The Malaysian economy has made a gargantuan leap since 1957. The transformation of the country’s economy from one based on primary commodities like tin, rubber and palm oil to a dynamic and vibrant industrializing nation is attributed to a variety of pull factors. Malaysia’s political and economic stability, prudent and pragmatic investor friendly policies, cost-productive workforce, a developed infrastructure comparable to that of any developed country and a host of other amenities make this country an enticing place for investors.
Multinational corporations (MNCs) from more than 40 countries have invested in over 5,000 companies in Malaysia’s manufacturing and related services sectors, encouraged by the country’s pro-business environment. Malaysia today is one of the world’s top locations for Foreign Direct Investments (FDIs) of offshore manufacturing and service-based operations. Many of the existing MNCs have also continued to show their confidence in the country’s potentials as an investment location through their numerous expansions and diversifications over the years, particularly in high technology, knowledge-based and capital-intensive projects.
FDIs will continue to assume an important role in Malaysia economic growth and development. FDIs contribute towards the growth of Malaysia Gross Domestic Product (GDP), capital formation, export earnings, employment, technology development and other economic benefits.
Incorporating A Company
Methods of Conducting Business in Malaysia
In Malaysia, a business may be conducted:
- By an individual operating as a sole proprietor, or
- By two or more (but not more than 20) persons in partnership, or
- By two or more partners forming limited liabilities partnership; or
- By a locally incorporated company or by a foreign company registered under the provisions of the Companies Act, 2016.
All sole proprietorships and partnerships in Malaysia must be registered with the Companies Commission of Malaysia (CCM) under the Registration of Businesses Act, 1956. In the case of partnerships, partners are both jointly and severally liable for the debts and obligations of the partnership should its assets be insufficient. Formal partnership deeds may be drawn up governing the rights and obligations of each partner but this is not obligatory. Partnership can also register Limited Liability Partnership Act 2012 which provide the partners a limited liabilities but in a form of partnership arrangement.
The Companies Act, 2016 of Malaysia stipulates that a company must be registered with the CCM in order to engage in any business activity. It governs for the following types of companies:
- Limited by shares
A company limited by shares where the personal liability of its members is limited to the amount and number of shares taken or agreed to be taken by them.
- Limited by guarantee
A company limited by guarantee where the members guarantee to meet liability up to an amount undertake to guarantee in the constitution in the event of the company being wound up.
An unlimited company, where there is no limit to the members' liability.
Taxation In Malaysia
Income of any person including a company, accruing in or derived from Malaysia or received in Malaysia from outside Malaysia is subject to income tax.
However, with effect from the year of assessment 2004, income received in Malaysia by any person other than a resident company carrying on business of banking, insurance or sea or air transport for a year of assessment derived from sources outside Malaysia is exempted from tax.
To modernize and streamline the tax administration system, the assessment of income tax was changed to a current year basis of assessment from the year 2000. The self-assessment system was implemented for companies in the year of assessment 2001 and for businesses, partnerships, cooperatives and salaried groups, in the year of assessment 2004.
Sources of Income Liable To Tax
The following sources of income are liable to tax:
- Gains and profits from a trade, profession and business
- Gains or profits from an employment (salaries, remunerations, etc.)
- Dividends, interests or discounts
- Rents, royalties or premiums
- Pensions, annuities or other periodic payments
- Other gains or profits of an income nature
A company, whether resident or not, is assessable on income accrued in or derived from Malaysia. Income derived from sources outside Malaysia and remitted by a resident company is exempted from tax, except in the case of the banking and insurance business, and sea and air transport undertakings. A company is considered a resident in Malaysia if the control and management of its affairs are exercised in Malaysia.
Withholding Tax (WT)
Non resident companies are subject to the following withholding tax:-
|Non-resident companies||Rate %|
|Rental of moveable properties||10|
|Technical or management service fees||10|
| Contract Payment on:-
- account of contractor
- account of employee
| Other income such as commission, guarantee fee,
agency fees and etc (w.e.f 1.1.2010)
- in consideration of services rendered by the person or his employee in connection with the use of property or rights, installation of or operation of any plant, machinery or other apparatus;
- in consideration of technical advice, assistance or services rendered in connection with technical management or administration; or
- rent or other payments made under any agreement or arrangement for the use of any moveable property.
