Free Zone in Malaysia

Introduction

1. Free zones are established to provide exemptions from customs duties, excise duties, and sales tax on goods brought into, taken out of, or produced within a free zone, aimed at promoting export-oriented manufacturing activities and trading activities such as trading, bulk breaking, grading, repacking, and relabeling.

2. Referring to Section 2 of the Free Zones Act 1990, a free zone means "any part of Malaysia declared under subsection 3(1) to be a free trade zone or a free industrial zone."

3. According to subsection 2(1A) of the Customs Act 1967, a free zone is characterized as a place outside the CMA as follows: "For the purposes of this Act, a free zone shall be characterized as a place outside the Main Customs Area, and the provisions of section 31 and Parts IVA, V, VI, and VII of this Act shall also apply in a free zone."

4. In accordance with Section 4 of the Free Zones Act 1990, goods brought into, taken out of, or produced within a free zone are not subject to customs duty or excise duty.

5. Importation of goods into a free zone is deemed as importation into Malaysia in line with the definition of a free zone under Section 2 of the Free Zones Act 1990.

6. Goods taken out of any part of the CMA and brought into a free zone shall be considered as exported from Malaysia, while goods taken out of a free zone and brought into any part of the CMA shall be considered as imported into Malaysia.

Exemption of Goods from Duty-Free Status

1. Goods listed under the Free Zones (Exemption of Goods) Order 1998 are exempted from the provisions of Section 4 of the Free Zones Act 1990 and are subject to the payment of customs duty and excise duty. The list of such goods is as follows:

Free Zones (Exemption of Goods) Order 1998:

1. Forklifts

2. Cranes

3. Construction/building materials and equipment

4. Office equipment/furniture

5. Firefighting equipment and pollution control equipment

6. Motor vehicles and spare parts

7. Petroleum/petroleum products

8. Tires

9. Explosives and chemicals

10. Air conditioning equipment

11. Manufacturing aids

12. All goods and services not directly used in approved activities under the First and Second Schedules of the Act

13. Intoxicating liquor, tobacco products and cigarettes, applicable only to the Tasik Kenyir Duty-Free Zone

14. Cigarettes, electronic cigarettes, and similar personal vaporizing devices, tobacco pipes (including pipe heads), and preparations used for smoking through electronic cigarettes and electronic vaporizing devices, in liquid or gel form, which do not contain nicotine, imported into free zones other than those permitted by the Minister under Section 6A of the Free Zones Act 1990 for re-exportation purposes

15. Cigarettes, tobacco products, electronic cigarettes, and similar personal vaporizing devices, tobacco pipes (including pipe heads), and preparations used for smoking through electronic cigarettes and electronic vaporizing devices, in liquid or gel form, which do not contain nicotine, imported into free zones permitted by the Minister under Section 6A of the Act.

2. Cigarettes, tobacco products, electronic cigarettes, and similar personal vaporizing devices, tobacco pipes (including pipe heads), and preparations used for smoking through electronic cigarettes and electronic vaporizing devices, in liquid or gel form, which do not contain nicotine, imported into free zones permitted by the Minister under Section 6A of the Act.

Establishment and Declaration Procedure of Free Zones

1. A certain area becomes a free zone after being declared by the Honorable Minister of Finance in the Federal Government Gazette as provided for under Section 3(1) of the Free Zones Act 1990.
   

2. Application to designate an area as a free zone must first obtain the support of the state government.
   

3. The applicant must submit a proposal to the Malaysian Ministry of Finance and copy it to the Main Customs Excise Division Office for policy approval on the free zone application.
   

4. The proposal must include the following:

   1. Location and area size of the zone;

   2. Land status (land use/land ownership);

   3. Proposed activities (business model);

   4. Types of goods and services involved;

   5. Justification for the area's application as a free zone;

   6. Business development planning to advance the area;

   7. Business viability;

   8. Financial sources; ix. Return on investment expectations;

   9. Company information such as Board of Directors/shareholders;

   10. Impact on economy, social, security, and environment;

   11. Support letters from related agencies such as the Department of Environment, State Land and Mines Office, and others; and

   12. Other necessary information is required by the Malaysian Ministry of Finance.
       

5. Upon approval by the Honorable Minister of Finance, the Malaysian Ministry of Finance will issue a policy approval letter for publication purposes.
   

6. The applicant must deal with the Malaysian Department of Survey and Mapping (JUPEM) for the preparation of the gazette plan and directly contact the State Customs Department for customs control requirements in the involved area.
   

7. The applied area is officially declared as a free zone in the Federal Government Gazette as provided for under subsection 3(1) of the Free Zones Act 1990. Any area not gazetted is deemed to be within the Customs Area.
   

8. The Honorable Minister of Finance will appoint the Zone Authority in accordance with the provisions under subsection 3(2) of the Free Zones Act 1990. The Zone Authority shall administer, maintain, and manage the gazetted free zone area.