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GUIDE ON

FREE ZONE

ROYAL MALAYSIAN CUSTOMS

GOODS AND SERVICES TAX

GUIDE ON FREE ZONE As at 1 January 2017

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Publication Date Published: 1 January 2017 The Guide on Free Commercial Zone as at 5 January 2016 is withdrawn and replaced by the Guide on Free Zone revised 1 January 2017. Copyright Notice Copyright 2017 Royal Malaysian Customs Department. All rights reserved. Subject to the Copyright Act, 1987 (Malaysia). The Guide may be withdrawn, either wholly or in part, by publication of a new guide. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form, including on-site for commercial purposes without written permission from the Royal Malaysian Customs Department (RMCD). In reproducing or quoting the contents, acknowledgment of source is required. Disclaimer This information is intended to provide a general understanding of the relevant

treatment under Goods and Services Tax and aims to provide a better general

understanding of taxpayers’ tax obligations. It is not intended to comprehensively

address all possible tax issues that may arise. While RMCD has taken the initiative to

ensure that all information contained in this Guide is correct, the RMCD will not be

responsible for any mistakes and inaccuracies that may be contained, or any financial

loss or other incurred by individuals using the information from this Guide. All

information is current at the time of preparation and is subject to change when

necessary.


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CONTENTS

INTRODUCTION ....................................................................................................... 1

Overview of Goods and Services Tax (GST) ......................................................... 1

GENERAL OPERATIONS OF FREE ZONE (FZ) ..................................................... 1

Free commercial Zone (FCZ) .................................................................................. 2

Goods imported into a FCZ. .................................................................................. 2

Supply of goods from PCA to a FCZ. .................................................................... 3

Supply of goods within a FCZ. ............................................................................... 4

Supply of drop shipped goods by an overseas supplier within a FCZ. .................. 5

Supply of drop shipped goods by a local supplier within a FCZ ............................. 5

Supply of goods from a FCZ to PCA ..................................................................... 6

Supply of drop shipped goods from a FCZ by an overseas supplier to PCA. ........ 7

Supply of drop shipped goods from a FCZ by local supplier to PCA. .................... 8

Goods removed from a FCZ for export .................................................................. 8

Goods removed from a FCZ to another FCZ, FIZ, Designated Area and Warehouse

under section 70 of the GSTA 2014. ................................................................... 11

Supply of services within or between a FCZ ........................................................ 11

Free industrial Zone (FIZ) ..................................................................................... 12

Goods imported into a FIZ. .................................................................................. 12

Supply of goods from PCA to a FIZ. .................................................................... 13

Supply of goods within a FIZ. .............................................................................. 14

Supply of goods from a FIZ to PCA ..................................................................... 14

Supply of drop shipped goods from a FIZ by overseas supplier to PCA. ............. 15

Goods removed from a FIZ for export ................................................................. 16

Goods removed from a FIZ to another FIZ, FCZ, Designated Area and Warehouse

under section 70 of the GSTA 2014. ................................................................... 17


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Supply of services within or between a FIZ ......................................................... 17

Goods from a FIZ brought to PCA for sub-contract work. .................................... 17

Goods from PCA brought into a FIZ for sub-contract work. ................................. 18

Goods from a FIZ brought into another FIZ for sub-contract work. ...................... 19

Approved Toll Manufacturer Scheme (ATMS) in a FIZ. ....................................... 19

KEEPING RECORDS ............................................................................................. 21

DISPOSAL OF RAW MATERIALS, COMPONENTS, WASTAGE AND FINISHED

GOODS ................................................................................................................... 22

MACHINES FOR REPAIR ...................................................................................... 23

FREQUENTLY ASKED QUESTIONS .................................................................... 23

INQUIRY ................................................................................................................. 30

FURTHER ASSISTANCE AND INFORMATION ON GST ..................................... 30


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INTRODUCTION

1. This industry guide is prepared to assist businesses in understanding matters

with regard to GST treatment on Free Zone.

Overview of Goods and Services Tax (GST)

2. Goods and Services Tax (GST) is a multi-stage tax on domestic consumption.

GST is charged on all taxable supplies of goods and services in Malaysia except

those specifically exempted. GST is also charged on importation of goods and

services into Malaysia.

3. Payment of tax is made in stages by the intermediaries in the production and

distribution process. Although the tax would be paid throughout the production and

distribution chain, only the value added at each stage is taxed thus avoiding double

taxation.

4. In Malaysia, a person who is registered under the Goods and Services Tax

Act 2014 (GSTA 2014) is known as a “registered person”. A registered person is

required to charge GST (output tax) on his taxable supply of goods and services

made to his customers. He is allowed to claim back any GST incurred on his

purchases (input tax) which are inputs to his business. Therefore, the tax itself is not

a cost to the intermediaries and does not appear as an expense item in their financial

statements.

