Malaysia is working to become a major hub for manufacturing and trade by attracting foreign investment and simplifying business operations. The country is making it easier to build and run a factory by reducing paperwork and taxes.

The Licensed Manufacturing Warehouse (LMW) license is a key part of this effort, allowing companies to operate duty-free outside traditional zones. This makes it simple to manufacture and export products globally from a Malaysian base, aiming to establish the country as a primary distribution center for locally made goods.

 

What is LMW or licensed manufacturing warehouse?

 

LMW or Licensed Manufacturing Warehouse is a facility that combines warehousing and manufacturing, also known as a manufacturing bonded warehouse.

The license for manufacturing bonded warehouse offers customs duty exemptions on raw materials and components used in production.

Authorized under Section 65/65A of the Customs Act 1967, this incentive is for export-oriented industries.

How to apply LMW license in Malaysia?

 

If your company operates below the mandatory licensing threshold, securing LMW status is a strategic move that can significantly boost your bottom line. By exempting your business from Sales Tax and Import Duties on raw materials, the LMW scheme acts as a powerful cost-saving engine for export-orientated manufacturers.

While the application requires careful documentation, the path to obtaining an LMW licence is transparent and well-defined. By following the official JKDM (Royal Malaysian Customs Department) guidelines, you can navigate the approval process with total clarity. Here is the step-by-step procedure:

 

Requirements for LMW License Application

 

1. Core Manufacturing Activity: To qualify for LMW status, your business must perform "manufacturing" as defined by the Customs Act 1967. This means your operations must involve transforming, assembling, or modifying raw materials into a new finished product.
    
2. The 80% Export Rule: The LMW scheme is designed for export-driven businesses. You are generally required to export 80% or more of your total finished products.
   ​
   • Approval Body: The Ministry of Investment, Trade and Industry (MITI) determines your specific export percentage upon approval.
      
   • Small-Scale Producers: If you are exempt from a full Manufacturing License under the Industrial Co-ordination Act (ICA) 1975 (e.g., fewer than 75 workers or less than RM2.5 million in capital), the Royal Malaysian Customs Department (RMCD) will set your export rate directly.
      
3. Licensing Requirements (ICA 1975): Before applying for LMW status, your company must meet one of these two criteria:
    
   • Licensed: You hold a valid Manufacturing License from MITI.
      
   • Exempt: You have an official exemption from MIDA because your paid-up capital is below RM2.5 million and you employ fewer than 75 people.
      
4. Mandatory Customs Reporting (M1, M2, M4): Operating as an LMW company requires strict transparency with the RMCD. You must submit regular return reports to maintain your duty-free status:
    
   • M1 & M2 (Monthly): Tracks raw materials and finished goods movement.
      
   • M4 (Yearly): Provides a comprehensive annual summary of your manufacturing activities.
      
5. Managing Duty-Free Limits: Your LMW license allows you to import raw materials and equipment duty-free, but this is not unlimited. Each item is capped based on specific tariff codes (HS Codes).
    

Pro-Tip: Successful LMW holders use digital tracking to monitor their "import caps" in real-time. Exceeding these limits without prior approval can lead to unexpected tax bills or penalties.

 

Strict Reporting Deadlines

Compliance requires both accurate data and adherence to strict submission timelines enforced by the Royal Malaysian Customs Department (RMCD):

 

• Monthly Returns (M1/M2): Due by the 28th of the following month. 
   
• Annual Statement (M4): Due by January 31 of the next year. 
   
• Financial Reconciliation: The M4 statement must align with the company’s audited financial report. If the financial year doesn’t match the calendar year, the audited report must be submitted to Customs within 30 days after its completion for inventory validation.

 

Customs Documentation: The K-Form Guide

Managing goods movement in and out of an LMW requires accurate Customs documentation through specific K-Forms:
 

• Form K1: For importing goods from overseas or Free Zones (FZ) into the LMW. 
   
• Form K2: For exporting goods from the LMW to overseas markets, Free Zones, or Bonded Warehouses. 
   
• Form K9: For domestic transactions, including purchasing local raw materials or releasing finished goods into the Malaysian domestic market (Principal Customs Area). 
   

These forms ensure a clear audit trail between duty-free and taxable zones.

 

Documents Needed for LMW License Application

 

• Form JKED No 1
   
• Form A – Application for Licensed Manufacturing Warehouse under Section 65/65A of the Customs Act 1967
   
• Copy of Certificate of Completion and Compliance
   
• Copy of Business License issued by Local Authority
  
  
• Company registration documents (Form A and D; M&A, Form 9, Form 49, Form 44 Form 24)
   
• Copy of Manufacturing License issued under the ICA 1975
   
• Location plan, layout plan, and elevation plan (certified by Registered Architect)
   
• Flow chart of the manufacturing process
   
• List of pieces of machinery and tools, raw material or components, finished goods
   
• Input/output ratio
   
• Rental of premises agreement letter
   
• A passport-size photo and copy of IC for each Director
   
• Other relevant documents

 

Financial Security Requirements

Security bond requirements vary depending on the risk profile of the goods:

• General Bonds: Typically sufficient for lower-risk industries like plastics or steel fabrication, calculated at 10% of the total monthly duty liability.
  
