Company Registration at Paul Hype Page Malaysia
Malaysia Free Trade Zone

Jun 205 mins

There are a lot of advantages for businessmen to start a business in Malaysia. Not only the Malaysia government offers great tax incentives and reliefs for newly incorporated Companies, but there are tons of business options you can choose from to operate in Malaysia.

Aside from that, being one of the countries to operate a free trade zone, makes it more appealing for businessmen to run a business here.

Definition of Free Trade Zone

According to Britannica, a free trade zone (also known as free port) is basically an area which bundle of items may be landed, handled, manufactured, or reconfigured and re-exported without any intervention from the custom authority. Once the item is moved to consumer within the country in which the zone is located, they become the subject to custom duties.

Purpose of Free Trade Zone

The purpose of Free Trade Zone is to remove from a seaport, airport or border that caused high tariffs and complex custom regulation. One of the benefits of having free trade zone is the quicker turnaround of ships and planes through reduction in formalities customs examinations and ability to fabricate, refinish and store goods freely.

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Digital Free Trade Zone in Malaysia

Malaysia not only offer Free Trade Zone such as Pasir Gudang (Manufacturing), Port Klang (Logistics) or Bayan Lepas (Manufacturing), the country also has a Digital Free Trade Zone (DFTZ).

The Digital Free Trade Zone is a strategic national initiative, led by the Malaysia Digital Economy Corporation (MDEC) to drive seamless cross-border trade through digitalisation and to facilitate access of local SMEs to vast opportunities in global markets via e-commerce.

The purpose of Digital Free Trade Zone is to intensify Malaysia’s participation in cross border e-commerce. It focuses on driving export for local SMEs capitalizing on digitalization and opportunities in e-commerce and attracting investment to set up regional e-Commerce fulfillment hubs in Malaysia.

Types of Free Trade Zone in Malaysia

In general, there is a total of 3 types of Free Trade Zones in Malaysia. They are:

1. Industrial Free Zone

This Free Trade Zone is specifically for importing raw materials for manufacturing of products for exportation purpose.

2. Commercial Free Zone

This Free Trade Zone is specifically for importing general goods for subsequent sorting, mixing, re-bagging, re-labeling, or further processing into finished products for re-export

3. Service Free Zone

This Free Trade Zone provides services to operators and Companies operating outside the Free Trade Zone

Benefits of Free Trade Zone in Malaysia

1. Deferral, reduction, and elimination of certain types of duties

Free Trade Zone in Malaysia has allowed most duty deferral of any kind of custom program. Hence, it makes it a smoother process for Companies to bring goods into the Free Trade Zone without duties and fees. This also includes exemptions from inventory tax.

2. Duty exemption on re-exports

Free Trade Zone is considered outside the commerce of Malaysia. Hence, Company importing components or raw materials into the Free Trade Zone will not be liable to pay custom duty until it enters the receiving country.

3. Duty elimination on waste, scrape, and yield loss

Since a manufacturer operating in Free Trade Zone does not pay duties on imports until goods leave the Free Trade Zone, it is essentially paying for duties on the raw materials after it is processed.

4. Improved compliance, inventory tracking and quality control

Free Trade Zones in Malaysia allow Companies to work closely in tracking their inventories. By bringing in goods into the Free Trade Zones warehouse a Company owns, it may identify and classify goods at the warehouse instead of at the port.

5. Indefinite storage

A Company can hold its goods indefinitely in Free Trade Zone until a port opens or if there are quotas on the goods.

6. Waived customs duties on zone-to-zone transfers

Free Trade Zones in Malaysia can be used to manage transshipping operations, saving money on manufacturing processing fees. While Companies focused on using Free Trade Zone for export purposes, it can also be used for crossdocking and transferring goods from one Free Trade Zones to another without the need to pay custom duties.

Drawbacks of Free Trade Zone in Malaysia

While there are many advantages of the Free Trade Zone in Malaysia, one should also consider the disadvantages:

  • Comprehensive rules and regulations to abide to

  • Customs department may conduct regulatory audits whenever they deem fit

  • High paid up capital requirement depending on business activities the Company wish to venture into

  • Specific permit and licenses are required which may take quite a while to secure

  • Must maintain physical office in the Free Trade Zone (increase operating cost in annual financial report)

Free Trade Zone in Malaysia 2021

When it comes to registering a Company within Malaysian’s Free Trade Zones, such entities will benefit from multiple taxes, and it also allows foreign investors to export their products across Southeast Asian markets smoothly. The Free Trade Zones in Malaysia are known for foreign entities intending to use Malaysia as a regional manufacturing or distribution case.

