Navigating the LMW License Application in Malaysia: A Comprehensive Guide

Malaysia’s strategic location, robust infrastructure, and investor-friendly policies have made it a hub for manufacturing and export-oriented industries. A critical component for businesses in this sector is the Licensed Manufacturing Warehouse (LMW) license, a customs incentive that enables companies to import raw materials, components, and machinery duty-free for production and re-export. This guide explains the application process of LMW license application in Malaysia, its benefits, challenges, and answers key questions for businesses.

What is an LMW License?

The LMW license is issued by the Royal Malaysian Customs Department (RMCD) under the Customs Act 1967. It allows manufacturing companies to operate bonded warehouses, where imported goods can be stored, processed, or assembled without paying duties or taxes, provided the final products are exported. This scheme reduces production costs, enhances competitiveness, and supports Malaysia’s goal of becoming a global manufacturing hub.

Why Apply for an LMW License?

1. Duty Exemptions: Eliminates import duties, sales tax, and service tax on eligible goods.
2. Cash Flow Improvement: Deferred tax payments free up capital for operational expenses.
3. Global Competitiveness: This lowers production costs, making exports more price-competitive.
4. Supply Chain Efficiency: Streamlines logistics for just-in-time manufacturing.
5. Compliance with Trade Agreements: Facilitates adherence to ASEAN and international trade protocols.

Eligibility Criteria

To qualify for an LMW license, businesses must meet the following conditions:

1. Manufacturing Focus: At least 80% of production output must be exported.
2. Approved Activities: Operations must align with sectors promoted by the Malaysian Investment Development Authority (MIDA), such as electronics, aerospace, or medical devices.
3. Financial Stability: Proof of sufficient capital and operational capacity.
4. Facility Standards: A secure, customs-approved warehouse with proper record-keeping systems.

Step-by-Step Application Process

1. Preliminary Assessment

• Consult with MIDA or RMCD to confirm eligibility and understand requirements.
• Ensure your business complies with the Customs (Licensed Manufacturing Warehouse) Regulations 2019.

2. Prepare Documentation

Key documents include:

• Company registration (Form 9, 13, 24, 49).
• Manufacturing license from MIDA.
• Factory layout plan and photos.
• List of imported materials and export products.
• Audited financial statements.

3. Submit Application to RMCD

• Complete Form JKED No. 1 (LMW application).
• Submit physical copies to the nearest RMCD office or via the Customs Digital System (CDS).

4. Customs Evaluation

• RMCD reviews the application (typically 30–60 days).
• A site inspection verifies warehouse security, inventory systems, and compliance.

5. License Approval & Bond Execution

• Upon approval, execute a security bond (bank guarantee or insurance) equivalent to the duty value of imported goods.
• Pay processing fees (varies based on company size).

6. Commence Operations

• Begin importing duty-free materials under RMCD supervision.

Compliance Requirements

LMW holders must:

1. Maintained detailed records of imports, production, and exports.
2. Submit monthly reports to RMCD.
3. Allow random customs audits.
4. Ensure exported goods meet the 80% threshold.
5. Notify RMCD of operational changes (e.g., factory relocation).

Non-compliance risks fines, license revocation, or legal action.

Challenges in Obtaining an LMW License

1. Complex Documentation: Incomplete paperwork delays approval.
2. Stringent Site Requirements: Facilities must meet strict security and layout standards.
3. Bond Costs: Smaller firms may struggle with bond requirements.
4. Export Quota Pressure: Falling short of the 80% export rule invalidates duty exemptions.
5. Regulatory Updates: Frequent changes in customs policies require ongoing vigilance.

5 FAQs on LMW License Applications

1. Who is eligible for an LMW license?
Manufacturers exporting ≥80% of output, particularly in MIDA-promoted sectors like electronics, chemicals, or machinery. Domestic-focused companies or traders are ineligible.

2. How long does the application process take?
Typically 2–3 months, depending on RMCD’s workload and application completeness. Delays occur if site upgrades or document revisions are needed.

3. What happens if we fail to meet the 80% export requirement?
RMCD may revoke the license and impose retroactive duties and penalties. Companies can appeal for exemptions under specific circumstances (e.g., supply chain disruptions).

4. Are there hidden costs besides the security bond?
Yes. Costs include application fees, compliance software, audits, and potential penalties for errors. Depending on company size, budget for RM 5,000–RM 20,000.

5. Can the LMW license be renewed or transferred?
Licenses are valid indefinitely but require renewal if operational details change (e.g., new products). Transferring a license to another entity requires RMCD approval.

Conclusion

The LMW license is a powerful tool for manufacturers aiming to optimize costs and expand their global footprint. While the application process demands meticulous preparation, the long-term benefits outweigh the challenges. Partnering with customs consultants or leveraging MIDA’s advisory services can simplify compliance and ensure seamless operations.

By understanding the requirements and maintaining rigorous records, businesses can harness Malaysia’s strategic advantages and thrive in the competitive export market.

Need Help?
Contact the Royal Malaysian Customs Department (RMCD) or visit MIDA’s official portal for updated guidelines and application support.