Special Economic Zones in the OIC Region:
Learning from Experience
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Box 25 – Penang SEZ Success Factors – Evolution of Legal Framework – PDC Interview
5.2.3.2 Regulations
In order to qualify for location within the Penang FIZ, a business has to export a minimum of
80% of its output and its rawmaterials and components should be primarily imported although
the Government does encourage the use of local supply chains. In addition, businesses can apply
to the Ministry of International Trade and Industry to reduce its export condition to 60% under
special circumstances.
Licensing, Ownership and Zoning Restrictions
Within the Penang Free Trade Zones and the industrial parks, land is typically offered on a sale
or lease basis. Sale of land is typically made on a leasehold basis for a period of either 60 or 99
years.
Incentives
Under the Free Zones Act (1990) and Free Zones Regulations (1991) companies located within
an FIZ or with LMW status are eligible for a number of fiscal incentives.
 Duty free imports of raw materials – including packaging materials and machinery and
equipment, this excludes:
o Fuel;
o Office furniture; and
o Equipment such as air conditioners, construction materials, food and drink, vehicles
and spare parts and wearing apparel for employees.
 Exemption from payment of sales tax;
 Exemption from payment of excise duty; and
 Exemption from payment of service tax.
5.2.4 Organisational and Administrative Profile
The economic reforms within the late 1960s and early 1970s included the creation of a new
statutory body, the Penang Development Corporation (PDC), in November 1969. The PDC was
formed under the State Enactment as the principal development agency for the state. Its legal
The PDC emphasised the importance of developing flexible legal frameworks to maximise
investor choice. They highlighted the conflicts between the FTZs and supporting industrial
estates in the early phases of the Penang FTZ programmes due to the differences in incentives
offered within and outside the zones. In 1967 the LMS customs regime was introduced to
allow licensed warehouses to be established within the industrial estates and to incentivise
investment outside of the FTZs.