Malaysia is a fast-growing manufacturing hub in Southeast Asia. With thousands of factories producing goods for international markets, the government created incentives to attract more manufacturers. One of the most beneficial incentives is the Licensed Manufacturing Warehouse (LMW) license, introduced by the Royal Malaysian Customs Department.
This license allows eligible manufacturers to import raw materials and machinery without paying import duties and SST (Sales & Service Tax) as long as the majority of their production is exported. If you are a manufacturer planning to apply for the LMW license, or if you already have one and want to understand SST exemptions, this guide explains everything you need to know in simple terms. Besides reading this article, you can also read a top consultant in Industrial Malaysia’s guide to the LMW license application in Malaysia. Now let’s dive into our article.
What is an LMW License?
The LMW license allows manufacturers in Malaysia to operate a warehouse for storing and processing raw materials and finished goods for export. It is an incentive scheme to help export-oriented manufacturers reduce costs, increase competitiveness, and expand globally.
An LMW-licensed business benefits from:
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Duty-free imports
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SST exemptions
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Faster customs clearance
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Lower operating costs
As long as the factory continues to export most of its products, these benefits remain valid.
Key Requirements to Qualify for an LMW License
To qualify for an LMW license, a business must meet specific requirements. These include:
1. Export-Focused Manufacturing
The most important condition is that the manufacturer must export at least 80% of its finished goods. The LMW scheme is not designed for local market manufacturers. If the business exports less than 80%, it may lose eligibility.
2. Registered Manufacturing Premises
The premises used for production must be properly registered. This includes:
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Factory address and land title
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Manufacturing equipment location
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Compliance with local council regulations
Customs officers may conduct inspections to verify that all facilities are in place.
3. Proper Manufacturing Process Documentation
To apply for the LMW license, companies must provide accurate documents such as:
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Factory layout plan
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Machinery list with model and serial numbers
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Production flow chart
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Raw material usage breakdown
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Monthly or yearly export projection
Customs must understand how materials enter, are transformed, and leave the factory.
4. Registration with Relevant Authorities
The manufacturer must be registered with:
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Companies Commission of Malaysia (SSM)
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Royal Malaysian Customs Department
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Local Municipal Council
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MIDA (in most cases)
These registrations confirm that the company is legally operating.
5. Reliable Inventory Control System
LMW factories must have a robust inventory tracking system that can monitor:
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Raw materials
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Semi-finished goods
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Finished products
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Scrap or rejected items
This prevents leakages and illegal sales into the local market.
What are the SST Exemptions for LMW?
The LMW license provides attractive SST (Sales & Service Tax) exemptions on specific items. This helps reduce operating costs and keeps Malaysia competitive for foreign investments.
1. Exemption on Imported Raw Materials
Factories can import raw materials without paying SST as long as they are used to produce export goods. This includes:
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Metals
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Plastic resin
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Chemicals
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Fabric
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Electronic parts
Every exemption is subject to customs approval and proper record keeping.
2. Exemption on Machinery & Equipment
Manufacturing equipment used for export production is exempted from SST. Examples include:
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Production machines
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Moulds and dies
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Packaging equipment
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Research & testing machines
This helps factories invest more in automation and increase output.
3. Exemption on Spare Parts & Consumables
Certain consumables used inside the LMW facility are also exempt, such as:
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Lubricants
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Industrial chemicals
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Maintenance parts
These must be necessary for production or machine operation.
4. Exemption on Waste Disposal
Scrap or waste generated from manufacturing is exempt when exported or disposed of according to customs conditions. Waste reports must be submitted to maintain compliance.
How to Apply for an LMW License
Businesses can apply through the Royal Malaysian Customs Department. The process involves:
Step 1: Prepare Documents
Documents required include:
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Company registration
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Factory layout plan
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Machinery list
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Raw materials list
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Export projection
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Process flow chart
Step 2: Submit Application
Applications are submitted through uCustoms or through a customs branch office.
Step 3: Site Inspection
Customs officers will inspect the premises to verify that production facilities are ready.
Step 4: Approval & License Issuance
Once approved, the company receives the LMW license and can start importing with exemptions.
Compliance and Reporting Requirements
Holding an LMW license means the company must maintain compliance. Businesses must:
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Submit monthly or quarterly reports
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Track inventory accurately
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Record raw material usage
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Keep import/export documents
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Allow customs inspections
Failure to comply could result in:
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Fines
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Suspension of license
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Back-payment of duties
Good record-keeping is crucial.
Why SST Exemptions Make LMW Valuable
SST exemptions offer huge savings. Imagine a factory importing RM1 million worth of raw materials every month. Without exemptions, SST can add 10% or more in cost. Over a year, this could mean millions in extra cost.
With the LMW license, that money is saved and reinvested into:
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New machines
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Workforce training
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Research & development
The result is a more competitive business.
Conclusion
The LMW license is one of Malaysia’s most valuable incentives for manufacturers. From duty-free imports to SST exemptions, it offers significant cost savings for export-oriented businesses. To qualify, companies must meet key requirements, including exporting at least 80% of their products, maintaining proper documentation, and providing accurate reports.
By staying compliant, factories enjoy long-term benefits, lower operational costs, and improved profitability. Any manufacturer planning to expand or enter the export market should consider applying for an LMW license.
FAQs
1. What is the minimum export requirement for an LMW license?
A company must export at least 80% of its production to qualify.
2. Who issues the LMW license in Malaysia?
The Royal Malaysian Customs Department is the main authority.
3. What items are exempted from SST under the LMW scheme?
Raw materials, machinery, consumables, and spare parts used for export production.
4. Are LMW companies required to submit reports?
Yes. Monthly or quarterly compliance reports are required to maintain the license.
5. Can local sales be made under the LMW scheme?
Limited local sales may be allowed but require customs approval and are subject to SST or duties.
Want to learn more? Read: https://evoqueartstudio.com/what-is-the-lmw-license-why-it-matters-in-malaysia/