Hence, Malaysia has several Free Trade Zones for specific activities:

Port Klang Free Zone

  • It is located in Port Klang town, Selangor and has the largest gateway by seas into Malaysia

  • It is a 1,000-acre free industrial and commercial zone providing specifically international cargo distribution and consolidation facilities

  • Permits local and international Companies to establish manufacturing facilities to engage in production of goods for export purposes

  • It is most suitable for investors and entrepreneurs to establish either a manufacturing base, warehousing, or international cargo distribution

Port of Tanjung Pelepas Free Zone

  • It is in South-West Johor between the intersection of the East and West international trade routes nearing Malaysia-Singapore second crossing

  • It is 500 hectares of land for warehousing, distribution, and logistics activities as well as light, medium and heavy manufacturing industry

  • It offers modern state of the art facilities for storage of goods and merchandise for redistribution, packaging, repackaging, grading and repair

  • It is most suitable for investors looking to establish manufacturing base for export-oriented products intended for international export

Why should businessmen consider establishing an entity within Free Trade Zone in Malaysia?

There are many advantageous for an entrepreneur to consider establishing an entity within the Free Trade Zone in Malaysia. Some of them are:

  • Tax free environment

  • Close proximity to deep seaports, airports, highways and railways

  • Malaysian government does not impose stringent foreign exchange controls

  • Enjoy simplified and flexible import export procedures and cost-effective measures for industrial, manufacturing and commercial activities

  • Absence of customs duty on products imported into free zone for re-exportation purpose

Comparison of all Free Trade Zones available in Malaysia 2021

There are slight differences for each Free Trade Zones available in Malaysia. You may read in detail here:

Malaysia free zones  Pasir Gudang, Johor  Port Klang, Selangor  Port Tanjung Pelepas, Johor  Bayan Lepas, Penang  Kulim Hi-Tech Park, Kedah 
Ranking of preference  1  2  3  4  5 
Total 1 year engagement set up cost  USD$ 20,050  USD$ 20,050  USD$ 20,050  USD$ 20,050  USD$ 20,050 
Total annual cost  USD$ 6,470  USD$ 6,470  USD$ 6,470  USD$ 6,470  USD$ 6,470 
Minimum paid up capital  USD$ 125,000  USD$ 125,000  USD$ 125,000  USD$ 125,000  USD$ 125,000 
Suitable industry  Manufacturing  Logistics  Logistics  Manufacturing  Hi-Tech manufacturing 
Total engagement period  3 months  3 months  3 months  3 months  3 months 
Exempt from corporate tax and GST?  Depends on business activities  Depends on business activities  Depends on business activities  Depends on business activities  Depends on business activities 
Exempt from import export tax duty  Depends on business activities  Depends on business activities  Depends on business activities  Depends on business activities  Depends on business activities 
100% foreign owned?  Yes  Yes  Yes  Yes  Yes 
Manufacturing allowed in free zone?  Yes  Yes  Yes  Yes  Yes 
Branch office or LLC recommended?  LLC  LLC  LLC  LLC  LLC 
How long to complete incorporation?  5 weeks  5 weeks  5 weeks  5 weeks  5 weeks 
Require special permit and license?  Yes  Yes  Yes  Yes  Yes 
How long to secure license?  3 months  4 months  3 months  3 months  4 months 
Must maintain physical office?  Yes  Yes  Yes  Yes  Yes 
Corporate tax rate on local sales?  24%  24%  24%  24%  24% 
Annual audit financial statement?  Yes  Yes  Yes  Yes  Yes 
Government grants for manufacturing?  Yes  Yes  Yes  Yes  Yes 
Average customs tax on imports?  7.7%  7.7%  7.7%  7.7%  7.7% 

Free Trade Zone offers a lot of advantage for those keen in venturing into the export import and manufacturing businesses. There are also a lot of procedure and jurisdiction business owners must understand before expanding their business in Malaysia. To ensure all are in order, Paul Hype Page offers services such as business incorporate in Malaysia, corporate secretarial, accounting services and taxation services.

Reach out to us today for a free consultation now!

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FAQs

What is the purpose of free zone?2021-12-16T17:23:31+08:00

Free Trade Zone optimizes the movement of goods between individual countries in the zone and offers opportunity to either secure or disallow imports from third party countries.  

Does free trade benefits local economies?2021-12-16T17:23:13+08:00

Free trade will lead to higher economic output as an increase in demand for local goods results in higher exports. This in turn creates more jobs for local economy and the country enjoys higher economic growth 

How does the Free Trade Zone benefit the importers and exporters in Malaysia?2021-12-16T17:22:46+08:00

The Free Trade Zone are established to increase the exports and boost the country foreign direct investment. These zones have the advantage to provide low-cost supply and diminish unemployment and gain more exchange earnings 

What are the benefits of trading in the Free Trade Zone?2021-12-16T17:20:55+08:00

Free Trade Zones offers unique opportunity to defer, reduce or eliminate customs duties on products resulting to significant cost savings. Custom duties will come into effect once the product leaves the Free Trade Zone and enters a local market 

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