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Guide to Investors in Acquiring Logistical Properties in Malaysia

Introduction

Logistics services which form a supply chain management for trade and distribution activities entail logistical properties. Examples of logistical properties are warehouses and carrier vehicles. On the other hand, integrated logistics services (“ILS”) consist of several activities which are mainly freight forwarding, warehousing, transportation and others.

A) Logistical Properties

A common example of logistical properties is warehouse. A prerequisite of a warehouse owner or operator is that it shall be a company incorporated under the Companies Act 2016 (“CA 2016”). By virtue of section 65 of the Customs Act 1967, a warehouse is a designated area to be licensed under the Royal Malaysian Customs (“RMC”). There are three available types of warehouse licences which are ordinary warehouse licence, public bonded warehouse licence and private bonded warehouse licence.

The Ministry of Finance would consider the application of public warehouse licence while the RMC would consider the application of private warehouse licence. It is highlighted that foreign investors have to observe the equity restriction policy for each licence. For ordinary warehouse and private bonded warehouse, there is no equity condition imposed by RMC.[1]

For public bonded warehouse, a company must have at least 30% Bumiputera equity.[2] In addition, there is an incentive which is an allowance for qualifying capital expenditure for warehouses used to store exporting goods. This incentive may be applied under the Inland Revenue Board.

B) Transportation Services

Another logistical property ordinarily used in logistics services is land vehicles. Similarly, a prerequisite of a transportation service operator is that it shall be a company incorporated under the CA 2016. In respect to land vehicles, the operation of commercial vehicles including trucks, prime movers and trailers is governed by the Land Public Transport Act 2010 (“LPTA 2010”) and the Road Transport Act 1987. Section 51 of 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. It is also required to obtain a licence pursuant to section 14 of the Commercial Vehicles Licensing Board Act 1987 to provide transportation services. For transportation operators supplying transportation services to third parties with commercial vehicles, they shall have at least 51% Malaysian equity (including 30% Bumiputera equity) and up to 49% foreign equity ownership is allowed.[3]

For transportation operators supplying transportation services for their own use, they may have up to 100% foreign equity ownership.[4]

C) Integrated Logistics Services (“ILS”)

The main activities in the ILS are freight forwarding, warehousing, transportation and other related value-added services such as distribution, procurement and supply chain management in an integrated basis. Companies intending to undertake ILS activities are required to obtain the respective operating licences from the various licensing agencies as mentioned above. Also, companies undertaking ILS may apply to the Ministry of International Trade and Industry for Pioneer Status or Investment Tax Allowance. The eligibility criteria for ILS tax incentives are as follows:

i. company that is incorporated under the CA 2016;
ii. at least 60% of its equity is held by Malaysians;
iii. undertake three principal activities including warehousing, transportation and freight forwarding and undertake at least one of the following activities:

a) distribution;
b) other related and value-added services (e.g. palletising, product assembly/installation, bulk breaking, consolidation, packaging/re-packaging, procurement, quality control, labelling/re-labelling, testing, etc); or
c) supply chain management;and

iv. manage at least 20 units of commercial vehicles and 5,000m2 of warehouse space.

D) International Integrated Logistics Services (“IILS”)

An ILLS provider is a company that provides integrated and seamless logistics services (door-to-door) along the logistics supply chain as a single entity on a regional or global scale. IILS is allowed with 100% foreign equity ownership.

In addition to the qualifying criterion above under ILS, an IILS provider has to:

1. Employ majority Malaysians and preference must be given to local professionals.
2. Use Malaysia as a hub for logistics supply chain services in the region.
3. Have good networks with logistics service providers abroad in order to provide seamless integrated logistics services for the regional market.
4. Substantial usage of ICT infrastructure throughout the logistics chain and value-added activities.
5. Compulsory attendance of the Customs Agent course conducted by the Royal Malaysian Customs Department.

E) Cold Chain Facilities

Companies undertaking cold chain facilities provide a wide range of services including cold room, refrigerated truck and other related services such as the collection, storage and distribution of perishable local agricultural produce. The providers have to obtain operating licences for Public/Private Bonded Warehouse and Licences for Commercial Vehicles and Haulage (Class A Licence). Companies providing cold chain facilities and services for perishable agricultural produce such as fruits, vegetables, flowers, ferns, meat and aquatic products may also be eligible for Pioneer Status or Investment Tax Allowance.

Conclusion

To acquire the logistical properties, the logistics service providers are obliged to comply with the rules set by respective authorities, depending on the precise activities they intend to carry out.

By and large, the logistics service provider shall be a locally incorporated company under the CA 2016. Foreign investors would have to particularly observe any restriction on foreign equity ownership in the business entities which they set up to run logistics services. With respect to ILS and IILS, there are attractive incentives granted by the government to pull foreign investors such as Pioneer Status and Investment Tax Allowance. Given the incentives, foreign investors may consider setting up businesses in logistics industry as it is becoming appealing and favourable to foreign investors.

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1 https://mida.gov.my/wpcontent/uploads/2020/12/20200914160023_BOOKLET-4-LOGISTICSSERVICES.pdf
2 ibid
3 ibid
4 ibid

Prepared by:

Daphne Sue Suet Yan (Associate) daphnesue@azmilaw.com

Chong Han Jie (Associate) chonghanjie@azmilaw.com