Advocates & Solicitors
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DEOL & GILL 0 . Doing Business in Malaysia An Overview DEOL & GILL Advocates & Solicitors
Transcript of Advocates & Solicitors
DEOL & GILL
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Doing Business in Malaysia
An Overview
DEOL & GILL Advocates & Solicitors
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DEOL & GILL Advocates & Solicitors
DISCLAIMER
The information in this booklet is not intended to provide any form of advice on any particular
matter, whether it be legal, procedural or otherwise. You should not act on the basis of the
information contained in this booklet without first seeking appropriate professional advice from a
licensed/registered service provider. We expressly disclaim all and any liability to any person in
respect of the consequences of anything done or not done acting in reliance upon the whole or
any part of the contents of this booklet.
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Table of Contents
1 Malaysia - In Brief…………………………………………………………………..………. 5
1.1 General
1.2 People
1.3 Government
1.4 Sources of Law
1.5 Courts in Malaysia
1.6 Currency
2 Structure of Business Organisations ……………………………………………………… 11
2.1 Sole Proprietorship
2.2 Partnership
2.3 Limited Liability Partnership
2.4 Labuan Limited Partnership
2.5 Labuan Limited Liability Partnership
2.6 Locally Incorporated Company
2.7 Foreign Company
2.8 Representative Office and Regional Office
2.9 Principal Hub
3 Foreign Investment…………………………………………………………………………… 19
3.1 Investment Regulations
4 Free Trade…………....................…………………………………..…………..………. 22
4.1 Malaysia’s Free Trade Agreements
4.2 Trans-Pacific Partnership Agreement
5 Regulation of Business…………..…………………………………………………………… 24
5.1 Bank Negara Malaysia
5.2 Securities Commission of Malaysia
5.3 Companies Commission Malaysia
5.4 Inland Revenue Board of Malaysia
5.5 Bursa Securities Malaysia
5.6 Ministry of International Trade and Industry
5.7 Labuan Financial Services Authority
6 Foreign Exchange Administration…………………………………………..…………...… 28
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7 Franchising In Malaysia……………………………………………………………... ……… 29
7.1 Background
7.2 Malaysian Franchise Association
7.3 Elements of a Franchise
7.4 Financial Support
7.5 Sales Prospects
7.6 System of Registration
7.7 National Franchise Development Blueprint 2012-2016
8 Electronic Commerce……………..…………………………………..………………….. 37
8.1 Multimedia Super Corridor
8.2 Multimedia Development Corporation
8.3 Cyber Laws
9 Labuan International Business and Financial Centre (IBFC)………………………..… 42
9.1 International Business and Financial Centre
9.2 Statutory Bodies
9.3 Legal Framework
9.4 Doing Business in Labuan
9.5 Tax for Labuan Entities
10 Immigration Requirements………………………………………………………………….. 47
10.1 Travel Documents
10.2 Visa
10.3 Passes
10.4 Employment of Expatriate Personnel
11 Labour……………………………………………………………………………..………….. 50
11.1 Employment Act 1955
11.2 Industrial Relations Act 1967
11.3 Trade Unions Act 1959
11.4 Employees Provident Fund Act 1991
11.5 Employees’ Social Security Act 1969
12 Real Property Law…………………………………………………...……………………… 53
12.1 National Land Code 1965
12.2 Forms of Ownership of Real Property
12.3 Restrictions on Ownership of Real Property
13 Protection of Intellectual Property Rights……………………………………...………. 56
13.1 Copyright
13.2 Patents
13.3 Trademarks
13.4 Industrial Designs
13.5 Layout- design of Integrated Circuits
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13.6 Confidential Information
13.7 Protection of New Plant Varieties Act 2004
14 Competition Law……………………………………………………….………….……..…. 61
15 Arbitration……………………………………………………………….………….……..…. 63
15 Taxation………………………………………………………………………………..……... 64
15.1 Corporate Income Tax
15.2 Personal Income Tax
15.3 Withholding Tax
15.4 Real Property Gains Tax
15.5 Other Taxes
16 Incentives for Investments………………………………………………………………... 70
16.1 Manufacturing Sector
16.2 Agricultural Sector
16.3 Services Sector
16.4 Biotechnology Industries
16.5 MSC Malaysia Status Company
16.6 Research and Development
17 Consumer Rights…………………………………………………………….……………… 80
17.1 Consumer Protections Act 1999
17.2 Consumer Protection (Amendment) Act 2010
17.3 Consumer Protection (Amendment) Act 2015
17.4 Tribunal for Consumer Claims
17.5 Other Tribunals – Tribunal for Homebuyer Claims, Strata Management Tribunal,
Special Commissioners of Income Tax, Industrial Court,
Copyright Tribunal and Competition Appeal Tribunal
18 Petroleum and Gas Industry……………………………………………………….……..…86
19 Aviation Law…………………………………………………………………..……………... 87
20 Environmental Law…………………………………………………………………………....88
21 About Deol & Gill………………………………………………………………………...........89
Appendix……………………………………………………………………................................. 90
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1. Malaysia – In Brief
1.1 General
The Federation of Malaysia comprises Peninsular Malaysia, Sabah and Sarawak.
The country is made up of 13 states, and three Federal Territories – Kuala Lumpur
(which is the capital city), Putrajaya and Labuan. The climate is tropical; consisting
of hot, humid weather year-round, with two monsoon seasons.
1.2 Population
Well-known for its ethnically diverse population, Malaysia has approximately
32,600,000 persons as at 31 December 2018; the majority of whom comprise
Malays, Chinese and Indians, with the balance of the population consisting of
various indigenous groups and non-Malaysian people.
The national language is Bahasa Melayu, though English is widely used and spoken
for business and in all industries. Chinese languages and dialects, such as
Mandarin and Cantonese, as well as Indian languages, like Tamil and Punjabi, are
also commonly used among members of the respective communities.
Islam is the official religion of Malaysia, although religious freedom is guaranteed by
the Federal Constitution of Malaysia, leading to the widespread practices of
Christianity, Taoism, Buddhism, Hinduism and Sikhism.
1.3 Government
Malaysia practices a representative democracy which operates within a
constitutional monarchy, modelled after the Westminster parliamentary system. His
Majesty the Yang di-Pertuan Agong (His Majesty the King) is the head of the
country; occupying roles such as Malaysia’s Supreme Head of State, Supreme
Commander of the Malaysian Armed Forces as well as the Head of Islam in several
states. The Yang di-Pertuan Agong performs his official duties upon the advice of
the Prime Minister and the Cabinet, as provided for under the Malaysian Federal
Constitution.
The structure of the country’s government is divided into two distinct levels – the
federal level and the state level. The Federal Government administers the entirety
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of the Malaysian Federation and is headed by the Prime Minister, who is the head
of government. At the State level, individual state governments have the power and
obligation of ruling and managing the administration in accordance with powers
conferred under the Federal Constitution, the paramount law of the land, and the
respective State Constitutions.
One of the basic tenets of the representative democracy practiced throughout
Malaysia is the separation of powers between the three main organs of governance;
namely the legislature, the executive and the judiciary.
The legislative function is performed by the bicameral Parliament of Malaysia which
consists of the lower house, the Dewan Rakyat (the House of Representatives) and
the upper house, the Dewan Negara (the Senate). The legislature has the power to
design, enact and amend laws, both at Federal and State level. The parliament
follows a multi-party system, with the governing body elected through general
elections which are held once every five years, through the first-past-the-post
system. The House of Representatives comprises Members of Parliament (the
MPs) elected during the general elections held not later than once in every five
years, or through by-elections, with each member representing a geographical
constituency; while the Members of the Senate are appointed by the Yang di-
Pertuan Agong upon the Prime Minister’s recommendation and by the State
Legislative Assemblies. The power to enact state laws lies with the State Legislative
Assembly. The laws enacted at the Federal and State level must have the consent
of the Yang di-Pertuan Agong ,for federal laws, and the Sultan or Yang di-Pertua
Negeri (the Governor), for state laws, respectively.
Meanwhile, at the federal level, the executive power is vested in the Federal Cabinet
of Ministers, which is led by the Prime Minister. The Cabinet is chosen from amongst
members of both houses and bears the responsibility of governing and
administering the country. Additionally, it plays the role of implementing the laws
passed by the legislature. At State level, the Executive is headed by Sultan and he
acts on the advice of the State Executive Council which is chaired by the Chief
Minister.
The Judiciary is the institution that preserves the supremacy of the Constitution and
observes the balance of power between the Executive and the Legislative bodies.
Its role is to uphold justice and to carry out its duties of enforcing the sovereignty of
the country’s laws.
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1.4 Sources of law
There are two primary sources of law in Malaysia – written law and unwritten law.
The written law represents the most important source of law and is composed of the
Federal Constitution, State Constitutions, Legislation and Subsidiary Legislation.
Article 4(1) of the Federal Constitution declares the Constitution to be the supreme
law of the land. The Federal Constitution stipulates the powers of the federal and
state governments and enshrines the fundamental rights of individuals. Meanwhile,
each state has its own respective state constitution which must be compatible with
the Federal Constitution. Legislation comprises the laws passed by Parliament at
the federal level as well as those passed by the State Legislative Assemblies at the
state level, while subsidiary legislation (or delegated legislation) are laws enacted
by local authorities and statutory bodies under the powers conferred upon them by
Acts of Parliament.
Unwritten laws are laws which were not enacted and not found in any Constitution.
They are composed of English law (Common law and Equity), judicial decisions and
customs. Syariah law is another important branch of law which applies only to the
Muslim population and is governed by a separate system of courts.
1.5 Courts in Malaysia
Malaysia practices a common law based system where lawyers practise within a
combined profession of advocates and solicitors. A tiered structure of courts serves
as a safeguard for due process. The Malaysian court system is divided into superior
courts and the subordinate courts. At the apex of the superior courts lies the Federal
Court, followed by the Court of Appeal and two High Courts of coordinate jurisdiction
– the High Court in Malaya and the High Court in Sabah and Sarawak. Meanwhile,
the subordinate courts consist of the Sessions Court and the Magistrates Court.
1.5.1 Jurisdiction of the Courts
a) Federal Court
The Federal Court represents the highest court in Malaysia and the final
appellate court in the hierarchy. It may hear appeals of civil decisions from
the Court of Appeal or the High Court where it grants leave to do so; as
well as criminal appeals from the Court of Appeal, but only in respect of
matters heard by the High Court in its original jurisdiction.
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b) Court of Appeal
The Court of Appeal hears appeals from the High Court relating to both
civil and criminal matters. It is the highest appellate court for matters
decided by the High Court in its appellate or revisionary jurisdiction.
c) High Court
The High Court has jurisdiction to try all civil and criminal matters and
may hear appeals from the subordinate courts. It may also pass any
sentence permitted by law and enjoys unlimited jurisdiction and
monetary limits in all matters, except in cases which involve:
i) the validity of written law passed by Parliament or State being
questioned;
ii) disputes between Federation and State or between one state
and another; or
iii) the Yang di-Pertuan Agong requiring interpretation of any
provisions of the Federal Constitution.
d) Sessions Courts
The Sessions Court may hear any civil matter involving motor vehicle
accidents, disputes between landlord and tenant, and distress actions.
For other civil matters, the monetary limit is RM1,000,000 as per sub-
section 65 (1)(b), 73, and 93(1) of the Subordinate Courts Act 1948
(SCA), as amended by the Subordinate Courts (Amendment) Act 2010
(SCAA) which came into operation on 1 March 2013.
e) Magistrates Courts
Magistrates are divided into First Class and Second Class magistrates;
the former being legally qualified and having greater powers. Second
class magistrates are now seldom appointed. First Class magistrates can
hear all civil matters where the monetary value does not exceed
RM100,000, by virtue of the SCA and the SCAA. The monetary
jurisdiction of Second Class magistrates is RM10,000.
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f) Syariah Courts
The Jurisdiction of Syariah Courts is limited to matters involving personal
and family law, religious observances and matrimonial cases where all
parties are Muslims. Syariah courts may pass sentences of not more than
three years imprisonment, a fine of up to RM5,000 and/or up to six strokes
of the cane. Article 145 of the Federal Constitution excludes the power of
the Attorney General in matters before the Syariah Court. Check Syariah
spelling as the spelling of the legislation.
g) Native Courts
Sabah and Sarawak have a system of native courts which have been
established under the Native Courts Ordinance 1992. Native Courts have
jurisdiction in matters relating to customs, native customary land, and
native law.
h) Other Courts
A special court has been established by virtue of Article 182(1) and (2) of
the Federal Constitution to hear any proceedings by or against the Yang
di-Pertuan Agong or the Ruler of the State in his personal capacity.
1.6 Currency
The Malaysian Ringgit or Ringgit Malaysia (RM) is the currency of Malaysia. However, major hotels, large companies, and international retail outlets do generally accept foreign currency as well. Furthermore, foreign currency can readily be exchanged at licensed money changers and banks.
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2. Structure of Business Organisations
In Malaysia, business activities have to be carried out through a properly registered
business entity. The principal forms of business entity through which business can be
conducted are:
• Sole Proprietorship
• Partnership
• Limited Liability Partnership (LLP)
• Labuan Limited Partnership (LP)
• Labuan Limited Liability Partnership (LLLP)
• A locally incorporated company or branch of a foreign company
• Representative and Regional Office
• Operational Headquarters (OHQ)
• International Procurement Centre (IPC)
• Regional Distribution Centre (RDC)
2.1 Sole Proprietorship
A sole proprietorship is the simplest and cheapest form of business vehicle to set
up. Unlike private limited companies, a sole proprietor is not required to abide by
any audit or annual filing requirements. Instead, a sole proprietor is merely required
to pay an annual fee to the Companies Commission of Malaysia (CCM). A sole
proprietorship is not necessarily operated by a lone individual and may have many
employees. The advantages and disadvantages of sole proprietorships are as
below:-
Advantages of Sole Proprietorship:
• absolute freedom in decision making;
• all profits made considered personal property;
• no reports of accounts are required;
• only required to pay personal income tax and not a business tax; and
• only expenses directly incurred to generate the business income are allowed
for the purpose of calculation of chargeable income.
Disadvantages of Sole Proprietorship:
• unlimited liability; and
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• no clear demarcation between assets of the proprietor and assets of the
proprietorship. Therefore, if the sole proprietorship is unable to meet its
liabilities, creditors may go after the personal assets of the owner.
Requirements of setting up a Sole Proprietorship:
a) A sole proprietor wishing to trade in Peninsular Malaysia may trade under a
name approved and registered with the CCM. (For a sole proprietor wishing
to trade in Sabah and Sarawak, different procedures may apply according to
each state.)
b) A sole proprietor must be a Malaysian citizen or a permanent resident in
Malaysia. In general, foreigners are not allowed to be registered as sole
proprietors unless they have obtained approval from the Ministry of Domestic
Trade and Consumer Affairs.
2.2 Partnership
Partnership is a relationship formed between persons carrying on a business with a
common view to profit. The advantages and disadvantages of a partnership are set
out below.
Advantages of Partnerships:
• more expertise and the ability to pool resources for capital; and
• business risks can be distributed and shared among partners.
Disadvantages of Partnerships:
• unlimited liability where each partner is liable to utilise personal resources in
meeting the debts of the partnership;
• all partners are equally liable for the risks and debts of the business;
• disagreements and conflict between partners may disrupt business plans or
operational efficiency; and
• lifespan is limited, as partnerships may be dissolved if any of the partners
die, become mentally unfit, falls bankrupt or resigns.
