Guide On The Approval Process Of Value-Added Activity And The Expansion Scope Of Additional Activities Under Licensed Manufacturing Warehouse (LMW).

INTRODUCTION.

1.1

License Manufacturing Warehouse (LMW) is an export-oriented company licensed under Section 65A of the Customs Act 1967 to carry out manufacturing activities. LMW also allowed to do other activities such as value-added, International Procurement Centre (IPC), Regional Distribution Centre (RDC) and Remanufacturing, Repairing and Servicing.

1.2

Basically, the applications for activities other than manufacturing will be processed at zone / state level and will be forwarded to Headquarters for further consideration. However, effective from 1st April 2020 all the applications shall be processed and the approval will be issued at zone / state level only.

1.3

The new policy was made based on the decision of the Ministry of Finance as announced by YAB Prime Minister through the Economic Stimulus Package announcement on 27th February 2020. The delegation of power to make approval has been given to the Director General of Customs through State Customs Director / Zone Operations Director with the objective to improve level of delivery system and to facilitate customers matters.

OBJECTIVE.

2.1

To provide guidance to LMW companies on the application procedure of value-added activities

2.2

To standardize the implementation on value-added activities at all states and zones level.

SCOPE.

3.1

Other manufacturing activities that can be considered at state or zone level are as follows;

Research and Development;

Product Design;

Marketing, only for manufacturers with International Procurement Centre, IPC status;

Distribution, only for manufacturers with Regional Distribution Centre, RDC status;

Quality Control;

Testing and Commissioning including Calibration and Configuration;

Labelling, Packaging and Re-packing; and

Remanufacturing, Repairing and Servicing.

3.2

Supply Chain Management, Strategic Procurement Operation and Total Support Solution.

TERMINOLOGY.

4.1

Research and Development (R&D).
Research activities on a product to obtain new knowledge that it might be use to enhance or produce new materials / equipment / products / production / processes for business purposes

4.2

Product Design.
Research, engineering and manufacturing activities to produce a new product or improvement of an existing product to meet the current demands and needs of consumers as well as production and marketability of the product.

4.3

Marketing, only for manufacturers with International Procurement Centre (IPC) status.
Procurement activities and sales of raw materials, components and finished goods from foreign and local sources to domestic and overseas companies.

4.4

Distribution, only for manufacturers with Regional Distribution Centre (RDC) status.
Collection and consolidation activities of finished goods as well as spare parts under own brands which produced by the group of companies for distribution to wholesaler, importers, subsidiaries, domestically and abroad.

4.5

Quality Control.
Inspection on certain product to ensure that the product comply with quality or standard imposed

4.6

Testing and Commissioning including Calibration and Configuration.
Assessment on a product by using a specific mechanism to ensure it meets the specifications.

4.7

Labelling, Packing and Re-Packaging.

Consolidation, integration or kitting of raw materials, components or finished goods for labelling, packaging and repacking before distribution to final consumer.

Labelling includes product tagging using RFID to provide information on products such as brands, prices and other specifications.

* The kitting process refers to the collection of parts and materials to be consolidated in a single kit.

4.8

Remanufacturing, Repairing and Servicing

Remanufacturing is an industrial process which follows certain standards in order to get back the original core of product or better condition in term of physical condition and performance wise. The process should follow specific technical specifications including engineering standard, quality and testing by Original Equipment Manufacturer (OEM). Products that have been through the process of remanufacturing will have a warranty from the manufacturer.
Process involve:

core management and core allocation,

dismantling core into parts,

cleaning of all internal and external parts,

reworking,

machining or performing other activities required to restore components / equipment to the original or better condition,

restoration of all damaged, deformed or worn parts into good condition,

replacement of all missing components, mandatory components; and

reassemble of component and final testing of components.

4.9

Supply Chain Management, Strategic Procurement Operation and Total Support Solution.
Supply of raw material and components for own manufacturing process, inter-group of companies, to support contract manufacturing activity and to ensure the continuity of company's activity domestically and abroad.

APPLICATION CRITERIA.

5.1

General criteria / conditions that need to be complied with:

The company has obtained a License Manufacturing Warehouse (LMW);

Value-added activities are related to company's manufacturing activities;

Manufacturing activities as approved in the Manufacturing License under the Industrial Co-ordination Act 1975 and the LMW license under Section 65A of the Customs Act 1967 should be remained;

The value-added activity is only a side activity which the sales value of goods from this activity shall not exceed 40% of the total annual sales value. This condition does not apply for companies with IPC and RDC status.

The companies need to segregate the operations / equipment / facilities / machineries use for manufacturing activities and value-added activities in the premises.

The company is required to keep and maintain a proper and complete record of imported and exported raw materials / components for Customs review.