• Bank Guarantees: Required for higher-risk items, such as textiles and apparel, where leakage risk is greater

This approach allows manufacturers with lower-risk profiles to reduce financial burdens while optimizing working capital.

 

Application Processes for an LMW Licence 

 

1. The exclusive authority to approve licenses rests with the Director General of Customs. However, the State Director of Customs has been permitted to exercise this power. Due to this, a request to establish a warehouse for the storage of dutiable goods (per section 65) and to manufacture such goods for the production of other dutiable goods (per section 65A) may be made at the same time by submitting a request to the State Director of Customs where the proposed warehouse will be located. 
    
2. Every application must be submitted using the JKED No. 1 form and any required certificates, plans, or other documentation. The application and approval processes will move more quickly as a result.
    
3. The license thus issued shall be subject to the conditions set forth by the Director General of Customs. It is subject to renewal for a term of one or two years. At least one month before the current license expires, you must submit a renewal application. The license fee is RM2,400.00 per year for successful applicants.
    
4. An amount will need to be guaranteed by a bank equivalent to 10% of the total duty or tax on raw materials or components for a month. If the corporation owes no money in duties to the department, it will be returned three months after the license expiration date. 

 

Location of the Licenced Manufacturing Warehouse

 

In line with government policy to promote export-oriented and labor-intensive sectors, the location of your Licensed Manufacturing Warehouse (LMW) is a critical consideration.

 

Here’s what you need to know:

 

• LMW facilities should ideally be situated in a less developed location. This policy helps encourage industrial growth in areas that need it most.
   
• However, exceptions can be made. The Director General of Customs may approve an LMW in a more developed area if there are strong justifications, such as the unique nature of the manufacturing operation. This allows for flexibility, letting an LMW be positioned anywhere within the Principal Customs Area where it makes sense for accessing materials, labor, and other resources.
   
• Ultimately, the location must be deemed appropriate by the approving authority. The facility must be of permanent construction and be adequately secured. It must also have separate, dedicated spaces for raw materials, finished products, and the production of dutiable goods.

 

Benefits of Licenced Manufacturing Warehouse 

 

LMW provides similar benefits to Free Industrial Zone or FIZ.

 

• Tax Exemptions: It exempts import duty and sales taxes on new and unused raw materials, components, machinery, and equipment directly used in the manufacturing process of approved produce. 
   
• Cost-Effectiveness: This exemption covers the entire production lifecycle, making importing goods more cost-effective. Business owners can import materials at a reduced cost, avoiding taxes and duties, thereby optimizing financial resources. 
  
• Special Approval for Local Sales: Manufacturers with over 20% local sales from their products need special approval from the Malaysian Investment Development Authority (MIDA).

 

Defining Non-Exempt Assets Under the LMW License

The Licensed Manufacturing Warehouse (LMW) license provides duty exemptions on raw materials, components, and manufacturing machinery directly involved in production.

This exemption doesn't cover general operational infrastructure. It's important to distinguish between production-critical and support assets, as duties and taxes still apply to:

 

• Logistics & Handling Equipment: Forklifts, cranes, and hoists. 
   
• Facility Infrastructure: Air conditioning systems (unless essential for climate-controlled production), office furniture, and construction materials. 
   
• Safety & Personnel: Firefighting equipment, pollution control devices, and staff uniforms. 
   

Investors should account for these non-exempt costs in their capital expenditure plans, as they fall outside the LMW’s tax-free scope.

 

Entry to the Domestic Market

 

Although a Licensed Manufacturing Warehouse (LMW) status permits some involvement in the local market, this is strictly controlled.

Key regulations include:

• Manufacturers are permitted to sell a maximum of 20% of the value of their finished products within the domestic market (Principal Customs Area).
   
• This action initiates immediate duties and taxes, which must be paid before the products depart from the LMW facility.
   
• To go above the 20% limit, special clearance from the Malaysian Investment Development Authority (MIDA) is necessary, supported by reasons related to domestic supply chain requirements.

 

 

Value-Added Activities Allowed in LMW in Malaysia

 

License Manufacturing Warehouse companies are also allowed to conduct the following activities within the LMW premises:-

 

• Repacking (limited to quantity specified in the licence).
   
• Labelling and relabelling of goods.
   
• Testing or quality control checks before exporting.
   
• Minor repairs and maintenance work on machinery used directly in manufacturing. 
   
• Production of samples for potential customers.
   
• Processing of returns or damaged goods for repair or re-exporting.
   
• Support manufacturing activities, such as research and development (R&D). 
   
• Other activities as approved by the State Customs Director or Zone Operations Director.

 

It’s crucial that these value-added activities are directly linked to the company's manufacturing operations and serve as secondary tasks.

Keep in mind that sales from these activities should not exceed 40% of the total annual sales value.

 

Secure a Property That Powers Your Export Strategy  

 

An LMW licence offers massive tax savings, but your location must be strategically placed for logistics and customs access. While we don't handle the paperwork, our team specialises in identifying prime industrial units in Klang, Kapar, and Meru that are perfect for LMW-status manufacturing.

Explore prime industrial sites for your export business with Industrial Malaysia.

 

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