With effect from 21 September 2002, no withholding tax should be applicable for income received in respect of the services (a) and (b) rendered or performed outside Malaysia.
However, withholding tax is applicable for income received in respect of the services rendered or performed in Malaysia and outside Malaysia for the period 17 January 2017 to 5 September 2017.
In respect of withholding tax not paid, a penalty of 10% is imposed on the total payment made to a non-resident. However, effective on 2 September 2006, the 10% penalty on withholding tax be imposed on the amount of unpaid tax and not on the total payment made to a non-resident.
Double Taxation Agreement (DTA)
Double Taxation Agreement (DTA) is an agreement between two countries seeking to avoid double taxation by defining the taxing rights of each country with regard to cross border flows of income and providing for tax credits or exemptions to eliminate double taxation.
The objectives of Malaysian DTA are as follows:
- to create a favorable climate for both inbound and outbound investments
- to make Malaysia's special tax incentives fully effective for taxpayers of capital exporting countries rent or other payments made under any agreement or arrangement for the use of any moveable property.
- to obtain a more effective relief from double taxation compared to relief gained under unilateral measures
- to prevent evasion and avoidance of tax
Currently, effective DTAs are as follows:
|Bangladesh||Korea||South Africa (EOI Protocol)|
|Bosnia Herzegovina||Kyrgyz||Slovak Republic|
|Canada||Luxembourg||Sweden (Notes of Exchange)|
|Egypt||Namibia||United Arab Emirates (UAE)|
|Fiji||Netherlands||United Kingdom (Notes of Exchange)(EOI Protocol)|
|Finland||New Zealand||United States of America* (USA)|
|Hong Kong||Papua New Guinea||Venezuela|
|Indonesia||Qatar (EOI Protocol)|
Tax Incentives for Foreign Investors
In Malaysia, tax incentives, both direct and indirect are provided for in the Promotion of Investments Act, Income Tax Act, Customs Act, Sales Tax Act, Excise Act, and Free Zones Act. These Acts cover investments in the manufacturing, agriculture, tourism (including hotel) and approved services sectors as well as R&D, training and environmental protection activities.
There are wide range of tax incentives offered by the Malaysian Government to encourage investment activities carried out in Malaysia. Companies that are given incentives qualify for partial or total relief from the payment of income tax for a designated period of time.
Reanda can help you plan, analyze and evaluate your investments in order to apply for the appropriate incentives. Our consultants will conduct a feasibility study to explore which incentives are available and most value added to your organization. We will then assist you on the application procedures for the incentives.
The direct tax incentives grant partial or total relief from income tax payment for a specified period, while indirect tax incentives come in the form of exemptions from import duty, sales tax and excise duty. A wide range of incentives is offered by the Government to encourage foreign investment activities. The following are some of the major incentives offered:
- Incentives for the manufacturing sector
- Incentives for operational headquarters (OHQ)
- Incentives for international procurement centre (IPC) /regional distribution centre (RDC)
- Incentives for representative offices and regional offices
- Incentives for the biotechnology industry
- Incentives for the multimedia super corridor (MSC)
- Incentives for research and development (R&D)
- Incentives for information and communication technology (ICT)
- Incentives for a knowledge-based economy
- Incentives for the shipping and the transportation industry
- Incentives for the manufacturing related services
- Incentives for approved service projects
- Incentives for the agricultural sector
- Incentives for the tourism industry
- Incentives for training
- Incentives for environmental management
- Other incentives:
- Industrial Building Allowance
- Infrastructure Allowance
- Double Deduction
- Tax Incentives for Venture Capital Industry
- Tax Incentives for Mergers and Acquisitions of Listed Companies
- Incentive for Acquiring a Foreign-Owned Company
- Incentive for Acquiring Proprietary Rights
- Tariff Related Incentives
Intellectual Property Protection
Intellectual property protection in Malaysia comprises patents, trademarks, industrial designs, copyrights, geographical indications and layout designs of integrated circuits. Malaysia is a member of the World Intellectual Property Organization (WIPO) and a signatory to the Paris Convention and Berne Convention which govern these intellectual property rights.
