Licensed Manufacturing Warehouse (LMW)
Licensed Manufacturing Warehouse (LMW)
A Licensed Manufacturing Warehouse (LMW) is an authorized bonded facility in Malaysia that allows companies to conduct manufacturing and warehousing with exemptions from import duties and sales taxes.
Key Features of an LMW
Export Focus: At least 80% of the manufactured goods must be intended for export markets.
Tax Exemptions: Raw materials, components, machinery, and equipment used directly in the production process are exempt from import duties and sales taxes.
Legal Basis: Governed under Section 65/65A of the Malaysian Customs Act 1967 and regulated by the Royal Malaysian Customs Department (RMCD).
Alternative to FIZ: Created for export-oriented businesses that need tax privileges but cannot locate inside a Free Industrial Zone (FIZ) due to geographical or supply chain reasons.
Operational Requirements
Local Sales Limit: Manufacturers selling more than 20% of their products locally need special approval from the Malaysian Investment Development Authority (MIDA).
Compliance & Reporting: Licensees must maintain strict inventory records and submit periodic compliance returns (such as M1, M2, and M4 reports) to customs.
Licensing Fees: Involves an annual license fee (typically RM2,400) subject to regular renewal.
Application Process and Required Documents
Obtaining a Licensed Manufacturing Warehouse (LMW) license in Malaysia requires verifying your eligibility, preparing detailed corporate and architectural documents, and passing an on-site facility inspection by the Royal Malaysian Customs Department (RMCD).
The end-to-step process and the exact documentation required are detailed below.
Step 1: Verify Eligibility: Ensure your company complies with the strict LMW criteria. You must have a MIDA Manufacturing License (or an exemption letter), operate a production line that matches the legal definition of "manufacturing" under the Customs Act, and maintain a minimum 80% export ratio for finished goods.
Step 2: Submit to Customs: Compile all forms and supporting documentation. File your application directly with the State Director of Customs overseeing the district where your factory is located.
Step 3: On-Site Premises Inspection: Customs officers will visit your factory. They evaluate structural permanence, security perimeter fencing, secure storage boundaries separating raw materials from finished items, and automated security alarms. [1, 4, 5]
Step 4: Approval & Fee Activation: Upon successful evaluation, the RMCD issues your license via Form JKDM No. 3. You must pay the RM2,400 annual license fee and secure the necessary financial commitments (such as general bonds or bank guarantees for critical materials) before starting tax-exempt operations.
You must organize your application folder with the following essential items to prevent processing delays:
1. Primary Application Forms
Form JKDM No. 1: General application form for custom licenses.
Form A: Specific application for operating a Licensed Manufacturing/Warehouse under Section 65/65A.
Covering letter outlining the company's business intent. [2, 7]
2. Corporate & Regulatory Documents
MIDA Manufacturing License: A certified copy of the approval under the Industrial Co-ordination Act 1975 (or your official exemption letter).
SSM Statutory Profiles: Full corporate documentation from the Companies Commission of Malaysia (including Certificate of Incorporation, Form 9, Form 24 share allotments, Form 44 registered office, and Form 49 directors list).
Local Authority Approvals: A copy of the valid business license issued by the local municipal council (PBT) alongside the building's Certificate of Completion and Compliance (CCC).
Passport-sized photos and NRIC/passport photocopies for all acting directors.
3. Technical & Operational Layouts
Certified Architecture Plans: Factory location, facility layout, and elevation plans—each explicitly certified by a Registered Architect. The layout must distinctly mark raw material storage, processing floors, finished goods zones, and scrap yards.
Manufacturing Flowchart: A step-by-step visual diagram explaining the exact production lifecycle.
Input/Output Ratio: Detailed formulas displaying the consumption rate of raw components against final yields.
Inventory Lists: Complete registers cataloging raw materials, required machinery/tools, and standard finished goods.
Tenancy Status: A certified copy of the land/building deed or a legal Rental of Premises Agreement.