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Requirements of setting up a Partnership:
a) Partnerships which are formed in Peninsular Malaysia and which intend to
undertake certain types of trade or business must be registered with the
CCM.
b) Partnerships consist of not less than two partners and not more than 20
partners.
2.3 Limited Liability Partnership (applicable to Malaysia but excluding Labuan)
A limited liability partnership (LLP) is a relatively new business vehicle which is
regulated under the Limited Liability Partnerships Act 2012. It combines the salient
features of a company and a traditional partnership, in that it confers upon its
partners the benefit of limited liability while maintaining the flexibility of internal
business regulation characteristic of partnerships. Any debts or obligations of the
LLP are borne by the assets of the LLP itself and not that of its partners. Additionally,
a LLP is capable of suing and being sued in its own name, holding assets, and
performing all other functions of a body corporate.
A new LLP must be registered with the CCM. Registration of a LLP must be
performed by the Compliance Officer elected by the LLP. Additionally, traditional
partnerships can be converted into LLP upon application to the CCM, if the following
criteria are satisfied:
• an approval letter has been obtained from the governing body (in the case of
professional practice);
• the partnership is solvent as at the date of the application; and
• the LLP consists of the same partners as the partnership.
2.4 Labuan Limited Partnership (applicable only to Labuan)
A Labuan Limited Partnership (LP) is a business entity established under the
Labuan Limited Partnerships and Limited Liability Partnerships Act 2010,
comprising two or more partners who operate and manage a business together. The
minimum composition of a LP is one general partner and one limited partner, while
the maximum number of partners permitted is fifty. General partners have all the
rights and powers, and are subject to the restrictions and liabilities of a partner, while
limited partners contribute to the partnership but do not participate in the daily
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operations of the partnership. Therefore, the limited partner is not liable as the
general partner is unless the limited partner participates in the management of the
Labuan LP.
2.5 Labuan Limited Liability Partnership (applicable only to Labuan)
A Labuan Limited Liability Partnership (LLLP) is similar to the LLP described above
and shares many of the same benefits. The minimum number of partners is two;
one limited partner and one designated partner. A LLLP allows a partner to be
shielded from liability for partnership obligations born out of the misconduct of
another partner. Generally, a LLLP protects members from personal liability, except
to the extent of the investment in the LLLP.
Registration of both the LP and LLLP must be through an appointed Labuan trust
company. All documentation required to be submitted to the Labuan Financial
Services Authority must be filed through a Labuan trust company.
2.6 Locally Incorporated Company
A company may be incorporated in Malaysia by using any of the methods set out
below:
a) Company limited by shares – member’s personal liabilities are limited to the
par value of their shares.
b) Company limited by guarantees – member’s liabilities are restricted to the
amount each agrees to contribute to the assets of the company in the event
of its being wound up
c) Unlimited company – no limit to the members’ liabilities.
Most common businesses in Malaysia are registered as companies limited by
shares and regulated by the Companies Act 2016. A company incorporated under
the Companies Act 2016 has a separate legal identity and is distinct from the
members who constitute it. Private companies cannot offer its shares to the public,
while public companies can.
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A company limited by shares may be either:
a) a private limited company with the description “Sendirian Berhad” (or “Private
Limited”) following its name, which cannot offer shares to the general public;
or
b) a public limited company with the description “Berhad” (or “limited”) following
its name, which raises capital by offering shares.
To form a company, there must be:
• a minimum of one subscriber to the shares of the company;
• a minimum of one director for a private company, or a minimum of two directors for a public company;
• at least one company secretary who can either be an individual who is a
member of a professional body as set out in the Fourth Schedule of the
Companies Act 2016, or an individual licensed by the CCM; and
• the directors of the company and the company secretaries shall have their
principal place of residence within Malaysia.
A Promoter is a person who initiates or takes the necessary steps to form a
company. Promoters wishing to form a company must apply to the Registrar of
Companies (ROC) with particulars such as: the name for the proposed company,
whether it is a private or public company, and nature of business of the proposed
company. A company may or may not have a constitution, and if they adopted a
constitution (shall be by way of special resolution), they must then lodge the
constitution with the ROC within 30 days from its adoption.
All businesses must first seek approval and be registered with the Companies
Commission of Malaysia and can only commence operations upon receipt of the
certificate of incorporation issued by the said commission.
It is a requirement under the Companies Act 2016 that the directors of every
company to prepare financial statements and directors’ report annually, which is to
be circulated to the people listed in Section 257 of the Companies Act 2016. The
time allowed for sending out copies of the financial statements and reports for a
private company is within six months of its financial year end; and for a public
company, it is at least 21 days before the date of its annual general meeting. All
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companies except exempted private companies are required to lodge the financial
statements and report with the Registrar of Companies.
2.7 Foreign Company
A foreign company cannot carry on business in Malaysia unless it is registered as a
foreign company under the Companies Act 2016. However, participation by foreign
companies is highly encouraged in Malaysia. Therefore, the Ministry of International
Trade and Industry (MITI) encourages foreign businesses to incorporate local
subsidiaries. The Malaysian Guidelines on Foreign Participation in the Distributive
Trade Services issued by the Ministry of Domestic Trade Co-operatives and
Consumerism (MDTCC) provides that with effect from 19 April 2016 foreign
involvement in distributive trade is restricted in certain sectors such as fuel stations
and jewellery shops. All foreign involvements in distributive trade services are
required to incorporate a local company under the Companies Act 2016, and to
operate a convenience store, prior permission from MDTCC must be obtained.
A foreign company may carry on a business in Malaysia using any of the methods
set out below:
a) registering as a foreign company under the Companies Act 2016;
b) incorporating a separate Malaysian company as its subsidiary;
c) acquiring all or majority of the shares of an existing Malaysian company; or
d) entering into a joint venture with a Malaysian company or individual typically
through holding shares in a newly-incorporated joint venture company.
2.8 Representative Office and Regional Office
A foreign company may also set up a representative office in Malaysia. However, a
representative office will have no legal status nor will it engage in any profit-making
or trading activities as it is only established to perform permissible activities for its
head office or principal. Its establishment is only permitted to collect relevant
information on investment opportunities in the country, especially in the
manufacturing and services sector, developing mutual trade relations, promoting
the export of Malaysian goods and services, carrying out research and development
(R&D) and other activities which will not directly result in actual commercial
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transactions. A foreign company which intends to set up a representative office in
the manufacturing and trading sector is not required to be incorporated or registered
under the Companies Act 2016 but must obtain prior approval of the Government
of Malaysia before commencing operations.
A regional office is essentially similar to a representative office. It is a foreign
company based in Malaysia which performs permissible or designated activities for
its headquarters or principal within the region it operates. Generally, it serves as
the coordination centre for the company’s affiliates, subsidiaries and agents in
South-East Asia and the Asia Pacific. Such office is usually wholly funded from
sources outside Malaysia and is not required to be incorporated or registered with
the Registrar of Companies pursuant to the Companies Act 2016.
2.9 Principal Hub
A locally incorporated company that uses Malaysia as a base for conducting its
regional or global businesses and operations to manage, control, and support its
key functions including management of risks, decision making, strategic business
activities, trading, finance, management and human resource.
In order for a company to be eligible for the Principal Hub incentive, it must satisfy
the following criteria:
• be incorporated under the Companies Act 1965 with a paid-up capital of more
than RM2,500,000, and minimum annual sales of RM300,000,000.
• serves and control network companies in at least three countries outside
Malaysia.
• carry out at least three qualifying services, of which one of the qualifying services
must be Regional P&L/Business Unit Management from the strategic services
cluster as follows:
A. Strategic Services
(a) Regional P&L/Business Unit Management
(b) Strategic Business Planning and Corporate Development
(c) Corporate Finance Advisory Services
(d) Brand Management
(e) IP Management
(f) Senior-level Talent Acquisition and Management
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B. Business Services
(a) Bid and Tender
Management
(b) Treasury and Fund
Management
(c) Research, Development &
Innovation
(d) Project Management
(e) Sales and Marketing
(f) Business Development
(g) Technical Support and
Consultancy
(h) Information Management and
Processing
(i) Economic/Investment Research
Analysis
(j) Strategic Sourcing, Procurement
and Distribution
(k) Logistics Service
C. Shared Services
(a) Corporate Training and Human Resource Management
(b) Finance & Accounting (Transactions, Internal Audit)
• The minimum monthly salary for high value jobs (i.e. management, analytics,
communication, problem solving, and proficiency in information technology) is at
least RM5,000; and the minimum salary of key strategic/management positions
is at least RM25,000
• Annual business spending must be present (i.e. an expense incurred in carrying
out the Principal Hub’s day-to-day operation).
• Companies are encouraged to undertake training and development plan for
Malaysians.
• The applicant should be the planning, control and reporting centre for the
qualifying services.
• Malaysian-owned and incorporated businesses are encouraged to provide
headquarters-related services and expertise to their overseas companies.
• Significant use of Malaysia’s banking and financial services and other ancillary
services and facilities.
An approved Principal Hub will receive the following incentives:
• customs duty incentives (see Section 17.1 (ii) – Incentives for investment);
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• no local equity / ownership condition;
• expatriate posts based on requirements of applicant’s business plan subject to
current policy on expatriates;
• use of foreign professional services only when locally-owned services are not
available;
• a foreign-owned company is allowed to acquire fixed assets so long as it is for the
purpose of carrying out the operations of its businesses plan; and
• foreign exchange administration flexibilities will be accorded in support of business
efficiency.
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3. Foreign Investment
Malaysia welcomes and actively encourages foreign investment indiscriminately. It is one
of the world’s top locations for manufacturing operations abroad. In 2017 Malaysia
welcomed USD41, 000,000,000 into the country as Foreign Direct Investment (FDI).
The climate, lifestyle, educational opportunities and availability of multilingual
professionals competent in all the Malaysian languages are key advantages to successful
business investments in Malaysia.
The Malaysian government encourages FDI through the granting of various incentives
and has entered into double taxation agreements with 74 countries as of 30 August 2017,
including Spain, Germany, Hong Kong, India, New Zealand, Thailand, Philippines, China,
Korea and the United States of America.
Malaysia has also signed investment guaranteeing agreements with most major industrial
countries which generally cover matters such as:
a) Guarantee that there shall be no deprivation or nationalisation except for a public
purpose without delay and adequate compensation; and
b) Permission to remit or return in any exchangeable currency profits or capital on
investment.
Many of the foreign investors have re-invested in multiple projects. In some sectors, the
foreign investors must comply with government guidelines and policies, and obtain a
license from the government, i.e. high technology manufacturing, energy, information
technology, telecommunication and other sectors of strategic importance to Malaysia.
However, foreign investors in the manufacturing sector are allowed to hold 100% equity
and all projects approved under the policy will be exempted from restructuring their equity.
With its promising economy, running a business in this country can be extremely
rewarding. Any disputes regarding foreign investments will be settled at the International
Centre for the Settlement of Investment Disputes, of which Malaysia is a member.
While there may be requirements regarding compliance with certain policies on foreign
investment, conditions imposed on foreign investors can be flexible and are based on the
merits of individual projects. For instance, a company with foreign paid-up capital of above
USD2,000,000 will be granted up to ten expatriate posts, including five key posts which
are permanently filled by foreigners. The Malaysian government does not discriminate
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between foreign and domestic investors, except in certain taxation matters and exchange
control measures.
Despite the fact that Malaysia actively encourages foreign investments, the Malaysian
government continues to strive towards increasing the Malaysian and Bumiputera (the
indigenous people of Malaysia) ownership of Malaysian incorporated companies. In order
to achieve this goal, the Government has adopted the National Development Policy; the
main objective of which is to ensure a balanced composition in terms of economic
ownership.
3.1 Investment Regulations
In Malaysia, a mutual approach between policy and legislation is used to regulate
investments.
a) New Economic Policy (NEP)
Prior to 1990, the NEP was launched to balance the racial economic inequality
in order to achieve a capital ownership structure which consists of Bumiputeras,
non-Bumiputeras, and foreign ownership in the proportion of 30%, 40%, and 30%
respectively. It should be noted that there is no legislation prohibiting 100%
foreign ownership of the share capital of Malaysian companies. However, it is
highly discouraged by the Malaysian government.
b) New Economic Policy (NEP)
Prior to 1990, the NEP was launched to balance the racial economic inequality
in order to achieve a capital ownership structure which consists of Bumiputeras,
non-Bumiputeras, and foreign ownership in the proportion of 30%, 40%, and 30%
respectively. It should be noted that there is no legislation prohibiting 100%
foreign ownership of the share capital of Malaysian companies. However, it is
highly discouraged by the Malaysian government.
c) National Development Policy (NDP)
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In the year 1991, the Government introduced the NDP to replace the existing
NEP. The NDP basically upholds the NEP’s objectives of eradicating poverty and
ethnic redistribution of wealth with a greater focus on redistribution through rapid
growth.
d) Economic Planning Unit (EPU)
The Economic Planning Unit of the Prime Minister’s Department is the principal
government agency responsible for the preparation of development plans in
Malaysia. Its main function is to formulate development policies for the nation.
The National Development Planning Committee under the EPU is responsible for
the formulation, implementation, progress evaluation and revision of
development plans.
e) Foreign Investment Committee (FIC)
FIC was a unit of the EPU which is part of the Malaysian Prime Minister’s
Department and was in charge of major matters regarding reviewing and
regulating acquisitions by foreign interests in Malaysian companies and
businesses. Previously, it issued guidelines and policies on foreign investments
and projects that did not involve petroleum or licensed manufacturing activities.
The Guidelines issued by the FIC effective from 1 January 2008 were:-
i) Guideline on the Acquisition of Interest, Mergers and Take Overs by Local
and Foreign Interests (FIC Acquisition Guidelines); and
ii) Guideline on the Acquisition of Properties by Local and Foreign Interests
(FIC Property Guidelines).
The FIC was disbanded in the year 2009 and was replaced by the Monitoring and
Supervision Unit; a new department under the EPU. Further, effective from March
2014, a new Guideline on The Acquisition of Properties was issued by the EPU,
which repealed the earlier guidelines. This new guideline had been revised to
effectively enforce the RM1,000,000 threshold for acquisition of properties by
foreign interests.
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4. Free Trade ____________________________________________________________________
With international trade being an essential contributor to Malaysia’s economic growth,
Malaysia is a signatory of various free trade agreements (FTA); the aim of which include
providing the means of achieving higher and quicker levels of liberalisation; which would,
in turn, create more efficient market access between the various participants of FTA.
Malaysia’s objectives in negotiating FTA range from seeking better market access by
addressing tariffs and non-tariff measures, building capacity in specified targeted areas
through technical cooperation and collaboration, enhancing the competitiveness of
Malaysian exporters to ultimately facilitating and promoting trade, investment and
economic development.
4.1 Malaysia’s Free Trade Agreements
To date, Malaysia is party to thirty three (33) different FTA with various countries
and is currently negotiating at least three more; including the Regional
Comprehensive Economic Partnership (RCEP), ASEAN-Hong Kong Free Trade
Agreement (AHKFTA), and Malaysia-European Free Trade Area Economic
Partnership Agreement (MEEPA).
Additionally at the regional level, all ASEAN partners have established the ASEAN
Free Trade Area. Among the key features of the FTA include the preferential tariffs
and market access granted to signatory countries. Exporters also enjoy savings in
term of costs due to the elimination or reduction of customs duties, trade facilitating
customs procedures, as well as the removal of onerous regulations.
