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Malaysia Market

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Tips:Market:.ManufacturingThe Malaysian Investment Development Authority (MIDA) screens all proposals for manufacturing and r
 Market:.

 

Manufacturing

The Malaysian Investment Development Authority (MIDA) screens all proposals for

manufacturing and related projects in Malaysia, both foreign and domestic, to determine

the extent to which they contribute to the government’s goals and objectives. These

goals are outlined in the Third Industrial Master Plan (2006-2020), the various regional

initiatives (Iskandar Development Region and the Northern, Eastern, Sabah and

Sarawak Economic Regions) as well as the ETP and the 10MP.

Project approval depends on many other factors as well. MIDA may consider the size of

an investment, the export-orientation of production, the type of financing required (both

local and offshore), capital/labor ratio, the potential for technological diffusion into the

local economy, the ability of existing and planned infrastructure to support the effort, and

the existence of a local or foreign market for the output.  If both local and foreign firms

propose similar projects, the local firm will be given preference. All requests are handled

on a case-by-case basis. MIDA now has the authority to issue or renew licenses for all

manufacturing companies, eliminating a second layer of approval from its parent

ministry, the Ministry of International Trade and Industry (MITI). MIDA established an

on-site immigration unit in 2007 which has helped expedite the processing of expatriate

work visas. Applications for investment in sectors other than manufacturing are handled

by the relevant ministries and sometimes require multiple approvals.      

Investment regulations are specified in the Promotion of Investments Act of 1986 (PIA)

and the Industrial Coordination Act of 1975. The government pledged in 2004 to replace

the PIA with a more concise law covering investments in both manufacturing and

services, but has yet to do so. The PIA does not address services investment. Private

entities, both foreign and domestic, may acquire, merge with, and take over business

enterprises.  However, the acquisition or disposal of 5% or more of interests in any local

financial institution requires the prior approval of the Minister of Finance and Bank

Negara Malaysia (BNM, central bank).  The Malaysia Competition Commission (MyCC)

implements and enforces the provisions of the Competition Act 2010, issue guidelines in

relation to the implementation and enforcement of the competition laws, act as advocate

for competition matters; carry out general studies in relation to issues connected with

competition in the Malaysian economy or particular sectors of the Malaysian economy; inform and educate the public regarding the ways in which competition may benefit

consumers in, and the economy of, Malaysia.

Distribution Services, including Direct Selling and Retail Trade

Local companies that seek multi-level direct selling licenses require paid-in capital of RM

1.5 million ($423,700), while companies with foreign shareholders must have paid-in

capital of RM 5 million ($1.4 million). Malaysia no longer requires the licensing and

operation of direct selling companies to have 30% Bumiputra equity.

The Ministry of Domestic Trade’s "Guidelines on Foreign Participation in the Distributive

Trade Services" (www.kpdnkk.gov.my/kpdnkk-theme/images/pdf/WRT_Guideline.pdf)

that came into effect in December 2004 and were amended in 2010 prohibit foreign

involvement in supermarkets, mini-markets and convenience stores, general vendor

shops, news agents.  Foreign investment in hypermarkets, department stores and

superstores is allowed, subject to restrictions.  For example, the Guidelines require that

hypermarkets provide at least 30% equity for Bumiputra.  Hypermarkets, department

stores, and superstores must allocate at least 30% of total stock keeping units (SKUs)

displayed on the shelf space in their premises for goods and products manufactured by

Bumiputra-owned small and medium sized industries. The Guidelines also impose

restrictions on the number and location of hypermarkets. 

Regional Distribution Centers and International Procurement Centers (CPC 87909) were

two of the 27 service sectors from which the government removed 30% Bumiputra

ownership requirements in 2009.

Professional Services

Malaysia restricts foreign participation in professional services (other than "back office"

operations that support foreign business activities).