To help guide you further, please let us know:
What specific industry or type of goods will your factory be manufacturing?
Do you already have a MIDA Manufacturing License or an exemption letter prepared?
A copy or screenshot of your proposed layout draft if you would like me to review the structural setup requirements for the customs inspection?
Specific Customs Forms (K1, K2, K9) for Shipments
Managing the movement of goods in and out of a Licensed Manufacturing Warehouse (LMW) requires precise documentation using the Royal Malaysian Customs Department (RMCD) declaration forms, universally referred to as "K-Forms".
For an LMW operator, the K1, K2, and K9 forms serve as the regulatory paper trail that allows you to maintain your duty-free and tax-exempt status.
Direct comparisons of how these forms function for your shipments are detailed below.
Customs Form | Primary Purpose for LMW | Direction of Goods | Tax & Duty Treatment |
Form K1 (Import Declaration) | Bringing raw materials, machinery, or components into the factory. | Inbound (From Overseas or Free Zones into LMW) | Suspended/Exempted Imports enter duty-free under the LMW tax relief scheme. |
Form K2 (Export Declaration) | Shipping final manufactured products out to foreign markets. | Outbound (From LMW to Overseas or Free Zones) | Zero-Rated / Exempt Fulfills the mandatory 80% export quota. |
Form K9 (Domestic Release / Requisition) | Domestic market activities, local sales, and third-party subcontracting. | Domestic Cross-Border (Between LMW and the Principal Customs Area) | Taxable / Monitored Triggers local SST and import duties upon local entry. |
This as the entry gate for your manufacturing materials.
When to use it: You must file a K1 form whenever your LMW purchases raw materials, spare parts, components, or production machinery from an international supplier or a local Free Trade Zone (FTZ).
LMW Impact: Filing a K1 enables the custom system to log incoming cargo against your approved LMW exemption quota. Rather than paying import duties at the port, the financial liability is suspended while the items sit in your LMW inventory.
The Bestar K2 Guide covers the mandatory declaration for all finished items departing Malaysia.
When to use it: You must clear your final products through a K2 form when exporting directly to global clients, transferring items to another LMW, or moving products into a bonded warehouse.
LMW Impact: The K2 acts as legal proof that your raw materials were successfully transformed and shipped out of the country. Customs uses your accumulated K2 forms during annual audits to verify that you are strictly meeting your 80% export threshold.
This form regulates any movement between your duty-free LMW bubble and the local Malaysian market, known as the Principal Customs Area (PCA).
When to use it:
Local Sales (Up to 20%): If you sell finished products to a domestic Malaysian company, you must file a K9 to formally release them from customs control.
Subcontracting: If you temporarily send semi-finished products to a local PCA factory for processing (e.g., specialized plating or testing), a K9 is filed to move the items out, and another K9 tracks their return.
Scrap Disposal: Disposing of or selling manufacturing waste, dross, or scrap locally requires a K9.
LMW Impact: For local sales, the K9 treats the goods as if they were imported into Malaysia for the first time. This means any suspended import duties and Sales and Service Tax (SST) become instantly payable unless a local buyer has a specific MIDA exemption code.
(Note: If you ever need to transfer raw materials or duty-unpaid goods directly from your LMW to another bonded facility or port without entering the domestic economy, you will use a Form K8 instead).
To help streamline your documentation setup, could you share:
Are you looking to set up the electronic filing system (uCustoms/eDeclare) for these forms?
Do you plan on doing any local subcontracting or selling your finished goods within the Malaysian domestic market?
Comparison with Free Industrial Zones (FIZs)
While both regimes are designed by the Malaysian government to support export-oriented manufacturers with identical tax and duty exemptions, the fundamental difference lies in geographic flexibility versus ecosystem convenience.
In simple terms: An FIZ is a designated tax-free zone you move your factory into, whereas an LMW turns your standalone factory into its own custom-bonded zone.
