On 6 July 2016, Worldgate Global Logistics Ltd (the “Company”), a company principally engaged in the provision of international freight services, transportation services, as well as warehousing services to customers around the world, was successfully listed on the Growth Enterprise Market (“GEM”) of the Stock Exchange of Hong Kong Limited (“HKEX”) (Stock Code: 8292).
The Company was the first Malaysian owned company with operations in Malaysia only to be listed on the GEM of the HKEX. We are grateful to the Company for having engaged us as their Malaysian legal counsel in respect of its GEM initial public offering exercise.
The logistics services in Malaysia are regulated by specific legislations regulating freight forwarding or customs clearance, warehousing, and transportation. To undertake such business, various registrations, approvals and licences are required to be obtained from regulatory authorities in Malaysia. We set out below a summary of pertinent Malaysian laws and licensing requirements that are applicable to companies that are involved in the logistics industry in Malaysia.
For further information, kindly contact us at http://www.benpartners.com/legal-firm-malaysia-petaling-jaya/.
MALAYSIAN REGULATORY OVERVIEW
1. Freight Forwarding and Customs Brokerage Services
Before a logistics provider can act as a freight forwarder and customs broker, the Customs Act 1967 (“CA 1967”) provides that such persons are required to submit an application to the Royal Malaysian Customs Department for permission to act as a freight forwarder and customs broker. Such permission may be granted subject to such terms and conditions as the Royal Malaysian Customs Department may deem fit to impose. The following are some of the common terms and conditions that may be imposed and are by no means exhaustive:-
- the logistics provider shall have at least fifty one per cent (51%) Bumiputera equity interest, directorship, management and supporting staffs. This condition is not applicable to companies which are only acting as shipping agents and companies which have acquired the status of International Integrated Logistics Service (“IILS”) from Malaysian Investment Development Authority (“MIDA”);
- the logistics provider shall have a paid-up share capital of not be less than Malaysian Ringgit One Hundred Thousand (RM100,000) since it is a company registered under the laws of Malaysia;
- the logistics provider shall apply for renewal of the permission no later than fourteen (14) days before the expiry of such permission;
- the logistics provider if acting as customs agents shall not change its name, address, ownership without the consent of the Royal Malaysian Customs Department of Malaysia; and
- the logistics provider shall not lease or allow another party to use the permission obtained to conduct customs clearance.
2. Warehousing Services
Licensed customs warehouse
At any customs port, customs airport, place of import or export or at any inland customs station, the Minister of Finance of Malaysia has the authority to establish and maintain customs warehouses, wherein dutiable goods may be deposited and kept without payment of customs duty. The Minister of Finance of Malaysia may also prescribe the amount to be paid as warehouse rent on goods deposited in such warehouse and remit any amount payable as rent. It is important to note that the CA 1967, “dutiable goods” is defined as all goods subject to the payment of customs duty and on which duty has not yet been paid. The effect of this definition would be that any goods upon which the duty has been paid or non-dutiable goods are not permitted to be stored in such customs warehouse.
Pursuant to the Customs Regulations 1977 (“CR 1977”), no person shall be allowed to enter any customs warehouses, or other area or premises controlled by the Royal Malaysian Customs Department except with their permission.
In order to store dutiable goods in such customs warehouse, a licence is required from the Director General of Customs and Excise of Malaysia. Pursuant to the CA 1967 and Excise Act 1976 (“EA 1967”), where applicable, the Director General of Customs and Excise of Malaysia may, on payment of the required fees, grant a licence to a licensee for warehousing dutiable goods.
Application of such licence shall be made in accordance to the requirements as stipulated in the CR 1977 or the Excise Regulations 1977 (“ER 1977”), as the case may be.
Warehousing and Carrying Out Commercial Activities in Free Commercial Zones
Notwithstanding the provisions of the CA 1967 and EA 1976, the Free Zones Act 1990 (“FZA 1990”) was implemented to govern the establishment of free zones in Malaysia for promoting the economic life of the country and other related purposes. The Minister of Finance of Malaysia may, by notification in the Gazette, declare any area in Malaysia to be a “Free Commercial Zone” where commercial activities are carried out with minimal customs control.
Commercial activities such as trading (excluding retail trade), breaking bulk, grading, repacking, relabeling, and transit are allowed to be carried out in a Free Commercial Zone without payment of any customs duty, excise duty, sales tax or service tax. The list of Free Commercial Zones in Malaysia is prescribed in the First Schedule of the FZA 1990.
