Advocates & Solicitors€¦ · States of Sabah and Sarawak. The country is made up of 13 states,...
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DEOL & GILL 0 . Doing Business in Malaysia An Overview DEOL & GILL Advocates & Solicitors
Transcript of Advocates & Solicitors€¦ · States of Sabah and Sarawak. The country is made up of 13 states,...
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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 omitted to be 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 ……………………………………………………… 10
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…………………………………………………………………………… 18
3.1 Investment Regulations
4 Free Trade…………....................…………………………………..…………..……………. 21
4.1 Malaysia’s Free Trade Agreements
4.2 Trans-Pacific Partnership Agreement
5 Regulation of Business…………..…………………………………………………………… 23
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…………………………………………..…………...… 27
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7 Franchising In Malaysia……………………………………………………………... ……… 28
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……………..…………………………………..………………….. 36
8.1 Multimedia Super Corridor
8.2 Multimedia Development Corporation
8.3 Cyber Laws
9 Labuan International Business and Financial Centre (IBFC)……………………..… 41
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……………………………………………………………….. 46
10.1 Travel Documents
10.2 Visa
10.3 Passes
10.4 Employment of Expatriate Personnel
11 Labour……………………………………………………………………………..………….. 49
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…………………………………………………...……………………… 52
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 Taxation………………………………………………………………………………..……... 63
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………………………………………………………………... 68
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…………………………………………………………….……………… 76
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, The Industrial Court,
Copyright Tribunal and Competition Appeal Tribunal
18 Environmental Law……………………………………………………….………………… 83
19 Petroleum and Gas Industry……………………………………………..…………….... 84
20 About Deol & Gill………………………………………………………………………........ 85
Appendix……………………………………………………………………................................. 86
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1. Malaysia – In Brief
1.1 General
The federation of Malaysia comprises of Peninsular Malaysia and the Eastern
States of Sabah and Sarawak. The country is made up of 13 states, and three
Federal Territories – Kuala Lumpur (which is the capital), 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 over 31,700,000
persons as at 22 July 20161; the majority of which is made up of 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 dialects such as Mandarin and
Cantonese as well as Indian dialects like Tamil and Hindi are also commonly used
among members of the respective communities.
Islam is the official religion of Malaysia, although religious freedom has been
guaranteed by the Malaysian Federal Constitution, 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 Islamic Head of
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.
1 Department of Statistics Malaysia
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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
of the Malaysian Federation and is headed by the Prime Minister, who is also
known as 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, as the highest
law of the land.
One of the basic tenets of the representative democracy practiced throughout
Malaysia is the separation of powers between the three main organs of
government; namely the legislative, judiciary and executive arms.
The legislative function is borne by the bicameral Parliament of Malaysia which
consist 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 draw up, amend and pass 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 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 Assembly. The power to enact
state laws lies with the State Legislative Assembly. The laws drawn at the Federal
and State level must have the consent of the Yang di-Pertuan Agong for federal
laws and Sultan or Yang di-Pertua Negeri (the Governor), for state laws,
respectively.
Meanwhile, at the federal level, the executive power is vested in the cabinet, 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.
Lastly, 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
respecting 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 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.
On the other hand, 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 perform the fused
profession of advocates and solicitors. Therefore, a tiered structure of courts
serves as a safeguard for due process. The Malaysian court system is divided into
superior courts and 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 of Malaya and the High Court of Sabah and Sarawak.
Meanwhile, the subordinate courts consist of the Sessions Court and 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
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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.
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, save 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 RM1,000,000.00 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
RM100,000.00, by virtue of the SCA and the SCAA. The monetary
jurisdiction of Second Class magistrates is RM10,000.00.
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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 RM5,000.00
and/or up to six (6) strokes of the cane. Article 145 of the Federal
Constitution excludes the power of the Attorney General in matters
before the Syariah Court.