Direct Comparison Overview
Feature | Licensed Manufacturing Warehouse (LMW) | Free Industrial Zone (FIZ) |
Legal Basis | Customs Act 1967 (Section 65/65A) | Free Zones Act 1990 |
Location Restraints | Anywhere in Malaysia (Principal Customs Area) subject to Customs approval. | Only within gazetted FIZ boundaries (e.g., Penang, Pasir Gudang, Port Klang). |
Legal Status | Deemed inside the Principal Customs Area (PCA), but functions as a bonded unit. | Deemed legally outside the Principal Customs Area. |
Export Requirement | Minimum 80% of finished goods must be exported. | Minimum 80% of finished goods must be exported. |
Property Availability | High. You can use standard industrial parks or land you already own. | Limited. Factories must compete for premium, finite space inside the zones. |
Customs Formalities | Medium-High. Higher reporting oversight as an individual bonded structure. | Minimal. Smooth, integrated customs checkpoints at zone borders. |
Licensing Fees | RM2,400 annually paid to the Royal Malaysian Customs Department. | Varied. Administered via specific Zone Authorities. |
1. Location and Infrastructure
FIZ: FIZs offer a rich, plug-and-play industrial ecosystem. Operating inside an FIZ places you right next to shared logistics networks, specialized freight forwarders, and major ports or airports. However, finding available land or factory lots can be difficult and expensive.
LMW: An LMW provides ultimate geographic freedom. If your operation requires being close to a highly specific raw material source, an established local workforce, or land your company already owns outside a free zone, an LMW allows you to gain identical duty relief right where you are.
2. Legal Duty Status
FIZ: Because FIZs are legally recognized as "outside Malaysia" for customs purposes, goods flow into the zone with minimal paperwork. Customs duty and Sales and Service Tax (SST) are only triggered if a product leaves the zone fence and enters the Malaysian domestic market (PCA).
LMW: Your factory remains inside the domestic customs boundary, but acts as a "security bubble". While duties on imports are successfully suspended, you must maintain exhaustive record-keeping and clear audits directly with the local customs office to prove the goods haven't leaked into the local economy.
3. Setup and Flexibility
FIZ: The approval process focuses heavily on securing a lease within the designated zone from the respective authority. Once you are inside the gate, your physical building does not face the same individual layout restrictions as an LMW.
LMW: Setup can be faster if you already have a physical facility. However, you must bear the responsibility of modifying your factory layout to meet strict custom requirements (such as designated wall heights, separate custom locks, and isolated waste spaces).
To help determine the best framework for your project, could you share:
In which state or region of Malaysia are you looking to establish your manufacturing operations?
Will you be relying heavily on immediate access to major sea ports or airports for high-frequency daily shipping?
What is your estimated timeline for launching production?
How Bestar Malaysia can Help set up an LMW
Bestar Malaysia can streamline your corporate setup by managing every stage of the complex Licensed Manufacturing Warehouse (LMW) application lifecycle. Operating an export-oriented business requires navigating strict regulatory frameworks under Section 65/65A of the Malaysian Customs Act 1967. By engaging Bestar, foreign and local investors ensure full compliance, accurate corporate reporting, and friction-free approvals from the Royal Malaysian Customs Department (RMCD).
Below is an optimized breakdown of how Bestar acts as your expert corporate partner to successfully secure and manage an LMW license in Malaysia.
Before submitting paperwork, Bestar conducts a strict internal audit to align your business operations with Malaysian statutory laws:
Export Quota Verification: Bestar evaluates your production forecasting to ensure your business securely meets the mandatory 80% export volume requirement.
MIDA Alignment: If your project needs a MIDA Manufacturing License (required under the Industrial Co-ordination Act 1975), Bestar handles the application or secures an official exemption letter.
Site Feasibility: Bestar's compliance consultants inspect your chosen premises ahead of time to verify it fulfills the strict security specifications required for customs-bonded zones.