GENERAL OPERATIONS OF FREE ZONE (FZ)

5. FZ means any part of Malaysia declared under the provisions of subsection

3(1) of the Free Zone Act 1990 (Act 438) to be a Free Commercial Zone (FCZ) or a

Free Industrial Zone (FIZ).

6. The activities allowed to be carried out in a FZ are gazetted under the First

Schedule and Second Schedule of the Free Zones Act 1990 (Act 438).

7. For the purpose of the GST registration, the value of any person’s supplies of

goods made within or between the Free Zone under section 162 of the GSTA 2014


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shall be excluded except where such supply is subject to an order under subsection

163(1) of the GSTA 2014. Therefore, any person approved by the Zone Authority or

Minister of Finance making any supply of goods solely within or between the Free

Zone is not liable to be registered under the GSTA 2014. However, if the person is

making a supply of goods that would eventually be exported, then it is considered as

making a taxable supply and if such supply exceeds the GST registration threshold,

the person is liable to be registered.

8. GST shall be charged by a GST registered person whose principal place of

business is located in a FZ on any taxable supply of goods or services made in the

Principal Customs Area (PCA). The GST registered person who makes a supply of

goods or services in PCA is required to issue a tax invoice for the supply.

FREE COMMERCIAL ZONE (FCZ)

9. In accordance with section 10(1) Free Zones Act 1990, the Minister allows

commercial activities specified under the First Schedule of the Free Zone Act 1990

to be carried out in a FCZ.

10. Commercial activity in a FCZ includes trading (excluding retail trade), breaking

bulk, grading, repacking, relabelling and transit. For commercial activities, the non-

resident company is allowed to carry out the activity in a FCZ provided the company

has appointed an agent to act on his behalf.

11. For retail trade activities in a FCZ, the Minister may, at his absolute discretion,

authorize any retail trade to be conducted in a FCZ.

Goods imported into a FCZ.

12. No GST shall be due and payable upon importation of goods into a FCZ except

for goods imported to be used or consumed in the FCZ other than goods for the

purpose of commercial activities or retail trade activities approved under the Free

Zones Act 1990. The importation shall be declared in the Free Zone Prescribed Form.

Figure 1a below is an illustration for the importation of goods into the FCZ. The

importer on record is C1.


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Figure 1a

13. GST shall be due and payable upon importation of goods if the goods imported

is removed from a place of import other than a FCZ at port or airport to PCA. However,

if the goods is removed to a FCZ, a bonded warehouse (WH) or a designated area

(DA), the GST is suspended. The importation shall be declared in the Customs

Prescribed Form. Figure 1b below is an illustration for the importation of goods into

the FCZ. The importer on record is C1.

Figure 1b

Supply of goods from PCA to a FCZ.

14. Supply of goods which involves their removal from a place in PCA to a FCZ is

subject to GST at standard rate. Figure 2 below is an illustration for the supply of

goods to the FCZ. If LS is a GST registered person who makes a supply of goods to

C1, he is required to issue a tax invoice and declare the removal of such goods in the

Customs Prescribed Form.

FREE COMMERCIAL ZONE


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Figure 2

Supply of goods within a FCZ.

15. No GST shall be charged on any supply of goods for commercial or retail trade

approved by the Minister of Finance made within a FCZ except for wine, spirit, beer,

malt liquor, tobacco and tobacco products which are specified under the Goods

and Services Tax (Imposition of Tax for Supplies in Respect of Free Zones) Order

2016. Figure 3 below is an illustration for the supply of goods made by C1 to C2 within

FCZ. If C1 is a GST registered person, he has to issue a tax invoice without charging

GST (GST amount due “Nil”) but must state the clause “Supply of goods within a FCZ

under Section 162(b) of GSTA 2014”.

Figure 3




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Supply of drop shipped goods by an overseas supplier within a FCZ.

16. OS is a person in a country other than Malaysia who purchased goods from

C1 in a FCZ and subsequently supplied the goods to C2 within the same FCZ. Figure

4 below is an illustration for the supply of goods made by C1 to OS and subsequently

OS supply to C2 within FCZ.

Figure 4

17. No GST shall be charged on the supply of goods made by C1 to OS and OS

to C2 within a FCZ. If C1 and OS are a GST registered person, they have to issue a

tax invoice without charging GST (GST amount due “Nil”) but must state the clause

as “Supply of goods within a FCZ under Section 162(b) of GSTA 2014”.