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 (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
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daily 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:
(i) a minimum of one subscriber to the shares of the company;
(ii) a minimum of one director for a private company, or a minimum of two directors for a public company;
(iii) 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
(iv) 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 6 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
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development (R&D) and other activities which will not directly result in actual
commercial 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. This has replaced
the incentive schemes for International Procurement Centres, Regional
Distribution Centres and Operational Headquarters which was officially terminated
on 30 April 2015.
In order for a company to be eligible for the Principal Hub incentive, it must satisfy
the following criteria:
must be incorporated under the Companies Act 1965 with a paid-up capital of
more than RM2,500,000.00, and minimum annual sales of RM300,000,000.00.
serves and control network companies in at least 3 countries outside Malaysia.
carry out at least 3 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
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(d) Brand Management
(e) IP Management
(f) Senior-level Talent Acquisition and Management
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 RM5,000.00; and the minimum salary of key strategic/management
positions is at least RM25,000.00.
there is an annual business spending (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.
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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. According to the
UNCTAD 2017 Word Investment Report, Malaysia was the second largest recipient of
Foreign Direct Investment (FDI) inflow in ASEAN in 2016. 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.
Malaysia offers a good scheme as a starting point for investments in the growing
Southeast Asian region. 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
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above USD2,000,000.00 will be granted up to ten expatriate posts, including five key
posts which are permanently filled by foreigners. The Malaysian government does not
discriminate 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) National Development Policy (NDP)
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.
c) 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
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for the formulation, implementation, progress evaluation and revision of
development plans.
d) 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).
However, changes have been made upon the regulation of the investment
guidelines administered by FIC as announced by the Prime Minister of Malaysia
during the Invest Malaysia Conference with immediate effect on 30 June 2009.
During the conference, the FIC Acquisition Guidelines were repealed. The FIC
no longer process any share transactions, nor impose equity conditions on such
transactions.
The FIC Property Guidelines were then liberalised, and therefore transactions
relating to property only require the approval of the FIC if they involved a
dilution of Bumiputera or Government interests for properties valued at
RM20,000,000.00 and above. All other property transactions, such as
transactions between foreigners and non-Bumiputeras, transactions involving
the sale by non-Bumiputera or foreign majority interests and transactions
involving purchases by Bumiputera controlled entities including a Bumiputera-
owned company acquiring property from another Bumiputera-owned company,
no longer required FIC approval.
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 RM1,000,000.00 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
Currently, Malaysia has established FTA with Japan, Pakistan, New Zealand,
India, Chile, Australia as well as Turkey. However, 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. 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).
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 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:
i) bringing about financial system stability and fostering a sound and
progressive financial sector;
ii) promoting economic growth and a higher level of employment; and
iii) 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
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is to regulate 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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i. Malaysian External Trade Development Corporation (MATRADE) – a hub for Malaysian exporters and foreign importers to source trade-related information.
ii. 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.
iii. 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:
i. to promote and develop Labuan as an international centre for business and
financial services;
ii. to develop national objectives, policies and priorities for the orderly
development and administration of international business and financial
services in Labuan; and
iii. 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
Franchising in Malaysia is still in the early stages, with growth only really starting in
1992 when the government began promoting the sector.
7.1 Background
The Government have created the National Franchise Development Master Plan
2012-2016 (PIPFN) as they see franchising as an important economic driver. The
plan sets out goals for the Franchising sector which includes contributing 9.4% of
GDP by 2020. There are over 6,000 franchising outlets in the country representing
more than 800 registered franchise brands. The local industry is estimated to be
worth RM26,000,000,000.00 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. U.S. franchises are very
popular in Malaysia and their targeted market segment will only continue to grow
with the rise in disposable income and the increasing influence of Western culture
on young adults.
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:
(a) increasing the number of entrepreneurs as franchisors, master franchises
and franchisees; and
(b) developing home grown products and services into franchise businesses.
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7.2 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.
7.3 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:
(a) 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;
(b) 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;
(c) the franchisor grants to the franchisee the use of its trademarks, trade secret,
any confidential information and intellectual property; and
(d) the franchisee pays a fee or some other non-financial consideration in return
for the franchise.
