DOING BUSINESS IN MALAYSIA
CONTENTS
FOREWORD
This guide is for information only, As it is a general guide we recommend that
you seek professional advice before taking action. No liability can be accepted
by HLB I.M. Chieng & Co. for any action taken or not taken as a result of
this information. For further advice contact the HLB I.M. Chieng & Co.
office nearest to you or your HLB I.M. Chieng & Co. partner listed on
this site.
© HLB I.M.
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accounting firms and business advisers.
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Up-to-date information and general assistance on international matters can be
obtained from any of the partners of HLB member firm in Malaysia listed on
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LOCATION AND CLIMATE
Malaysia lies entirely in the equatorial zone. The average temperature
throughout the year is constantly high (26C) and its climate is influenced by the
North-East and South-West Monsoons which blow alternately during the course of
the year. Humidity is high due to high temperatures and rates of evaporation
and rainfall is heavy.
CONSTITUTION AND POPULATION
In 1963 Sarawak and Sabah on the island of Borneo were united with Malaya which
had obtained its independence from Great Britain in 1957, to form Malaysia.
Malaysia is a constitutional monarchy, its head of state being the Yang
di-Pertuan Agong, one of the Malay Rulers elected for a term of five (5) years
by his brother Rulers. Malaysia is a democratic country with a Parliament
consisting of a Senate and a House of Representatives. Elections to the House
of Representatives are held every five (5) years.
The Constitution of Malaysia is the supreme and overriding law of the country.
The executive functions of the Government are administered by a Cabinet
comprising the Prime Minister and Ministers appointed by the Yang di-Pertuan
Agong on the recommendation of the Prime Minister.
Malaysia is a multi-racial society with 21 million people, comprising Malays,
Chinese, Indians and other indigenous groups. Islam is the state religion and
Bahasa Malaysia is the national language. English is widely used in commerce
and trade. Religious freedom is enshrined in the Constitution of Malaysia.
The main languages spoken are Bahasa Malaysia, English, Chinese and Tamil. The
official currency of Malaysia is denominated in Ringgit Malaysia (RM).
LEGAL SYSTEM
Malaysia's legal system is well-developed and based on principles inherited
from Great Britain. Freedom and liberty of its subjects are enshrined in the
Constitution of Malaysia. The Constitution also provides safeguards to the
Judiciary made up of The Federal Court, Court of Appeal, High Courts, Judicial
Commissioners and Subordinate Courts.
ECONOMY AND ECONOMIC
ARRANGEMENTS
The growth in real output of the Malaysian economy in the 1990's has remained
buoyant. It expanded at a pace of 9.2% in 1994 compared to 8.3% in 1993. The
lead contributors are the manufacturing, service and construction sectors.
Supported by continuing favourable overseas and domestic demand from both the
private and public sectors, a large number of investment projects implemented
over the past several years have contributed to the country's sustainable
growth rate of 8% to 9% annually. Malaysia's manufactured exports are still
dominated by electrical and electronic products and textiles in terms of export
earnings. Mining, agricultural commodities and wood-based sectors remain
significant export contributors to the country's economy.
Imports of investment and intermediate goods account for a major proportion of
the country's total imports. Imports of consumption goods also remain buoyant,
further evidence of the rising disposable income of the population.
Malaysia is endowed with rich natural resources and is a major producer of the
following primary commodities :
Rubber
Palm Oil
Timber and
Tin
The oil industry and the agricultural sectors play a pivotal role in the country's
economy with substantial production of crude oil and liquified natural gases
and significant cash crops.
Malaysia has investment guarantee agreements with most major industrialised
countries.
These agreements normally cover such points as :
i) A guarantee that there shall be no expropriation or nationalisation, unless
it is in the public interest to do so and with prompt and adequate
compensation.
ii) Approval for the repatriation of capital and profits on investment in any
convertible currency.
All trade disputes are referred to the International Centre for Settlement of
Investment Disputes of which Malaysia is a member.
A schedule of Investment Guarantee Agreements signed by Malaysia with various
countries is set out in Appendix I.
The transport and communication systems of Malaysia are comprehensive and well-
developed. An extensive network of good roads and railways links all major
towns, including Singapore in the south and Thailand in the north.
There are six (6) international airports located at the strategic hubs of major
commercial centres in the country with fully supported
air cargo facilities. Malaysia has five (5) major ports handling containerised
shipping services and other port facilities.
Postal and telecommunication services are fully developed. Water and
electricity supplies are ample to meet the country's needs, both domestic and
industrial.
It is the policy of the Malaysian Government to welcome foreign investment with
the objective of increasing Malaysian participation in manufacturing sectors.
The following guidelines apply to foreign equity participation in manufacturing
projects:
i) Manufacturing projects which export 80% or more of their products have no
equity restrictions. The company can be 100% foreign-owned.
ii) Other manufacturing projects which are export-oriented but do not meet the
above criteria will be governed by the following guidelines:
a) For companies exporting between 51% and 79% of their manufactured products,
foreign equity participation of up to 79% is permissible. However, other
factors, such as technology, the scale of the investment commitment and the
utilisation of local raw materials are also taken into consideration.
b) For companies exporting between 20% and 50% of their manufactured products,
foreign equity ownership of between 30% and 51% is permissible, depending on
factors referred to in (a) above.
c) For companies exporting less than 20% of their manufactured products,
foreign equity ownership is restricted to a maximum of 30%. However there are
exceptions to this guideline . In the case of companies whose manufactured
products are of high technology specifications and/or are priority products for
the domestic market, the Government may allow foreign equity ownership of up to
51%.