4.2 Trans-Pacific Partnership Agreement (TPPA)
The Trans-Pacific Partnership (TPP) is a trade agreement amongst twelve
countries, which was signed, after seven years of negotiation, on 4 February 2016.
However, on 23 January 2017, the United States has withdrawn from the TPP via a
Presidential Memorandum. The TPP as it stands cannot enter into force without the
US, as it accounts for 60% of the combined Gross Domestic Product (GDP) of the
12 TPP members. To date, Japan and New Zealand have completed their domestic
ratification process.
In light of the US withdrawal, the TPPA Ministers from the remaining 11 member
countries convened a meeting on 21 May 2017, and affirmed the economic and
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strategic importance of TPP, particularly as a vehicle for regional economic
integration. As of now, Malaysia is keeping its options open on TPPA and will
continue to be involved in the upcoming discussions.
Unlike traditional FTA, the TPPA encompasses areas beyond improved market
access to goods, services and investments such as harmonising rules for new and
emerging trade, competition with state-owned enterprises, intellectual property
rights, labour, digital economy and the environment. The government of Malaysia
seeks to build investor confidence and draw foreign investment into Malaysia,
particularly from non-TPPA countries which are exploring Malaysia as a hub for the
enjoyment of the benefits of the TPPA.
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5. Regulation of Business
In Malaysia, a few authorities or bodies are responsible for the regulation of financial and
securities markets, incorporation, taxation and business operations, controlling the
development of Malaysian and foreign business entities; including:
a) Bank Negara Malaysia (BNM), the “Central Bank of Malaysia”;
b) Securities Commission of Malaysia (SC);
c) Companies Commission of Malaysia (CCM);
d) Inland Revenue Board of Malaysia (IRB);
e) Bursa Securities Malaysia (BURSA);
f) Ministry of International Trade and Industry (MITI); and
g) Labuan Financial Services Authority (Labuan FSA)
5.1 Bank Negara Malaysia
Bank Negara Malaysia (BNM) is the Central Bank of Malaysia. It is a statutory body
wholly owned by the Government of Malaysia. Some of the major roles of BNM
include:
• bringing about financial system stability and fostering a sound and
progressive financial sector;
• promoting economic growth and a higher level of employment; and
• eradicating poverty and reforming the society.
BNM plays an active role in advising on macroeconomic policies and managing
public debt. It is also the sole authority in the issuing of currency, in addition to the
management of the country’s international reserves. BNM acts as the banker and
financial adviser to the Malaysian government.
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In an effort to increase accessibility to the public, BNM has formed the Integrated
Contact Centre (ICC), which is a one-stop centre for public interaction. The ICC
comprises:
a) BNMLINK – a direct customer service to facilitate effective responses on
financial matters for the public;
b) BNM TELELINK – which attends to inquiries made via SMS, telephone
calls, facsimiles, letters and electronic mail; and
c) Complaint Management and Advisory – which facilitates resolutions of
issues related to access to financing for Small-Medium Enterprises (SME)
and complaints against institutions under the purview of BNM.
In addition to this, BNM has also set up the Credit Counselling and Debt
Management Agency to help consumers manage their debts and become more
independent in their financial affairs. It has also established the Financial Mediation
Bureau (FMB); an independent body which assists consumers in seeking solutions
to disputes, claims, and complaints arising from services provided by financial
institutions.
5.2 Securities Commission of Malaysia (SC)
The SC was established in 1 March 1993 under the Securities Commission Act 1993
and is a self-funding statutory body tasked with overseeing the securities and futures
industries. The SC’s many regulatory functions include regulating, supervising,
approving and developing the securities industry, in addition to advising the
Malaysian government and BNM on policy matters. Nevertheless, the SC’s ultimate
responsibility is to protect the investors. Its statutory obligations include promoting
the development of the securities and prospects markets in Malaysia and also to
safeguard the public’s and minorities’ interest, as well as to maintain market integrity
and efficiency.
5.3 Companies Commission Malaysia (CCM)
The CCM acts as an agent of the Malaysian government which administers, collects
and enforces payment of prescribed fees, as well as enhances and promotes the
supply of business and corporate information. The CCM’s main role is to regulate
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matters relating to corporations, companies and businesses in relation to laws
administered. It also monitors and promotes proper conduct amongst directors,
secretaries, managers and other officers of corporations, companies, business
industry groups and professional bodies in the corporate sector in order to ensure
that all corporate and business activities are conducted in accordance with
established norms of good corporate governance.
5.4 Inland Revenue Board of Malaysia (IRBM)
The IRBM was established under the Inland Revenue Board of Malaysia Act 1995
to improve the quality and effectiveness of tax administration. It is one of the main
revenue collecting agencies under the Malaysian Ministry of Finance. It acts as an
agent of the Malaysian government by providing services in relation to the
administration, assessment, collection and enforcement of the payment of income
tax, petroleum income tax, real property gains tax, estate duty, stamp duties and
other taxes as may be agreed between the Malaysian government and the IRBM. It
also acts as an advisor to the government on matters relating to taxation.
5.5 Bursa Securities Malaysia (BURSA)
BURSA is an exchange holding company approved under Section 15 of the Capital
Markets and Services Act 2007 which focuses on various initiatives aimed at
improving its product and services offerings, increasing the liquidity and velocity of
its markets, improving the efficiency of its businesses and achieving economies of
scale in its operations. It is responsible for the supervision of the share market place
and sustaining investors’ confidence in a share market by promoting fair and open
price formations and ensuring reliable information disclosure and dissemination to
the investors. It owns, operates and manages Bursa Securities Malaysia which is
the principal securities exchange in Malaysia.
5.6 Ministry of International Trade and Industry (MITI)
The MITI deals with foreign investments and promotion and has overall
responsibility for every aspect of foreign trade and industrial development. The MITI
acts through the following bodies and agencies:
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a) Malaysian External Trade Development Corporation (MATRADE) – a hub for Malaysian exporters and foreign importers to source trade-related information.
b) Malaysian Industrial Development Authority (MIDA) – The Malaysian
government’s principal agency in charge of the promotion and co-ordination of industrial development in Malaysia including foreign investments.
c) Small and Medium Industries Development Corporation (SMIDEC) – a
body set up to promote the development of Small and Medium Industries
(SMIs) in the manufacturing sector.
5.7 Labuan Financial Services Authority (Labuan FSA)
Labuan Financial Services Authority (Labuan FSA) was established on 15 February 1996 under the Labuan Financial Services Authority Act 1996. Labuan FSA is the statutory body responsible for the development and administration of the Labuan International Business and Financial Centre (Labuan IBFC).
The objectives of Labuan FSA include the following:
• to promote and develop Labuan as an international centre for business and
financial services;
• to develop national objectives, policies and priorities for the orderly development
and administration of international business and financial services in Labuan;
and
• to act as the central regulatory, supervisory and enforcement authority of the
international business and financial services industry in Labuan.
Labuan FSA’s key role is to license and regulate licensed entities operating within Labuan IBFC and to ensure all such entities remain in compliance with the internal and international best standards adopted by the jurisdiction. Labuan FSA also develops policies for the orderly conduct of business and financial services in Labuan IBFC.
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6. Foreign Exchange Administration
Malaysia has a very liberal Foreign Exchange Administration (FEA) which enables
businesses to deal freely in foreign exchange with minimal restrictions. However, there
are exceptions when dealing with Israel, whereby special restrictions may apply. The
main objective of the exchange control policy in Malaysia is to facilitate a conducive and
competitive business environment. This is done by enhancing the efficiency of the
regulatory delivery system, with aims to encourage the use of the nation’s financial
resources for productive purposes.
The Malaysian exchange control system is governed by the Exchange Control Notices of
Malaysia (ECM). Bank Negara Malaysia (BNM) as the central bank of Malaysia is
responsible for administering foreign exchange control regulation, promoting monetary
stability and developing a sound financial structure.
In general, the Malaysian markets are made easily accessible to global investors. There
are no FEA restrictions imposed, except the special restrictions involving Israel. There is
flexibility in the inflow and outflow of capital for investments in Malaysia. Non-residents
are free to invest in any form of ringgit asset by way of direct or portfolio investments and
are free to remit out of divestment proceeds, profits, dividends or any income arising from
their investments in Malaysia.
There are no restrictions for non-residents in relation to the conversion of foreign currency
to ringgit or vice versa with licensed onshore banks. The currency can then be used for
the purchase of ringgit assets or for the repatriation of funds arising from these ringgit
investments. They are also allowed to undertake the settlement of ringgit investments
through appointed overseas banks which are within the same banking group of banks
with a presence in Malaysia.
The Exchange Control Act 1953 has been revoked in 2013 by the Financial Services Act
2013 [Act 758].
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7. Franchising in Malaysia
There are over 850 registered franchise brands in Malaysia contributing an estimated
RM27,000,000,000 to the local economy and should continue to grow with continuing
government support. Around 40% of franchises operating in the country are foreign
franchises, and are predominantly U.S. franchises.
As a response to the increasing popularity of franchising in the country, the Franchise Act
1998, along with its 1999 Regulations and Franchise (Amendment) Act 2012 were
enacted in order to regulate franchising. The regulatory duties are under the purview of
the Franchise Development Division (FDD) of the Ministry of Domestic Trade
Cooperatives and Consumerism (MDTCC). Perbadanan Nasional Berhad (PNS) is an
agency owned by the Ministry of Finance Incorporated (MOF Inc.) with the mandate to
lead the development of Malaysia’s franchise industry. The Act (as amended) provide for
an effective system of registration as a means of both controlling and monitoring the
performances of both foreign and local franchises.
Recognising that franchising is one of the fastest ways to create entrepreneurs and to
increase the number of middle-class Bumiputeras, the Prime Minister’s office established
the FDD in 1992 to administer the Franchise Development Program with the objective of:
• increasing the number of entrepreneurs as franchisors, master franchises and
franchisees; and
• developing home grown products and services into franchise businesses.
7.1 Malaysian Franchise Association (MFA)
In 1994, the government established the Malaysian Franchise Association (MFA) as
a self-regulating body for the franchising industry, to assist the government in
developing and promoting its franchising program. Working closely with the Ministry
of Domestic Trade, Co-Operatives & Consumerism (MDTCC), MFA provides
recommendations, formulates strategies, and fosters training, development and
strategic planning for the industry. Together with MDTCC, MFA also organizes
Franchise International Malaysia (FIM), the largest annual franchising exhibition and
conference in Southeast Asia. MDTCC also sponsors trade delegations to
international franchise expos.
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7.2 Elements of a Franchise
Principally, the Franchise Act 1998 applies to the sale of any franchise in Malaysia
whereby the franchised business operates in Malaysia. A “franchise” falls within the
purview of the Act if all of the following elements are satisfied:
• the franchisee operates a business according to the franchise system which is
determined by the franchisor during a term to be determined by the franchisor;
• the franchisor maintains the right to exercise continuous control over the
franchisee’s business operations during the franchise term in accordance with
the franchise system;
• the franchisor grants to the franchisee the use of its trademarks, trade secret,
any confidential information and intellectual property; and
• the franchisee pays a fee or some other non-financial consideration in return
for the franchise.
7.3 Financial Support
Many financial assistance programs and facilities have been created under the
Ministry of Domestic Trade Cooperatives and Consumerism (MDTCC) to promote
franchising among Bumiputera middle class and Bumiputera entrepreneurs.
Although preference is given to Bumiputera, others are also allowed to apply. These
include:
• Franchise Agreement Reimbursement (FAR) – to reimburse the cost of
preparing Franchise Agreements during the penetration of international
markets;
• Intellectual Property Reimbursement (IPR) – to reimburse the cost of
registering intellectual property in foreign countries;
• Franchise Financing Schemes (FFS) – a jointly participated scheme with the
MDTCC, Credit Guarantee Corporation and two participating banks, i.e.
Maybank and CIMB;
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• Pre-franchise Scheme by Perbadanan Nasional Berhad (PNS) – Islamic loans
of between RM50,000 to RM2,000,000 for a tenure of up to ten years with a
6% profit rate (per annum) without property collateral, and 5% profit rate (per
annum) with property collateral;
• FFS by the Credit Guarantee Corporation – steps in to guarantee a franchisor’s
loan subject to stringent requirements. Open to all Malaysian-owned and
controlled SME with net assets or shareholders’ funds not exceeding
RM1,500,000 and applies to a maximum loan limit of RM7,500,000 with a
maximum loan tenure of five years; and
• Franchise Development Assistance Fund – offers government grants via
reimbursements to individual entrepreneurs or local companies involved in
franchising. However, entrepreneurs need to first produce their own capital
upfront.
7.4 Sales Prospects
Franchising has excellent growth potential here due to:
• the Government’s strong promotion and support for the franchising industry;
• the popularity of U.S franchises;
• franchising only accounts for 3.9% of Malaysia’s annual retail sales;
• relatively high purchasing power; and
• Malaysia recorded an annual growth of 5.9% in GDP for the year 2017,
beating out neighbours Thailand and Singapore at 3.9% and 3.6%
respectively
Best prospects identified for the franchising sector in Malaysia include:
• casual fast food outlets and restaurants;
• education and training products/programs for English, life sciences, leadership, child development and other adult training programs;
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• services such as pharmacy, healthcare, nursing, senior care, printing, cleaning, plumbing, car servicing and maintenance;
• information technology, such as computer services;
• gift and souvenir shops; or
• franchise consultancy.
7.5 System of Registration
According to Franchise Act 1998, all franchisors that are selling their franchises in
Malaysia are required to register with the Registrar of Franchise (ROF) which is
under the Ministry of Domestic Trade Cooperatives and Consumerism (MDTCC).
Pursuant to the latest amendments to the Franchise Act 1998 (Franchise Act
(Amendment) 2012), all franchisors are required to register before they can operate
a franchise business. The amendment also added new registration requirements on
franchisees of local and foreign franchisors.
While a franchisee of a foreign franchisor is required to register before commencing
the franchised business, a franchisee of a local franchisor can wait to register within
14 days after signing the franchise agreement.
7.6.1 Registration Procedures of the Franchisor and Franchisee
7.6.1.1 Application to Register Franchise
The forms required which are Form BAF1 and BAF2 can be
collected for free from the MDTCC. The application should be
submitted with the following documents:
• Form BAF1;
• Form BAF2 (Applicant’s profile);
• Operation Manual (Malay and English version);
• Training Manual (Malay and English version);
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• a certified true copy of the company’s Certificate of
Incorporation (Form 9/Form 13 under the Companies
Regulation 1966);
• a certified true copy of the latest Returns Giving Particular in
Register of Directors, Managers and Secretaries and Change
of Particulars (Form 49);
• a certified true copy of the latest Share Allotment Form (Form
24);
• brochures/pamphlets/company’s annual report;
• latest audited accounts (three years) together with financial
statements, balance sheet and profit and loss accounts;
• five years franchise financial projection; and
• a certified true copy of Registered trade mark or intellectual
property mark documents with Intellectual Property
Corporation of Malaysia (MyIPO).
If only a copy can be provided in respect of the above-stated
documents, the copies must be certified as true copy via statutory
declaration which states that the documents have been compared
to the original and declared to be an exact duplicate of the original.