7.4 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.
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Although preference is given to Bumiputera, others are also allowed to apply.
These include:
(a) Franchise Agreement Reimbursement (FAR) – to reimburse the cost of
preparing Franchise Agreements during the penetration of international
markets;
(b) Intellectual Property Reimbursement (IPR) – to reimburse the cost of
registering intellectual property in foreign countries;
(c) Franchise Financing Schemes (FFS) – a jointly participated scheme with the
MDTCC, Credit Guarantee Corporation and two participating banks, i.e.
Maybank and CIMB;
(d) Pre-franchise Scheme by Perbadanan Nasional Berhad (PNS) – Islamic
loans of between RM50,000.00 to RM2,000,000.00 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;
(e) 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 RM1,500,000.00 and applies to a maximum loan limit of
RM7,500,000.00 with a maximum loan tenure of five years; and
(f) 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.
7.5 Sales Prospects
Franchising has excellent growth potential here due to:
(a) the Government’s strong promotion and support for the franchising industry;
(b) the popularity of U.S franchises;
(c) franchising only accounts for 3.9% of Malaysia’s annual retail sales;
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(d) relatively high purchasing power; and
(e) Malaysia recorded 8.859% GDP growth in 2000 and was one of the most
successful countries in bouncing back from the 1997 financial crisis which
swept Southeast Asia.
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;
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.
7.6 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.
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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:
a) Form BAF1;
b) Form BAF2 (Applicant’s profile);
c) Operation Manual (Malay and English version);
d) Training Manual (Malay and English version);
e) a certified true copy of the company’s Certificate of
Incorporation (Form 9/Form 13 under the Companies
Regulation 1966);
f) a certified true copy of the latest Returns Giving Particular in
Register of Directors, Managers and Secretaries and Change
of Particulars (Form 49);
g) a certified true copy of the latest Share Allotment Form (Form
24);
h) brochures/pamphlets/company’s annual report;
i) latest audited accounts (3 years) together with financial
statements, balance sheet and profit and loss accounts;
j) 5 years franchise financial projection; and
k) 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
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to the original and declared to be an exact duplicate of the original.
The processing fee is RM50.00 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 RM50.00.
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
RM1,000.00 is made. A copy of the advertisement to the public to
offer or purchase the franchise shall be extended to the Registrar
for his 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 6 months from the end of each financial
year of the franchise business.
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Figure 1.0 Various registration stages in the Malaysian franchise system.
7.7 National Franchise Development Master Plan 2012-2016 (PIPFN)
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,
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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.
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:
(a) employ a substantial number of knowledge workers;
(b) be a provider or a heavy user of multimedia products and services;
(c) establish a separate legal entity for the MSC qualifying multimedia
business and activities;
(d) provide technology transfer and/or contribute towards the development of
the MSC or support Malaysia’s k-economy (knowledge-based economy)
initiatives;
(e) be located in MSC designated cyber cities; and
(f) 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.
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Companies which have been granted the MSC Status will enjoy certain
incentives that are backed by the Government’s Bill of Guarantees:
Financial incentives
i) 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;
ii) 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;
iii) freedom to source capital and borrow funds globally;
iv) eligibility for R&D grants (for majority Malaysian-owned MSC
Malaysia Status companies); and
v) duty-free importation of multimedia equipment.
Non-financial Incentives
i) freedom of ownership (e.g. exempted from local ownership
requirements, such as Bumiputera shareholding requirement);
ii) no censorship of the internet;
iii) globally competitive telecommunication tariffs and service
guarantees, provided companies are located within the MSC
Malaysia;
iv) green environment, protected by strict zoning;
v) excellent research and development facilities;
vi) intellectual property protection;
vii) a comprehensive framework of cyber laws;
viii) world-class physical and IT infrastructure, if located within the MSC;
and
ix) high-powered implementation agency to act as an effective one-stop
centre (the MDEC).
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8.2 Multimedia Development Corporation (MDEC)
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.