Where certain products or manufacturing activities are already governed by set
limits on maximum foreign ownership, the above guidelines do not apply. 5 6
In respect of mining and mineral extraction and industries where resources are
non-renewable, foreign equity participation of up to 100% may be allowed. But
the following criteria would be taken into account for such projects:
i) size of investment, technology and evaluation of risks of the projects.
ii) availability of Malaysian expertise for the projects.
iii) integration levels and value added benefits arising from the projects.
Once a company has obtained approval for its equity level, it will not be
required to restructure its equity, provided it continues to comply with the
approval conditions and maintains its original operational profile.
The Malaysian Industrial Development Authority (MIDA) is the Malaysian
government's principal agency for the promotion and co-ordination of industrial
development in Malaysia.
Main functions are to:
1. Undertake industrial promotion activities in Malaysia and abroad.
2. Undertake research and planning on matters relating to industrial
development, including the formulation of development plans for the industrial
sectors.
3. Advise the Government on licensing matters, incentives, expatriate posts and
other facilities incidental to the promotion, development and co-ordination of
industries.
4. Advise the Government on measures for the protection of industries including
the imposition and alteration of, and exemption from customs and other duties.
5. Collate and compile data relating to industrial development.
6. Co-ordinate the activities of Federal and State institutions engaged in or
connected with industrial development in the Country.
7. Formulate and recommend to the Minister of International Trade and Industry
policies on industrial development; and
8. Recommend policy on industrial site development, and to advise the relevant
Government agencies on the selection of such sites for development.
MIDA has an advisory services centre to provide investors with advice and
assistance on approvals required at Federal level for the setting up of
manufacturing projects, integrated agricultural projects, hotel and tourism
projects. The Advisory Services Centre in MIDA is staffed by Senior Officers
from various ministries.
Manufacturing concerns, licensed by the Ministry of Trade and Industry (MITI),
should obtain the prior written approval of MITI before entering into any
agreement involving foreign partners such as technology transfer agreements
covering licence rights over specific processes, formulae or manufacturing
technology (patented or unpatented), other knowledge and expertise necessary
for the setting up of a plant and provisions of various technical assistance
and supporting services.
This requirement is to ensure that:
a) the agreement will not impose unfair and unjustifiable restrictions or
handicaps on
the local party;
b) the agreement will not be prejudicial to the national interest; and
c) the payment of fees (if applicable) will commensurate with the level of
technology to be transferred.
Specific agreements under these arrangements can be in the form of:
1. Joint Venture Agreements
2. Technical Assistance and Know-How Agreements
3. Licence Agreements
4. Patent and Trademark Agreements
5. Turnkey Contracts
6. Management Agreements
Agreements on transfer of technology must define in detail the following:
a) Technology content and principal features of technology or process
b) Anticipated production
c) Quality and specification of products
d) Particulars of technical assistance, services and manner in which they are
to be provided.
The FIC was established with the objectives of overseeing major issues on
foreign investments and the implementation of investment guidelines.
The functions of the FIC are:
i) to formulate policies and guidelines on foreign investments covering all
sectors of the economy in line with the National Development Policy in
promoting balanced development in a unified and just society.
ii) to assist in resolving problems in the foreign private investment sector
with the recommendation of suitable investment policies.
iii) to advise ministries and government agencies on all matters relating to
foreign investments.
iv) to supervise and regulate the acquisition of assets or interests, in
respect of take-overs and mergers of companies in Malaysia.
v) to monitor and assist in the evaluation of the extent and conduct of all
foreign investments and the gathering of vital and comprehensive information on
foreign investments.
SOURCES OF FINANCE
Central Bank
Bank Negara Malaysia is the central bank in the country. It is entrusted with
supervisory duties over the banking system. It is also the issuing authority of
the Malaysian currency (Ringgit Malaysia). The central bank acts as banker and
financial adviser to the government and is responsible for the monetary and
fiscal policies. It acts as lender of last resort and regulates foreign
exchange transactions.
Commercial Banks
There are thirty-seven (37) licensed commercial banks operating in Malaysia and
they provide comprehensive banking services. Designated commercial banks may
accept deposits denominated in foreign currencies from non-residents and
organise the syndication of foreign currency loans for the purchase of
Malaysian assets owned by non-residents and for productive purposes.
Finance companies
There are forty (40) finance companies constituting the second largest group of
sources of credit for the private sector. Their primary activities include
accepting retail deposits, leasing of assets, hire purchase financing, housing
and other term loans for business purposes.
Merchant Banks
There are twelve (12) merchant banks which provide comprehensive and wide
ranging merchant banking services. They may accept foreign currency deposits
and may borrow from non-residents. They also offer syndication of foreign
currency loans to residents for the purchase of foreign-owned Malaysian assets
and for productive purposes.
Their financial services and activities are complementary to the commercial
banks and finance companies. They provide corporate advisory and financial
services for mergers and acquisitions, corporate restructuring and evaluation
and submission of companies' applications to the relevant authorities for
listing on the Kuala Lumpur Stock Exchange.
