Approval and Licensing

The Industrial Co-ordination Act 1975 (ICA) was introduced with the aim to maintain an orderly development and growth in the country’s manufacturing sector.

The ICA requires manufacturing companies with shareholders’ funds of RM2.5 million and above or engaging 75 or more full-time paid employees to apply for a manufacturing licence for approval by the Ministry of Investment, Trade and Industry (MITI).

Applications for manufacturing licences are to be submitted to the Malaysian Investment Development Authority (MIDA), an agency under MITI in charge of the promotion and coordination of industrial development in Malaysia.

The ICA defines:

“Manufacturing activity” as the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal; and includes the assembly of parts and ship repairing but shall not include any activity normally associated with retail or wholesale trade.

“Shareholders’ funds” as the aggregate amount of a company’s paid-up capital, reserves, and balance of profit and loss appropriation account, where:

• Paid-up capital shall be in respect of preference shares and ordinary shares and not including any amount in respect of bonus shares to the extent they were issued out of capital reserve created by revaluation of fixed assets.
• Reserves shall be reserves other than any capital reserve created by revaluation of fixed assets and provisions for depreciation, renewals or replacements and diminution in value of assets.

Full-time paid employees” as all persons normally working in the establishment for at least six hours a day and at least 20 days a month for 12 months during the year and who receive a salary.

Guidelines for Approval of Industrial Projects

The government’s guidelines for approval of industrial projects in Malaysia are based on the following criteria:

• Projects must have Capital Investment Per Employee (CIPE) of at least RM140,000.00; and
• Total full-time workforce of the company must comprise at least 80% Malaysians. Employment of foreign workers including outsourced workers is subjected to current policies; and
• Total number of managerial, technical and supervisory levels (MTS) is at least 25% of total employment or having a value added (VA) of at least 40%.

A company with shareholders’ fund not exceeding RM2.5 million and employing not more than 75 full-time paid employees*, may apply for an exemption from Manufacturing Licence.

Companies exempted from the Manufacturing Licence as confirmed through the Exemption Letter are eligible to apply for various facilities from the Government such as import duty exemptions for machinery and equipment and raw materials under the Customs Duties (Exemption) Order 2017 and Sales Tax (Persons Exempted From Payment Of Tax) Order 2018; as well as investment incentives under the Promotion of Investments Act 1986 and the Income Tax act 1967 subject fulfilling the required criteria and condition.