8.3 Cyber laws
Malaysia has drafted and is attempting to develop a set of Cyber laws which
comprise of:
i) Computer Crimes Act 1997
This Act provides for offences relating to the misuse of computers.
ii) Digital Signature Act 1997
This Act provides the framework for licensing and regulation of Certification
Authorities, and the recognition of digital signatures.
iii) 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.
iv) 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.
v) Communications and Multimedia Act 1998
This Act creates a new system of licences and defines the roles of those
who provide multimedia and communication services. To this end, the
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Communication and Multimedia Commission is brought into existence
under the Act as a new regulatory authority.
vi) Electronic Government Activities Act 2007
This Act facilitates the electronic delivery of government services to the
general public.
vii) 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.
viii) 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 processed for the purpose of credit reporting business by credit
reporting and referencing agencies. However, data processed only for the
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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 100,000.00 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. As an alternative,
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.
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 or elect to pay
RM20,000.00 for a year of assessment.
Income derived from a Labuan non-trading activity is exempt from tax
for the year of assessment concerned.
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Instruments made in connection with a Labuan business activity by a
Labuan company will be exempted from stamp duty.
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 an
offshore company to a non-resident or another offshore company are
exempt from withholding tax.
Interests paid by a Malaysian resident to offshore banks 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.
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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 6 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);
Multimedia Development 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 RM5,000.00; and
at least 2 years’ employment contract.
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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 Minimum Wage Order 2012 which was gazetted on 16 July 2012, the minimum
wage rate is fixed at RM900.00 per month or RM4.33 per hour for the peninsular and
RM800.00 per month or RM3.85 per hour for Sabah and Sarawak. However, in
accordance with the Malaysian Budget 2016, the minimum wage is set to rise to
RM1,000.00 per month for peninsular Malaysia and RM920.00 for Sabah and Sarawak
respectively, from 1 July 2016. It is the responsibility of the Government to promote
harmonious relations between employer-employee and industrial peace based on social
justice and good conscience so as to bring about a productive labour force and to
ensure a promising environment for investment and sustained economic growth.
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
RM2,000.00, 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
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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
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 provides for compulsory contribution by employers and employees to
EPF at the rate of 11% and 12% of the employee’s and employers monthly
wages respectively. 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.
This flexibility was introduced as a means of boosting the spending capacity of
the people. Withdrawals may be made in part or full, by an employee under
certain circumstances such as upon reaching the age of 55 years, for medical
expenses, children’s education and the purchase of a home. However, foreign
workers and expatriates and their employers are exempted from compulsory
contribution.
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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 covers only Malaysian
workers and permanent residents. There are two schemes under SOCSO,
namely:
i) Employment Injury Scheme – provides coverage for disablement or death
due to employment injury.
ii) Invalidity Pension Scheme – provides coverage for employees against
invalidity and death from any cause before the age of 55 years.
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12. Real Property Law
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 3 to 6 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-
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in-interest and categories of land use (either one of three categories namely,
Agriculture, Building or Industry) on 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 3 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.
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12.3 Restrictions on Ownership of Real Property
Ownership of real property by foreign interest is now less restricted upon the
introduction of the new guidelines on the acquisition of properties by the
Economic Planning Unit (EPU) of the Prime Minister’s Department, namely the
Guideline on the Acquisition of Properties.
Under the aforementioned Guidelines, subject to certain conditions, foreign
entities are permitted to acquire commercial, industrial, agricultural and
residential properties above the value of RM1,000,000.00 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, these acquisitions fall under the
purview of the relevant Government departments or State authorities.
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
RM20,000,000.00.
(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
RM20,000,000.00.
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 RM100,000.00 where the acquirer is a local company owned by local
interest, or paid-up capital of at least RM250,000.00 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
50 years from the beginning of the calendar year in which the work was first
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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 RM10,000.00, 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, involves
an inventive step and is capable of industrial application.
Malaysia became a member of the Paris Convention on 1 January 1989. 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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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,
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.