LABUAN INTERNATIONAL
OFFSHORE FINANCIAL CENTRE ( LIOFC )
The Federal Territory of Labuan was inaugurated as an International Offshore
Financial Centre on 1st October 1990 to further promote Malaysia as an
investment centre, and to complement the onshore financial system of the
country.
The services and activities promoted include:
i) Offshore banking operations
ii) Trust and fund management operations
iii) Offshore insurance and related businesses
iv) Offshore investment holding companies
Income Tax
For an offshore company carrying on an offshore trading activity, the rate of
tax is 3% of net profits as per audited accounts of the Company. As an
alternative, the Company may elect to pay a fee of RM20,000 to the Registrar of
Companies in respect of each year of assessment.
Withholding tax
An offshore company need not retain any sum for purposes of withholding tax
covering royalties, interest and technical or management fees paid to a non
resident or another offshore company.
Waiving of Stamp Duty
All instruments executed by an offshore company for its official business
activities are exempted from stamp duty.
Taxation - Individual
Individual residents in Labuan will remain subject to tax under The Principal
Income Tax Act 1967.
For an individual who is not a Malaysian citizen and holds a managerial
employment position in Labuan, 50% of his income from such employment will be
exempted from tax for five years from year of assessment 1992 to year of
assessment 1997.
OTHER INCENTIVES
Exchange Control
An offshore company can receive funds and effect remittances without much
hindrance.
Most of the provisions do not apply to an offshore company operating in Labuan.
Secrecy and Confidentiality
There are adequate provisions and safeguards in the legislation to provide the
essential
confidentiality and secrecy needed for the operations of an offshore company.
Immigration
Expatriates who have been granted work permits for their employment with
offshore companies in Labuan will be issued with multiple entry visas.
Appointment of auditor
An offshore company which complies with the requirements of the Offshore
Companies Act need not appoint an auditor.
Foreign Exchange Control Policy
Malaysia has a highly liberal exchange control system. Foreign exchange
transactions emanating from businesses and the financial markets are freely
transacted with the exception of Israel, Serbia and Montenegro where special
restrictions apply.
Payments within Malaysia must be made in Ringgit Malaysia (RM). Payments
outside Malaysia may be made in any foreign currency except in the currencies
of Israel, Serbia and Montenegro.
Export proceeds must be repatriated to Malaysia within six months from the date
of export or the payment period stipulated in the contract.
Portfolio Investments
Non-residents are free to effect direct and or portfolio investments in
Malaysia. They may repatriate their capital from the sale of assets in
Malaysia, capital profits, dividends, fees and royalties subject to the
completion of a simple statistical form for amounts exceeding RM100,000 per
transaction or its equivalent in foreign currency.
Foreign Currency Accounts
Exporters are permitted to retain part of their export proceeds in foreign
currency accounts maintained with any of the designated commercial banks in
Malaysia.
Exporters can maintain either one foreign currency account or a multi-currency
account with overnight balance limit not exceeding the exporters' monthly
average export receipts.
Residents may maintain foreign currency accounts if their requirements meet
certain criteria.
Non-resident controlled companies
Non-resident controlled companies (NRCCs) operating in Malaysia can obtain
domestic financing for their businesses in Malaysia. Specific exchange control
approval is required for borrowings in aggregate exceeding RM10 million
(excluding forward exchange contracts) but approval is readily given for the
purposes of encouraging economic growth and investment in Malaysia.
As a general guideline, NRCCs whose borrowings exceed RM10 million in Malaysia
are required to ensure that their domestic borrowings do not exceed three times
(3X) their capital funds. This guideline is to ensure a long-term commitment of
growth beneficial to NRCCs and the country's economy.
Further guidelines governing NRCCs domestic borrowings stipulate that at least
60% of their domestic financing requirements should be allocated to
Malaysian-owned banks but the implementation of such guidelines will be
flexible and pragmatic in order to ensure NRCCs are given access to financing
facilities at competitive pricing.
Borrowings by Non-residents
Non-residents may obtain credit facilities of up to RM200,000 from banks for
any purpose other than for financing the acquisition or development of
immovable property.
Additionally, banks are permitted to grant one (1) loan to non-residents for
the following requirements:
i) A Malaysian citizen with permanent foreign residential status and not
residing in
Malaysia (designated as a non-resident for exchange control purposes) for
financing the purchase or construction of one residential property in Malaysia.
ii) Other non-resident individuals for financing of the purchase of one
residential property in Malaysia (excluding the cost of land) subject to the
following criteria being met:
a) The non-resident holds a work permit with validity exceeding 12 months at
the date of application for the loan.
b) The loan is limited to 60% of the construction cost or the purchase price of
the residential property.
c) The residential property is for the occupation of the non-resident owner;
and
d) That the non-resident does not own any other residential property in
Malaysia, either individually or jointly.
Borrowings in foreign currency
Residents are permitted to obtain credit facilities in foreign currency up to
an aggregate of and to the equivalent of RM5 million from financial
institutions and non-residents. Additionally, residents may obtain short-term
foreign currency trade and guarantee facilities financing requirements not exceeding
a period of 12 months.
Guarantee facilities may also be obtained from licensed Offshore Banks in
Labuan, either in Ringgit Malaysia or foreign currency. Such trade credit
facilities are excluded from the RM5 million (or the equivalent in foreign currency)
limit. All foreign loans obtained on reasonable terms to finance productive
activities in Malaysia are readily granted approval, especially projects
generating sufficient foreign exchange income to service all the external debts
related to the projects.