In addition, Malaysia is also a signatory to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) signed under the auspices of the World Trade Organization (WTO). Therefore, Malaysia's intellectual property laws are in conformance with international standards and provide adequate protection to both local and foreign investors.
Passport And Visa Requirement
All persons entering Malaysia must possess valid national passports or other internationally recognized travel documents valid for travel to Malaysia. These documents must be valid for at least six months from the date of entry into Malaysia. Those with passports not recognized by Malaysia must apply for a document in lieu of the passport as well as a visa issued by Malaysian Embassies or Consulate offices abroad. Applications for visas can be made at the nearest Malaysian Embassies or Consulate offices abroad.
Visa Requirements by Country
- Commonwealth countries that require visa
Visa Requirements for other countries
Afghanistan (Visa with reference), Equat. Guinea*, Myanmar, Angola*, Eritrea*, Nepal, Bhutan, Ethiopia*, Niger*, Burkina, Faso*, Guinea-Bissau*, Rwanda*, Burundi*, Hong Kong (C.I/D.I), Serbia Montenegro, Central African Republic*, India Sri Lanka, China, Israel**, United Nation (Laissez Passer), Colombia*, Ivory Coast (Cote d’ivoire)*, Western Sahara*, Congo Democratic Republic*Liberia*,Yugosalavia, Djibouti*
- For the countries marked as ( * ) are allowed to enter Malaysia by air only.
- Israel citizen** who wish to enter are required Visa and approval from Ministry Of Home Affairs, Malaysia.
- Visa is not required for a stay of less than one (1) month for ASEAN nationals except Myanmar.
- Visas are required for duration of stay exceeds (1) month except for Brunei and Singapore nationals.
Yellow Fever certificate is required to be produced upon landing in Malaysia for countries as listed below:
Angola, Benin, Bolivia, Brazil, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Djibouti, Equador, Guinea, Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea-Bissau, Kenya, Mali, Niger, Nigeria, Panama, Peru, Rwanda, Sao Tome & Principe, Senegal, Sierra Leone, South Africa, Sri Lanka， St Kitts & Nevis, Suriname, Tanzania, Togo, Uganda, Venezuela, Zaire, Zambia
Employment Of Expatriate Personnel
The Malaysian Government is desirous that Malaysians are eventually trained and employed at all levels of employment. Thus, companies are encouraged to train more Malaysians so that the employment pattern at all levels of the organizations reflects the multi-racial composition of the country.
Notwithstanding this, where there is a shortage of trained Malaysians, foreign companies are allowed to bring in expatriate personnel. In addition, foreign companies are also allowed "key posts", that is, posts that are filled by foreigners in long term through renewable employment pass.
To further improve Malaysia's investment environment and promote technology transfer and the inflow of foreign skills into Malaysia, the Government has further liberalised the policy on the employment of expatriate personnel.
All applications for expatriate posts from companies in the manufacturing and manufacturing related services sectors have to be submitted to MIDA.
Applications under the following categories will be processed within seven working days:
- New or additional expatriate posts by existing manufacturing companies, Operational Headquarters (OHQ), International Procurement Centres (IPC) and Regional Distribution Centres (RDC).
- Change of conditions for the approved expatriate posts such as academic qualifications and years of experience for OHQ, IPC and RDC companies.
- Extension of the duration of posts.
- Change of name of posts.
- Transfer of posts to a related or sister company following the restructuring of the company.
- Surrender of the posts approved but not filled.
The guidelines on the employment of expatriate personnel
- Manufacturing companies with foreign paid-up capital of US$2 million and above:
Automatic approval for up to 10 expatriate posts, including five key posts.
- Manufacturing companies with foreign paid-up capital of more than US$200,000 but less than US$2 million:
Automatic approval for up to five expatriate posts, including at least one key post.
- Manufacturing companies with foreign paid-up capital of less than US$200,000:
Key posts can be considered where the foreign paid-up capital is at least RM500,000.
The number of key posts, executive posts and non-executive posts allowed depends on the merits of each case.
Guidelines for the Manufacturing Related Services Sector
- Regional Establishments
For Operational Headquarters (OHQ), International Procurement Centres (IPC) and Regional Distribution Centres (RDC), the approval for expatriate posts including key posts will be granted according to the company’s requirements subject to the condition that the company has a minimum paid-up capital of RM500,000.