The company needs to prepare a separate account for the activities and can be accessed at any time as required by Customs.

The approved finished goods / products for value-added activities shall be returned to the customer. However, sales to FIZ and LMW are permitted provided that the raw material to be used only for the purpose of manufacturing activities. These conditions do not apply to a company with IPC, RDC status and for labelling, packaging or repackaging activities.

This exemption can be revoked at any time subject to changes in policies and legislation. If the duty / tax is required to be paid, all exempted duties / taxes shall be paid within 30 days from the date of the revocation letter, cancellation or revocation of the exemption.

The company must comply with the regulations / conditions set by Customs Department and other applicable laws and regulations in Malaysia.

5.2

Specific criteria / conditions that need to be complied with;

Labelling, Packaging or Re-Packaging.
The country of origin label cannot be changed. Permitted labelling activities refer to mixing or re-packaging activities which result in changes of the formula, content or packaging. In this case, a new packaging and label which indicates latest information must be displayed.

Marketing, only for manufactures with International Procurement Centre (IPC) status.

The company has obtained an approval of IPC status from MIDA;

ii.

Comply with all IPC requirements; and

iii.

List of items for IPC activities is based on the approval from MIDA.

Distribution, only for manufacturers with Regional Distribution Centre (RDC) status.

The company has obtained an approval of RDC status from MIDA;

ii.

Comply with all RDC requirements; and

iii.

List of items for RDC activities is based on the approval from MIDA.

Remanufacturing, Repairing and Servicing.

Electronic products, electrical, machinery and equipment;

ii.

Companies need to get recommendation from MIDA;

iii.

Obtain approval from the Department of Environment that no generation of toxic waste;

iv.

Any form of disposal is subject to customs procedure; and

Products that fail under this value-added activity shall returned to the customer.

Supply Chain Management, Strategic Procurement Operation and Total Support Solutions;

Supply and distribution of raw materials, components and finish goods in the same group of companies (domestic and overseas) or contract manufacturer;

ii.

Supply to companies in the same group or among contract manufacturers in Principal Customs Area (PCA) is subject to duties and taxes (if applicable); and

iii.

Only items in approved list are allowed for this activity.

5.3

Approval is subject to definitions, scope, criteria and conditions which has been set. Applications that do not comply with any of the criteria and conditions can be forwarded to the Ministry of Finance for consideration.

IMPLEMENTATION.

6.1

The application shall be submitted to the Customs Controlling Station with these following documents;

No.	Activities	Document
No.	Activities	Specific	General
a)	Research and Development		i. Covering Letter; ii. Application form; iii. A copy of LMW License; iv. A Copy of ICA v. License; Workflow Chart
b)	Product Design
c)	Marketing (IPC)	i. Approval letter from MIDA ii. Approved list of goods from MIDA
d)	Distribution (RDC)
e)	Quality control
f)	Testing and Commissioning including Calibration and Configuration
g)	Labelling, Packaging or Re-Packaging
h)	Remanufacturing, Repairing and Servicing	i. Recommendation letter from MIDA, ii. Approval from Department of Environment iii. Approval from other agencies (if applicable)
i)	Supply Chain Management, Strategic Procurement Operation and Total Support Solutions	i. Application from the same group of companies or contract manufacturer, ii. List of goods and quantities apply by same group of companies or contract manufacturer iii. Agreement or other document showing a relationship with the applicant

6.2

The quantity of goods that can be considered for approval is based on the estimated quantity as stated in the supporting documents or for a period of one year.

6.3

The approval period can be considered not more than 12 months or until the expiration of the LMW license approval period (which ever earlier).

6.4

For Marketing (IPC) / Distribution (RDC) activities;

The goods applied must be the same as goods approved by MIDA.

Any changes or additional goods for IPC / RDC activities must obtain an approval from MIDA.

EFFECTIVE DATE.

This guide is effective from 1st April 2020.

CONCLUSION.

If there are any questions regarding its implementation, YBhg. Dato’/ Tuan / Puan can directly refer to the License Manufacturing Warehouse Unit / Industrial Section at the relevant state / zone.

Customs Division

Customs Headquarters

Putrajaya.

CONDITIONS FOR VALUE-ADDED ACTIVITIES 

Manufacturing activities as approved in the Manufacturing License under the Industrial Co-ordination Act 1975 and the LMW license under Section 65A of the Customs Act 1967 should be remained.

Value-added activities are related to company's manufacturing activities.

The approved finished goods / products for value-added activities shall be returned to the customer. However, sales to FIZ and LMW are permitted provided that the raw material to be used only for the purpose of manufacturing activities. These conditions do not apply for labelling, packaging or repackaging activities.