Borrowings in Ringgit Malaysia from non-residents require the prior consent of
the Controller of Foreign Exchange. Residents are permitted to obtain credit
facilities in Ringgit up to an aggregate of RM50,000 from any non-resident
individual. Offshore borrowings in Ringgit are not encouraged in line with the
central bank's policy not to internationalise the Ringgit currency.
Inter-company accounts
Companies operating in Malaysia are allowed to operate inter-company accounts
with other companies outside Malaysia.
However, the Controller requires the submission of monthly returns excluding
the following items:
i) Any loans extended to the Malaysian companies
ii) Export proceeds of Malaysian goods
Application can be made to the Controller to offset export proceeds against
payments for the supply of raw materials. Companies holding such offsetting
arrangements approval, need only to repatriate to Malaysia those costs, such as
seafreight charges and insurance, which need to be reimbursed to Malaysian companies.
Expatriate Personnel
It is the policy of the government that Malaysians are trained and employed at
all levels of employment. Foreign companies are, however, permitted to bring in
expatriate personnel to fill job positions where there are shortages of trained
Malaysians. Certain key posts in foreign companies are allowed to be staffed
permanently by expatriate personnel.
Employment guidelines for expatriate personnel
i) A foreign company with a paid up capital of USD2 million and above is
automatically entitled to five (5) expatriate posts, including key positions.
Additional expatriate posts will be granted when necessary and upon request to
the Malaysian Industrial Development Authority.
ii) For a foreign company with a paid up capital of less than USD2 million, the
expatriate posts for the company will be considered under the following
criteria:
a) As a guideline, if the foreign paid up capital is RM500,000 (or equivalent),
the number of key posts allowed will depend on the merits of each case.
b) Expatriates for executive posts with required professional qualifications
and practical experience may be employed for a maximum period of ten (10) years
subject to Malaysians eventually being trained to take over the posts.
c) Positions which require technical skills and experience but non-executive
status, expatriates may be employed up to a maximum period of five (5) years
subject to Malaysians eventually being trained to take over the posts.
iii) Other conditions relating to employment of expatriate staff:
a) An expatriate officer who assumes a new post within the same company needs
only to have his original employment pass amended to indicate a change in
position.
b) If a new expatriate officer takes over the post of another expatriate
officer, a fresh employment pass will have to be obtained by the new expatriate
officer.
c) For key post holders, their employment passes are issued with renewable
period every five (5) years.
d) Employment pass holders are issued with multiple entry visas for period
corresponding to the validity periods of the employment passes held.
Applications from company applying for expatriate posts can be submitted to the
Malaysian Industrial Development Authority (MIDA) simultaneously with the company's
application for approval of its project.
Employment of Foreign Workers
Employment of foreign workers is allowed but the government will review its
policy from time to time.
Foreign workers are allowed in the following sectors:
1. The construction industry.
2. The plantation sector.
3. Services ( domestic servants, hotel industry, trainers and instructors).
4. The manufacturing sector.
This policy applies only to foreign workers of skilled, semi-skilled and
unskilled categories, excluding expatriates under the management, professional
and technical or supervisory categories. To ensure that employers employ
foreign labour only when necessary, an annual levy on foreign workers is
imposed. Rates of levy vary with the types of industry and are set out in
Appendix II.
Manpower
Malaysia has a youthful labour force, educated and readily trainable. Labour
costs are relatively low compared to other industrialised countries.
Productivity and standards of quality are high.
The government is appreciative of the manufacturing sector's strong demand for
technically trained workers in line with the country's activities of industrial
expansion. Measures for development and training to increase the number of
engineers, technicians and other skilled workers have been implemented.
For the manufacturing sector, there is no minimum wage law. Basic wage rates
vary according to location and industrial sector.
A
business in Malaysia may operate in any one of the following forms:
i) As an individual trading as a sole proprietor.
ii) As two or more persons (but not exceeding twenty) in a partnership firm.
iii) As a locally incorporated company or by a foreign company registered under
the provisions of the Companies Act 1965.
Sole proprietorships and partnerships businesses must be registered with the
Registrar of Business under the Registration of Businesses Ordinance 1956.
Malaysians who are residents in Malaysia and foreigners who are permanent
residents in Malaysia may register a sole proprietorship or a partnership firm.
COMPANY STUCTURE
Companies operating in Malaysia are governed by the Companies Act 1965 which
provides for the incorporation of three categories of companies.
i) a company limited by shares
ii) a company limited by guarantee and
iii) an unlimited company.
A company where the liability of its members is limited under the Memorandum of
Association to the uncalled portion of the nominal value of the shares held by
them. A company limited by shares can be either a private or a public company.
Private companies
A company may be incorporated as a private company when its Articles of
Association contain the following provisions :
i) Restrictions of the right to transfer its shares.
ii) Limitation of the number of its members to fifty (50), excluding employees
and certain specified former employees.
iii) Prohibition on any invitation to the public to subscribe for its shares
and or debentures.
iv) The company is prohibited from soliciting and/or accepting monetary
deposits from the public.
Public companies
A public company can be incorporated under the Companies Act or an existing
private company can be converted to a public company under the provisions of Section
26 of the Companies Act.
A public company cannot offer shares to the public unless a prospectus, which
complies with the requirements of the Companies Act, has been submitted to and
approved by the Securities Commission prior to the company's share-offer
prospectus being presented for registration with the Registrar of Companies.