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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 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
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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.
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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.
Pursuant to 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.
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. 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, goods and
services tax (GST).
.
15.1 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 RM2.5 million or less are taxed at the following scale rates:
Chargeable Income YA 2016(%) YA 2017(%)
On the first RM 500,000 19 18
In excess of RM 500,000 24 24
15.2 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.
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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. Therefore, under the Budget 2017 recently,
the Government introduced a new lifestyle tax relief, which is a combination of
the tax relief for reading materials, computer, sports equipment, and a few new
categories such as the purchase of printed newspapers, smartphones and
tablets, internet subscription as well as gymnasium membership fees.
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.
15.3 Withholding Tax
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
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(includes individual and company). The withholding tax rates are subject to
reduction in the double taxation treaties if any.
15.4 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 2014, 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 5 Nil 5
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.
15.5 Other Taxes
i) Goods and Services Tax (GST)
With effect from 1 April 2015, a new goods and services tax has been
implemented to replace the previous sales and services tax, where GST
is charged on the consumption of goods and services at every stage of
the supply chain, with the tax burden ultimately borne by the end user.
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GST can only be levied and charged if the business is registered with the
Customs Department. A business will only be required to register if its
annual turnover of taxable supplies exceeds the prescribed threshold of
RM500,000.00 per annum. Any business that is not registered is
prohibited from charging and collecting GST from its customers.
Exempt Supply in GST
Exempt supply refers to goods and services sold by companies, which are
exempt from GST. Because this effectively means that no GST will be
charged on such goods and services, the fact that for companies and
businesses, GST paid on purchases, expenses, and assets cannot be
claimed as Input Tax Credits, would mean that ultimately, the GST would
have to be absorbed by such companies or business as part of the
operational costs.
Among the list of exempt supply include:-
public transport services;
tolled highways and bridges;
private education services;
financial services;
childcare services;
funeral, burial and cremation services;
agriculture and general use land;
private healthcare services;
residential land or buildings; and
supplies made by societies.
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However, under the Malaysian Budget 2016, various essential items and services have been made exempt from GST, in a bid to increase accessibility to them; including:
mobile prepaid reloads;
8,630 drug brands, including drugs used in the treatment of cancer;
hypertension, heart problems and diabetes; and
economy class domestic flights on Rural Air Services Routes
(RAS).
Furthermore, the recent Malaysian Budget 2017 has extended the relief list of approved equipment for the disabled.
ii) 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,
import duties on a wide range of raw materials, components and
machinery have been abolished, reduced or exempted.
iii) 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, 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, and alcoholic beverages, they are imposed at a
combination of specific and ad valorem rates.
iv) 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.
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16. 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.
16.1 Manufacturing Sector
Major tax incentives made available for companies investing in the
manufacturing sector including Pioneer Status and Investment Tax Allowance.
i) 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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ii) 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.
iii) 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).
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.
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iv) 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.
v) Incentives for Small-Scale Companies
Small-scale manufacturing companies incorporated in Malaysia with
shareholders’ funds not exceeding RM500,000.00 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.
iv) Incentives for Export
Manufacturers producing for the export market are eligible to apply for the
following incentives:
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(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. 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:-
1. 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;
2. 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
3. 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.
16.2 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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16.3 Services Sector
Tourism projects, including eco-tourism, are eligible for tax incentives. These
include 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 1 to 5 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 4 and 5 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 4 to 5 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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16.4 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:
i) 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;
ii) 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;
iii) 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;
iv) tax exemption on dividends distributed by a BioNexus status company;
v) double deduction on expenditure incurred for R&D; and
vi) 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).
16.5 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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i) 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.
ii) 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.
iii) Eligibility for R&D grants (for majority Malaysian-owned MSC Malaysia
Status companies).
16.6 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.
