| DOING BUSINESS IN MALAYSIA |
Foreign Trade
In order to promote the expansion of Malaysia’s trade, the government provides for several incentives to promote growth in exports. The incentives can be obtained though foreign guidelines.
In determining the percentage of approved equity, do refer to the following factors :
Level of technology
Size of Investment
Location of project
Spin-off effect
Value added and high utilisation of raw materials and components.
Infrastructures set up to support promotion of trade includes
Malaysian External Trade Development Corporation (MATRADE)
Malaysian Export Credit Insurance Berhad (MECIB)
Malaysian Trade Missions Overseas
Foreign Currency Exchange Accounts
Free Zones and Licensed Manufacturing Warehouses
Trade and Bilateral Payment Agreements / Arrangements
Employment Law - Rights and Liabilities
The main body of employment is Malaysia is found in three principal legislation and subsidiary legislation. They are :-
Employment Act, 1955
Industrial Relations Act, 1967
Trade Unions Act, 1959
The employers in Malaysia also need to bear in mind the relevant legislations :-
Employees Provident Fund Act, 1991
Employees Social Security Act, 1969
Worksmen’s Compensation Act, 1952
Worker’s Minimum Standards of Housing and Amenities Act, 1990
Wages Council Act, 1947
Children and Young Persons (Employment) Act, 1966
Occupational Safety and Health Act, 1994
Human Resources Development Act, 1992
Foreign Exchange
Foreign investments are an important factor in the growth of the country's economy. However, these must be compatible to the objectives of the National Development Plan.
There are capital exchange controls on external accounts, trade settlements and currency. However, there are no restrictions on direct investment and repatriation of interest and dividends and capital.
The ringgit is not freely convertible and can only be transacted through authorised depository institutions within Malaysia. Current account transactions will continue to be convertible.
All settlements of exports and imports must be made in foreign currency. Withdrawals from external accounts require approval except for purchase of ringgit assets. Travellers are allowed to import or export ringgit currency of not more than RM1,000 per person. There are no limits on the import of foreign currencies. The export of foreign currencies by residents is permitted to a maximum of RM10,000 equivalent. The export of foreign currencies by non-residents is permitted up to the amount of foreign currency brought into Malaysia by the non-resident.
Residents are required to obtain approval before they can borrow in foreign currency of more than the equivalent of RM5 million from non-residents. Non resident controlled companies operating in Malaysia are required to obtain permission for credit facilities exceeding RM10 million and are required to obtain at least 60% of their domestic credit facilities from Malaysian owned financial institutions.
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Regulation There is only a single set of regulations for Malaysians and foreigners doing business in Malaysia. A foreign entity may carry out trade or services direct with any business entity in Malaysia. However, to carry on business in trade or services in Malaysia it has to be carried out through a registered business entity under the laws of Malaysia. |
This can be achieved in many ways. However, for foreign investors the avenues opened to them is either through a corporation limited by shares incorporated under the Companies Act, 1965 or through a branch registered under the Companies Act, 1965. Corporations incorporated or registered pursuant to the Companies Act, 1965 have to comply with the requirements of the Companies Act, 1965 such as the regulations of the corporation, maintenance of registers and books of accounts reporting, capital and distribution and incorporation and liquidation.
For Malaysians they are also able to carry on business through a sole proprietorship or a partnership registered under the Registration of Businesses Act, 1956.
Foreign entities may also set up a representative office if they do not intend to carry out business activities but would like to oversee their operations or investments or to gather market information in Malaysia.
Malaysian laws are governed by statutes and the other principal statute that all businesses have to comply with is the Income Tax Act, 1967. Most industries are well regulated and specific legislation applies to specific businesses. Some of the applicable legislation is set out in the summary. The summary is not exhaustive and more information may be obtained from any of our member firm in Malaysia.
Financial Reporting
The Companies Act, 1965 requires that a corporation should prepare annual accounts and have it audited before tabling it at an annual general meeting of members for their approval at least once in each calendar year. The accounts should be prepared in accordance with the Companies Act, 1965 which includes the compliance with approved accounting standards. Accounts have also to be prepared for the Inland Revenue Board for the purpose of assessment to income tax.
Accounting and Auditing
Malaysia uses International Accounting Standards and International Standards on Auditing as a basis for the setting of approved accounting standards and approved standards on auditing respectively.
Tax
Malaysian taxation is based on the imputation system and is territorial. Malaysia has signed Tax Treaties with over 45 countries.
The principal statute is the Income Tax Act, 1967 which governs the taxation of income. The income tax rate for corporation is 28% and for individuals is on graduated rates up to a maximum of 30%.
Real Property Gains Tax is also assessable on realty related transactions and the rate of tax range between 5% to 30%.
There is also direct tax legislation covering import duty and excise duty ranging from 5% to 300% and sales tax and service tax ranging from 5% to 10%.
Special Industries (a few categories)
Banks - Banking income of a tax resident is subject to tax on a world-wide basis. Banking income of a non-resident is taxed only on the income accruing in or derived in Malaysia.
Investment Companies - Income of investment companies is taxed as investment income. Companies trading in stocks and shares are treated as trading companies.
Insurance companies-Income from insurance business of a tax resident is subject to tax on a world-wide basis, whereas non-resident is taxed on income accruing in or derived from Malaysia.
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Leasing industry - there are special rules and regulations regarding the determination of taxable profits of a leasing business. Petroleum Industry - Companies carrying on petroleum operations in Malaysia are taxed under the Petroleum Income Tax Act, 1967. Petroluem operations exclude the transportation outside Malaysia, the process of refining or liquefying of petroleum, dealings in petroleum products, or services involving the supply of rigs, derricks, ocean tankers and barges. Multimedia Super Corridor (MSC) - The MSC is a regional launch site for companies developing or using leading multimedia technology by integrating ground-breaking cyberlaws and outstanding information infrastructure in a green environment. |
The MSC is a 15km by 50 km zone spreading south of Kuala Lumpur. Putrajaya and Cyberjaya, the seat of electronic government and IT city respectively, are located in the centre of the MSC. Developers or heavy users of multimedia or information technology products and services satisfying certain criteria can qualify for MSC Status.
To ensure that the MSC achieves its objectives, the Multimedia Development Corporation (MDC) was established as a "one-stop super shop" with functions including permit and licensing approvals for companies setting up operations in the MSC.
Companies with approved MSC status will enjoy full exemption of their profits for a period of five to ten years, subject to level of technology transfer. Alternatively, these companies may be granted investment tax allowance (ITA) of 100% on new investments made in the MSC designated cybercities.
Approved MSC companies are also exempt from import duties on multimedia equipment used directly in facilitating their operational process.
Incentives and facilities are also available under the various tax legislation.