Legal Services

Liberalization in the legal services sector is expected to begin pending amendments to

relevant legislation.  It is expected that the changes will allow for the establishment of

joint ventures for permitted areas of practice.  The liberalization initiative, however, is

only applicable to Peninsular Malaysia, not the states of Sarawak and Sabah.  Currently,

foreign lawyers may not practice Malaysian law, nor may they affiliate with local firms or

use the name of an international firm.  Foreign law firms may not operate in Malaysia

except as minority partners with local law firms and their stake in any partnership is

limited to 30%.  The Attorney General has authority to grant limited exceptions on a

case-by-case basis under the law restricting the practice of Malaysian law to Malaysian

citizens or permanent residents who have apprenticed with a Malaysian lawyer, are

competent in Bahasa Malaysia (the official language), and have a local law degree or

are accredited British Barristers at Law, provided the applicant has seven years of legal

experience. Malaysian law does not allow for foreign legal consultancy except on a

limited basis in the Labuan International Offshore Financial Center (see section on

Financial Services” below).Architectural Services

The Malaysian government has announced that architectural services will be fully

liberalized, subject to amending existing legislation, to allow for 100% foreign ownership

in architectural firms in Malaysia.  At present, a foreign architectural firm may operate in

Malaysia only as a joint venture participant in a specific project with the approval of the

Board of Architects.  Foreign architects may not be licensed in Malaysia, but are allowed

to be managers, shareholders, or employees of Malaysian firms. 

Engineering Services

The Malaysian government has announced that engineering services will be liberalized

once pending amendments to relevant Acts have been passed by the Malaysian

Parliament.  At present, foreign engineers may be licensed by the Board of Engineers

only for specific projects and must be sponsored by the Malaysian company carrying out

the project.  In general, a foreign engineer must be registered as a professional engineer

in his or her home country, have a minimum of 10 years experience, and have a physical

presence in Malaysia of at least 180 days in one calendar year.  To obtain temporary

licensing for a foreign engineer, a Malaysian company often must demonstrate to the

Board that they cannot find a Malaysian engineer for the job.  Foreign engineers are not

allowed to operate independently of Malaysian partners or serve as directors or

shareholders of an engineering consulting company.  A foreign engineering firm may

establish a non-temporary commercial presence if all directors and shareholders are

Malaysian.  Foreign engineering companies may collaborate with a Malaysian firm but

only the Malaysian company may submit the plans for domestic approval.

Accounting and Taxation Services

The government announced in 2011 that by January 2012 foreign accountants and

auditors will be allowed to wholly-own a practice in Malaysia.  However, guidelines have

yet to be issued.  All accountants seeking to provide auditing and taxation services in

Malaysia must register with the Malaysian Institute of Accountants (MIA) before they

may apply for a license from the Ministry of Finance.  Citizenship or permanent

residency is required for registration with the MIA. 

Oil and Gas

Under the terms of the Petroleum Development Act of 1974, the upstream oil and gas

industry is controlled by Petroleum Nasional Berhad (Petronas), a wholly state-owned

company and the sole entity with legal title to Malaysian crude oil and gas deposits.

Foreign investment takes the form of production sharing agreements (PSAs). Foreign

operators include ExxonMobil, ConocoPhillips, Hess, Baker Hughes, Newfield, and

Murphy Oil from the U.S., as well as Royal Dutch Shell. Non-Malaysian firms are

permitted to participate in oil services either in partnership with local firms and are

restricted to a 49% equity stake if the foreign party is the principal shareholder.  Terms of

upstream projects with foreign participation are determined on a case-by-case basis by

Petronas. Electricity Generation and Distribution

Tenaga Nasional Berhad (TNB) is a state-owned electricity utility company that has a

monopoly on electricity distribution in Malaysia.TNB generates its own electricity and

purchases electricity from Independent Power Producers (IPPs) with power generation

plants located in Malaysia. Peninsular Malaysia is connected to an electricity grid with

Singapore and Thailand. Foreign investors are allowed to own up to 49% of an IPP or

power plant in Malaysia.

Telecommunications

Malaysia made limited WTO commitments on most basic telecommunications services

and partially adopted the WTO reference paper on regulatory commitments. Based on

Malaysia’s WTO commitments, currently foreign companies are entitled to acquire only

up to a 30% equity stake in existing licensed public telecommunications operators and

foreign participation is limited to facilities-based suppliers.  In certain instances Malaysia

has allowed greater than 30% equity participation in the telecommunications market, but

the manner in which such exceptions are administered is nontransparent and is

perceived by foreign suppliers as arbitrary.  In some cases, firms permitted to invest up

to a certain equity limit are subsequently asked to divest to lower foreign equity levels. 

However in April 2012, foreign companies will be allowed to have the license to be an

applications service, network facilities or network service provider.

The government also removed 30% Bumiputra ownership requirements from computer

hardware installation consultancy services (CPC 841), software implementation services

(CPC 842), data processing services (CPC 843), database services (CPC 844),

computer repair services (CPC 845), and other computer related services (CPC 849).