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17. Consumer Rights
A consumer is defined as any person who buys goods or uses services. A consumer
deserves the right to receive the quality and quantity that he has paid for. As a
consumer, you have the right to all the products and services of daily basic needs
including food, clothing, healthcare, education and shelter. You have the right to obtain
accurate and precise facts about the products and services that you want to consume
and/or use. Suppliers and manufacturers are prohibited from using misleading and
deceptive conduct, misrepresentation and unfair claims in selling the products or
services to the consumers. Aggrieved consumers are entitled to claim damages due to
the unfair practices of suppliers or manufacturers.
17.1 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.
17.2 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:
i) Part IIIA: Unfair Contract Terms - defines the provisions to protect
consumers from unfair terms in a standard form contract:
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ii) 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.
a) Unfair Contract Terms
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.
17.3 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:
i). 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.
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ii). 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.
17.4 Tribunal for Consumer Claims
For consumer claims of up to RM10,000.00, 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.
17.4.1 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.
17.4.2 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.
17.4.3 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
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exploitation, safeguarding human health, advocating for food security
and sustainable livelihoods.
17.4.4 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
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).
17.5 Other Tribunals
A few other tribunals have been set up to entertain claims relating to specific
matters.
17.5.1 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
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where the claim does not exceed RM50,000.00.
Any claim exceeding RM50,000.00 will have to be filed with the Sessions Court instead, unless the homebuyer agrees not to claim the amount which exceeds RM50,000.00 or both parties agree in writing that the TTPR should decide on the matter.
17.5.2 Strata Management Tribunal (SMT)
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
RM250,000.00 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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17.5.3 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.
17.5.4 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.
17.5.5 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.
17.5.6 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 seven (7) to twenty (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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18. Environmental Law
With the Environmental Quality Act (EQA) being gazetted on 14 March 1974, a more
comprehensive form of legislation on environmental management in Malaysia was
established. From thereon, an enforcement agency named the Environment Division,
which was later renamed the Department of Environment (DOE), was established in
1975. The main role of the Department is to prevent, control and reduce pollution
through the enforcement of the EQA and its subsidiary legislation.
DOE was originally created as the Environment Division under the Ministry of Local
Government and Environment before it was then placed under the Ministry of Science,
Technology and Environment in 1976. In 1983, the Environment Division was upgraded
to a Department, and thus became known as the Department of Environment (DOE).
On March 2004, DOE was then placed under the Ministry of Natural Resources and
Environment. The establishment of DOE in 1974 is based on the EQA.
DOE became one of the government agencies charged with implementing the
principles listed under the National Environmental Policy (DASN). DASN’s purpose is to
create a clean environment that is safe, healthy and productive for generations present
and future. In addition, DASN aims to integrate environmental considerations into
development activities and its related decision-making processes, foster economic
growth and long-term human development, and to protect and improve the
environment.
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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. About Deol & Gill
20.1 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
20.2 Partners
Suraj Singh Gill [email protected] Michael Raj [email protected] Sathish Ramachandran [email protected] Shuhada Alauddin [email protected] T. Prem Anand [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: +6032095 9980 Fax: +6032095 9881
This document states the law as at 1 October 2017 © Deol & Gill 2017
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Appendix
List of References
1. Malaysia – In Brief
a) 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. 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
5. Exchange Control
a) www.mida.gov.my
6. Franchising in Malaysia
a) www.mfa.org.my b) www.kpdnkk.gov.my
7. Electronic Commerce
a) www.mdec.my
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8. Labuan International Business and Financial Centre
a) www.labuanibfc.com
9. Immigration Requirements
a) www.imi.gov.my
10. Labour
a) jtksm.mohr.gov.my b) www.malaysia.gov.my
11. Real Property Law
a) www.epu.gov.my
12. Protection of Intellectual Property Rights
a) www.mida.gov.my
13. Competition Law
a) www.mycc.gov.my
14. Taxation
a) www.mida.gov.my b) www.hasil.gov.my
15. Incentives for Investments
a) www.mida.gov.my b) www.bioeconomycorporation.my c) www.mdec.my
16. Consumer’s Rights
a) www.kpdnkk.gov.my
17. Environment
a) www.doe.gov.my
