What Do You Need to Know as a Manufacturer in Malaysia?

Are you considering setting up a manufacturing business in Malaysia? Whether you are a seasoned entrepreneur or just starting out, understanding the licensing process is a critical first step. But don’t worry - we will break it down into simple, digestible points, keeping things engaging and straightforward.  

Navigating the journey to become a manufacturer can seem daunting at first, as it involves juggling legal requirements, minimum wages, and regulatory compliance. However, it does not have to be overwhelming. With the right guidance and preparation, you can confidently take the next steps to establish and grow your business in Malaysia’s thriving industrial landscape.  

What is a Manufacturing Licence? 

The Industrial Coordination Act 1975 (“ICA”) mandates that businesses engaging in manufacturing activities need a manufacturing license under the ICA. But what counts as “manufacturing”? Simply put, manufacturing is any activity involving the making, altering, blending, ornamenting, finishing or adapting of goods for sale or distribution but shall not include any activity normally associated with retail or wholesale trade. Section 4 of ICA specifies that applications of manufacturing license must be made in a prescribed form to the relevant authority and each manufacturing location requires a separate license. Pursuant to the Guidelines on Application for Manufacturing License, issued by Malaysian Investment Development Authority (“MIDA”) dated 3 November 2022 (“MIDA Guidelines”), applications must be submitted online via MIDA portal.  

Under MIDA Guidelines, companies engaging in manufacturing activities with shareholders’ funds of RM2.5 million or more or employing at least 75 full-time workers (persons who work at least six (6) hours a day and at least twenty (20) days a month for twelve (12) months during the year, receive a salary directly from the company, includes traveling sales, engineering, maintenance and repair personnel who are paid by and are under the control of the company, and directors except those paid solely for their attendance at board of directors meetings) are required to obtain a Manufacturing License, while those below these thresholds may apply for an exemption by submitting ICA10 online application to MIDA. To streamline the process, applications for a manufacturing license are now assessed through a self-assessment and declaration mechanism, significantly reducing approval times. 

Eligibility for manufacturing license includes meeting criteria such as a minimum Capital Investment Per Employee (CIPE) ratio of at least RM140,000.00, employing at least 80% Malaysian citizens, and ensuring that 25% of the workforce holds managerial, technical,  or supervisory roles with degree and/or diploma/certificate or that the product’s value- added is at least 40%. Additionally, projects must contribute to Malaysia’s economic and  social objectives and promote an orderly development of manufacturing activities in Malaysia.  

Compliance of Safety and Health from the perspective of manufacturing activities 

Generally, Occupational Safety and Health Act 1994 (“OSHA”) covers the duties and obligations of designers, manufacturers, and suppliers. For manufacturing activities, manufacturers must ensure that any plant or machinery they design, manufacture, import, or supply is safe and without risks to health when properly used. They are also required to carry out such testing and examination as may be necessary for the performance of work. This ensures that all equipment used in manufacturing processes meets safety standards, thereby protecting workers from potential harm and contributing to a safer working environment.  

The amendments to OSHA, effective from 1 June 2024, introduce significant changes by incorporating provisions from the repealed Factories and Machinery Act 1967. The scope of OSHA covers all workplaces, including manufacturing sectors, and the changes of OSHA impose new duties on employers and increased penalties for non-compliance. Key amendments include mandatory risk assessments in relation to health and safety risks, the appointment of occupational safety and health coordinators for businesses employing five or more employees, and the development of emergency procedures.  

Following the introduction of additional duties, the amendment of OSHA has significantly increased penalties for certain offences, serving as a deterrent to employers who may disregard safety regulations. For designers, manufacturers, and suppliers, the penalty for breaching their duties under sections 20 and 21 of OSHA, which pertain to plants and substances used at work, has been increased from RM20,000.00 to RM200,000.00.  

Minimum Wages 

As of year 2024, the minimum wage in Malaysia is set at RM1,500.00 per month for all workers, including those in the manufacturing sector. However, pursuant to Malaysia Budget 2025, starting 1 February 2025, the minimum wage will increase to RM1,700.00 per month for employer with five employees and above. For smaller businesses with fewer than five employees, this new rate will take effect on 1 August 2025. These changes aim to help workers better cope with the rising cost of living and ensure fair compensation across the board. Employers shall prepare for these adjustments by updating their payroll systems and ensuring compliance with the new minimum wage.

Summary 

Embarking on a manufacturing venture in Malaysia is an exciting prospect, however, compliance with the relevant legal and regulatory frameworks is critical to establish a strong foundation for your business. From obtaining a manufacturing licence to meeting health, safety, and wage regulations, each step is vital to ensuring smooth operations.  With careful planning and compliance, your manufacturing business will be well- positioned to thrive in Malaysia’s competitive industrial landscape.