The processing fee is RM50 and the processing period is 7 days
from the date of confirmed complete document, but in some
complicated matters, the processing time can be longer. Any
amendment can be made to the forms or documents during the
processing period (before approval) via formal letter. The fee for
each amendment made is RM50.
7.6.2.2 Registration
Upon approval of the application, the Franchisor will be notified and
the application will proceed for registration once the payment fee of
RM1,000 is made. A copy of the advertisement to the public to offer
or purchase the franchise shall be extended to the Registrar for his
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perusal at least five days before the publishing or distribution of the
same.
7.6.2.3 Post Registration
The registration of the franchise in Malaysia is valid until the
Registrar’s order to suspend, terminate or reject the registration is
issued. An annual report of the franchise must be submitted to the
Registry every year within six months from the end of each financial
year of the franchise business.
Figure 1.0 Various registration stages in the Malaysian franchise system.
7.7 National Franchise Development Master Plan 2012-2016 (PIPFN)
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On 10 February 2013, the PIPFN was launched with the aim of increasing the
number of franchisors by the year 2020 and creating a more steady and
dynamic sector. The contribution of the franchise industry is targeted to rise from
2.2% in 2010 to 4.3% in 2016 and 9.4% by 2020, respectively, while achieving
an increase in the number of franchisees to 6,700 in 2016 and 13,000 in 2020.
Various measures have been taken in line with the PIPFN in an effort to promote
franchising in Malaysia, including the publication of an official bulletin by MFA
(entitled Minda Francais), which is published once every two months, as well as
the hosting of Franchise International Malaysia (FIM). Furthermore, the MFA
presents the prestigious annual Malaysia Franchise Awards as a means of
granting recognition to the industry’s best franchise players, as well as providing
encouragement to the success and contribution to those involved in the
development of the industry.
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8. Electronic Commerce
Malaysia has embraced electronic commerce (e-commerce) to encourage more
business transactions to be conducted over private and public computer networks.
The Malaysia Digital Economy Corporation (MDEC) is a client-focused corporation which
is responsible for making the MSC a success. It is responsible for providing information
and advice on the MSC, introduces companies to potential local partners and financiers,
promotes the MSC globally, regulates MSC specific laws and policies and sets standards
for MSC’s information infrastructure and urban developments.
8.1 Multimedia Super Corridor (MSC)
MSC is a government initiative to expand the Information and Communication
Technology (ICT) industry in Malaysia. Physically, it is 15 kilometres wide and
50 kilometres long, beginning from the Kuala Lumpur City Centre and extending
south to Kuala Lumpur International Airport, and also includes Putrajaya and
Cyberjaya as part of its development.
For investors interested in developing or using multimedia technologies to
provide value added services, the Government offers many incentives to those
intending to set up companies that qualify for MSC status. MSC Malaysia status
is awarded to both local and foreign companies that develop or use multimedia
technology to produce and enhance their products and services, and for process
development.
A company seeking MSC status and its benefits is required to (these criteria are
currently under review with no projected timeline of completion):
• employ a substantial number of knowledge workers;
• be a provider or a heavy user of multimedia products and services;
• establish a separate legal entity for the MSC qualifying multimedia business
and activities;
• provide technology transfer and/or contribute towards the development of
the MSC or support Malaysia’s k-economy (knowledge-based economy)
initiatives;
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• be located in MSC designated cyber cities; and
• comply with environmental guidelines.
Activities which are not eligible for MSC Malaysia Status are pure
manufacturing/assembly activities, trading activities and consultancy activities
that are not tied to any new multimedia application developed in-house.
Companies which have been granted the MSC Status will enjoy certain
incentives that are backed by the Government’s Bill of Guarantees:
▪ Financial incentives
• Pioneer Status – Malaysian income tax exemption of 100% of the
statutory income for a period of 10 years commencing from the date
when it starts generating revenue;
• Investment Tax Allowance of 100% on the qualifying capital
expenditure incurred within a period of five years to be offset against
100% of statutory income for each year of assessment;
• freedom to source capital and borrow funds globally;
eligibility for R&D grants (for majority Malaysian-owned MSC Malaysia
Status companies); and
• duty-free importation of multimedia equipment.
▪ Non-financial Incentives
• freedom of ownership (e.g. exempted from local ownership
requirements, such as Bumiputera shareholding requirement);
• no censorship of the internet;
• globally competitive telecommunication tariffs and service
guarantees, provided companies are located within the MSC
Malaysia;
• green environment, protected by strict zoning;
• excellent research and development facilities;
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• intellectual property protection;
• a comprehensive framework of cyber laws;
• world-class physical and IT infrastructure, if located within the MSC;
and
• high-powered implementation agency to act as an effective one-stop
centre (the MDEC).
8.2 Cyber laws
Malaysia has drafted and is attempting to develop a set of Cyber laws which
comprise of:
a) Computer Crimes Act 1997
This Act provides for offences relating to the misuse of computers.
b) Digital Signature Act 1997
This Act provides the framework for licensing and regulation of Certification
Authorities, and the recognition of digital signatures.
c) Telemedicine Act 1997
This Act enables fully registered medical practitioners holding valid practicing
certificates to practice telemedicine on patients who have given written
informed consent.
d) Copyright (Amendment) Act 1997
This Act amends the Copyright Act 1987. It extends copyright protection to
include multimedia works and ensures adequate protection of intellectual
property rights for companies investing in the IT and multimedia department.
e) Communications and Multimedia Act 1998
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This Act creates a new system of licences and defines the roles of those who
provide multimedia and communication services. To this end, the
Communication and Multimedia Commission is brought into existence under
the Act as a new regulatory authority.
f) Electronic Government Activities Act 2007
This Act facilitates the electronic delivery of government services to the
general public.
g) Electronic Commerce Act 2006
The Act seeks to provide for legal recognition of electronic messages in
commercial transactions, the use of the electronic messages to fulfil legal
requirements and to enable and facilitate commercial transactions through
the use of electronic means and other matters connected therewith.
h) Personal Data Protection Act 2010
The Personal Data Protection Act (PDPA) came into operation on 15
November 2013. The Act primarily aims to regulate the collection, holding,
processing and use of personal data in commercial transactions and also to
prevent malicious use of personal information. This piece of legislation plays
a crucial role in safeguarding the interest of individuals and makes it illegal
for anyone, be it corporate entities or individuals, to sell personal information
or allow such use of the data by third parties.
The law applies only if the data or information processed is “personal data”.
This personal data must relate directly or indirectly to a data subject, who is
identified or identifiable from that information or from that and other
information in the possession of a data user. The data must be capable of
being processed, wholly or partly by means of equipment operating
automatically or recorded as part of a filing system (including manual
processing in this instant).
The Act expressly excludes its application to the federal and state
governments thus exempting the public authorities which represent the major
data controller and processors in the country from being subjected to the Act.
This law is also not applicable to any data processed wholly outside Malaysia
unless intended to be further processed in Malaysia and any information
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processed for the purpose of credit reporting business by credit reporting and
referencing agencies. However, data processed only for the purposes of the
individual’s personal, household affairs or for recreational purposes is totally
exempted from the Act.
Failure to comply with the provisions of the law is punishable by a fine not
exceeding RM 100,000 or to imprisonment for a term not exceeding 1 year
or to both. Subject to the due diligence defence, directors, managers or other
similar officers have joint and several liability for non-compliance by the body
corporate.
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9. Labuan International Business and Financial Centre (IBFC)
9.1 International Business and Financial Centre The Federal Territory of Labuan was designated as an International Offshore
Financial Centre (IOFC) in October 1990 and is now home to the Labuan
International Business and Financial Centre (Labuan IBFC) which operates
mainly as an international financial centre. Labuan is one of the three islands
that are free of customs duty in Malaysia; making all goods sold in Labuan duty
free. It is also a hub for oil and gas; providing refining and support services
throughout Borneo’s western seaboard. Labuan IBFC offers investors the choice
to structure their business activity using either the conventional form or the
Islamic finance form; provided that appropriate Syariah principles are adhered
to in respect of Islamic financing.
9.2 Statutory Bodies
Labuan Financial Services Authority or Labuan FSA is a statutory body set up
under provisions of the Labuan Financial Services Authority Act 1996, as a one-
stop supervisory and regulatory body for Labuan IBFC. The function of Labuan
FSA is to license and regulate licensed entities operating within Labuan IBFC
and to ensure those entities remain in compliance with the internal and
international standards adopted by the jurisdiction. Labuan FSA also plays an
active role in developing policies for the orderly conduct of business and financial
services in Labuan IBFC.
Another body which acts as the first point of reference for all investors into
Labuan IBFC is Labuan IBFC Incorporated Sdn. Bhd., which is also authorised
to promote, market and develop the benefits of Labuan IBFC as the premier
international business and financial centre in the Asia-Pacific region. Labuan
FSA works closely with Labuan IBFC Incorporated in handling product research
and market development.
9.3 Legal Framework
Labuan IBFC’s legal framework comprises eight Acts which provide for the
setting up of all Labuan entities participating in the international business and
financial centre. The Acts which govern business in Labuan IBFC include:
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9.3.1 Labuan Financial Services Authority Act 1996 (LFSAA)
This Act was amended in 2010 by the Labuan Offshore Financial Services
Authority (Amendment) Act 2010 to name the regulator as Labuan
Financial Services Authority (Labuan FSA) with enhanced statutory
functions. As the one-stop authority, Labuan FSA is the custodian of the
jurisdiction’s sound reputation. It has the power to share information with
domestic and international supervisory agencies.
9.3.2 Labuan Business Activity Tax Act 1990 (LBATA)
This Act (as amended by the Finance Act 2014) reclassifies and clarifies
definitions of Labuan business activities. It also provides the tax treatment
for the new products introduced under the Labuan Companies Act 1990
and provides the power to share information with foreign competent tax
authorities. The LBTA (Amendment) 2017 was enacted on 19 May 2017
which merely amended Section 21 of the Act – Power of Minister to make
regulations.
9.3.3 Labuan Companies Act 1990 (LCA)
This Act introduces new products which open up many areas. Labuan
companies can deal with Malaysian residents and can own controlling
interest in a Malaysian company. Shipping operations are allowed in
Labuan and outside of Malaysia. It also gives flexibility for Labuan
companies to co-locate in designated areas in Malaysia.
9.3.4 Labuan Trusts Act 1996 (LTA)
Under this Act, a Labuan Special Trust may be used for corporate or
personal succession planning, commercial purposes or matrimonial
settlement. A variety of trust types and duration including ‘in perpetuity’ is
available. Non-residents who have Malaysian assets can include
themselves in the Trust while Malaysians can set up Trusts with
international assets, or, if Malaysian assets, on approval of the regulator.
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9.3.5 Labuan Financial Services and Securities Act 2010 (LFSSA)
This Act covers banking, insurance, trust companies and the securities
industry. It states that a fund with less than 50 investors need not register
but only inform the regulator.
9.3.6 Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA)
This Act unifies all the previous laws and guidelines; clarifying and
streamlining grey areas. It also recognizes Islamic finance as an
alternative system to the conventional, as long as it is Syariah compliant.
9.3.7 Labuan Foundations Act 2010 (LFA)
This Act was enacted to offer Foundations as an alternative to individuals
who are more familiar with the civil law than Trusts which is under the
common law.
9.3.8 Labuan Limited Partnerships and Limited Liability Partnerships Act 2010
(LLPLLPA)
This new Act replaces the previous Limited Partnerships Act but
incorporates similar provisions together with the introduction of Limited
Liability Partnerships.
9.4 Doing Business in Labuan
A Labuan business activity can be indicated by:
▪ a Labuan trading or non-trading activity;
▪ carried out by a Labuan entity;
▪ in, from or through Labuan;
▪ in a currency other than Malaysian currency; and
▪ with non-residents or with another Labuan entity.
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Certain activities by a Labuan entity with residents or in Malaysian currency,
where permitted under the Exchange Control regulations, would also be
regarded as Labuan business activities.
One of the benefits of doing business in Labuan is that Labuan IBFC allows
certain Labuan entities to have a presence in Kuala Lumpur or any other location
within Malaysia. This provides the Labuan entity the benefits of domiciling in
Labuan IBFC whilst accessing Malaysia’s first-class infrastructure, facilities,
human capital, and professional services. Co-located entities will still generally
be required to satisfy all record keeping and statutory compliance requirements
in Labuan, whilst having an “onshore” Malaysian presence.
A Labuan trading activity, on the other hand, includes activities such as banking,
insurance, trading, management, licensing, shipping and all other activities not
considered as Labuan non-trading activities.
Labuan non-trading activities refer to the holding of investments in securities,
deposits, shares, stocks or any other form of a Labuan entity on its own behalf.
Generally, the income generated by a Labuan non-trading activity is not subject
to tax.
9.5 Tax for Labuan Entities
Under the Labuan Business Activity Tax Act 1990 (LBATA), Labuan entities are
accorded preferential tax treatment and subject to either little or no income tax
depending on the kind of business activity being carried out in Labuan. Such
preferential tax treatment is granted to Labuan entities carrying out Labuan
business activities in Labuan. Under the LBATA, Labuan entities are also
permitted to elect to be taxed under the Malaysian Income Tax Act 1967.
Among the related tax concessions include:
• Preferential tax rate of 3% of its audited net profits.
• Income derived from a Labuan non-trading activity is exempt from tax for
the year of assessment concerned.
• Instruments made in connection with a Labuan business activity by a
Labuan company will be exempted from stamp duty.
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• No indirect tax (sales tax, import duties, export duties, a surtax or excise
duties) will be levied.
• Royalties, interest and technical or management fees paid by a Labuan
registered company to a non-resident or another Labuan registered
company are exempt from withholding tax.
• Interests paid by a Malaysian resident to banks regii in Labuan are
exempt from withholding tax.
• Payments for other gains and losses under Section 4(f) of the Income Tax
Act 1967 are also exempted from income tax, and therefore withholding
tax as well.
Furthermore, any person or his employee or a company rendering qualifying
professional services to a Labuan entity in Labuan is exempted from income tax
of up to 65% of the statutory income. Qualifying professional services include
legal, accounting, financial and secretarial services.
Labuan entities carrying on a Labuan trading activity may elect to pay Zakat
(which is an obligatory charity for Muslims) instead which would be provided as
a rebate against taxes payable.
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10. Immigration Requirements
10.1 Travel Documents
A valid national passport or internationally recognized travel document which is
valid for travel to Malaysia is required from every person who wishes to enter
Malaysia. These documents must be valid for at least six months beyond the
date of entry into Malaysia. Any person not in possession of a passport (Israel)
or travel document which is recognized by the Malaysian Government must
obtain a document in lieu of a passport.
Additionally, foreign nationals may require a visa to enter Malaysia depending
on their nationality. If so required, the visa must be obtained in advance at the
Malaysian Representative Office before entering the country.
10.2 Visa
A visa is an endorsement in a passport or any other recognised travel document
of a foreigner indicating that the foreigner has applied for permission to enter the
country and that the same has been granted.
Foreign nationals who require a visa to enter must apply and obtain the same in
advance at any Malaysian Representative Office abroad before travelling to
Malaysia. Presently, foreign nationals from a total of 36 countries, including
seven Commonwealth countries, require a visa to enter Malaysia.
10.3 Passes
Foreign nationals entering the country will obtain an entry pass. This is an
endorsement on the passport, which, apart from the visa, allows the individual
to remain in the country temporarily. Depending on the purpose of the visit,
different passes will be issued:
• Short term social visit pass – these are passes issued for the purposes of
tourism, seminar attendance, meetings, or sports competitions. Form
IMM.55 must be filled and submitted at the entry point along with any of
the required supporting documents. Passes of this sort do not permit any
form of employment.