A public company can apply to the Kuala Lumpur Stock Exchange for approval to
have its shares quoted on the Exchange subject to compliance with the
requirements of all the relevant authorities.
BRANCHES OF FOREIGN COMPANIES
A foreign company operating in Malaysia, within one (1) month after setting up
its business, must effect registration with the Registrar of Companies in the
prescribed form of its registered office address in Malaysia and of its
compliance with provisions of the Companies Act.
REPRESENTATIVE OFFICES
A foreign company may apply to the Ministry of International Trade and Industry
(MITI) for the setting up of a representative office in Malaysia. A representative
office has no legal status and cannot engage in trading and profit-making
activities. The role of a representative office is confined to promotion,
marketing liaison and co-ordination of activities in Malaysia for its head
office.
The principal requirements for the incorporation of a company under the
Companies Act are :
i) Obtaining approval of a company's name for registration with the Registrar
of Companies.
ii) Having a minimum of two directors (promoters) whose principal place of
residence is in Malaysia.
iii) Having two or more shareholders who are initial subscribers to the
Memorandum and Articles of Association of the company.
iv) Having a registered office in Malaysia.
v) A minimum authorised share capital of RM100,000.
Stamp duty
Stamp duty payable depends on the amount of the authorised share capital at the
date of incorporation. A schedule of the stamp duty is set out in Appendix III.
GENERAL GUIDELINES ON
COMPANY ADMINISTRATION
Directors
Directors of company must be natural persons. The number of directors is not
limited by statute but a company must have at least two directors whose
principal place of residence is in Malaysia. Companies normally specify the
maximum number of directors in their Articles of Association. The duties and
responsibilities of directors are set out in the Companies Act and in the
Articles of Association. An undischarged bankrupt cannot act as a company
director.
Company Secretary
An incorporated company must appoint a company secretary who must be a natural
person from a member of a professional body approved under the Companies Act,
or a person licensed by the Registrar of Companies.
An undischarged bankrupt cannot act as a company secretary nor can a person who
has been convicted of a criminal offence within or outside Malaysia.
Registered Office
A company must have a registered office in Malaysia where all books, registers
and records are required to be maintained under the requirements of the
Companies Act, 1965.
The statutory registers and minute books are :
i) Minutes of meetings of shareholders and directors.
ii) Register of shareholders.
iii) Register of directors, managers and secretaries.
iv) Register of directors' shareholdings.
v) Register of charges and debentures.
Auditors
A company must appoint an approved auditor or an approved auditing firm for the
purpose of reporting to the shareholders on the accounts of the company.
Annual General Meeting
A company must hold an annual general meeting in each calendar year, not over
fifteen (15) months after the previous annual general meeting. A newly
incorporated company must hold its first annual general meeting within eighteen
(18) months from date of incorporation.
Statutory filing with Registrar of Companies
A company must lodge an annual return with the Registrar of Companies within
one (1) month after the date of an annual general meeting. The audited accounts
of the company and directors' report must be lodged with the annual return,
unless the company is an exempt private company.
Company Reporting Requirements
The Companies Act sets out various disclosure requirements relating to the form
and contents of the statutory accounts. Whilst compliance with International
Accounting Standards is not mandatory non-compliance will generally result in
the auditors' report containing a reference to this effect.
Responsibilities for the preparation of the company’s financial statements rest
with the directors of the company. These financial statements which are audited
and presented to the shareholders will give a true and fair view of the
company’s financial state of affairs, of its results and any changes.
Company accounts may be prepared in Bahasa Malaysia or in English and currency
utilisation has to be in Ringgit Malaysia (RM).
Holding companies have to present group accounts in the form of the
consolidated balance sheet and profit and loss account of the group.
Public companies listed in the Kuala Lumpur Stock Exchange have additional
disclosure requirements as prescribed by the KLSE over and above those required
by the Companies Act.
Companies are required annually to present audited financial statements to the
shareholders. No specific date to which preparation of the financial statements
has been fixed but most companies would elect 31st December to coincide with
the tax year.
INCOME TAX AND FISCAL YEAR
Income accruing in or derived from Malaysia is subject to income tax. A
resident individual person receiving foreign income in Malaysia is also subject
to income tax. Foreign source-income received in Malaysia by a non-resident is
not subject to Malaysian income tax.
Income is determined during a time period called 'Year of Assessment' which is
based on income of the preceeding year or period basis. The fiscal year runs
from 1st January to 31st December. Business however, may use other accounting
dates to calculate the profit assessable to income tax.
REAL PROPERTY GAINS TAX
A gain derived from disposal of a chargeable asset is subject to real property
gains tax.
Chargeable assets are :
i) Real properties situated in Malaysia.
ii) Investments held in a real property company (RPC).
A controlled company which owns real property or shares or both, the market
value of
which exceeds 75% of its total value of tangible assets, is deemed a real
property company. A controlled company refers to a company having not more than
fifty (50) members and controlled by not more than five (5) persons.
Real Property Gains Tax rates vary from 5% to 30% depending on the length of
time the chargeable assets are owned prior to disposal.
Indirect Taxes
These include :
i) Custom duties on imports and exports of goods.
ii) Sale and service taxes on goods and services.
Local Taxes
Income tax is levied by the federal government. State governments collect rates
on properties and licensing fees for various businesses within the state's
municipalities.
