1 Give an overview of the country’s economy, its structure and main characteristics, and prevailing government economic policy, particularly as regards foreign investment.
Malaysia rooted its economy on its wealth of natural resources in agriculture and forestry and export of such commodities including rubber, tin, palm oil, petroleum and cocoa. Slowly, Malaysia diversified its economy by utilising natural resources and ventured into manufacturing sectors with separate sections on rubber-based products, palm oil products, electronics and electrical products. In 1983, Malaysia manufactured its first own national badged car company under the name of Proton and set in motion the country’s automotive industry.
From focusing on agriculture and primary commodities, Malaysia has evolved its economy into manufacturing, export and import, technology and services based industries. The latest economic blueprint for Malaysia is the Eleventh Malaysia Plan for 2016 to 2020, entitled Anchoring Growth on People.
The Malaysian Investment Development Authority (MIDA) was incorporated as a statutory body under the Malaysian Industrial Development Authority Act, primarily established to promote foreign and local investment in the manufacturing and services sectors in Malaysia.
On government policies, the Liberal Equity Policy allows foreign investors to hold 100 per cent of the equity in all investments in new projects. This also applies to expansion or diversification projects by existing companies where there is no limitation as to level of export or type of product or activity. Other policies include allowing foreign companies in manufacturing sector to employ expatriates professing skills not available in Malaysia. Foreign companies could also look for tax incentives provided for foreign investors under the Investments Act 1986 and the Income Tax Act 1967.
2 Describe the legal framework and legal culture in your jurisdiction as regards business and commerce.
Malaysia has a common law legal system largely influenced by its previous coloniser, Great Britain, with a written Federal Constitution as the supreme law of the land. The federal Constitution of Malaysia is modelled based on the Westminster system and in adhering with the principle of rule of law, adopted the doctrine of separation of powers in Malaysia similar to the English legal system in the United Kingdom. While there is no separation of executive and legislative power because of the cabinet type of organisation, administration in Malaysia follows constitution supremacy, which means every law and act passed and each decision by executives must be in accordance with the Constitution.
Within the purview of the Constitution, the Parliament of Malaysia is given power to pass codified law while the judiciary system applies and interprets the laws, where court judgments form common law applicable in Malaysia. The Malaysian courts have the power to declare any executive acts or laws passed as unconstitutional where the same will be treated as null and void, if such executive acts or laws passed violate the provisions of the Constitution.
The Malaysian Federal Constitution primarily governs the fundamental liberties of the citizen, federal and state relationship, the formation and powers of the legislative, executive and judicial branch of the country, as well as matters on citizenship and election. Where the matter does not involve these issues, in the interest of promoting the country’s economy, the laws in Malaysia are very business and commerce friendly where spirit of contracts are respected and the legislations are up to date to accommodate development in technology, including cyber law, electronic transactions law, data protection and legislation governing online contents. Further, the Malaysian Competition Act 2010 (CA 2010) came in force on 1 January 2012 to promote economic development by promoting and protecting the process of competition, encourage efficiency, innovation and entrepreneurship, promote competitive prices, improvement in the quality of products and services and wider choices for consumers.
While businessmen are familiar with the idea of solving their dispute by way of litigation, the judiciary of Malaysia has in recent years incorporated mediation as one its services to provide alternative mode of dispute resolution to the parties, where there are residing mediators in major courts’ offices of each state to assist parties in achieving amicable settlement. Another common dispute resolution method in Malaysia is by way of arbitration, generally governed by the Malaysian Arbitration Act 2005. In 2011, the Arbitration (Amendment) Bill 2010 was passed to promote and encourage arbitration. Among other things, the amendments passed in this bill limits court intervention and to discourage the use of inherent powers, and that no reference on a question of law is allowed unless the question of law substantially affects the rights of one or more of the parties. After the amendment, the grounds allowed under section 10 of the Arbitration Act for the court to refuse an application to stay a court proceeding for the existence of an arbitration agreement have also been reduced to just one (ie, that if the arbitration agreement is null and void, inoperative or incapable of being performed).
3 What are the main sources of civil and administrative law applicable to companies?
The main sources of civil and administrative law applicable to companies in Malaysia are as follows:
- the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001;
- the Central Bank of Malaysia Act 2009;
- the Communications and Multimedia Act 1998;
- the Companies Act 2016;
- CA 2010;
- the Contracts Act 1950;
- the Copyright Act 1987;
- the Electronic Commerce Act 2006;
- the Employment Act 1955;
- the Financial Services Act 2013;
- the Income Tax Act 1967;
- the Industrial Designs Act 1996;
- the Industrial Relations Act 1967;
- the Insovlency Act 2017;
- the Patents Act 1983;
- the Personal Data Protection Act 2010;
- the Real Property Gains Tax 1976;
- the Sales of Goods Act 1957;
- the Sales Tax Act 2018;
- the Service Tax Act 2018; and
- the Trade Marks Act 1976.