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• Long term social visit pass – these are passes which are issued to certain
foreign nationals for temporary residence of not less than six months.
Individuals who may apply for passes of this sort include spouses and
children of Malaysian nationals or permanent residents, immediate family
members of foreign students or foreigners entering the country for
medical treatment.
• Student passes – foreign students who wish to study in Malaysia need
first apply to the respective institution prior to entry into the country. Upon
submission of an offer letter and the relevant forms and documents, they
would be granted these passes which also allow them to work in petrol
stations, mini markets, hotels and restaurants. However, such passes will
not be renewed if the student’s academic performance is unsatisfactory.
• Dependant pass – these are passes granted to families of expatriate
officers.
10.4 Employment of Expatriate Personnel
The Government’s policy is to encourage the employment of Malaysians.
However, foreign companies are not restricted from bringing in expatriate
personnel where there is a shortage of suitably trained Malaysians. There are
two stages in the employment of expatriates, namely an application for an
expatriate post followed by an endorsement of the employment pass by the
Immigration Department.
Stage One: Application for Expatriate Post
This is the stage where a company submits its application for expatriate posts.
The Government has appointed certain agencies to evaluate and approve
expatriate posts as listed below:
• Ministry of Investment Development Authority (MIDA);
• Malaysian Digital Economy Corporation (MDEC);
• Bank Negara Malaysia;
• Securities Commission (SC); and
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• Expatriate Committee (EC).
Stage Two: Endorsement of Employment Pass
Upon approval of the expatriate posts by the approving agency, the company
must submit an application to the Immigration Department for endorsement of
the Employment Pass. Once the Employment Pass has been endorsed, the
expatriate can be hired.
Additional Requirements
Expatriates are required to have the following in addition to the above
requirements:
• a passport validity of at least 18 months;
• a minimum salary of RM5,000; and
• at least 2 years’ employment contract.
Talentcorp Residence Pass Talent (RP-T)
Talentcorp is the national agency for the development and retention of a skilled
workforce, originally started under the Prime Minister’s department in 2011.
The RP-T is a renewable pass that allows a skilled expatriate worker to stay and
work within Malaysia for a 10 year period.
The requirements for the pass are as follows:
• have worked in Malaysia for a minimum of three years;
• hold an Emplopyment Pass (EP) with more than three months validity at the time
of application;
• earns a basic income of at least RM15,000 which excludes any allowances
and/or bonuses;
• possesses a Malaysian tax file number and has paid income tax for at least 2
years;
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• holds a PhD/Masters/Bachelor’s Degree or Diploma in any discipline from a
recognised university or a professional/competency certificate from a
recognised professional institute; and
• has at least five years work experience.
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11. Labour
Though labour costs in Malaysia are low relative to industrialised countries, labour
productivity and quality standards are high and the population is readily trainable. Based
on the the Minimum Wage Order 2012 and the Malaysian Budget 2019 the minimum
wage was standardised as RM1,050 a month or RM 5.05 an hour throughout the entire
country.
There are a few main legislations which may be applicable to the Employer, namely the
Employment Act 1955, Industrial Relations Act 1967, Trade Unions Act 1959, Employees
Provident Fund Act 1991 and Employees Social Security Act 1969.
11.1 Employment Act 1955
The main legislation regulating terms and conditions of employment is the
Employment Act 1955 (Employment Act). The protection under the Employment
Act is extended only to employees whose monthly wages do not exceed
RM2,000, manual workers, and a few other specified categories. The
Employment Act stipulates the minimum terms and benefits. The employer is not
prevented from giving better terms but any term or condition of employment
which is less favourable to the employee is automatically rendered null and void
and substituted by the provisions of the Employment Act.
The Employment Act and Regulations made under it confer benefits such as rest
days, public holidays, annual leave, sick leave, hospitalisation leave, maternity
leave and termination benefits. The Employment Act also regulates the hours of
work and specifies the rates to be paid for overtime work and work on rest days
and public holidays.
It is to be noted that the employer is entitled to limit excess employees. Selection
is based on the ‘Last in, first out’ Rule in the category. Foreign workers are to be
reduced first before any local worker in the same category can be reduced. No
governmental approval is necessary but there is a requirement to notify the
Ministry of Human Resources. Employees within the protection of the
Employment Act 1955 are entitled to statutory termination benefits.
11.2 Industrial Relations Act 1967
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This Act regulates the relations between employers and workmen and their trade
unions and seeks to prevent and settle differences and disputes arising between
them. The main contents of this Act aim to protect workmen who form, join or
participate in trade union activities, the law and process involved in the
settlement of trade disputes and also protection for workmen against unjust
dismissals.
11.3 Trade Unions Act 1959
This Act provides for registration, constitution, and administration of trade unions
and regulates their activities in matters relating to union disputes and usage of
funds. It does not permit the formation of federations of different types of trade
unions and only allows these to be formed on an industrial, trade and
occupational basis.
11.4 Employees Provident Fund Act 1991 (EPF)
This Act and the Malaysian Budget provides for compulsory contribution by
employers and employees to EPF at the rate of 13% and 11% for employees
earning wages/salary less than RM5,000. However, the Malaysian Budget for
the year 2016 has seen a reduction in employee’s contribution; from 11% to 8%;
with the option of maintaining the employee’s contribution at 11% upon
application to the EPF. Though employees with wages/salary more than
RM5,000 the employees contribution remains at 11% whilst the employer’s
contribution is reduced to 12%. Additionally, the employer’s contribution to the
EPF for employees who are post-retirees is 4% as of 1st January 2019. However,
foreign workers and expatriates and their employers are exempted from
compulsory contribution.
11.5 Employees’ Social Security Act 1969 (SOCSO)
This Act is to provide social security protection to workers in cases of invalidity,
employment injury, and occupational disease. SOCSO originally only covered
Malaysian workers and permanent residents, however as of 1 January 2019
foreign workers (expatriates included) must be registered by their employer into
the scheme. There are two schemes under SOCSO, namely:
a) Employment Injury Scheme – provides coverage for disablement or death
due to employment injury.
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b) Invalidity Pension Scheme – provides coverage for employees against
invalidity and death from any cause before the age of 55 years. Foreign
workers are not covered under this scheme.
11.6 Talent Corp
Talent Corp is the agency under the Prime Minister’s department concerned with
the development and retention of a skilled workforce in Malaysia.
The agency provides a multitude of incentive opportunities for companies and
firms that work to develop talent in Malaysia.
Career Combeback Grant
The scheme is to encourage companies to hire women returnees to industry.
This grant provides a grant of RM100,000 per employer per year separately :
• to pay 75% of the costs incurred in the recruitment of women retunees for the
program (claimable costs include: recruitment costs, targeted campaigns as well
as technological investment in addition to other related expenses); and
• to employers that recruit and retain returning women employees for more than
six months, with the grant being roughly equivalent to the women returnee’s first
month’s salary.
Talent Procertification
The scheme is a double tax incentive for employers to cover the training expenses of
employers to for their employees to obtain professional certifications. The approved
professional certifications include but are not limited to: MICPA-CAANZ, ACCA, ICAEW,
CFA, CFP, Oracle, SAP, MIHRM, AHR.
Structured Internship Programme
The programme provides double tax incentives on employers who employ full
time undergraduates from local Public Higher Education Institutions (IPTA) and
Private Higher Education Institutions (IPTS).
The requirements for the programme include:
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• the internship programme must run for a minimum of 10 weeks; and
• the employer must provide each intern with a minimum cash, and/or cash
equivalent of 500RM a month.
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12. Real Property Law
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In West Malaysia, the law regarding land property is governed by the National Land Code
1965 (NLC). The NLC was drafted based on the Torrens System in Australia, where the title
or interest in land vests and divests only upon registration. While the States in East Malaysia
(Sabah and Sarawak) are governed by their own land laws: the Sabah Land Ordinance and
the Sarawak Land Code, respectively. The Sabah Land Ordinance uses a non-Torrens system
of registration of titles.
12.1 National Land Code 1965 (NLC)
Under the NLC, dealings which are required to be registered include transfers, leases,
charges, and easements; whereas dealings which are incapable of being registered
are tenancies and liens. Records which contain all the relevant data and information on
land and details of ownership and other rights that exist on any land are kept by the
local land registries or offices. Any party may inspect these records upon payment of a
fee.
Under the NLC, a non-citizen or a foreign company is not allowed to acquire any land
(other than industrial land) in West Malaysia unless the prior approval of the relevant
State Authority has been obtained. However, the State Authority may impose certain
terms and conditions or a levy in granting its approval for any disposal of or acquisition
by a non-citizen. Also, any acquisition of property by foreign interests (including
permanent residents of Malaysia), require the approval of the relevant authorities
unless they are exempted. The application process could take between three to six
months to complete.
12.2 Forms of Ownership of Real Property
The NLC covers all matters that involve dealing with lands such as the use of the land
and land-use planning save in Peninsular Malaysia, in expressly excluded matters.
Under the provisions of the NLC, all land is owned by the individual states.
State land is generally disposed of by way of alienation. Generally, each state has the
power to alienate land for a maximum lease period of 99 years except in exceptional
cases whereby freehold alienations may be possible. Land may be alienated by the
relevant state by imposing special conditions, restrictions-in-interest and categories of
land use (either one of three categories namely, Agriculture, Building or Industry) on
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the issue document of title of the said land to enable the state to control and regulate
the land development.
The NLC imposes an added requirement upon a non-citizen or a foreign company
wishing to purchase land by requiring the said foreigner to obtain the approval of the
State Authority before the land can be transferred to the foreigner. Failure to obtain this
approval will render the transaction null and void.
12.2.1 Lease
Under the NLC, a lease is granted for a term exceeding three years, subject to
a maximum term of 99 years if it relates to the entirety of any alienated land
and a maximum term of 30 years if it relates to a part of the land. Once the
lease or sub-lease is registered, the interest of any lessee or sub-lessee which
includes the benefit of all registered interests of the land to which it relates
vests in the lease-holder or sublease-holder, whether or not the lease-holder
or sub-lease-holder takes possession of the lease-hold. Foreign interest
wishing to take a lease of property may be required to obtain the necessary
approval from the relevant authority, depending on the term of the lease.
12.2.2 Tenancy
A tenancy is granted for a rental of property for a term not exceeding three
years. A tenancy can be effected either in writing or verbally and is exempted
from registration under the NLC. However, a tenant can be protected against
subsequent dealings on the land by an endorsement of the tenant’s claim on
the register document of title to the land. The tenant has to apply to the
Registrar for such endorsement by submitting the documents required. Failure
to endorse the register document of title would result in the tenancy being
defeated by a subsequent registered dealing, a statutory lien and even a
subsequent tenancy, which is not registrable, whether or not the subsequent
tenant has knowledge, actual or constructive, of the earlier tenancy.
12.3 Restrictions on Ownership of Real Property
Under the Guideline on the Acquisition of Properties of the Economic Planning Unit
(EPU) of the Prime Minister’s Department, subject to certain conditions, foreign entities
are permitted to acquire commercial, industrial, agricultural and residential properties
above the value of RM1,000,000 without approval from the EPU of the Prime Minister’s
Department as long as such acquisition does not result in the dilution of the Bumiputera
or Malaysian government interests in the ownership of the said properties. However,
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these acquisitions fall under the purview of the relevant Government departments or
State authorities.
Foreign interest is not allowed to acquire the following:
• properties valued less than RM 1,000,000 per unit;
• residential units under the category of low and low-medium cost as determined by the State
Authority;
• properties built on Malay reserved land; and
• properties allocated to Bumiputera interest in any property development project as
determined by the State Authority.
An EPU approval is required for any case where the property transaction results in the
dilution of the interests of Bumiputera or the Malaysian government in the property. The
situation may occur in two ways:
a) Direct Acquisition – where there is a dilution of Bumiputera or Malaysian
government interests in real property and the property is valued above
RM20,000,000.
b) Indirect Acquisition – where the transaction results in a change in control of the
company owned by Bumiputera/Malaysian government interest, where real
property makes up more than 50% of the said company’s assets, and where the
real property is valued at more than RM20,000,000.
The conditions for the above situations/acquisitions by foreigners are subject to equity
and paid-up capital conditions as follows:
a) Equity Condition – to have and maintain at least 30% Bumiputera equity in its
shareholding.
b) Paid-up Capital Conditions – to have an issued and paid–up capital of at least
RM100,000 where the acquirer is a local company owned by local interest, or paid-
up capital of at least RM250,000 where the acquirer is a local company owned by
foreign interest.
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Non-compliance with the EPU Guidelines will result in adverse practical consequences;
especially where the foreign or domestic investor is required to apply for other statutory,
regulatory or governmental licenses, permits or approvals for investment, business or
real estate.
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13. Protection of Intellectual Property Rights
The protection of intellectual property rights in Malaysia is accorded via an extensive
statutory scheme covering intellectual property rights including copyright, trademarks,
designs, patents and layout designs of integrated circuits in compliance with Malaysia’s
obligation as a signatory to the Agreement on Trade-Related Aspects of Intellectual
Property (TRIPS). Malaysia has consented to many international instruments in relation
to intellectual property rights.
The Intellectual Property Corporation of Malaysia (MyIPO) is a statutory body which has
jurisdiction over all issues relating to intellectual property, such as registration along with
advising on the reviewing and updating of all intellectual property legislation in Malaysia.
MyIPO’s website can be found at the following address: www.myipo.gov.my
13.1 Copyright
Copyright in Malaysia is governed by the Copyright Act 1987, which protects
original works in their material form. Malaysia also agreed to the Berne
Convention on 1 October 1990. The types of works protected by copyright in
Malaysia are literary, musical and artistic works, films, sound recordings,
broadcasts and also derivative works. The owner of the copyright in those works
has the exclusive right to control certain acts, including reproduction, and
communication, performance or distribution to the public, either in its original or
derivative form. However, copyright protection only protects a “qualified person”
namely:
a) a citizen or permanent resident of Malaysia; or,
b) a citizen or permanent resident of a Berne Convention country; or,
c) the work was made or first published in such a country; or,
d) if first published elsewhere, the work must be brought in and published in
Malaysia or any Berne Convention country within 30 days from its first
publication.
Copyright protection in literary, musical or artistic works is for the duration of the
life of the author plus 50 years after his death. For photographs, sound
recordings, films and published editions, copyright will sustain in the work until
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50 years from the beginning of the calendar year in which the work was first
published, whereas, for broadcasts, copyright will subsist for 50 years from the
beginning of the calendar year in which the work was first broadcasted.
There is no provision provided for copyright registration or a deposit system in
Malaysia. Civil remedies are available to a copyright owner whose copyright has
been infringed. Malaysia also imposes criminal penalties for violations of its
copyright laws.
The Copyright (Amendment) Act 2012 (which came into force on 1 March 2012)
introduces a voluntary mechanism for notification of copyright works. This new
law introduces anti-camcording provisions with providing for penalties of a fine
of not less than RM10,000, or to imprisonment for a term not exceeding five
years, or both, upon conviction; as well as limitations on the liability of internet
service providers in respect of copyright infringements.