Supply of drop shipped goods by a local supplier within a FCZ

18. LS is a local supplier who purchased goods from C1 in a FCZ and

subsequently supplied the goods to C2 within the same FCZ. Figure 5 below is an

illustration for the supply of goods made by C1 to LS and subsequently LS supply to

C2.


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Figure 5

19. No GST shall be charged on the supply of goods made by C1 to LS and LS to

C2 within a FCZ. If C1 and LS are a GST registered person, they have to issue a tax

invoice without charging GST (GST amount due “Nil”) but must state the clause as

“Supply of goods within a FCZ under Section 162(b) of GSTA 2014”.

Supply of goods from a FCZ to PCA

20. GST shall be due and payable upon all goods removed from a FCZ to the PCA

including any goods under a lease agreement as if the removal were importation into

Malaysia. Figure 6 below is an illustration for the removal of goods from a FCZ.

Figure 6



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21. If C1 is a GST registered person, he has to issue a tax invoice to LB without

charging GST (GST amount due “Nil”) but must state the clause “Supply of goods

within a FCZ under Section 162(b) of GSTA 2014”. The GST due and payable upon

importation shall be paid and declared by LB in the Customs Prescribed Form.

Supply of drop shipped goods from a FCZ by an overseas supplier to PCA.

22. OS is a person in a country other than Malaysia who purchased goods from

C1 in a FCZ and subsequently supplied the goods to LB in PCA. Figure 7 below is

an illustration for the supply of goods made by C1 to OS and subsequently OS supply

the goods to LB in PCA.

Figure 7

23. No GST shall be charged on the supply of goods made by C1 to OS and OS

to LB within a FCZ. If C1 and OS are GST registered persons, they have to issue

tax invoices without charging GST (GST amount due “Nil”) but must state the clause


24. GST shall be due and payable when the goods are removed from the FCZ to

PCA. The GST due and payable shall be paid and declared by LB in the Customs

Prescribed Form as if the removal were importation into Malaysia. The value of the

goods to be declared in the Customs Prescribed Form is based on the invoice issued

by OS to LB.


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Supply of drop shipped goods from a FCZ by local supplier to PCA.

25. LS is a local supplier who purchased goods from C1 in a FCZ and

subsequently supplied the goods to LB in PCA. Figure 8 below is an illustration for

the supply of goods made by C1 to LS and subsequently LS supply the goods to LB

in PCA.

Figure 8

26. No GST shall be charged on the supply of goods made by C1 to LS and LS to

LB within a FCZ. If C1 and LS are GST registered persons, they have to issue tax

invoices without charging GST (GST amount due “Nil”) but must state the clause


27. GST shall be due and payable when the goods are removed from the FCZ to




by LS to LB.

Goods removed from a FCZ for export

28. Any goods removed from a FCZ for export is subject to GST at zero rate. The

goods must be declared in the Free Zone Prescribed Form. Figure 9 below is an

illustration for the removal of goods from the FCZ for export.



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Figure 9

Goods from PCA brought into FCZ for outright export.

29. Figure 10 below is an Illustration for the supply of goods for outright export. If

the goods are brought into FCZ by LS for outright export to OB, the supply made

by LS to OB is subject to GST at zero rate. The removal of goods to FCZ shall be

declared in the Customs Prescribed Form and the exporter on record is LS.

Figure 10

The extension of the definition of export for GST purposes under Item 4 of the

DG’s Decision 4/2015

30. Local supplier (LS) sells goods to overseas buyer (OB) and OB requests the

goods to be delivered to a third party (TP) in a FCZ for value added activity or

consolidation. The third party refers to any agent appointed by OB. Please refer to

Figure 11 below;




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Figure 11

31. Such supply of goods to the OB will qualify for a zero rate subject to

compliance with the following conditions –

(a) The supply is related to goods other than wine, spirit, beer, intoxicating

liquor, malt liquor, tobacco and tobacco products;

(b) LS must prove that the goods is physically removed to a FCZ and sent

to TP;

(c) LS must keep and maintain the following documents –

(i) Invoice issued to the overseas buyer;

(ii) Export, transit and other related documents such as Customs

Prescribed Form and shipping documents as required under the

customs legislation; and

(iii) Written instruction/agreement by the overseas buyer to send the

goods to a third party in the FCZ for value added activity or

consolidation.

(d) TP must keep and maintain the following documents –

(i) Export documents such as invoice, Customs Prescribed Form,

Free Zone Prescribed Form and shipping document to prove that

the goods have been physically exported overseas; and

(ii) Other related documents received from the supplier.

AND


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(e) Any other necessary conditions as the Director General may require

from time to time.