The application process involves a complex array of legal, corporate, and structural records. Bestar removes the operational burden by organising and certifying your submission packet:
SSM Corporate Profiling: Bestar prepares all legal corporate forms (including the Certificate of Incorporation, share allotments, and directors registers) via their native Corporate Secretarial Services.
Technical Layout Review: Bestar coordinates with your registered architects to ensure factory blueprints clearly define raw material separation, finished goods storage, and scrap spaces.
Customs Liaison: Bestar compiles and structures the core applications (Form JKDM No. 1 and Form A), avoiding common filing discrepancies that trigger processing delays.
Passing the physical factory inspection by RMCD officers is a major milestone in obtaining your license. Bestar actively prepares your team for this critical stage:
On-Site Preparation: Bestar guides you through setting up required perimeter fencing, automated security systems, and custom lock mechanisms.
Input/Output Formula Verification: Bestar helps draft and verify technical production flowcharts and input/output consumption ratios, ensuring your waste and raw material yields are clear to customs auditors.
Bond Setup: Bestar coordinates the activation of the annual RM2,400 customs license fee along with the general bank guarantees needed to secure your duty-suspended imports.
An LMW license is not a one-time approval; it requires continuous regulatory reporting. Bestar provides comprehensive operational support through their dedicated accounting and tax divisions:
Phase | Operational Requirement | How Bestar Assists |
Customs Reporting | Submission of regular inventory reports (M1, M2, M4 returns). | Custom-compliant bookkeeping tracks duty-free inventory movements accurately. |
K-Form Management | Accurate tracking of inbound K1 forms, outbound K2 forms, and local K9 sales. | Reconciles logistical customs declarations against tax records to prevent penalties. |
Annual Renewals | Processing renewals at least one month before the license expires. | Manages annual updates and updates declarations if factory layouts change. |
Corporate Taxation | Managing Sales & Service Tax (SST) clawbacks on local market entry. | Coordinates domestic transfer rules if products enter the local PCA market. |
How much does an LMW license cost in Malaysia?
The official annual license fee paid to the Royal Malaysian Customs Department is RM2,400. This fee must be paid upon initial approval and during each annual renewal cycle.
Can an LMW sell products inside the local Malaysian market?
Yes, but local sales are strictly capped at 20% of your total production value. Any local distribution requires prior MIDA approval, and applicable import duties and Sales and Service Tax (SST) must be declared using a Customs Form K9.
Why should I choose an LMW over a Free Industrial Zone (FIZ)?
An LMW offers geographic flexibility. While an FIZ requires your factory to be located inside fixed, high-competition zones, an LMW lets you set up a standalone custom-bonded factory anywhere in Malaysia using land you already own or prefer.
To help tailor our corporate advisory approach for your upcoming LMW setup, could you share:
What specific industry or category of goods will your factory be manufacturing?
Do you currently have a registered Malaysian company (Sdn Bhd) set up, or do you need assistance with incorporation?
A copy or sketch of your factory floor plan so we can evaluate if it meets the physical separation rules required for the customs inspection?
Navigating the Royal Malaysian Customs Department’s strict criteria under Section 65/65A can be a complex and time-consuming process. A single documentation error or structural layout issue can delay your manufacturing operations by months.
Partner with Bestar Malaysia today to fast-track your factory setup. Our dedicated team of corporate secretaries, customs compliance consultants, and tax strategists will handle your end-to-end setup, from securing MIDA manufacturing approvals to ensuring long-term audit compliance.
Schedule a Consultation with Bestar's LMW Specialists
🌐 Visit Our Website: Contact Bestar Corporate Advisory
📧 Email Us Directly: admin@bestar-asia.com
To help us prepare the exact framework for your initial consultation, please let us know:
What is the estimated investment value or scale of your manufacturing project?
Will you be importing any heavy machinery or specialized production equipment that requires immediate duty exemption?
A copy or draft of your current corporate profile or incorporation documents so we can verify your current legal structure?
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