Stamp Duty
Documents and instruments which attract stamp duty are governed by the Stamp
Act 1949.
Malaysia operates an imputation system of taxing corporate income. The income
tax paid by a company on its taxable profits is utilised to frank dividends
paid to shareholders of the company.
A company is considered resident in Malaysia for tax purposes if its management
and control are exercised in Malaysia even though the company is not
incorporated in Malaysia. The rate of income tax for companies is 30%. For
companies in petroleum operations, the rate of income tax is 40%.
The income of the branch of a foreign company derived from Malaysia is taxed at
the rate of 30%. Interest income, except where provided otherwise under the
Double Taxation Agreement that Malaysia has with the country concerned is taxed
at a rate of 15%.
A schedule of Double Taxation Agreements signed by Malaysia with various
countries is set out in Appendix IV.
TAXATION OF INDIVIDUALS
An individual is deemed a resident for tax purposes if he is physically present
in Malaysia in a particular calendar year for 182 days or more. But if his
period of stay is less than 182 days, he may still be considered a resident
where certain conditions are met.
In respect of residents, the rate of tax is on a graduated scale on taxable
income after
deduction of allowable reliefs. A schedule of Income Tax Rates on resident
individuals is set out in Appendix (V) and allowable reliefs and rebates are
set out in Appendix (VI). For non-residents, the rate of tax is 30% on the
gross income. No personal reliefs are granted to a non-resident.
For a wife, all sources of her income are assessed separately from that of her
husband but she can elect for her income to be combined and taxed with that of
her husband.
Short term employment income derived in Malaysia for a period not exceeding
sixty (60) days in a calendar year is tax exempt if the employee is not
resident in Malaysia for tax purposes.
This ruling does not apply to professional entertainers and non-resident
directors of companies.
Sources of taxable income
The following are the principal sources of income liable to income tax as set
out in Income Tax Act 1967 :
i) Profits or gains from a business.
ii) Profits or gains from an employment.
iii) Dividends, interest or discounts.
iv) Rents, royalties or premiums.
v) Pensions, annuities and other periodical payments not falling under any of
the foregoing categories.
Business Income and Expenses
Expenses incurred wholly and exclusively in the production of the gross income
are allowable against income from the business. Current year losses from a business
can be set off against income from other sources in the same year.
Unutilised losses from a business can be carried forward to be set off against
income from any business source for any subsequent year.
Capital allowances are allowed on qualifying expenditure but provisions for
depreciation cannot be deducted for income tax purposes.
Categories of allowances are :
i) Capital allowances for plant and machinery.
ii) Industrial building allowances.
iii) Forest allowances.
iv) Agricultural allowances.
Unutilised capital allowances are allowed to be set off against income from the
same business source for subsequent years.
Malaysia has double taxation agreements with the countries listed in Appendix
IV.
The principal tax incentives are set-out in the Promotion of Investments Act
1986 and the Income Tax Act 1967. The incentive provisions accord partial or
total relief from payment of income tax.
Tax incentives include :
1. Pioneer status.
2. Investment tax allowance.
3. Infrastructure allowance.
4. Reinvestment allowance.
5. Industrial adjustment allowance.
6. Double deduction of expenses (granted to certain expenses if prescribed
conditions are met).
7. Approved agricultural projects incentives.
8. Research and development incentives.
9. Industrial building allowance.
10. Incentive for in bound tour operators.
11. Incentive for approved overseas investments.
12. Incentive for overseas construction projects.
WITHHOLDING TAXES
Payments to non-residents
The payment or crediting of the following to non-residents is subject to
withholding tax at source being withheld and remitted to the Inland Revenue
within thirty days from the date of disbursement:
Rate
%
1. Interest 15 *
2. Royalties 10 *
3. Remuneration of public entertainer 15
4. Special classes of income under Section 4A of the Malaysian Income Tax Act
1967 10 *
5. Non-resident contractor, consultant or professional in respect
of the portion of the contract payment relating to his services 20
(Non-resident contractor, consultant or professional 15 % )
(Employees of the above 5 % )
* Rate of tax
may vary with the Double Tax Agreements which Malaysia has signed with
countries concerned.
Tax Returns
Tax returns are issued to taxpayers in the month of February or March in each
calendar year.
Tax returns have to be completed and submitted by taxpayers within thirty (30)
days of issue or by an extended date approved by the Inland Revenue.
Basis of assessment
Income tax is levied on income of the preceding calendar year which is the
basis year of assessment. In Malaysia, a company may adopt an accounting period
other than the calendar year.
Assessments
Assessments issued to taxpayers must be settled within thirty (30) days after
the service of the notice of assessments notwithstanding any appeal made.
Appeals
Appeal against an assessment must be lodged within thirty (30) days of the
service of a notice of assessment.
Payments
All companies and individuals with an annual taxable liability exceeding
RM1,000 must pay their tax liability by five (5) bi-monthly instalments or at
such times and in such amounts as specified by the Inland Revenue.
For employed individuals, payments are made by monthly salary deductions.
Penalties
A penalty of 10% is levied on any tax not paid within the thirty (30)-day limit
and a further 5% will be imposed if the tax is not settled after a further
sixty (60) days.
Other penalties for various offences are contained in the provisions of the
Income Tax Act 1967.
