In order to be classified as a manufacturing company in Malaysia, you must fall within the parameters of its definition set by the country’s Industrial Co-ordination Act 1975 (ICA).
According to ICA, when you create, change, combine, decorate and finish any article or substance with the motive to sale, transfer or deliver, it will be classified as a ‘manufacturing activity’ excluding any activities related to retail and wholesale trade respectively.
The prerequisites of applying for a manufacturing license state that your shareholders’ funds must be minimum RM 2.5 million and you must employ or more full-time employees in your company according to the Industrial Co-ordination Act 1975.
The Ministry of International Trade and Industry (MITI) will give the approval for your manufacturing license in Malaysia.
You will have to submit your application at the Malaysian Investment Development Authority (MIDA) which is an agency operating under the jurisdiction of MITI to support and manage the industrial development in the country.
The paid-up capital of your manufacturing company in Malaysia will be in the form of preference and ordinary shares. It cannot include any bonus shares of the capital reserve when the fixed assets were revaluated in the books.
The capital reserve cannot be created by fixed assets, using the provisions for depreciation or replacement or by decreasing the real value of assets of the company.
If a person works a minimum of six hours a day for at least twenty days in a month for the duration of one year and collects a wage, he or she will be considered as a ‘full-time paid employee’ under the ICA.
This category also includes people working in the engineering department, sales executives and maintenance personnel who receive a salary from the company.
The directors of incorporated projects are also considered full-time paid employees.
Details About T Malaysian Manufacturing Company
The Capital Investment per Employee (C/E) ratio will determine if the Malaysian government will approve an industrial project under its guideline:
- If the C/E ratio of any project is less than RM 140,000 then it will be classified as labor-intensive and will not meet the criteria to attain a manufacturing license or enjoy tax incentives.
- However, if the project fulfills at least one of the conditions listed below, it will be excused from the C/E ratio requirement.
- If the value-added portion is 40 percent or more;
- If the Managerial, Technical and Supervisory (MTS) Index is 25 percent or more;
- If the project assumes endorsed activities or manufacture commodities outlined in the List of Promoted Activities and Products for High Technology Companies;
- If the companies which were exempted earlier apply for a manufacturing license
For the purpose of increasing production capacity and diversifying product range, a licensed manufacturing company in Malaysia is required to submit an application to the Malaysian Investment Development Authority (MIDA).
In order to register your company, you will need to visit the Company Commission of Malaysia or SSM.
The Companies Commission of Malaysia or Suruhanjaya Syarikat Malaysia in Malay (SSM in short) is a constitutional body created under the Act of Parliament to regulate corporate and business affairs in Malaysia.
Created in 2002 under the Companies Commission of Malaysia Act 2001, the SSM belongs to the parent department of Ministry of Domestic Trade, Co-Operatives and Consumerism.
SSM primarily carries out the functions of the Registrar of Companies and Registry of Business with its headquarters at Menara SSM, KL Sentral, Kuala Lumpur.
As you proceed, you should know that you have the options of registering basically three types of company in Malaysia.
You can register a company limited by shares, or you can choose a company that is limited by guarantee and lastly a company defined as unlimited by law.
Whichever type of company you intend to register, it will be authorized by the Companies Act 2016 in Malaysia.
As a potential investor in the manufacturing sector, you will be glad to hear that the Malaysian government keenly promotes joint-venture projects between local and foreign investors while its equity policy is considered one of the most investor-friendly in South-east Asia.
From June 2003 onwards, the government has allowed a foreign investor to own hundred percent of the equity especially if he or she is investing in new projects on manufacturing company registration in Malaysia.
The foreign investor is entitled to the same equity policy even if he or she wants to invest in expansion or diversification ventures of companies currently operating in Malaysia.
The equity policy is flexible enough to allow investment in Malaysia companies that did not have the manufacturing license earlier but now has the shareholders’ fund of RM 2.5 million or employs or more full-time paid employees.
Investment can also be made in licensed companies in existence which not liable to conform with the equity conditions earlier but now has attained the minimum shareholders’ funds of RM 2.5 million.