4 How does the court system operate with regards to large commercial disputes?
There are two tiers of courts of first instance in Malaysia: the High Courts and the subordinate courts. The High Courts have unlimited jurisdiction to hear all matters. Generally, matters involving monetary claims amounting to 250,000 ringgit and above are to be commenced in the High Courts.
In most branches of the High Courts within Malaysia, actions commenced in the civil High Courts are streamlined into broad categories (ie, commercial and non-commercial matters as well as disputes relating to intellectual property (IP), construction, medical negligence, Islamic shariah banking principles or family law). Each action will then be channelled to the relevant High Court division.
This classification allows some level of specialisation among judges sitting in those courts; and aids consistency in decisions within specific areas – particularly those that require some technical knowledge such as construction, Islamic shariah banking and IP disputes.
5 What legal recourse do consumers typically have against businesses?
Pursuant to the Consumer Protection Act 1999 (CPA 1999), consumers who are not satisfied with goods or services supplied by businesses may file a claim at the Tribunal for Consumer Claims (Tribunal). This Tribunal is an independent body that provides consumers with an alternative avenue for claims to be heard and determined in a less costly and more time efficient manner.
Subject to the jurisdiction and limitations set out in the CPA 1999, the Tribunal has jurisdiction to hear claims:
- not exceeding 25,000 ringgit, unless otherwise agreed by the parties; and
- such claims must be premised upon a cause of action that accrued within three years from the claim.
The features pertaining to the Tribunal that are worth highlighting are as follows:
- The parties may not be represented by counsel.
- The Tribunal is required to make its award without delay and, where practicable, within 60 days from the first day of hearing.
- An award made or a settlement recorded by the Tribunal is deemed to be an order of the magistrates’ court and can be enforced by any party to the proceedings.
- Claims that do not fall within the jurisdiction of the Tribunal will have to be commenced in the Malaysian court.
6 How significant is arbitration as a method of dispute resolution?
Arbitration is commonly used in Malaysia as an alternative method of dispute resolution. The Kuala Lumpur Regional Centre for Arbitration (KLRCA) has reported a steady increase in its caseload over the years. Prior to 2010, the number of cases registered with KLRCA was in the range of 10 to 20 cases per year. In 2015, KLRCA registered 103 cases; and in 2016, there were 62 cases registered with KLRCA.
The increase in popularity may be due to recent developments, such as legislative updates to the Arbitration Act 2005, which introduced limits to judicial interference.
The courts generally adopt a supportive attitude towards arbitration, particularly in upholding arbitration agreements and in enforcing arbitral awards.
The KLRCA has introduced a set of procedural rules known as i-Arbitration Rules, which are the first of their kind in the world. These rules are suitable for disputes arising out of an agreement premised on the principles of shariah.
7 What other methods of dispute resolution are commonly used?
Other methods of dispute resolution that are commonly used in Malaysia are mediation and adjudication.
Mediation: It has now become a practice in court for the trial judge to ask if parties are interested to attempt mediation in court before proceeding to trial. In order to facilitate an amicable settlement between parties, mediation centres have been set up in most courts. The mediators at these centres are usually assigned at random and may be a court registrar or a judge. This is a more economical option as the parties are not required to pay the mediator any fees. Alternatively, parties may opt to attempt mediation via KLRCA, whereby they will have the liberty to appoint a mediator based on his or her training, qualification and background.
Adjudication: A speedy method of dispute resolution is now available to parties in a construction related dispute. The Construction Industry Payment and Adjudication Act 2012 (CIPAA) was enacted on 15 April 2014 with an aim to improve and to facilitate cash flow and payment disputes within the construction industry. Since the enactment of the CIPAA, the number of registered adjudications has increased from 29 cases in 2014 to 447 cases in 2016. This demonstrates the rapid growth in the use of adjudication in Malaysia.
8 How easy is it to have foreign court judgments and foreign arbitral awards recognised and enforced in your jurisdiction?
Foreign court judgments can be enforced in Malaysia either under:
- the Reciprocal Enforcement of Judgments Act 1958 (REJA), which applies to judgments which originate from a superior court of a country listed under the REJA (ie, United Kingdom, Singapore, Hong Kong Special Administrative Region of the People’s Republic of China, New Zealand, Republic of Sri Lanka (Ceylon), India (excluding certain states) and Brunei Darussalam); or
- common law, for judgments that originate from a country or court that is not listed in the REJA.
Generally a foreign judgment in Malaysia can be enforced, unless it is shown that such a judgment is not final and conclusive or that the foreign court did not have jurisdiction to try the dispute.
As regards the enforcement of foreign arbitral awards, the Arbitration Act 2005 sets out limited circumstances in which a court may refuse such enforcement. In this connection, section 39 of the Arbitration Act 2005 includes the criteria set out in article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and article 36 of the UNCITRAL Model Law on International Commercial Arbitration 1985.
It appears that the courts in Malaysia have taken a cautious approach in limiting judicial interference in foreign arbitral awards; and the enforcement thereof will only be refused in limited circumstances.