INVESTMENT GUARANTEE AGREEMENTS
Countries Date of signing agreement
1 United States of America 21.04.1959 (amended
2. Federal Republic of Germany * 22.12.1960 (amended on 05.11.1965)
3 Canada 01.10.1971
4 Netherlands 14.08.1972
5 France 24.04.1975
6 Switzerland 01.03.1978
7 Sweden 03.03.1979
8 Belgo-Luxembourg 22.11.1979
9 United Kingdom 21.05.1981
10 Sri Lanka 16.04.1982
11 Romania 26.11.1982
12 Norway 06.11.1984
13 Austria 12.04.1985
14 Finland 15.04.1985
15 Organisation of Islamic 30.09.1987 Conference (OIC)
16 Kuwait 21.11.1987
17 Association of South East Asian 15.12.1987 Nation (ASEAN)
18 Italy 04.01.1988
19 Republic of Korea 11.04.1988
20 People's Republic of China 21.11.1988
21 United Arab Emirates 11.10.1991
22 Denmark 06.01.1992
23 Socialist Republic of Vietnam 21.01.1992
24 Papua New Guinea 27.10.1992
25 Republic of Chile 11.11.1992
26 Laos People's Democratic Republic 08.12.1992
27 Taiwan 18.02.1993
28 Republic of Hungary 19.02.1993
29 Republic of Poland 21.04.1993
30 Republic of Indonesia 22.01.1994
31 Republic of Albania 24.01.1994
32 Republic of Zimbabwe 28.04.1994
33 Tukmenistan 30.05.1994
34 Republic of Namibia 12.08.1994
35 Kingdom of Cambodia 17.08.1994
36 The Argentine Republic 06.09.1994
37 Jordan 02.10.1994
38 Republic of Bangladesh 12.10.1994
39 Republic Croatia 06.12.1994
40 Bosnia Herzegovena 16.12.1994
41 Spain 04.04.1995
42 Pakistan 07.07.1995
43 Kyrgyz Republic 20.07.1995
44 Mongolia 27.07.1995
45 Republic of Uruguay 09.08.1995
* Germany since 3rd October 1990.
RATES OF LEVY FOR FOREIGN
WORKERS
SECTOR Levy Per Year RM
Management/Professional
Technical 2,400
Professional 3,600
Middle Management 3,600
Higher Management 4,800
Agricultural/Estate
Unskilled worker 300
Semi-skilled worker 1,080
Skilled worker 1,440
Workers in paddy fields and sugar cane plantations Exempted
Manufacturing and construction
Unskilled worker 840
Semi-skilled worker 1,200
Skilled worker 1,800
House maids 360
Other sectors
Unskilled worker 720
Semi-skilled worker 1,080
Skilled worker 1,440
SCALE OF STAMP DUTY
FOR AUTHORISED SHARE CAPITAL
(Payable to the Registrar of Companies)
Authorised Share Capital Stamp Duty
RM
Not exceeding RM 100,000 1,000
RM 100,001 - RM 500,000 3,000
RM 500,001 - RM 1,000,000 5,000
RM 1,000,001 - RM 5,000,000 8,000
RM 5,000,001 - RM 10,000,000 10,000
RM 10,000,001 - RM 25,000,000 20,000
RM 25,000,001 - RM 50,000,000 40,000
RM 50,000,001 - RM 100,000,000 50,000
Exceeding RM 100,000,000 70,000
The maximum stamp duty payable is RM 70,000.
DOUBLE TAXATION AGREEMENTS
Country of residence Royalties Interest Technical/ Dividends
Management
fees
Non-treaty countries 10 15 10 NIL
Treaty countries
1 Australia 10 15 10 NIL
2 Austria 10 15 10 NIL
3 Bangladesh 10 15 10 NIL
4 Belgium 10 10 10
5 Canada 10 15 10 NIL
6 Denmark 10 15 10 NIL
7 Finland 10 15 10 NIL
8 France 10 15 10 NIL
9 Federal Republic of Germany (c) 10 15 10 NIL
10 Germany Democractic Republic (c) 10 10 10 NIL
11 Hungary 10 15 10 NIL
12 India 10 15 10 NIL
13 Indonesia 10 15 10 NIL
14 Italy 10 15 10 NIL
15 Japan 10 10 or 15 10 NIL
16 Jordan 10 15 10 NIL
Country of residence Royalties Interest Technical/ Dividends
Management
fees
17 Malta 10 15 10 NIL
18 Mauritius 10 15 10 NIL
19 Mongolia 10 15 10 NIL
20 The Netherlands 10 15 10 NIL
21 New Zealand 10 15 10 NIL
22 Norway 10 15 10 NIL
23 Pakistan 10 15 10 NIL
24 Papua New Guinea 10 15 10 NIL
25 People's Republic
of China 10 10 10 NIL
26 Philippines 10 15 10 NIL
27 Poland 10 15 10 NIL
28 Republic of Albania 10 10 10 NIL
29 Republic of Fiji 10 15 10 NIL
30 Republic of Korea 10 15 10 NIL
31 Romania 10 15 10 NIL
32 Russia 10 15 10 NIL
33 Saudi Arabia (b) 10 15 10 NIL
34 Singapore 10 15 10 NIL
35 Sri Lanka 5 15 10 NIL
36 Sweden 10 15 10 NIL
37 Sudan 10 10 10 NIL
38 Switzerland 10 10 10 NIL
39 Thailand 10 15 10 NIL
40 The Socialist Republic of Vietnam 10 10 10 NIL
41 Turkey 10 15 10 NIL
42 United Kingdom 10 15 10 NIL
43 United States of 10 15 10 NIL
America (a)
37 38
Country of residence Royalties Interest Technical/ Dividends
Management
fees
44 United Arab Emirates 10 5 10 NIL
45 Yugoslavia 10 15 10 NIL
46 Zimbabwe 10 10 10 NIL
Notes
a) The double tax agreement with the United States of America only covers
shipping and airline profits.