If the goods are not exported physically overseas, TP is liable to account the

GST at a standard rate.

Goods removed from a FCZ to another FCZ, FIZ, Designated Area and

Warehouse under section 70 of the GSTA 2014.

32. GST shall be suspended on any goods removed from a FCZ through PCA to

another FCZ, FIZ, designated area or a warehouse under section 70 of the GSTA

2014. The removal of such goods shall be declared in the Customs Prescribed Form.

Figure 12 below is an illustration for the removal of goods from the FCZ to another

FCZ, FIZ, designated area or a warehouse.

Figure 12

Supply of services within or between a FCZ

33. GST shall be charged on the supply of services made within or between a

FCZ. Generally, the GST charged on the supply of services is standard rated except

for some services listed under the Goods and Services Tax (Zero-Rated Supplies)

Order 2014.


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FREE INDUSTRIAL ZONE (FIZ)

34. In accordance with section 10(1) Free Zones Act 1990, the Minister allows

manufacturing activities specified under the Second Schedule of the Free Zone Act

1990 to be carried out in a FIZ.

35. Companies operating in a FIZ refers to those companies that have been given

an approval by the Zone Authority or Ministry of Finance to carry out manufacturing

activities in the FIZ. These companies also include companies which act as Toll

Manufacturers under written contracts with overseas principals.

36. Manufacturing activity includes a conversion activity by manual or mechanical

means of organic or inorganic material into a new product by changing the size,

shape, composition, nature or quality of such materials. It also includes the assembly

of parts into a piece of machinery or other products, and any activity as determined

by the Director General to be manufacturing related operation activity.

Goods imported into a FIZ.

37. No GST shall be due and payable upon importation of goods into a FIZ in FCZ

(at port or airport) except for goods imported to be used or consumed in the FIZ other

than goods approved for the purpose of manufacturing activities in the FIZ. The

importation shall be declared in the Free Zone Prescribed Form. Figure 13a below is

an illustration for the importation of goods into the FIZ in FCZ (at port or airport). The

importer on record is M1.

Figure 13a


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38. However, GST shall be due and payable upon any importation of goods if the

goods imported are removed from a place of import other than a FCZ at port or airport

to a FIZ. The importation shall be declared in the Customs Prescribed Form. Figure

13b below is an illustration for the importation of goods into the FIZ. The importer on

record is M1. If M1 is a GST registered person who has an approval under Approved

Trader Scheme (ATS), the payment of GST on the goods imported is allowed to be

suspended provided that the goods are imported in the course or furtherance of his

business.

Figure 13b

Supply of goods from PCA to a FIZ.

39. Supply of goods which involves their removal from a place in PCA to a FIZ is

subject to GST at standard rate. Figure 14 below is an illustration for the supply of

goods to the FIZ. If LS is a GST registered person who makes a supply of goods to

M1, he is required to issue a tax invoice and declare the goods in the Customs

Prescribed Form.

Figure 14


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Supply of goods within a FIZ.

40. No GST shall be charged on any supply of goods made within a FIZ. Figure

15 below is an illustration for the supply of goods made by M1 to M2 within the FIZ.

If M1 is a registered person, he has to issue a tax invoice without charging GST (GST

amount due “Nil”) but must state the clause “Supply of goods within a FIZ under

Section 162(b) of GSTA 2014”.

Figure 15

Supply of goods from a FIZ to PCA

41. GST shall be due and payable upon all goods removed from a FIZ to PCA

including any goods under a lease agreement as if the removal were importation into

Malaysia. Figure 16 below is an illustration for the removal of goods from the FIZ.

Figure 16


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42. If M1 is a GST registered person, he has to issue a tax invoice to LB without

charging GST (GST amount due “Nil”) but must state the clause “Supply of goods

within a FIZ under Section 162(b) of GSTA 2014”. The GST due and payable upon

importation shall be paid and declared by LB in the Customs Prescribed Form.

Supply of drop shipped goods from a FIZ by overseas supplier to PCA.

43. OS is a person in a country other than Malaysia who purchased goods in a

FIZ from M1 and subsequently supplied the goods to LB in PCA. Figure 17 below is

an illustration for the supply of goods made by M1 to OS and subsequently OS supply

the goods to LB in PCA.

Figure 17

44. No GST shall be charged on any supply of goods made by M1 to OS and OS

to LB within a FIZ. If M1 and OS are a registered person, they have to issue a tax

invoice without charging GST (GST amount due “Nil”) but must state the clause

“Supply of goods within a FIZ under Section 162(b) of GSTA 2014”.

45. GST shall be due and payable when the goods are removed from the FIZ to




by OS to LB.

