Licensed Manufacture Warehouse
OBJECTIVE
Basically, the purpose of the introduction of Section 65A,in addition to Section 65 of the Customs Act 1967, is to enable manufacturing process to be carried out in licensed warehouses. The manufacturing operation inside the licensed warehouses is subject to minimal customs procedures. This is primarily intended to cater for the 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 the ports of entry unlike the Free Zones established under the Free Zone Act 1990. Thus, the industries may be encouraged to be located in the rural areas. Raw Materials/ components used directly in the manufacturing process are exempted from customs duties and sales tax.
LOCATION OF LICENSED MANUFACTURING WAREHOUSE
A company that intends to get a license to set up Licensed Manufacturing Warehouse facilities will need to locate the warehouse in a less developed areas, in line with Government’s policy to spread the export-oriented and labor intensive industries to those areas. However, in this respect, a certain degree of flexibility is exercised. The Director General of Customs can still consider the setting up of the Licensed Manufacturing Warehouse in the areas other than in the less developed areas, on the account of the special nature of the manufacturing operation.
APPLICATION FOR LICENSE
Application to establish a warehouse for the storage of dutiable goods under Section 65 and to manufacture such goods for the production of other dutiable goods under the provision of Section 65A can be made simultaneously. Application forms will need to be submitted to the State Customs Director 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.
LICENSE PERIOD
License under Section 65 and Section 65A is issued at the discretion of the Director General of Customs and the fee is fixed at RM2,402.00 (Two Thousand and Four Hundred Ringgit Malaysia for license under Section 65 and a nominal two Ringgit Malaysia for license under Section 65A). It is for a period of two years subjected to renewal. The license so granted shall be subjected to such conditions as the Director General of Customs may specify.
If the product manufactured falls under the categories of goods liable to excise duty, an excise license is required and its fee is as was 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 the manufacturing of dutiable goods.
EXEMPTION OF CUSTOMS DUTY
Raw Materials/Components
1. Eligible For Duty Exemption
- 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 also includes packaging materials and casings (e.g. casings for calculators and cameras).
- The list of raw materials / components that can be imported and brought into the Licensed Manufacturing Warehouse without the payment of customs duty is issued together with the Licensed Manufacturing Warehouse license. Addition or deletion to the list can be made from time to time.
- Goods subjected to excise duty incorporated in the final products, may be exempted from excise duty. Application for such exemption of the excise duty shall be made to the Treasury for consideration under Section 10(a) of the Excise Act 1976.
2. Not Eligible For Duty Exemption
- The goods are :
- Forklifts
- Fuel oils
- Building and construction materials
- Office equipment/furniture
- Generator and related accessories
- Wearing apparels (e.g. uniforms for factory workers)
- Food and Drinks
- Materials for machinery and factory cleaning purpos
MACHINERY EQUIPMENT
Machinery equipment required for the direct manufacturing process of approved final products are entitled to exemption from customs duty and sales tax under Item 88, Customs Duty (Exemption) Order 1988 and Item 83 Schedule B Sales Tax (Exemption) Order 1980.
MOVEMENT OF GOODS
1. Movement of raw materials, components, machines, 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, licensee is required to submit Customs Form No. 2 at the place of export together with the invoices.
3. For finished goods permitted to be sold in the domestic market, submission of Customs Form No. 9 is required. Local sales is regarded as import, and import duty and sales tax are required to be paid in line with Section 65A(3)(b) Customs Act 1967 and Section 7(1)(d) Sales Tax Act 1972 (paid via Form CJ 3) respectively.
4. For movement of goods sold to Free Zone Area, Customs Form No. 2 is required at the point of entry.
5. For goods sold to another Licensed Manufacturing Warehouse (LMW), the licensee is required to obtain approval before sales is made. Form GPB 1 is used for movement of finished goods to another LMW licensee.
6. For LMW goods exported via a trading company using facilities specified in Item 165 Customs Duty (Exemption) Order 1988 and Item 91 of Sales Tax (Exemption) Order 1980, approval will need to be obtained from the State Customs Director where the trading company is situated. In situations where dutiable goods are exported directly from LMW, the usage of Customs Form No. 2 is allowed under the name of the approved trading companies. If the goods purchased by the trading company are transferred to another premise, then the declaration on Customs Form No. 9 is required and the exemption of duties declared as approved. During exportation, the trading company should also declare on Customs Form No. 2 the names and license of the suppliers as well as approval issued.
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 the State Customs Director where the LMW is located.
3. Licensees are fully accountable and responsible for the usage, control and safety of all goods kept in the warehouse and for the movement of goods into and out of the licensed premises.
IMPORT AND EXPORT PROHIBITION
If the finished products of LMW are of a class prohibited on import/export, the manufacturing of the product is allowed, but the finished products when released to the domestic market or exported will be subjected to the prohibition orders. Import or export license, whichever is applicable must be obtained from the Ministry of International Trade and Industry and presented to Customs at the port/place of import or export.
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 the purpose of duty calculations will be based on the shape and identity of the waste or refuse at the time of disposal.
SUB CONTRACT/FARMING OUT
1. Sub contract/farming out of manufacturing processes is allowed subject to approval by the State Customs Director. Sub contract work can be carried out from :
- Licensed Manufacturing Warehouse to other Licensed Manufacturing Warehouse.
- Licensed Manufacturing Warehouse to companies in a Free Trade Zone or otherwise.
- Licensed Manufacturing Warehouse to factories in the Principal Customs Area.
2. Sub contractors are allowed to export on behalf of their principals after the completion of the sub contracting works direct from their premises with the approval from the State Customs Director.
3. Import of raw materials or components may be sent directly to the sub contractor from the place of import, provided that a declaration is made to that effect at the time of import with the approval of the State Customs Director.
4. For applications to deliver raw materials/components to the sub contractors located outside the country and to operate sub contract works from foreign companies, approvals must be obtained from Treasury.
EXPORT OF FINISHED GOODS THROUGH THIRD PARTIES
A licensed manufacturer may export the finished goods through third parties such as trading houses with prior approval of the State Customs Director.
LEGISLATION
They are as follow:
Customs Act, 1967
Free Zone Act, 1990
Customs (Prohibition of Export) Order 1998
Customs (Prohibition of Import) Order 1998
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