The Company shall;

5.1

segregate the operations / equipment / facilities / machineries use for manufacturing activities and value-added activities in the premises.

5.2

keep and maintain a proper and complete record of imported and exported raw materials / components for Customs review.

5.3

prepare a separate account for the activities and can be accessed at any time as required by Customs.

Specific conditions that need to be complied with;

6.1

Labelling, Packaging or Re-Packaging.

The country of origin label cannot be changed.

Permitted labelling activities refer to mixing or re-packaging activities which result in changes of the formula, content or packaging. In this case, a new packaging and label which indicates latest information must be displayed.

6.2

Remanufacturing, Repairing and Servicing.

Any form of disposal is subject to customs procedure.

This exemption can be revoked at any time subject to any changes in policies and legislation. If the import duty and sales tax is required to be paid, all exempted duty and tax shall be paid within 30 days from the date of the revocation letter, cancellation or revocation of the exemption.

The company must comply with the regulations / conditions set by Customs Department and other applicable laws and regulations in Malaysia.

The above conditions may be amended, change and modified from time to time if necessary.

CONDITIONS FOR VALUE-ADDED ACTIVITIES (MARKETING - IPC & DISTRIBUTION - RDC)

Manufacturing activities as approved in the Manufacturing License under the Industrial Co-ordination Act 1975 and the LMW license under Section 65A of the Customs Act 1967 should be remained.

The Company shall;

2.1

segregate the operations / equipment / facilities / machineries use for manufacturing activities and value-added activities in the premises.

2.2

provide a separate account for value added activity and can be accessed at any time required by the Customs Department.

2.3

store IPC / RDC goods separately in the License Manufacturing Warehouse and shall be marked and arranged properly for the safety of the goods and purpose of inspection by customs department.

2.4

keep and maintain a proper and complete record of the goods for IPC / RDC activities using format as per Appendix M3 - Monthly Statement of IPC / RDC Activity for customs reference. Statement that has been verified by company accountants shall be submitted to the customs department on or before 28th. of the following month.

2.5

comply with the IPC / RDC scheme approval requirements by MIDA including stipulated local sales quota of ……...% and exports of …….%. Sales through "drop shipment" is limited to not more than 30% of the total value of IPC / RDC export sales.

2.6

submit to the control station, an annual statement which has been audited by independent auditor. The statement should include details of goods such as balance carried forward, amount brought in, amount re-exported and balance in storage.

2.7

fully responsible for any movement, entry, storage, export and sale of IPC / RDC goods. Bill of demand will be issued for duties and taxes claim involved on lost / unaccounted / deficient in quantity.

2.8

submit a bank guarantee / general bond of RM ………... to the control station to ensure the safety of duty / tax of goods stored in license manufacturing warehouse. However, if the existing bank guarantee is sufficient then additional bank guarantee is not required.

IPC / RDC activities shall be conducted by the license holder only and may not performed by other companies within the LMW area.

Total sales of goods to the local market under IPC / RDC facilities shall not exceeds local sales quota.

The company must comply with the regulations / conditions set by Customs Department and other applicable laws and regulations in Malaysia.

The above conditions may be amended, change and modified from time to time if found necessary.

CONDITIONS FOR SUPPLY CHAIN MANAGEMENT, STRATEGIC PROCUREMENT OPERATIONS AND TOTAL SUPPORT SOLUTIONS

Manufacturing activities as approved in the Manufacturing License under the Industrial Co-ordination Act 1975 and the LMW license under Section 65A of the Customs Act 1967 should be remained.

The value-added activity is only a side activity which the sales value of goods from this activity shall not exceed 40% of the total annual sales value.

The company keep a proper and complete record of the raw materials / components imported, exported and local release for review by the Customs Department.

The raw materials / components involved in this activity should be recorded in column 10, Appendix M1 (Raw Material / Component / Accessory / Packaging Material Monthly Statement).

The Company is fully responsible for the raw materials / components has been approved. Bill of demand will be issued for duties and taxes claim involved on loss / missing / unaccounted / deficient in quantity.

The supply of raw materials / components to support the continuity of manufacturing activities;

6.1

Same group of companies locally and abroad as follows, or

No	Company Name	Address

6.2

Among the appointed contract manufacturers as follows.

No.	Company Name	Address

Supply to same group of companies or within the contract manufacturer in the Principal Customs Area is subject to duties and taxes (if applicable) and should be paid before raw materials / components are released from customs control.

The company must comply with the regulations / conditions set by Customs Department and other applicable laws and regulations in Malaysia.

10.

The above conditions may be amended, change and modified from time to time if necessary.

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Guide On The Approval Process Of Value-Added Activity And The Expansion Scope Of Additional Activities Under Licensed Manufacturing Warehouse (LMW).