13.2 Patents
Patent law in Malaysia is governed by the Patents Act 1983 and the Patent
Regulations 1986. A patent is a grant issued by the Malaysian Government
which gives the owner exclusive rights to exploit the invention in Malaysia for a
maximum period of 20 years from the date of the application, subject to the
payment of annual renewal fees. An invention is patentable if it is new
(commonly referred to as novelty), involves an inventive step and is capable of
industrial application.
A patent must be registered with the Registrar of Patents as provided under the
Patents Act 1983. Patents granted after 1 August 2001 are protected for 20 years
from the date of filing of an application for registration. Patents granted before 1
August 2001 are protected for the longer period of 20 years from the date of filing
an application, or 15 years from the date the patent is granted.
The owner of the patent has the right to institute court proceedings against any
person intending to infringe (imminent infringement), has infringed or is infringing
the patent. The remedies available include interim and permanent injunctions,
delivery-up for destruction, damages and/or account of profits.
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The patent owner may also file for patent application in Malaysia, as it is a
member state of the Paris convention, within 12 months of filing in their local
patent office, provided they reside in a Paris Convention member state
Conversely, those who file in Malaysia initially have the ability to file in any Paris
convention member country in the 12 months after their initial filing.
As a member state of the Patent Cooperation Treaty (PCT) national phase
applications of the PCT can be filed in Malaysia within 30 months of your original
filing in the patent owner’s local patent office.
The PCT may be filed to in Malaysia as it is a contracting state of the treaty;
however it is a non-binding written opinion on the patentability of a patent.
However, the findings of the PCT examiners tend to be persuasive in the eyes
of local examiners.
13.3 Trademarks
Registered trademarks and service marks are governed by the Trade Marks Act
1976 and the Trade Marks Regulations 1997. Trade marks which are either
pending registration, or for which no application for registration have been made,
are protected under the common law; provided that the owner of such
unregistered marks can show proof of goodwill and reputation in the use of the
said marks in relation to goods or services.
The registration of a trade mark will be for a period of 10 years (counted from
the date of approval of the registration). It can be renewed from time to time in
perpetuity. A trademark must be distinctive, comprises invented words and does
not have any direct reference to the character or quality of the goods or services
before it is qualified for registration. Once a trademark has been registered, the
proprietor has an exclusive right to use the trade mark. This would be in relation
to those goods or services for which it is entered in the Register of Trade Marks
or to prevent others from using a similar mark in a way that could deceive
potential customers. The Register of Trade Marks is kept at the Central Trade
Marks Office. Inspection of the Register can be made at the Trade Mark Office
upon payment of a prescribed fee. In the event of any unauthorised use or
infringement of a trademark, the proprietor may take civil action against the
purported infringing party.
In Malaysia, a registered proprietor is not required to file any evidence to prove
that the mark is in use in order to renew and maintain his registration. However,
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an aggrieved person may apply to the court to remove a registered trade mark
from the Registry of Trade Marks of Malaysia based on three continuous years
of “non-use in good faith” of the registered trade mark.
13.4 Industrial Designs
Any registration of industrial designs made after 1 September 1999 will be
governed by the Industrial Design Act 1996 and Industrial Designs Regulations
1999. The owner of a registered industrial design will have the exclusive right to
deal with any matters in relation to the registered industrial design. To qualify for
registration, an industrial design must be new, have features of shape,
configuration, and pattern applied to an article by an industrial process.
Once registered, the rights associated with an industrial design will be that of a
personal property. This would mean that it will be capable of assignment and
transmission by operation of law. Registered designs are protected for an initial
period of five years from the date of filing of the application which may be
extended a further two five-year terms, resulting in a total period of 15 years.
The Copyright Act 1987 denies copyright protection for designs which are
capable of being registered but have not been registered, where there is an
application of a design to an article which has been reproduced more than 50
times by an industrial process. However, with the new law under the Copyright
(Amendment) Act 2012, such restriction has been removed and copyright owners
now enjoy protection for the duration of 25 years from the date on which such
article to which design has been applied was first marketed.
13.5 Layout-Designs of Integrated Circuits
The Layout-Designs of Integrated Circuits Act 2000 provides for the protection of
layout designs of integrated circuits based on originality; to the extent that the
layout design must result from the creator’s own intellectual effort and be freely
created. No registration is needed. The Layout-Designs of Integrated Circuits Act
automatically grants the owner of an original circuit layout certain rights to copy
the layout, to make an integrated circuit in accordance with the layout and exploit
the layout commercially. The rights can be transferred either partly or wholly by
way of assignment, license, wills or through the enforcement of law. The duration
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of protection is 10 years from the date of commercial exploitation or 15 years
from the date of creation if not commercially exploited.
13.6 Confidential Information
Any information is confidential if it is disclosed under an obligation of confidence.
The right holder can use the information in any way he wants and he can impose
obligations of confidentiality on whoever he decides to disclose the information
to. An employer can prevent an employee from disclosing or utilising trade
secrets or confidential information during or after the termination of the contract
of employment, but the employer cannot prevent an ex-employee from using the
general skill and knowledge acquired in the course of his employment. Anyone
who receives information that he knows or ought to have known was obtained
through a breach of confidence has a duty not to use or disclose it. An action for
breach of confidence can be brought under contract, tort and/or equity law.
13.7 Protection of New Plant Varieties Act 2004
This Act provides for a relatively new category of intellectual property. It provides
protection of the rights of breeders of new plant varieties, and the recognition and
protection of contribution made by farmers, local communities and indigenous people
towards the creation of new plant varieties; to encourage investment in and
development of the breeding of new plant varieties in both public and private sectors;
and to provide for related matters.
13.8 Geographical Indications Act 2000
A Geographical Indication (GI) is a mark used on products that originates from a
specific geographical location and possesses the qualities or reputation associated
with that place of origin and it provides protection for 10 years from the date of filing.
The registered GI can be renewed for another 10 years at the end of each 10 year
protection period, and this can be done indefinitely.
Rights of Use
• only producers carrying on their activity in the geographical area specificied in
the Register
• only used in respect of the products specified in the Register in accordance
with the quality, reputation or characteristic specified in the Register,
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Exclusion from protection
• Geographical indications which are contrary to public order or morality or
territory of origin; or
• geographical indications which are not or have ceased to be protected in their
country; or
• geographical indications which have fallen into disuse in their country or
territory of origin.
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14. Competition Law
The Competition Act 2010 (Competition Act) came into force on 1 January 2012. The
implementation of this Act puts Malaysia in line with over 100 jurisdictions worldwide,
including its ASEAN neighbours.
The Competition Act was enacted to promote and protect the process of competition and
prohibits anti-competitive agreements between enterprises as well as to prohibit abuse
by dominant players. Dominant positions occur in situations where one or more enterprise
possess such significant power in a market to adjust prices or trading terms, without
effective constraint from competitors or potential competitors.
The Competition Act applies to any commercial activity; both within and outside Malaysia,
provided that where it is outside Malaysia the Competition Act is only applicable to
commercial activities which have an effect on competition in a market in Malaysia.
As per Section 4 of the Competition Act, a “horizontal” or “vertical” agreement between
enterprises is prohibited insofar as the agreement has the object or effect of preventing,
restricting or distorting competition in any market for goods or services. A “horizontal
agreement” is an agreement between enterprises each of which operates at the same
level in the production or distribution chain, whereas a “vertical agreement” is an
agreement between enterprises which operates at a different level in the production or
distribution chain both commonly known as ‘cartels’.
The Competition Act is enforced by the Malaysian Competition Commission (MyCC). The
MyCC is given considerable powers of investigation and enforcement, which include the
entering and searching of premises as well as requiring the production of all documents
and information including computerised data. As of September 2017, the MyCC has
issued the following guidelines in order to facilitate the application of Competition Law in
Malaysia:
• Guidelines on Complaints Procedure (published 2 May 2012);
• Guidelines on Market Definition (published 2 May 2012);
• Guidelines on Anti-competitive Agreements (published 2 May 2012);
• Guidelines on Abuse of Dominant Position (published 26 July 2012);
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• Guidelines on Financial Penalties (published 14 October 2014); and
• Guidelines on Leniency Regime (published 14 October 2014).
Guidelines are issued by the MyCC to serve as a reference to the public on how the
MyCC interprets the Competition Act.
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15. Arbitration
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The Asian International Arbitration Centre (Malaysia) (AIAC), formerly known as the
Kuala Lumpur Regional Centre for Arbitration (KLCRA), is the venue for arbitral
proceedings in Malaysia. The centre was originally established in 1978 under the
Asian African Legal Consultative Organization (AALCO), which comprises 47-
member states from the region.
Malaysia is a supportive jurisdiction when it comes to Arbitration, with the courts
respecting arbitral awards and decisions with strong safeguards in place so as to
protect their sanctity.
The AIAC has dedicated adjudication procedures for matters with regards to
disputes arising from the construction industry. The centre has considerable
experience in this regard, adjudicating over 700 cases.
The centre has recently introduced world first Shariah compliant arbitral guidelines
known as i-Arbitration guidelines. These guidelines govern disputes arising from
agreements set in Shariah principles.
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16. Taxation
Malaysian taxation is based on the imputation system and is territorial. Malaysia has
signed Tax Treaties with over 45 countries. The Malaysian taxation system comprises
direct and indirect imposition of taxes. The forms of direct taxes are income tax and real
property gains tax. Indirect taxes come in the form of excise duty, customs duties, sales
tax, stamp duty, quit rent and assessments on realty, and more recently, sales and
service tax(SST).
.
16.1 Corporate Income Tax
A company, whether resident or not, is assessable on income accrued in or
derived from Malaysia. It is assessed based on the self-assessment system.
Income accruing in or derived from Malaysia is subject to Malaysian income tax
but this does not apply to foreign income received in Malaysia by a company.
The income tax paid by a company on its profits is utilised in frank dividends paid
to shareholders.
A company is a resident in Malaysia for tax purposes if its management and
control are exercised in Malaysia, or generally, it is considered resident in
Malaysia if the meetings of its board of directors are held in Malaysia, even if the
companies are not incorporated in Malaysia.
Resident companies are taxed at the rate of 24% while those with paid-up capital
of RM2,500,000 or less are taxed at the following scale rates:
There are however there are deductions that can be made, such as a maximum
of 10% for donations to social enterprise.
Chargeable Income YA 2018(%) YA 2019(%)
On the first RM 500,000 18 17
In excess of RM 500,000 24 24
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16.2 Personal Income Tax
Under the Income Tax Act 1967, the rate of tax depends on the individual’s
resident status, which is determined by the duration of his stay in the country.
An individual who is in Malaysia for at least 182 days in a calendar year is
regarded as a tax resident.
Pursuant to the Malaysian Budget 2016, various groups of tax payers enjoy
increased tax reliefs, including:-
• children aged under 18;
• those with unemployed spouses;
• those supporting unemployed, aged parents above 60 years; and
• parents of disabled children above 18 years of age, pursuing higher
education (on top of the existing relief for parents of disabled children).
The Government continuously displays its concern regarding the effects of the
rising cost of living on the citizens
As regards short term employees who are not residents of Malaysia, tax
exemptions in respect of income from an employment exercised in Malaysia
apply when his presence does not exceed 60 days in a calendar year or two
overlapping calendar years. However, the income of a non-resident individual
who performs independent services such as consultancy services or as a
professional entertainer is not exempted from tax.
There are indeed deductions that can be made to this as well, for example a
maximum 7% for contributions to social enterprise.
16.3 Withholding Tax
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Withholding tax is imposed on certain payments made by residents to non-
residents such as interest, royalty, technical fees and rentals for moveable
properties. The resident has the obligation to withhold tax when making the
payments and to pay the amount within a certain time, failing which the resident
is liable to pay a penalty equal to 10% of the unpaid tax and the total sum shall
be a debt due to the Government.
Under the Income Tax Act 1967, withholding tax is to be withheld and remitted
to the Malaysian Inland Revenue Board (IRB) by the resident payer within 30
days after payment or crediting such payment to a non-resident person (includes
individual and company). The withholding tax rates are subject to reduction in
the double taxation treaties if any.
16.4 Real Property Gains Tax
Capital gains are generally not subject to tax in Malaysia. Under the Real
Property Gains Tax Act 1976 (RPGT), real property gains tax is chargeable on
capital gains arising from the disposal of real property situated in Malaysia and
on the disposal of shares in a real property company. A real property company
(RPC) is a controlled company for the purpose of owning or acquiring real
property or RPC shares with a defined value of not less than 75% of the total
tangible assets. From 1 January 2019, RPGT will be imposed as stated in the
table below:
Disposal from the
date acquisition
Companies and
other bodies
Individuals
(citizens & PR)
Individuals (non-
citizens & non-
PR)
Within 2 years 30 30 30
In the 3rd year 30 30 30
In the 4th year 20 20 30
In the 5th year 15 15 30
In the 6th year
onwards 10 5 10
In addition, gains from the disposal of one residential property once in a lifetime
and disposal of properties between husband and wife, parents and children,
grandparents and grandchildren are exempted from RPGT.
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16.5 Other Taxes
a) Sales and Service Tax
As of 1 September 2018 the Goods and Services Tax (GST) has been
repealed and the Sales and Service Tax (SST) has come into effect to
replace it. The sales portion of the tax covers any goods that are
manufactured and sold, used or disposed of by a registered manufacturer,
as well as any goods imported into Malaysia. The tax on services remains
at 6% for taxable services. The list of exemptions for the sales tax has
grown to encompass most “basic items” such as most fresh meats,
vegetables and building materials. The rate of sales tax is dependent on
the group of the good falls under, with rate being either 5% or 10%.
Taxable services include but are not limited to:
• accommodation providers
• restaurant operators, caterers and food court operators
• telecommunications and paid television service providers
• advocates, solicitors and shariah lawyers
• public accountants
• parking operators
• advertising providers
• betting and gaming providers
• airline operators licensed by MAVCOM aside from the routes
specified in the Rural Air Services Agreement
• IT services
• Services imported by a businesses
• electronically supplied services (from 1 January 2020)
Furthermore, electricity provided to domestic consumers beyond the exempted 600kwh per 28 days. In addition to this, there is a RM25 flat rate for principal or supplementary cards issued by credit card and charge card service providers regulated by Bank Negara.
b) Import duty
It is imposed at ad valorem generally (which is a tax based on the value of
real estate or personal property). However, in line with trade liberalisation,
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import duties on a wide range of raw materials, components and machinery
have been abolished, reduced or exempted.
c) Excise duty Excise duty is a tax levied on selected products manufactured in, or
imported into, Malaysia; some examples of which include cigarettes,
tobacco products, alcoholic beverages, sugar, playing cards, mahjong tiles
and motor vehicles. While excise duties are charged at ad valorem rates
for motor vehicles, playing cards, and mahjong tiles, as regards cigarettes,
tobacco products, sugar sweetened beverages and alcoholic beverages,
they are imposed at a combination of specific and ad valorem rates.
d) Stamp duty
Stamp Duty is imposed on various written legal documents that are
executed in Malaysia as provided for under the Stamp Act 1949. For
documents executed outside Malaysia, stamp duty is applicable if the
document purports to affect a transfer of subject matter in Malaysia.
The types of Stamp Duty are as follows:
a) Ad valorem
This duty is charged on instruments of transfer, instruments
creating interests in property, instruments of security for monies
and certain capital market instruments.
As of 1 July 2019, Stamp Duty will be charged as follows
Property value (RM) Tax rate (%)
First 100,000 1
100,001 – 500,000 2
500,001- 999,999 3
Amounts more than 1,000,000 4
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b) Fixed
It is charged on legal, commercial, mercantile or capital market
instruments and on the duplicate, subsidiary or collateral
instrument when it can be shown that the primary instrument has
been duly stamped.