Broadcasting and Audio-Visual

The Malaysian government maintains broadcast content quotas on both radio and

television programming. At least 80% of television programming is required to originate

from local production companies owned by Bumiputras and 60% of radio programming

must be of local origin.  Foreign investment in terrestrial broadcast networks is prohibited

and is limited to a 20% equity share in cable and satellite operations.  As a condition for

obtaining a license to operate, video rental establishments are required to have 30%

local content in their inventories.

Advertising

Advertising falls under the purview of multiple ministries and agencies, complicating the

adoption of a single set of advertising regulations and enforcement procedures for all

stakeholders in this process. International firms have concerns about the lack of clear

and consistent advertising content guidelines, and how some advertisers misrepresent

their products and services through advertising. The Government of Malaysia has an

informal and vague guideline that commercials cannot “promote a foreign lifestyle.”

Foreign content in commercials in Malaysia is limited to 20%.  The Malaysian

government relaxed enforcement of regulations governing the appearance of foreign

actors in commercials shown in Malaysia in 2007.Financial Services

Malaysia restricts foreign investment in the financial services and insurance sectors, as

described below.

Banking

In 2009, the Malaysian government announced a liberalization package for the

conventional and Islamic financial sectors, but equity limits continue to broadly apply in

many areas.  Bank Negara Malaysia (BNM – Central Bank) sets controls on both foreign

and local financial products.  Interest rates on consumer savings accounts and fixed

deposits are mandated and significantly higher than in other Asian countries.  Fees on

transactions are determined by the Association of Banks, but they are not permitted to

vary these fees without BNM approval.  Credit card interest rates are capped at 18% per

annum. 

Foreign equity limits are 70% for domestic Islamic banks and 30% for domestic

conventional banks.  Foreign banks can own 100% of individually licensed banks that

the foreign bank opens in Malaysia.  BNM currently allows foreign banks to open four

additional branches throughout Malaysia, subject to restrictions, which include

designating how the branches can be set up (i.e., in market centers, semi-urban areas

and non-urban areas).  The policies do not allow foreign banks to set up new branches

within 1.5 km of an existing local bank branch.  Joint-ventures between foreign banks

and foreign insurers are not permitted, regardless of whether the companies are locally

incorporated.  Presently, foreign banks are also not allowed to open ringgit-based

Correspondent Bank Accounts with local banks due to concerns with local banks being

used as conduits for ‘branching’ by foreign banks. 

To attract multinational corporations to establish their treasury management services in

Malaysia, the Malaysian government announced in its 2012 Budget an income tax

exemption of 70% for 5 years; a withholding tax exemption on interest payments on

borrowings; and stamp duty exemption on loan and service agreements.  The

Government has extended a concessionary tax rate of 10% on dividends of noncorporate institutional and individual investors in Real Estate Investment Trusts through

December 2016.  The Government provides an income tax exemption of 100% for 10

years and stamp duty exemption on loan and service agreements for Kuala Lumpur

International Financial District status companies.

Insurance

The life insurance industry remains dominated by foreign providers, including some U.S.

firms, and domestic firms control the general insurance industry. As part of Malaysia’s

response to the 1997-1998 Asian financial crisis, all branches of foreign insurance

companies were required to incorporate locally. The 2001 Financial Sector Master Plan

set out a timeline for liberalization of the insurance industry in several phases. These

include increasing caps on foreign equity, fully opening the reinsurance industry to

foreign competition, and lifting existing restrictions on employment of expatriate

specialists. In 2009, foreign ownership limits were raised from 49% to 70% for branches

of foreign insurance companies. Reinsurance companies are required to do more than

50% of reinsurance in Malaysia and have 5% cession and local retention.  Investment Services

Foreigners are permitted to purchase a limited number of stockbrokerage licenses and

are allowed to take a majority ownership stake in unit trust management companies.

Malaysia allowed five foreign stock brokerage firms and one foreign fund management

company to set up operations in Malaysia. Maximum foreign ownership in domestic

Malaysian stock brokerage firms and unit trusts is 70%. There are no foreign equity

restrictions for fund management companies providing wholesale services and 70%

foreign equity unit trust management companies providing retail services and for stock

broking companies. Futures brokerage firms may be 100% foreign-owned.   International

fund managers have to go through a local fund provider, which then establishes a

feeder’ arrangement. 
 


Keyword: Malaysia Market

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