Supply


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Goods removed from a FIZ for export

46. Any goods removed from a FIZ in a FCZ (at port or airport) for export is subject

to GST at zero rate. Figure 18 below is an illustration for the removal of goods from

the FIZ (at port or airport) for export which is supplied by M1 to OB who is outside

Malaysia. The goods must be declared by M1 in the Free Zone Prescribed Form.

Figure 18

47. Any goods removed from a FIZ for export is subject to GST at zero rate. Figure

19 below is an illustration for the removal of goods from the FIZ for export. The goods

must be declared by M1 in the Customs Prescribed Form.

Figure 19

FREE INDUSTRIAL ZONE



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Goods removed from a FIZ to another FIZ, FCZ, Designated Area and

Warehouse under section 70 of the GSTA 2014.

48. GST shall be suspended on any goods removed from a FIZ through PCA to

another FIZ, FCZ, designated area or a warehouse under section 70 of the GSTA

2014. The removal of such goods shall be declared in the Customs Prescribed Form.

Figure 20 below is an illustration for the removal of goods from the FIZ to another

FIZ, FCZ, designated area or a warehouse.

Figure 20

Supply of services within or between a FIZ

49. GST shall be charged on any supply of services made within or between a

FIZ. Generally, the GST charged on the supply of services is standard rated except

for some services listed under the Goods and Services Tax (Zero-Rated Supplies)

Order 2014.

Goods from a FIZ brought to PCA for sub-contract work.

50. GST shall be due and payable on the goods removed from a FIZ to PCA as if

the removal were importation into Malaysia (PCA). However, the removal of goods

from FIZ for the purpose of sub-contract work is relieved from the payment of GST

based on item 16B in the First Schedule of the Goods and Services Tax (Relief) Order

2014. Figure 21 below is an illustration for the removal of goods from the FIZ for sub-

contract work and such goods is required to be declared in the Customs Prescribed

Form.


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Figure 21

51. The returned goods (processed goods) removed from PCA to FIZ are not

subject to GST since no supply has taken place. The removal of such goods is

required to be declared in the Customs Prescribed Form.

Goods from PCA brought into a FIZ for sub-contract work.

52. Goods brought from PCA into a FIZ for the purpose of sub-contract work

(without transfer of ownership) are not subject to GST since no supply has taken

place. The removal of such goods is required to be declared in the Customs

Prescribed Form. Figure 22 below is an illustration for the removal of goods from PCA

for sub-contract work.

Figure 22



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53. GST shall be due and payable on the returned goods (processed goods)

removed from a FIZ to PCA as if the removal were importation into Malaysia. GST

on such goods is required to be declared by M1 in the Customs Prescribed Form.

Goods from a FIZ brought into another FIZ for sub-contract work.

54. Goods brought from FIZ into another FIZ for the purpose of sub-contract work

are subject to GST as if it is an importation in to Malaysia (PCA) and required to be

declared in the Customs Prescribed Form. GST due and payable can be suspended

according to section 162A(2) of the GSTA 2014. Figure 23 below is an illustration for

the removal of goods between FIZ for sub-contract work.

Figure 23

55. GST due and payable on the returned goods (processed goods) removed from

the FIZ to another FIZ can be suspended according to section 162A(2) of the GSTA

2014 and is required to be declared in the Customs Prescribed Form.

Approved Toll Manufacturer Scheme (ATMS) in a FIZ.

56. Goods relating to sub-contract work under ATMS are sent by an overseas

principal (OP) to an approved Toll Manufacturer (TM) in FIZ. No GST shall be due

and payable upon the importation of goods into FIZ in FCZ (at port or airport). The

importation shall be declared in the Free Zone Prescribed Form. The importer on

record is TM.

57. However, GST shall be due and payable upon any importation of goods if the

goods imported are removed from a place of import other than a FCZ (at port or

airport) to FIZ. The importation shall be declared in the Customs Prescribed Form.


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The importer on record is TM. If TM is a GST registered person who has an approval

under Approved Trader Scheme (ATS), the payment of GST on the goods imported

is allowed to be suspended provided that the goods are imported in the course or

furtherance of his business.

58. Under ATMS, the sub-contract work done by an approved Toll Manufacturer

(TM) is a supply of services made in Malaysia and such services is a disregarded

supply in accordance with Section 72(1) of GSTA 2014.

59. Processed goods are to be exported either to OP or to its overseas customer

as instructed by OP. The processed goods removed from a FIZ for export is subject

to GST at zero rate.

60. In some instances TM is instructed to deliver the processed goods to a local

customer of the OP (M1). If the processed goods are delivered in the same FIZ, no

GST shall be charged on the supply made by OP to M1 within FIZ. Figure 24 below

is an illustration for the supply of processed goods within FIZ.