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17. Incentives for Investments
In promoting and developing foreign investment in Malaysia, the government provides
tax incentives for both direct and indirect investments under the Promotion of
Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972,
Excise Act 1976 and Free Zones Act 1990. These Acts cover investments in the
manufacturing, agricultural, tourism (including hotel) and approved service sectors as
well as Research and Development, training and environmental protection activities.
Direct tax incentives grant partial or total relief from payment of income tax for a limited
period of time, while indirect tax incentives are in the form of exemptions from import
duty, sales tax, and excise duty.
17.1 Manufacturing Sector
Major tax incentives made available for companies investing in the
manufacturing sector including Pioneer Status and Investment Tax Allowance.
a) Pioneer Status
A manufacturing company may apply for Pioneer Status if it engages in
specified “promoted activities” or produces “promoted products” as listed
under the Promotion of Investment Act 1986. Applications for Pioneer Status
should be submitted to the Malaysian Investment Development Authority
(MIDA).
A manufacturing company being granted Pioneer Status enjoys a five year
partial exemption from the payment of income tax, commencing from the
production day as determined by the Minister of International Trade and
Industry. It will only have to pay tax on 30% of its statutory income.
Unabsorbed capital allowances, as well as accumulated losses incurred
during the pioneer period, can be carried forward and deducted from the
post-pioneer income of a business relating to the same promoted activity or
promoted product, in order to further enhance the effectiveness of this
incentive.
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b) Principal Hub Incentive
A company that receives Principal Hub incentive will receive the ability to bring in raw materials, components or finished products into select locations such as licensed manufacturing or bonded warehouses and free industrial or commercial zones for production or repackaging, cargo consolidation and integration before distribution to its final consumer tax-free.
c) Investment Tax Allowance (ITA)
As an alternative to Pioneer Status, manufacturing companies may apply for
ITA, but a company can only enjoy either one of the incentives at the same
time. Applications should be submitted to MIDA.
A company granted ITA is entitled to an allowance of 60% on its qualifying
capital expenditure incurred within five years from the date the first qualifying
capital expenditure was incurred. The company can offset this allowance
against 70% of its statutory income for each year of assessment. Any
unutilised allowance can be carried forward to subsequent years until fully
utilised. The remaining 30% of its statutory income will be taxed at the
prevailing company tax rate.
d) Reinvestment Allowance (RA)
RA is given to existing companies engaged in manufacturing and selected
agricultural activities that reinvest for the purposes of expansion, automation,
and modernisation or diversification of its existing business into any related
products within the same industry on condition that such companies have
been in operation for at least 36 months effective from the Year of
Assessment 2009.
The RA is in the form of an allowance of 60% of capital expenditure incurred
by the companies and will be given for a period of five years from the year
the first reinvestment is made. The allowance can be used to offset against
70% of the statutory income in the year of assessment. Any unabsorbed
allowance can be carried forward to the following years until it is fully utilised.
The RA can only be claimed upon completion of the qualifying project (i.e.
after the building is completed or when the plant/machinery is put to
operational use).
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Companies that intend to reinvest before the expiry of its tax relief period,
can surrender their Pioneer Status or Pioneer Certificate for the purpose of
cancellation and be eligible for RA. Applications for RA should be submitted
to the Inland Revenue Board (IRB), while applications for the surrender of
Pioneer Status or Pioneer Certificate for RA should be submitted to MIDA.
e) Industrial Building Allowance (IBA)
IBA is provided for expenditure incurred in the construction of or purchase of
industrial buildings. IBA includes a factory, dock, wharf, jetty, buildings used
in the utility business or telecommunication services etc. For purposes of
IBA, there is a difference in the specific treatment of a building which is
constructed and purchased.
Effective from the year of assessment 2005, the method of figuring industrial
building allowances on the purchase of used buildings will be based on the
purchase price of the building instead of the original cost incurred by the
seller in the construction of the building. Where only part of a building or
structure is an industrial building and the cost of the latter is 10% or less of
the total cost of the building, the whole building qualifies for IBA, i.e. the cost
of the building must be apportioned and only the industrial part is eligible for
IBA.
f) Incentives for Small-Scale Companies
Small-scale manufacturing companies incorporated in Malaysia with
shareholders’ funds not exceeding RM500,000 and having Malaysian equity
of at least 60% are eligible for pioneer status incentive and Investment Tax
Allowance under the Promotion of Investments Act 1986, provided they meet
specified criteria. A sole proprietorship or partnership is eligible to apply for
this incentive provided a new private limited liability company is formed to
take over the existing production/activities.
Taken into effect on 3 July 2012, a small-scale company has to comply with
such criteria, i.e. the value-added must be at least 25% and Managerial,
Technical, and Supervisory (MTS) ratio must be at least 20% in order to
qualify for this incentive.
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g) Venture Capital Tax
As per the Malaysian Budget 2019, the deadline to apply for venture capital
tax incentives has been extended until 31 December 2019. The benefits that
these incentives provide include:
• income tax exemption on management fees, performance fees and
income from profit sharing received on investment made
• income tax exemption on statutory income from all sources of income
except interest income from savings and fixed deposits and profits
from Syariah-compliant deposits
• exemptions for a five-year period for investments made in the venture
company
• tax deduction equivalent to the amount of investment made in VCC,
limited to a maximum of RM20,000,000 per year for each company or
individual is given to companies or individuals with business income
into VCC funds created by venture capital management corporations;
and/or
• tax deductions equivalent to the amount of investment made in
venture company at the adjusted income level is given to companies
or individuals with business income investing in venture company
iv) Incentives for Export
Manufacturers producing for the export market are eligible to apply for the
following incentives:
(a) Double Deduction for Promotion of Exports
Expenses incurred by resident companies for the purpose of seeking
opportunities for the export of products manufactured in Malaysia, i.e.,
overseas advertising, export market research, preparation of tenders
for supply of goods overseas, supply of technical information abroad,
services rendered for public relations work connected with exports and
fares in respect of travel overseas by employees of companies for
business are eligible for double deduction incentives.
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However, it should be noted that only expenses that are revenue-like
in nature and allowable as a tax deduction under the Income Tax Act
will qualify for such double deductions.
(b) Tax Exemption on the Value of Increased Exports
A locally-owned Malaysian company carrying on business in the area
of manufacturing or agriculture would be eligible for tax exemption on
the income generated from export sales, at varying rates. Among these
include:-
i) Where a Malaysian company has been awarded the Export
Excellence Award (Merchandise Category) by the Ministry of
Trade and Industry (MITI), it would be exempted from 100% of
increased export value;
ii) Where the company has achieved a significant increase in exports
of at least 50% in the period of a year of assessment, such
company will be eligible for a 30% exemption of increased exports
value; and
iii) If the company had succeeded in penetrating new markets (to the
exclusion of Singapore, Taiwan, Hong Kong, Canada, EU, Japan,
Australia and New Zealand), it would be eligible for a 50%
exemption on the value of increased exports.
However, these exemptions are not applicable if the company
concerned is already enjoying any benefits under the Promotion of
Investment Act 1986, Allowance for Increased Exports, Deduction for
Cost on Acquisition of a Foreign Owned Company or Reinvestment
Allowance.
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(c) Export Credit Refinancing (ECR) Scheme
Malaysian exporters can benefit from ECR which provides short-term
credit at preferential rates of interest. This is operated by the commercial
banks, while the Export-import Bank of Malaysia (EXIM Bank) will
refinance those commercial banks which have extended export credit to
eligible exporters. The exporter may invoice his exports in any currency
but financing is made available only in Malaysian ringgit. There are two
types of facilities available under the scheme:
• Pre-shipment ECR facility – provides working capital to direct and
indirect exporters (i.e. domestic suppliers of input to final
exporters).
• Post-shipment ECR facility – enables Malaysian exporters to obtain
immediate funds upon shipment of eligible goods sold on credit
terms.
(d) Accelerated Capital Allowance (ACA)
After the 15 year period of eligibility for RA, companies that reinvest in the
manufacture of promoted products are eligible to apply for ACA. The ACA
provides a special allowance, where the capital expenditure is written off
within three years, i.e., an initial allowance of 40% and an annual
allowance of 20%. Applications for ACA should be submitted to the Inland
Revenue Board (IRB) accompanied by a letter from MIDA certifying that
the companies are manufacturing promoted products.
17.2 Agricultural Sector
The Promotion of Investments Act 1986 states that the term “company” in
relation to agriculture includes agro–based cooperative societies and
associations, and sole proprietorships and partnerships engaged in agriculture.
Similar incentives which are available in the manufacturing sector in respect to
Pioneer Status, ITA, RA, the double deduction for the promotion of exports, tax
exemption on the value of increased exports, IBA, and ECR scheme, are also
available to the agricultural sector.
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17.3 Services Sector
Tourism projects, including eco-tourism, are eligible for tax incentives. These
include the hotel business, tourist projects such as theme parks, construction of
holiday camps, recreational projects and construction of convention centres with
the capacity to accommodate at least 3,000 participants. Companies investing
in one to five star hotels are eligible for the following:
• Pioneer Status – five year partial exemption from the payment of income
tax, and only taxed on 30% of eligible income. Also, unabsorbed capital
allowances, as well as accumulated losses acquired during the pioneer
period, can be carried forward and deducted from the post-pioneer
income.
• Investment Tax Allowance – an alternative to Pioneer Status. A company
granted ITA will be granted an allowance of 60% on the qualifying capital
expenditure incurred within five years from the date of which the first
qualifying capital expenditure was incurred.
• Enhanced Incentives for undertaking new investments in four and five star
hotels in Sabah or Sarawak – Pioneer Status, with the income tax
exemption of 100% of the statutory income for the period of five years, or
ITA of 100% on the qualifying capital expenditure within a period of five
years.
• Incentives for reinvestment in hotels – companies that reinvest in the
expansion and modernisation in hotels are eligible for additional ITA to
the value of 60% (100% for four to five star hotels in Sabah or Sarawak)
on the qualifying capital expenditure incurred within five years.
• Incentives for the reinvestment in tourism projects – companies which
reinvest in the expansion and modernisation of tourism projects are
eligible for additional rounds of Pioneer Status or ITA. For Pioneer Status,
the income tax exemption is 70% for the period of five years. For ITA, the
value is 60% on the qualifying capital expenditure for the period of five
years.
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17.4 Biotechnology Industries
A company undertaking biotechnology activity and approved with BioNexus
Status by the Malaysian Biotechnology Corporation Sdn. Bhd. is eligible for the
following incentives:
a) An exemption from tax on 100% statutory income:
• for a period of 10 consecutive years of assessment from the first year the company derived statutory income from the new business; or
• for a period of five consecutive years of assessment from the first year the company derived statutory income from the existing business and expansion project;
b) an exemption of 100% statutory income derived from a new business or
an expansion project that is equivalent to an allowance of 100% of
qualifying capital expenditure incurred for a period of five years;
c) a BioNexus Status Company is entitled to a concessionary tax rate of 20%
on statutory income from qualifying activities for 10 years upon the expiry
of the tax exemption period;
d) tax exemption on dividends distributed by a BioNexus status company;
e) double deduction on expenditure incurred for R&D; and
f) buildings used solely for the purpose of biotechnology activities will be
eligible for Industrial Building Allowance to be claimed over a period of 10
years.
Applications for BioNexus status should be submitted to the Malaysian
Biotechnology Corporation (BiotechCorp).
17.5 MSC Malaysia Status Company
The MSC Malaysia is modelled as a world-class hub for the development and
nurturing of the nation's information and communications technology (ICT)
industry. Companies with MSC Malaysia status, be it local or foreign companies,
enjoy a set of incentives and benefits that is backed by the Government of
Malaysia's Bill of Guarantees. MSC Malaysia status multimedia companies
operating in MSC Malaysia are eligible for the following incentives:
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a) Pioneer Status with income tax exemption of 100% of the statutory income
for a period of 10 years commencing from the date when it starts generating
revenue.
b) Investment Tax Allowance of 100% on the qualifying capital expenditure
incurred within a period of five years to be offset against 100% of statutory
income for each year of assessment.
c) Eligibility for R&D grants (for majority Malaysian-owned MSC Malaysia
Status companies).
17.6 Research and Development (R&D)
R&D is defined in the Promotion of Investments Act 1986 to mean any
systematic or intensive study carried out in the field of science or technology with
the objective of using the results of the study for the production or improvement
of materials, devices, products, produce or processes. To further strengthen the
foundation for more integrated R&D in the future, companies which carry out
designing or prototyping as an independent activity are eligible for incentives.
A company that provides R&D services in Malaysia only to companies other than
its related companies is called a contract R&D company. It is eligible to apply for
either Pioneer Status or ITA. An R&D company is one that provides R&D
services in Malaysia to its related companies or to any other companies. It is
eligible to apply for an ITA of 100% on qualifying capital expenditure incurred
within 10 years. Also, companies that carry out in-house research in Malaysia,
i.e., R&D carried out within a company for the purpose of its own business are
eligible to apply for ITA of 50% on qualifying capital expenditure incurred within
10 years.
17.7 Industry 4WRD
The Ministry of International Trade and Industry (MITI) has recently begun an
initiative to introduce Industry 4.0 practices to the local economy. As such the
government has implemented incentives to encourage the adoption of Industry
4.0.
Companies that comply with the requirements of being an Industry 4WRD
aligned company will enjoy a tax deduction of up to RM27,000 that can be
claimed for the readiness assessment expenses
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Companies that develop local vendors in Industry 4.0 practices will be eligible to
claim a double deduction on:
a) costs associated with product development, upgrading and skill training
local vendors, as verified by the Ministry of International Trade and
Industry (MITI); and
b) the qualifying expenditure of up to RM1,000,000 per year for three
consecutive years.
Additionally there are additional incentives for human capital development which
include:
a) double deduction on scholarships provided by companies to Malaysian
students pursuing studies at technical and vocational levels, diplomas
and degrees in the fields of engineering and technology provided that
they are:
i) a Malaysian citizen and resident in Malaysia;
ii) receives full time study;
iii) has no means of his own; and
iv) whose parents or guardian have a total monthly income not
exceeding RM8,000
b) tax deduction on expenses incurred by companies participating in the
National Dual Training System Training Scheme
c) double deduction
All incentives associated with Industry4WRD are effective from 1 January 2019
to 31 December 2021.
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18. Consumer Rights
Consumers enjoy significant protection in Malaysia, with consumer rights legislation
being strengthened regularly.
18.1 Consumer Protection Act 1999
Under Section 3(1) of the Consumer Protection Act 1999 (CPA), a consumer is
defined as any person who acquires goods and services for personal, domestic
or household use. However, this definition does not include any person who
acquires goods and services for commercial use such as trade, manufacturing
for trade or consumption for trade purposes.
A customer should be protected from products, services and manufacturing
processes that may expose their life and health to danger. There is a need for
laws and regulations that protect the rights of consumers. In Malaysia, the CPA
is an act which came into effect on 15 November 1999 and was enacted with the
objective of providing greater protection to consumers. The provisions of this Act
cover areas not covered by other existing laws, i.e., the Contracts Act and the
Sale of Goods Act. It provides simple and reasonable redresses to the
consumer’s grievances and relief of a specific nature.