- Support Services
For Integrated Logistic Services (ILS), Integrated Market Support Services (IMS), Central Utility Facilities (CUF) and Cold Chain Facilities (CCF), key posts can be considered subject to the condition that the company has a minimum paid-up capital of RM500,000.
- Contract Research & Development (R&D) Company, R&D Company and In-House R&D |
For foreign-owned companies, the number of expatriate posts considered is based on the ratio of one expatriate to one Malaysian R&D personnel. For Malaysian-owned companies, the number of expatriate posts considered is based on the company’s request.
- ICT (Software Development Companies)
- Key posts are considered subject to the ratio of one key post to five Malaysians in the relevant technical field.
- The company is required to employ at least five full-time Malaysian staff with technical or degree qualifications in the field of software development.
Academic qualifications and working experience as proposed by the company will be imposed as conditions of approval.
- Hotel & Tourism Projects, Technical & Vocational Training Institutions & Other Services (Storage, Treatment And Disposal Of Toxic And Hazardous Wastes, Energy Conservation, Renewable Energy Resources And Film Or Video Production & Post Production)
All applications for expatriate posts will be considered by MIDA subject to similar conditions stipulated for the manufacturing sector.
For all executive and non-executive posts, Malaysians must be trained to eventually take over.
All executive and non-executive posts approved will be subject to conditions on qualifications and/ or experience as proposed by the company.
Companies whose applications have been rejected can submit an appeal to the Chairman of MIDA.
Malaysia's Labor Force and Costs
Malaysia offers the investor a diligent, disciplined, educated and trainable labor force. Malaysian youths who enter the labor market would have undergone at least 11 years of school education i.e. up to secondary school level, and are therefore easy to be trained in new techniques and skills.
To cater to the manufacturing sector's expanding demand for technically trained workers, the Malaysian Government has taken measures to increase the number of engineers, technicians and other skilled personnel graduating each year from local as well as foreign universities, colleges, and technical and industrial training institutions.
In addition, Malaysia enjoys a free and competitive labor market where employer-employee relationship is cordial and harmonious. Labor costs in Malaysia are relatively low while productivity levels remain high in comparison with industrialized countries.
Generally, wages in Malaysia are not regulated and it is dependent on the demand and supply of the market forces.
The Minimum Wages Order 2012 had laid down the minimum wages to be paid for all employees who fall within the First Schedule of the Employment Act 1955. Minimum wages is defined as basic wages, excluding any allowances or other payments.
The minimum wages of RM900 was set for Peninsular Malaysia and RM800 for Sabah, Sarawak and Labuan. No employer shall pay below the stipulated amount. All local and foreign employees shall be entitled to receive the minimum wages as per the Order.
Meanwhile, wage rates vary according to location and industrial sector, while supplementary benefits, which may include bonuses, free uniforms, free or subsidized transport, performance incentives and other benefits, vary from company to company.
Salaries and fringe benefits offered to management and executive personnel also vary according to the industry and employment policy of the company. Most companies provide free medical treatment, personal accident and life insurance coverage, free or subsidized transport, an annual bonus, retirement benefits and enhanced contributions to the Employees Provident Fund.
Why Invest In Malaysia
- Natural resources - oil, gas, tin, timber, palm oil, rubber
- GDP growth – 5.5-6% (2018)
- Unemployment rate - 3.2-3.5%
- Inflation(CPI) – 2.0-3.0%
- Net FDI: RM39.2bil in 2017 (2016: RM47.2bil)
- International reserves: USD103.9 billion (as at 15 March 2018), 7.3 months of retained imports and 1.1 times the short-term external debt.