Free Zones Regulations 1991 (“FZR 1991”) provides that any person wishing to carry out any commercial activity, such as warehousing, within a Free Commercial Zone shall apply in writing for approval (“Operating Licence Certificate”) to the authority in charge of operating the Free Commercial Zone. Such approval granted may be subject to such further terms and conditions as the authority of that particular Free Commercial Zone deems necessary to impose.
In the event that a logistics provider decides to rent or lease warehouse(s) in any of the Free Commercial Zones, FZR 1991 provides that no person shall hold leases and tenancies in a Free Commercial Zone for the purpose of carrying out any commercial activity in the zone, unless the permission of the authority is obtained. The permission granted shall be in writing and may be subject to such terms and conditions as the authority deems necessary to impose. In other words, other than obtaining an Operating Licence Certificate, a logistics provider is required to also obtain an additional written permission to rent or lease premises in a Free Commercial Zone from the relevant authorities.
3. Land Transport Operations
Generally, depending on the type of goods being transported, land transport operations can be divided into two types, i.e. bonded trucking and non-bonded trucking. Bonded trucking relates to only the transport of dutiable goods while non-bonded trucking is the transport of any goods upon which the duty has been paid or non-dutiable goods.
Under the CA 1967 and EA 1967, a carrier is obligated to apply for a licence from the Director General of Customs and Excise of Malaysia in order to transport dutiable goods. CA 1967 provides that the Director General of Customs and Excise of Malaysia may grant a licence to any person to act as a licensed carrier subject to such terms and conditions as he may deem fit to impose and may suspend or withdraw such licence.
In granting a licence to act as a licensed carrier, the Director General of Customs and Excise of Malaysia may require such security to be furnished as he may consider adequate to cover the customs duty payable on the goods moved and for the faithful and incorrupt conduct of such licensed carrier and of his agents and employees acting for him both as regards the customs and his employers.
Meanwhile, the operation of commercial vehicles including trucks, prime movers and trailers are governed by the Land Public Transport Act 2010 (“LPTA 2010”) and the Road Transport Act 1987 (“RTA 1987”).
The Land Public Transport Commission, via the authority granted by the LPTA 2010, controls the issuance of licences for operation of goods vehicles in Peninsular Malaysia only. Under the LPTA 2010, all logistics providers carrying out land transport operations is required to apply for an operator’s licence to operate all trucks, prime movers and trailers.
The LPTA 2010 states that no person shall operate or provide a goods vehicle service using a class of goods vehicles for the carriage of goods for hire or reward; or for or in connection with any trade or business unless he holds an operator’s licence issued for goods vehicle service. For avoidance of doubt, “goods vehicle” is defined under the LPTA 2010 to mean any motor vehicle constructed or adapted for use for the carriage of goods or a trailer so constructed or adapted; or any motor vehicle or a trailer not so constructed or adapted when used for the carriage of goods solely or in addition to passengers.
A person is deemed to be operating or providing a goods vehicle service if he uses or drives a goods vehicle himself; or employs one (1) or more persons to use or drive a goods vehicle, to operate or provide a goods vehicle service, and he owns the said goods vehicle; or he is responsible, under any form of arrangement with the owner or lessor of the said goods vehicle to manage, maintain or operate such goods vehicle. Such operator’s licence shall only be entitled the holder of the operator’s licence to operate or use one (1) class of goods vehicle, but a person may hold more than one (1) operator’s licence.
The RTA 1987 and Motor Vehicles (Periodic Inspection, Equipment and Inspection Standard) Rules 1995 require that all trucks, prime movers and trailers to undergo periodic inspection at a vehicle inspection center to ensure that all such vehicles comply with the statutory requirements as to construction, equipment and use of their respective class or category. After the inspection is carried out, an inspection certificate will be issued to specify that the vehicle complies with all the statutory requirements as to its construction, equipment and use.
In conclusion the main legislations regulating freight forwarding or customs clearance, warehousing, and transportation in the logistics services in Malaysia are the CA1967, the EA 1967, FZA 1990, LPTA 2010 and RTA 1987 as amended, supplemented or otherwise modified from time to time.
In addition to the aforementioned licences, permissions and approvals, a logistics provider may consider applying in writing to the Minister of International Trade and Industry of Malaysia (“MITI”) for a “pioneer status” in relation to the provision of integrated logistics services.
Under the Promotion of Investments Act 1986 (“PIA 1986”) a company granted with pioneer status is entitled to a tax relief period of five (5) years. Pursuant to the Promotion of Investments (Promoted Activities and Promoted Products) Order 2012, “integrated logistics services” has been listed as one of the promoted activity under the PIA 1986.