18.2 Consumer Protection (Amendment) Act 2010
This amendment was passed in 2010, with the aim of expanding existing
provisions to ensure the Act remains relevant to the changes in current trade
practices, as well as providing more protection to the consumers. This new
amendment introduces two new parts to the Act as stated below:
a) Part IIIA: Unfair Contract Terms - defines the provisions to protect
consumers from unfair terms in a standard form contract:
b) Part XIIA: Committee on Advertisement - provides power to the Minister to
establish a committee to monitor and take necessary action against a
supplier that produces false and misleading advertisement.
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In Malaysia, Part IIIA of the CPA introduces the concept of “procedural
unfairness” and “substantive unfairness”. “Procedural unfairness” refers to
the process of creating a contract between supplier and consumer which has
resulted in an unjust advantage to the supplier or unjust disadvantage to the
customer. “Substantive unfairness” on the other hand, refers to the content
of the contract, where a contract would be considered substantially unfair if
it is harsh, oppressive in nature or unconscionable.
A term of a contract is substantially unfair if it excludes or restricts liability for
negligence, or if it excludes or restricts liability for breach of express or
implied terms of a contract without adequate justification. A contract or term
of a contract which is found to be unfair, either procedurally or substantially
can be rendered as unenforceable or void.
The CPA is only applicable to consumer contracts for private use and not
commercial contracts. The definition of consumer in the CPA expressly
excludes retailers and businesses. Therefore, retailers and businesses are
not protected against unfair contract terms.
18.3 Consumer Protection (Amendment) Act 2015
The latest Amendment to the 1999 Act is named Consumer Protection
(Amendment) Act 2015, and came into effect on 1 March 2016. The amending
law is Act A1498.
This Amendment introduces two new parts to the Act:
a) Introduces a new paragraph into Subsection 99(1) of Act 599 to limit the
jurisdiction of the Tribunal consumer claims in respect of any claim by a
consumer relating to aviation service as defined in the Malaysian Aviation
Commission Act 2015. Consumer claim relating to aviation service will now
be dealt with by the Malaysian Aviation Commission under the Malaysian
Aviation Commission Act 2015.
b) Any right, obligation, liability, penalty or award acquired, imposed,
accrued, incurred or made under the principal Act in relation to a consumer
claim relating to aviation service shall not be affected by this Act and shall
continue to remain in force as if section 99 of the principal Act had not been
amended by this Act.
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18.4 Tribunal for Consumer Claims
For consumer claims of up to RM10,000, Part XII of the CPA introduces an
alternative redress forum called the Tribunal for Consumer Claims. The Tribunal
comprises a Chairperson and Deputy appointed from among members of the
Judicial and Legal Services and other persons qualified for legal practice in the
country. However, the tribunals are only provided for the consumers, while
retailers can only rely on the civil courts for redress.
18.4.1 Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC)
MDTCC was established with the aim of encouraging ethical trade
practices and protecting consumer interest. The ministry's functions
include managing matters related to consumer protection and
intellectual property; licensing for manufacturing and sales; direct selling;
the selling of petroleum and petrochemical products; implementing
weights and measures rules and the registering of trusts companies and
businesses.
18.4.2 Federation of Malaysian Consumers Association (FOMCA)
FOMCA links the activities of consumer associations in Malaysia as well
as at the international level and works towards strengthening consumer
protection through advocacy, lobbying, networking, representation,
campaigning and education.
18.4.3 Consumers Association of Penang (CAP)
Through the years, CAP’s concern has expanded from matters of daily
living such as product price and quality to more complex problems of
meeting basic human needs, saving the environment from further
exploitation, safeguarding human health, advocating for food security
and sustainable livelihoods.
18.4.4 Muslim Consumer Association of Malaysia (PPIM)
PPIM was formed to safeguard the interests of Muslim consumers
nationwide through proactive and strategically planned
measures. Among the campaigns organized by PPIM are the usage of
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halal (permissible in Islam) logo and the practice of halal certification
policy by business industries as a way of informing and reassuring
Muslim consumers that their products are halal and in compliance with
Muslim law (Syariah).
18.5 Other Tribunals
A few other tribunals have been set up to entertain claims relating to specific
matters.
18.5.1 Tribunal for Homebuyer Claims (TTPR)
The TTPR was established on 1 December 2002 to hear and determine
claims for any loss suffered or for any matter concerning interests as
homebuyers under the Housing Development (Control and Licensing)
Act 1966. The TTPR is constituted by a Chairman, a deputy chairman
and not less than five other members (all of whom are members of the
judicial and legal services) who are appointed by the Ministry of Urban
Wellbeing, Housing and Local Government.
Generally, the TTPR is able to hear claims:
• regarding complaints arising from Sale and Purchase
Agreements;
• if the claim is brought within the time frame of 12 months from the
date of the issuance of the certificate of fitness for occupation
(CFO) or the expiry date of the defects liability period specified in
the Sale and Purchase Agreement;
• if the Sale and Purchase Agreement is for a housing unit meant
for domestic purposes; and
• where the claim does not exceed RM50,000.
Any claim exceeding RM50,000 will have to be filed with the Sessions Court instead, unless the homebuyer agrees not to claim the amount which exceeds RM50,000 or both parties agree in writing that the TTPR should decide on the matter.
18.5.2 Strata Management Tribunal (SMT)
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The SMT was established pursuant to Section 107 of the Strata
Management Act 2013. It hears claims from developers, purchasers,
proprietors, joint management bodies, management corporations,
subsidiary management corporations, managing agents or other
interested persons (with the leave of the SMT). Matters which come
under the purview of the SMT are those which carry the value of
RM250,000 or below, and are limited to:
• disputes over failure to perform a function, power or duty imposed
by the Strata Management Act 2013;
• disputes over costs or repairs of defects;
• claims for the recovery of charges, contribution to the sinking fund
or any debt;
• claims for an order to convene a general meeting, invalidate
proceedings of a meeting, nullify a resolution on matters decided;
• claims for an order to affirm, vary or revoke a decision of the
Commissioner of Buildings;
• claims to compel the supply of documents or information; or
• claims for an order to give consent to effect alterations to the
common property.
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18.5.3 Special Commissioners of Income Tax (SCIT)
The SCIT is a competent tribunal of appeals which hears and
determines appeals from taxpayers pursuant to the Income Tax Act
1967. A taxpayer aggrieved by the assessment by the Inland Revenue
Board may file an appeal to the SCIT within 30 days of the notice of
assessment. Decisions on appeals are given in the form of Deciding
Orders. Further appeals can be made to the High Court.
18.5.4 The Industrial Court
The Industrial Court was established pursuant to the Industrial
Relations Act 1967 to act as the decision-maker in cases regarding
industrial or trade disputes. Trade disputes refer to disagreements
between employer and employee in connection to:
• the employment or non-employment;
• the terms of employment; or
• the conditions of work
which may lead to industrial actions. The types of cases typically handled by the Industrial Court relate to
dismissal, victimisation, non-compliance with agreements, and non-
compliance of Award, interpretation of Awards/contracts and points of
law. A decision or order of the Industrial Court is final and conclusive,
and cannot be questioned, save by certiorari on grounds of excess of
jurisdiction or error of law.
18.5.5 Copyright Tribunal
The Copyright Tribunal (CT) was established pursuant to the Copyright
(Copyright Tribunal) Regulations 2012, which was exercised through
the powers conferred by the Copyright Act 1987. The CT has a
jurisdiction to hear a matter as follow:
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• Reference by any copyright users that are dissatisfied with the
tariffs of royalty imposed by licensing body;
• Appeal against the decision of the Copyright Controller (MyIPO)
by the licensing body in relation of revocation as a licensing body
after being declared;
• Reference by the performer on dissatisfaction of payment or
contract of services of his performances; and
• Application of licence for translation activities.
18.5.6 Competition Appeal Tribunal
The Competition Appeal Tribunal (CAT) is an independent judicial body
established under section 44 of the Competition Act 2010. It consists
of a president and 7 to 20 other members appointed by the Prime
Minster in recommendation of the Minister of MDTCC.
The CAT is a special tribunal with exclusive jurisdiction to review any
decision made by the Malaysian Competition Commission (MCC)
under section 35, 39, 40 of the Competition Act 2010. The CAT may
confirm or set aside the decision to be the case for the appeal, or any
part thereof, and may:-
• remit the matter to the MCC;
• impose or revoke, or vary the amount of a financial penalty;
• give any instruction, or take such other steps as may be given or
taken by the MCC itself; or
• make any other decision that may be made by the MCC itself.
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19. Petroleum and Gas Industry
In 1975, the Petroleum Development Act 1975 (PDA) was enacted and the Government
of Malaysia formed Malaysia’s national oil company, Petroleum Nasional Berhad
(PETRONAS).
Pursuant to the PDA, PETRONAS is vested with the entire ownership of (as well as rights,
privileges and benefits in relation to exploring and producing) oil and gas, offshore and
onshore in Malaysia. In return for the ownership and rights in petroleum resources, the
PDA states that Petronas is to make cash payments to the federal government and the
relevant state governments.
Pursuant to the Petroleum Regulation 1974 (amended in 1975, 1981 and 1991),
PETRONAS is also the responsible authority for licensing any third-party contractors
wishing to participate in upstream petroleum activities, including exploration and
exploitation. PETRONAS is also responsible for licensing goods and service providers
operating in the upstream sector, including providers of rigs and drilling services and
supply of general goods and services related to upstream operations.
Malaysia is committed to ensuring a sustainable and successful oil and gas (O&G)
industry through pro-business policies. The country also aims to take full advantage of its
strategic location at key shipping lanes as well as strong economic fundamentals in
China, India and within South East Asia.
In recent years, Malaysia has created vibrant ecosystems which offer competitive rates
and skilled manpower to support the growth of the upstream and downstream sectors
while remaining competitive compared to other countries in the region.
There are over 3,500 O&G businesses in Malaysia comprising international oil
companies, independents, services and manufacturing companies that support the needs
of the O&G value chain both domestically and regionally. Many major global machinery
& equipment (M&E) manufacturers have set up bases in Malaysia to complement home-
grown M&E companies, while other Malaysian O&G companies are focused on key
strategic segments such as marine, drilling, engineering, fabrication, offshore installation
and operations and maintenance (O&M).
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20. Aviation Law
Aviation falls under two main regulatory bodies in Malaysia, namely the Malaysian Aviation
Commission (MAVCOM) and the Civil Aviation Authority of Malaysia (CAAM). MAVCOM
serves as the economic regulator for commercial airlines within Malaysia, issuing licenses for
sectors within the aviation industry as well as enforcing air rights and providing a platform for
consumer protection and dispute resolution within the industry. CAAM, known previously as
the Department of Civil Aviation (DCA), on the other hand regulates and enforces the safety
and operational standards of civil aviation within the country.
There are two operating licenses given by MAVCOM:-
a) Air Service License (ASL) –for scheduled journeys
b) Air Service Permit (ASP) - for unscheduled journeys
Both require the submission of company details, shareholder structure, organisational structure, financial status and projections, details of the applicant’s aircraft, certificates of aircraft airworthiness, maintenance programme information and complaints management procedures. The airline can apply for either of these licences directly from MAVCOM via publicly available forms The applicant must then apply for an Air Operator Certificate (AOC) from CAAM, once they have obtained a conditional approval from MAVCOM. Certifying them as a competent operator of flights and said flights are operated safely. Once the AOC is obtained the ASL or ASP will then be issued.
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21. Environmental Law
The Ministry of Energy, Science, Technology, Environment & Climate Change (MESTEC) is
the governing body for all matters regarding environmental legislation through the Department
of Environment (DOE) subsidiary.
With a slew of environmental legislation in the form of the Environmental Quality Act 1974, the
Protection of Wildlife Act, the National Forestry Act 1984, the Fisheries Act 1985, the National
Parks Act 1980 along with the International Environmental Laws, the Malaysian has the
safeguards in place to protect the rich natural bounty that Malaysia possesses.
The Access to Biological Resources and Benefit Sharing Act 2017, limits such access to those
who have successfully applied for permits from the competent authority beforehand for
commercial or potential commercial purposes.
Access to a biological resource is defined as taking a biological resource from its natural
habitat or place where it is kept, grown or found including in the market for the purpose of
research and development. Additionally, given the competent authority can determine whether
a biological resource taken by the person will be subject and development.
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22. About Deol & Gill
22.1 Deol & Gill
The Firm was established in 2000 as a corporate and commercial law practice. The Firm is listed on The Legal 500 (Asia Pacific) as a recommended Malaysian law firm for Corporate and Mergers & Acquisitions, Information Technology and Telecommunication and Projects and Energy. The Legal 500 is the world’s largest legal referral guide for established commercial law firms located in a particular jurisdiction.
The Firm provides legal services across a broad spectrum of corporate and commercial matters, with a distinct specialization in:-
▪ Mergers & Acquisitions ▪ Corporate Reorganizations & Corporate Restructurings ▪ Venture Capital & Private Equity Investments & Divestments ▪ Telecommunications, Information & Communication Technology ▪ Intellectual Property ▪ Infrastructure Projects ▪ Banking & Finance ▪ Legal Due Diligence Audits & Investigations ▪ Dispute Resolution-Litigation, Arbitration, and Mediation
22.2 Partners
Suraj Singh Gill [email protected] Michael Raj [email protected] Sathish Ramachandran [email protected] Shuhada Alauddin [email protected] Susamma Thomas Lee Jeuhan
[email protected] [email protected]
Suite 19-03-03, 3rd Floor Wisma Tune No. 19, Lorong Dungun Damansara Heights 50490 Kuala Lumpur Malaysia Tel: +603-2095 9980 Fax: +603-2095 9881 Website: https://www.deolgill.com
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This document states the law as at 31 December 2018 © Deol & Gill 2019
Appendix
List of References
1. Malaysia - In Brief a. http://www.geographia.com/malaysia b. www.kehakiman.gov.my c. www.malaysia.gov.my
2. Structure of Business Organisations a. www.malaysia.gov.my
3. Foreign Investments a. www.malaysia.gov.my b. www.epu.gov.my
4. Free Trade a. https://fta.miti.gov.my
5. Regulation of Business a. www.bnm.gov.my b. www.sc.com.my c. www.ssm.com.my d. www.hasil.gov.my e. www.bursamalaysia.com f. www.miti.gov.my
6. Exchange Control a. www.mida.gov.my
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7. Franchising in Malaysia a. www.mfa.org.my b. www.kpdnkk.gov.my
8. Electronic Commerce a. www.mdec.my
9. Labuan International Business and Financial Centre
a. www.labuanibfc.com
10. Immigration Requirements a. www.imi.gov.my
11. Labour a. jtksm.mohr.gov.my b. www.malaysia.gov.my
12. Real Property Law a. www.epu.gov.my
13. Protection of Intellectual Property Rights a. www.mida.gov.my
14. Competition Law a. www.mycc.gov.my
15. Arbitration a. www.aiac.world
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16. Taxation a. www.mida.gov.my b. www.hasil.gov.my
17. Incentives for Investments a. www.mida.gov.my b. www.bioeconomycorporation.my c. www.mdec.my
18. Consumer’s Rights a. www.kpdnkk.gov.my
19. Petroleum and Gas Industry a. www.mprc.gov.my
20. Foreign Investments a. www.mida.gov.my/home/
21. Aviation Law a. www.dca.gov.my b. www.mavcom.my
22. Foreign Investments a. www.dca.gov.my b. www.mavcom.my