- Ringgit: Appreciated by 10.4% against USD in 2017
- OPR: Unchanged at 3.00% in 2017 (2016: 3.00%)
Supportive Government Policies
- Pro-business policies
- Responsive Government
- Liberal investment policies
- Attractive tax and other incentives
- Liberal exchange control regime
- Intellectual property protection
An Educated Workforce
- Talented, young, educated and productive workforce
- Multilingual workforce speaking two or three languages, including English
- Comprehensive system of vocational and industrial training, including advanced skills training
- Harmonious industrial relations with minimal trade disputes
- Network of well-maintained highways and railways
- Well-equipped seaports and airports
- High quality telecommunications network and services
- Fully developed industrial parks, including free industrial zones, technology parks and Multimedia Super Corridor (MSC)
A Vibrant Business Environment
- Market-oriented economy
- Well-developed financial and banking sector, including the Labuan International Offshore Financial Centre
- Wide use of English, especially in business
- Legal and accounting practice based on the British system
- Large local business community with long history in international business
- Large foreign business community in all business sectors
- Extensive trade links - country's total trade was valued at RM1.1 trillion
Quality of Life
- Friendly and hospitable Malaysians
- Safe and comfortable living environment
- Excellent housing, modern amenities, good healthcare and medical facilities
- Excellent educational institutions including international schools for expatriate children
- World-class recreational and sports facilities
- Excellent shopping with goods from all over the world
Outlook For 2017
- The Malaysian economy is experiencing a solid recovery. Growth is expected to rebound to 5.7 percent in 2010, as momentum behind domestic private consumption and investment continues to build.
- The Government has announced its strategies for further consolidation but it will improve its fiscal position during the course of 2010.
- The proposed New Economic Model for Malaysia represents a signficant and welcome development. Growth could surprise on the upside providing the proposed measures are comprehensively and expeditiously implemented.
- Monetary and fiscal stimulus measures introduced by several governments around the world already took effect during the second half of 2009, which boosted consumer and investment demand. This in turn could spur exports for Malaysia.
- Broadbased expansion is expected across all clusters, reflecting improved external demand and strengthening domestic demand.
- The services sector is projected to register a higher growth of 4.9% in 2010 and will remain the key contributor to overall GDP growth.
- The manufacturing sector is poised for strong growth of 6.5% this year, based on the observed momentum of recovery since the end of 2009.
- International trade continues to be an important driver of growth for the Malaysian economy. While the World Trade Organisation (WTO) remains the primary vehicle to open up markets on a most-favoured- nation (MFN) basis, Malaysia also pursues preferential trading arrangements such as bilateral and regional Free Trade Areas (FTAs) to seek better access to individual markets.
- This year marks an important milestone for Malaysia. Not only will we see tariffs eliminated for substantially all products under the ASEAN FTA (Afta) and ASEAN-China FTA (ACFTA), Malaysia has also begun implementation of the Asean-India FTA and Asean-Australia-New Zealand FTA as well.
How Can Reanda Help?
The complex decision-making process involved in undertaking foreign operations requires an intimate knowledge of a country's commercial climate, along with a realization that the market is constantly evolving.
Reanda Malaysia provides the most feasible solutions in relation to the feasibility study on your investments, ownership structure, the investing jurisdiction etc. Awareness of the needs of the FDIs and contemporary knowledge of the latest regulations in a wide array of jurisdictions ensure that we play a huge role in ensuring tax minimization for our clients.
We offer a comprehensive range of services such as:
- Investment Structuring
This includes advisory services ranging from defining the ownership structure, the appropriate investing jurisdiction, the most suitable investment vehicle, comparative jurisdictional studies, analysis of tax incentives, etc
- Transaction Advisory
The overall objective is to ensure tax minimization and maximization of tax incentives. Examination of the varied tax implications and offering a structured solution is our forte.
- Registration With Regulatory Authorities
We also offer services relating to registrations or approvals with various Malaysian regulatory authorities.
- Regulatory and Compliance Related Services
Registration with the relevant authorities or obtaining approvals is just one of the services offered by us. In addition our range of regulatory services includes advice on tax issues, exchange control laws and other regulations, which are of concern to FDIs.
Reanda, a leader in professional services, understands the business issues that are important to FDIs. With extensive business knowledge and hands-on industry experience, we can implement a broad array of solutions to help FDIs capture growth, improve financial performance and manage risk.
We offer a full yet flexible range of audit and assurance, taxation, business process outsourcing and business advisory services. These include auditing, taxation advice, corporate finance, risk management, franchising, grants and incentives advice, finance and accounting outsourcing, HR support and much more.