Figure 24

61. In the other case TM is instructed to deliver the processed goods to a local

customer (LC) of the OP in PCA. The removal of goods from the FIZ to PCA as if it

is importation into Malaysia. LC who received the processed goods is liable to pay

import duties (if any) and GST on imported goods at the time of importation. The

value of the processed goods to be declared in the Customs Prescribed Form is


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based on the invoice issued by OP to LC. Figure 25 below is an illustration for the

removal of drop shipped of processed goods from FIZ to PCA.

Figure 25

KEEPING RECORDS

62. Every company operating inside a FZ has to keep full and true up-to-date

records regarding all transactions which affect or may affect his liability to tax.

Records and documents that must be kept in the national language or English are as

follows:

(a) all records of all goods and services supplied by or to that taxable

person, including tax invoices, invoices, receipts, debit and credit notes

and Customs Prescribed Form;

(b) all records on importation of goods;

(c) any other records that may be required by the proper customs officer;

(d) other businesses and accounting records to be kept if maintained by a

taxable person;

(e) ledgers, cash books and journals and all other books of account;

(f) financial statements;


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(g) documentary proof to support zero rate supply (including export

documentation);

(h) particulars of any agents acting on behalf and transactions concluded

through agents;

(i) bank deposits slips, bank statements and other related payment

document;

(j) data in electronic form, including computer printouts;

(k) accounting charts, access codes, program documentation and system

instruction manuals; and

(l) contracts / sales agreements.

63. Records must be properly filed and kept at the approved premise and made

available at any time to be verified and audited by any customs officers. Any records

shall be preserved for a period of seven (7) years from the latest date to which such

records relate.

DISPOSAL OF RAW MATERIALS, COMPONENTS, WASTAGE AND FINISHED

GOODS

64. Disposal of raw materials, components, wastage and finished goods must be

supervised by the officer from the zone authority (ZA) and ZA will issue a certificate

signed by the ZA officer and the owner of the goods.

65. Wastage and scrap which have commercial value are subject to GST on

importation when it is removed to PCA. Thus, customs duties (if any) and GST must

be paid at the point of importation in the Customs Prescribed Form.

66. Any destruction of raw materials, components, wastage and finished goods

done outside the FZ, should obtain approval from the ZA and the DG; and supervised

by the senior officer of customs and witnessed by the owner.


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MACHINES FOR REPAIR

Machines from a FZ sent to overseas for repair must get approval from the ZA using

Free Zone Prescribed Form. If the movement of machine for repair overseas is

through PCA, transit procedure will apply. If the repair is done in PCA, a bank

guarantee shall be furnished as required by the DG and subject to the conditions

under the Goods and Services Tax (Relief) Order 2014.

FREQUENTLY ASKED QUESTIONS

Importation and Deposition of Goods into a FZ.

Q1. What is the GST treatment on the importation of goods from overseas

into the Free Zone by a company operating inside Tanjung Pelepas Free

Zone?

A1. No GST shall be due and payable upon any importation of goods for

commercial activities into Tanjung Pelepas Free Zone in accordance with

section 162(a) GSTA 2014.

Q2. As a retailer in the Rantau Panjang Free Zone and registered under GSTA

2014, what is the GST treatment on goods that I purchased from a

registered person in PCA?

A2. The supply of goods from a registered person in PCA is a taxable supply and

subject to GST. As you are a registered person, the GST incurred is claimable.

Q3. Is GST chargeable if a company operating inside the Port Klang Free

Zone purchases goods from a company in PCA for export?

A3. The supply of goods from a company in PCA to a company operating inside a

FCZ is a taxable supply and subject to GST at standard rate. If the company

operating inside the FCZ is a registered person, the GST incurred is claimable.

Subsequently, when this company in the FCZ exports the goods, this supply

of goods qualifies to be zero rated provided that this company is the exporter

on record in the Free Zone Prescribed Form.


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Q4. A company operating inside the Pasir Gudang Free Zone sent its goods

for further processing to its subcontractor in PCA. Is there any GST

liability when the goods are sent back to FCZ?

A4. Goods sent by a company operating in the Pasir Gudang Free Zone for further

processing is not a supply as there is no transfer of ownership. However, the

removal of such goods from this free zone to PCA is considered as importation

and is required to be declared in a Customs Prescribed Form. This importation

is subject to customs duties (if any) and GST.

Subsequently, the processed goods that are sent back to Pasir Gudang Free

Zone is not subject to GST since there is no transfer of ownership. The removal

of such goods from PCA to the free zone is considered as exportation under

customs legislation and requires a Customs Prescribed Form. However, GST

needs to be charged in the tax invoice on the workmanship or services

performed on such goods, if the subcontractor is a GST registered person.

