director General of Customs may consider granting Licensed Manufacturing Warehouse in such a case.

Application for Licence

Application to establish warehouse for storage of dutiable goods under Section 65 and to manufacture such goods for production of other dutiable goods under the provision of Section 65A can be made simultaneously. It should be submitted to the State Director of Customs where the proposed warehouse is to be located through the nearest Customs office. All information required in the application form must be fully furnished together with certificates, plans and other supporting documents as required.

 Period Of Licence

Licence under Section 65 and 65A, is issued at the discretion of the Director General of Customs on payment of fees currently fixed at RM2,402 (two thousand four hundred ringgit for licence under Section 65 and a nominal two ringgit for licence under Section 65A). The licence so granted shall be subjected to such conditions as the Director General of Customs may specify. It is for a period of two years subjected to renewal. Application for renewal of licence must be made at least one month before expiry date of the existing licence.

If the product manufactured falls under categories of goods liable to excise duty, an excise licence is required and its fee is as prescribed under the Third Schedule, Excise Regulations, 1977.

Types Of Premises

1. Premises considered suitable as Licensed Manufacturing Warehouse must be of permanent construction and secured to the satisfaction of the Director General of Customs.

2. The building must contain separate storage space for raw materials and finished products. It must also provide separate space to be used solely for manufacturing of dutiable goods.

Exemption Of Customs Duty

Raw Materials / Components

1) Eligible For Duty Exemption

a) Customs duty exemption is given to all raw materials / components used directly in the manufacturing process of approved product from the initial stage of manufacture until the finished product is finally packed ready for export. This includes packaging materials and casings (e.g. casings for calculators and cameras).

b) The list of raw materials / components that can be imported and taken to Licensed Manufacturing Warehouse without payment of customs duty is issued together with the Licensed Manufacturing Warehouse Licence. Addition or deletion to the list can be made from time to time.

c) Goods subject to excise duty incorporated in the final procuts, may be exempted from excise duty. Application for such excise duty exemption should be made to the Treasury for consideration under Section 10 (a) of Excise Act 1976.

2) Not Eligible For Duty Exemption

Goods that are not eligible for duty / tax exemptions are:

- forklifts

- fuel oils

- building and construction materials

- office equipment / furniture

- generator and related accessories

- materials for machinery and factory cleaning purpose

- wearing apparels (e.g. uniform for factory workers)

- food and drinks

Machinery Equipment

Machinery equipment required for direct manufacturing process of approved final products are entitled to exemtpion from customs duty and sales tax under Item 88 Customs Duties (Exemption) Order 1988 and Item 83 Schedule B Sales Tax (Exemption) Order 1980.

Movement Of Goods

1. Movement of raw materials / components / machineries / equipments and spare parts from a place of import to a licensed manufacturing warehouse must be covered by Customs Form No. 1 to be submitted to the customs at the place of import.

2. For finished goods to be exported, the licensee is required to submit Customs Form No. 2 at the place of export together with the invoices and the Foreign Exchange Documents (KPWX).

3. For finished goods permitted to be sold to the domestic market, submission of Customs Form No. 9 is required. Local sales will be assumed as if imported and import duty will have to be paid in line with Section 65A (3) (b) Customs Act 1967 and sales tax to be paid via Form CJ 3 under section & (1) (d) Sales Tax Act 1972.

4. For movement of goods sold to Free Zone , Customs Form No. 2 is required at the point of entry.

5. For goods sold to another LMW, licensee is required to obtain approval before sales is made. Form GPB 1 is used for movement of finish goods to another LMW licensee.

6. For LMW finished goods exported via a trading company using facilities of item 165 Customs Duties Order (Exemption) 1988 and Item 91 Sales Tax Order (Exemption) 1980, approval has to be obtained from States Custom Director where trading company is situated. In situations where dutiable goods is exported direct from LMW, usage of Custom Form No. 2 is allowed under the name of the trading companies approved. If goods bought by trading company is transferred to another premise, then declaration on Customs Form No. 9 is requested and exemption of duties declared as approved. During exportation, trading company should also declare on Customs Form No. 2 the names and license of suppliers as well as approval issued.

Import And Export Prohibition

If Licensed Warehouse Manufacturer's finished products are of a class prohibited on import / export, he will be allowed to carry on with the manufacture and the finished products when released to domestic market will not be subjected to any import licence.However, licensed warehouse manufacturers are obliged to fulfil the requirements under other written laws such as obtaining an approval from Sirim Department inorder to manufacture telecomunication equipments.

Control On Premises

1) Licensed Manufacturing Warehouses are documentarily controlled by the Customs. As such, customs officers will not be stationed at the licensed premises.

2) Manufacturing process can be carried out without limitation to the time, but no dutiable goods shall be brought in or taken out of the licensed premises outside the normal opening hours without a written permission from State Director of Customs where the Licensed Manufacturing Warehouse is located.

 

Valuation

Dutiable value of the manufactured goods released for home consumption will be determined on the basis of the definition of "value" under the provision of Section 2 Customs Act 1967, similar to such goods being imported from abroad.

Disposal Of Waste / Refuse

1) Waste or refuse discharged from the manufacturing process which is liable to customs duty may be destroyed upon approval and under the supervision of customs. The customs duty chargeable shall be remitted.

2) If the waste or refuse is to be sold, customs duty leviable thereon must be paid. Tariff classification for duty purposes will be based on the identity of the waste or refuse at the time of disposal. Its dutiable value will be determined in accordance with the definition of "value" under Section 2 of the Customs Act 1967.

1. Subcontracting / farming out of manufacturing processes is allowed subject to approval from the state customs. This subcontract work may be done from one licenced manufacturing warehouse to another licenced manufacturing warehouse, from a licenced manufacturing warehouse to a company in a free industrial zone, or from a licenced manufacturing warehouse to a factory in the the principal customs area.

2. Subcontractors are allowed to export on behalf of their principals after having finished the subcontracting work direct from their premises with the approval of state customs.

3. Import of raw materials or components may be sent direct to the subcontractor from the place of import provided that a declaration is made to that effect at the time of import. The quantity allowed for this purpose cannot exceed 50% of the production of the principal manufacturer.

Export Of Finished Goods Through Third Parties

A licenced manufacturer may export the finished goods through third parties such as trading houses with prior approval of the state customs.

Legislation as indicated below:

- Customs Act 1967

- Excise Act 1976

- Free Zone Act 1990

- Customs (Prohibition of Imports) Order 1988

- Customs (Prohibition of Exports) Order 1988

- Excise Regulation 1977

are obtainable from the Percetakan Nasional (M) Bhd., Jalan Chan Sow Lin, Kuala Lumpur or any authorised booksellers.

Conclusion

 Further enquiries relating to Licenced Manufacturing Warehouse may be directed to the nearest customs office (Industyi Division) or to:

Royal Customs and Excise Headquarters,