b) The double tax agreement with Saudi Arabia only covers taxes on income of
air transport enterprises.
c) Germany since 3rd October 1990.
d) Malaysia is in the process of concluding double taxation agreements with
Egypt, Libya and Spain.
e) Where the rates of tax on the above payments are not specifically mentioned
in the respective double tax agreement, the rates in the Income Tax Act 1967
apply.
f) Payments of approved royalties or approved industrial royalties and interest
on approved loans and long term loans (as defined in each double tax agreement)
to non-residents are usually tax exempt.
TAX RATES
Income Tax Rates - Resident Individuals
Rate Tax
Chargeable Income RM % RM
On the first 2,500 0 0
On the next 2,500 2 50
On the first 5,000 50
On the next 5,000 4 200
On the first 10,000 250
On the next 10,000 6 600
On the first 20,000 850
On the next 15,000 10 1,500
On the first 35,000 2,300
On the next 15,000 16 2,400
On the first 50,000 4,750
On the next 20,000 21 4,200
On the first 70,000 8,950
On the next 30,000 26 7,800
On the first 100,000 16,750
Chargeable Income RM % RM
On the next 50,000 29 14,500
On the first 150,000 31,250
In excess of 150,000 30
INCOME TAX RATES - OTHERS
Chargeable Person Type of Income Rate
Non-resident person, trust body, All types (except for 30 executor or deceased
individual (not interest received by a non-
domiciled in Malaysia) and receiver resident person) appointed by the court.
Interest received by a non- 15
resident person
Insurer Inward reinsurance 5
Offshore insurance 5
Chargeable income of Life Fund 8
Resident Individuals Interest received from approved 5
banks, finance companies and
institutions
Approved operational headquaters From rendering of qualifying 10 company
services
PERSONAL RELIEFS AND REBATES
1 Personal Reliefs RM
Personal and dependant allowance 5,000
Wife relief 3,000
Children Relief
• per child 800
• handicapped child (each) 5,000
• Enhanced child relief for children studying at universities, colleges or
similar establishments
• in Malaysia 4 x 800
• outside Malaysia 2 x 800
• Enhanced child relief in respect of a child who has commenced receiving
education outside Malaysia prior to 01.01.1994 will continue to be 4 times the
normal relief (ie RM 800 x 4) until he completes his education.
Insurance premiums / Approved fund contributions 5,000 (maximum)
Insurance premiums for education and medical benefits 2,000 (maximum)
Medical expenses incurred in respect of parents 5,000 (maximum)
Cost of support equipment for disabled person 5,000 (maximum)
No reliefs are available to a non-resident person
2 Income Tax Rebates
2.1 Income tax rebate for individuals
Individual
A rebate of RM 110 is given to an individual against his tax payable if his
chargeable income does not exceed RM 10,000. The same rebate applies to a wife
who is assessed separately.
Wife
A further rebate of RM 60 is given if she has no income or she elects for
combined assessment and the combined chargeable income does not exceed RM
10,000.
2.2 Income tax rebate for zakat, fitrah or any other Islamic religious dues
Full rebate is given against the tax payable in respect of zakat, fitrah or
any other Islamic religious dues paid.
Amendment 1
Exchange Control Regulations
With effect from 1st September 1998, Malaysia reimposed Exchange Control
Regulations to curb speculations of the Malaysian Ringgit. The Malaysian
Ringgit was withdrawn from its convertibility outside Malaysia but remains
legal tender within Malaysia only. All offshore Malaysian ringgit not
repatriated back to Malaysia by 30th September 1998 will no longer be valid
legal tender. However, the central bank, Bank Negara Malaysia, will consider
application from holders of Malaysian Ringgit offshore to repatriate their
Ringgit funds well after the deadline i.e. 30th September 1998 on a case-by
case basis.
Also with immediate effect from 1st September 1998, Malaysians are permitted
for travel outside Malaysia to carry only MYR1,000.00 in currency notes and not
more than MYR10,000.00 the equivalent in foreign currency. However, Bank Negara
Malaysia will accord favourable consideration to travelers applying for foreign
exchange exceeding the MYR10,000.00 limit based on well substantiated
requirements.
For non-resident, there are no limitation on foreign exchange brought into the
country but only a simple declaration form has to be completed by the
non-resident at point of entry into the country. Non-resident, upon leaving the
country, could take out whatever amount of foreign exchange already declared on
date of entry into the country.
For stock market security investment, non-residents are permitted to repatriate
profits/gains provided such profits/gains are supported by documentary
evidence. But the capital investment sum will have to remain in Malaysia for
period of twelve months from the date of disposal of investments. Thereafter,
non-residents are allowed to withdraw their investment capital from the
country.
For other trade and business investments, non-residents are allowed to
repatriate profits and capital upon disposal or realisation of their
investments in Malaysia.