Supply of Services to a FZ

Q5. What is the treatment of GST on services rendered by a company in PCA

to a company operating inside a FZ?

A5. Services rendered by a company in PCA to a company operating inside a FZ

is a taxable supply and subject to GST at standard rate.

Q6. What is the treatment of GST on services imported by a registered

person operating in Penang International Airport Free Zone?

A6. GST is chargeable at a standard rate on imported services into Penang Airport

Free Zone. The recipient is liable to account the output tax and claim input tax

relating to that imported services (reverse charge mechanism).

Supply of Goods and Services within a FZ

Q7. AB Sdn Bhd is a retailer registered under GST and operating in Stulang

Laut Free Zone in Johor. Does it have to charge GST on its retail sale?

A7. Stulang Laut Free Zone is approved under the Free Zone Act 1990 to conduct

retail trade activities. AB Sdn Bhd does not have to charge GST on his retail


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sale except for wine, spirit, beer, malt liquor, tobacco and tobacco

products which are specified under the Goods and Services Tax (Imposition

of Tax for Supplies in Respect of Free Zones) Order 2016.

Q8. Extension to the question in Q7. CD Hotel (registered person) operating

in Stulang Laut Free Zone acquires goods from AB Sdn Bhd for provision

of food and beverages by his restaurant in the hotel. What is the

treatment of GST on the provision of food and beverages by the hotel?

A8. Even though AB Sdn Bhd did not charge GST on his acquisition of goods, CD

Hotel must charge GST on the provision of food and beverages because such

supply of services is a taxable supply and subject to GST at standard rate.

Q9. XX Sdn Bhd is a registered person under GST and operating in Kuala

Lumpur International Airport Free Zone. This company has supplied his

products to YY Trader who is also operating in the same free zone. Is

there any GST implication on the supply of goods by XX Sdn Bhd to YY

Trader?

A9. Any supply of goods relating to commercial activities within Kuala Lumpur

International Airport Free Zone is not subject to GST in accordance with

Section 162(b) GSTA 2014.

Q10. GG Sdn Bhd is a company who provides space for rental services in Port

Klang Free Zone. If GG Sdn Bhd is a registered person under GSTA 2014,

does he have to charge GST on the rental of spaces?

A10. GG Sdn Bhd has to charge GST on the rental of spaces provided by him

because this supply of services is a taxable supply and subject to GST at

standard rate.

Q11. Some of the services provided by an operator in Pasir Gudang Free Zone

are contracted out (outsource) to another operator in the same free zone.

What is the treatment of GST on such services?

A11. Supply of services provided within Pasir Gudang Free Zone is a taxable supply

and subject to GST at standard rate.


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Movement of Goods and Supply of Services between a FZ

Q12. Is transportation of goods from Kuala Lumpur International Airport Free

Zone to Penang International Airport Free Zone subject to GST?

A12. Transportation of goods from one FZ to another FZ is a supply of services.

This supply of services is a taxable supply and subject to GST at standard

rate.

Q13. Extension to the question in Q12, what document is required for the

movement of goods from Kuala Lumpur International Airport Free Zone

to Penang International Airport Free Zone?

A13. Movement of goods from Kuala Lumpur International Airport Free Zone to

Penang International Airport Free Zone by air (without passing through PCA)

requires approval from the free zone authority by declaring in the Free Zone

prescribe form. Whereby, movement of goods through PCA requires customs

approval in the Customs Prescribed Form.

Removal of Goods and Supply of Services from FZ

Q14. What is the treatment of GST on supplies of goods from a company

operating inside Free Industrial Zone to a company in PCA?

A14. Any supply of goods within Free Industrial Zone is not subject to GST.

However, any goods removed from the Free Industrial Zone to PCA, it is

treated as if the goods were imported and subject to GST on importation. Thus,

customs duties (if any) and GST must be paid at the point of importation in the

Customs Prescribed Form e.g. Customs No. 1 form.

However, if the registered person in PCA has an approval under Approved

Trader Scheme (ATS), the payment of GST on the goods imported is allowed

to be suspended provided that the goods are imported in the course or

furtherance of his business.


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Q15. How about the supply of goods made from a company operating inside

a FCZ to a company operating in the free zone for industrial activities

(FIZ)? What is the implication of GST on such supply?

A15. Any supply of goods relating to commercial activities within a FCZ is not

subject to GST. However, any goods removed from the FCZ to a company

operating in a FIZ, GST is suspended in accordance with Section 162A(2) of

the GSTA 2014.

Q16. What is the GST treatment on goods exported from a FCZ?

A16. When goods is physically exported, the supply of goods is a taxable supply

and subject to GST at zero rate. Documentation proof of export (free zone

prescribed form) must be preserved for verification and/or auditing purposes.

Q17. How about services provided by a company operating in a FCZ to an

overseas company?

A17. Any supply of services provided by a company operating in a FCZ to overseas

company relating to goods which are in Malaysia at the time the services is

performed is a taxable supply and subject to GST at standard rate.

Registration for GST

Q18. AHQ Enterprise is a retail outlet who sells a variety of goods including

liquors and cigarettes at the Stulang Laut Free Commercial Zone. Is AHQ

Enterprise subject to be registered under GST?

A18. The supply of goods made by AHQ Enterprise within the zone is not subject

to GST except for wine, spirit, beer, malt liquor, tobacco and tobacco

products which are specified under the Goods and Services Tax (Imposition

of Tax for Supplies in Respect of Free Zones) Order 2016.

In this case, if the supplies of liquors and cigarettes exceeded the GST

registration threshold RM500,000, then AHQ Enterprise is liable to be

registered in accordance with Section 20(3) of the GST Act 2014.


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Q19. ABC Enterprise has only one textile shop and it is located at the FCZ

Rantau Panjang. The enterprise is making 100% sale within the FZ. Can

the company voluntarily register for GST?

A19. The supplies makes by ABC Enterprise within the FZ are excluded from the

threshold calculation based on Section 20(6)(f) GSTA 2014. Therefore, he is

not allowed to be registered for GST.

Q20. I am a non-resident company supplying goods in FCZ at PKFZ. I

purchased goods from a company operating in the same FCZ and drop

shipped those goods to my buyer located at FIZ, Penang. Besides that, I

also export my goods from FCZ at PKFZ. What is the GST treatment for

such supply of goods that I make and should I register for GST?

A20. You do not have to charge GST since the supply of goods within a FCZ is not

subject to GST in accordance with Section 162(b) GSTA 2014.

Goods which are physically exported is a taxable supply and subject to GST

at zero rate. Therefore, if the total turnover for such supplies is more than

RM500,000.00, then you are liable to be registered. However, if you are

making wholly zero rated supplies, you may apply to be exempted from

registration in accordance with Section 32 GSTA 2014.

Q21. If a company obtained an approval from MOF for business activity in a

FIZ for example, supplying gases within the FIZ, can I register for GST?

A21. Under GST, supply of gases is treated as a supply of goods and such supply

within a FZ is not subject to GST. Therefore, if you are solely making supplies

of goods within the FZ, then you cannot register for GST. This is because the

supply of goods within the FZ is excluded from the threshold calculation based

on Section 20(6)(f) GSTA 2014.


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Transitional issues

Q22. Due to the amendment to the Free Zone provision in the GSTA 2014

which will be effective on the 1st January 2017, we may not be able to

comply with the GST requirements such as invoicing where changes

need to be made to our global billing system. Is there any time frame

given to the industries for such compliance adjustment?

A22. Yes. You will be given 3 months from the effective date to make all the

necessary compliance adjustment.

Q23. If I issue a tax invoice for the supply of manufactured goods to a

company in PCA before 1st January 2017 but only remove the goods from

the FZ on or after 1 January 2017, what is the GST treatment?

A23. If this is the case, you have to account for GST in the GST return since GST

has been charged in the tax invoice. On or after 1st January 2017 when the

goods are removed from the FZ to PCA, it is deemed as importation and the

buyer has to declare and pay the GST in the Customs Prescribed Form. In

both scenarios, the buyer is allowed to claim the input tax.

Other related guides

Q24. As a person who carries out a business in a FZ, do I need to know more

about other aspects of GST?

A24. The following guides may be of interest to you;

(a) Guide on Import;

(b) Guide on Export;

(c) Guide on Licensed Manufacturing Warehouse (LMW);

(d) Guide on Approved Toll Manufacturer Scheme (ATMS).


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INQUIRY

1. For any inquiries for this guide please contact:

Sector II

GST Division

Royal Malaysian Customs Department

Level 3 – 7, Block A, Menara Tulus,

No. 22, Persiaran Perdana, Presint 3,

62100 Putrajaya.

Email: [email protected].

FURTHER ASSISTANCE AND INFORMATION ON GST

2. Further information on GST can be obtained from :

(a) GST website: www.gst.customs.gov.my

(b) Customs Call Center :

• Tel : 03-7806 7200 / 1-300-888-500

• Fax : 03-7806 7599

(c) E-mail : [email protected]

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