Foreign investment and trade
9 Outline any relevant treaty organisations, economic or monetary unions, or free trade agreements.
Malaysia is a party to a multitude of treaty organisations and economic or monetary unions, including but not limited to the following:
- Asia-Pacific Economic Cooperation;
- Association of Southeast Asian Nations (ASEAN);
- Commonwealth of Nations;
- International Chamber of Commerce;
- International Finance Corporation;
- International Trade Union Confederation;
- Organisation of Islamic Cooperation;
- United Nation;
- United Nations Conference on Trade and Development;
- World Federation of Trade Unions;
- World Intellectual Property Organization ;
- World Trade Organization.
Malaysia participates actively in regional economic arrangements such as the ASEAN Free Trade Area. Malaysia is also pursuing regional and bilateral trading arrangement to complement the multilateral approach to trade liberalisation, including most notably as below.
Bilateral free trade agreements (FTA)
Date of entry into force
Malaysia–Japan Economic Partnership Agreement
13 July 2006
Malaysia–Pakistan Closer Economic Partnership Agreement
1 January 2008
Malaysia–New Zealand FTA
1 August 2010
Malaysia–India Comprehensive Economic Cooperation Agreement
1 July 2011
25 February 2012
1 January 2013
1 August 2015
Date of entry into force
1 July 2003
1 July 2006
ASEAN–Japan Comprehensive Economic Partnership
1 February 2009
ASEAN–Australia–New Zealand FTA
1 January 2010
1 January 2010
ASEAN Trade In Goods Agreement
17 May 2010
10 Are foreign exchange or currency controls in place?
Yes, foreign exchange control in Malaysia is implemented under the Financial Services Act 2013 (FSA) and administered by the Central Bank of Malaysia (BNM). The BNM is also referred to as the Controller of Foreign Exchange in some of the written laws in Malaysia. The FSA replaces both the Banking and Financial Institutions Act 1989 and the Exchange Control Act 1953.
Malaysia continues to maintain liberal Foreign Exchange Administration (FEA) rules, which are mainly prudential measures to support the overall macroeconomic objective of maintaining monetary and financial stability. The FEA rules are issued by the BNM pursuant to the FSA. These FEA rules set out the prudential measures governing the monetary and financial rules applicable to both ‘residents’ and ‘non-residents’. The latest version of the FEA rules can be found on the BNM’s website at www.bnm.gov.my.
The definition of ‘resident’ and ‘non-resident’ can be found in section 213 of the FSA, which basically differentiates between local entities and foreign entities.
In short, residents are free to undertake any amount of investment in foreign currency assets offered in Malaysia, whereas non-residents are free to invest in any form of ringgit assets either as direct or portfolio investments. Non-residents are also free to remit out divestment proceeds, profits, dividends or any income arising from investments in Malaysia; however, repatriation must be made in foreign currency. non-residents are free to obtain and issue, respectively, foreign currency financing from licensed onshore banks and foreign currency denominated sukuk or bonds, to be used in and outside Malaysia.
11 Are there restrictions on foreign investment?
Generally, foreign persons are allowed to fully own businesses in Malaysia. However, each industry has its respective sector regulations issued by the relevant government departments to govern the extent of foreign shareholding. Specific equity conditions may also be imposed for specific approvals, operating licences, permits or registrations by the regulating ministries or agencies, depending on the activities undertaken.
The main industries where restrictions are imposed on foreign equity holding (which require a minimum local indigenous people or bumiputera ownership to be fulfilled) are:
- financial services;
- capital markets services;
- insurance and takaful industry;
- oil and gas;
- telecommunications and multimedia;
- wholesale and distributive trade (in respect of hypermarket);
- education services;
- freight forwarding and shipping;
- energy supply; and
- professional services.
However, on 22 April 2009, the Malaysian government decided to immediately liberalise 27 services sub-sectors, with no equity condition imposed, to attract more foreign investments. These sub-sectors include the areas of health and social services, tourism services, transport services, business services computer and related services. Shortly thereafter, the Malaysian government announced further measures to liberalise an additional seven broad services sectors in 2012 to allow up to 100 per cent foreign equity participation in phases, which include telecommunication, healthcare services, professional services, environmental services, distributive trades services, education services and courier services.
Furthermore, the Malaysian government has also taken various steps to lift restrictions on foreign participation in the manufacturing industry in Malaysia. Foreign investors are now allowed to hold 100 per cent equity ownership in new investments in the manufacturing industry, including investments for expansion and diversification by existing licensed manufacturers and this move allows foreign manufacturers to compete in the domestic market.
12 Are there grants, incentives or tax reliefs for foreign investors or businesses?
In Malaysia, tax incentives (both direct and indirect) are provided for in the Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972, Excise Act 1976 and Free Zones Act 1990. The direct tax incentives grant partial or total relief from income tax payment for a specified period, while indirect tax incentives are in the form of exemptions from import duty, sales tax and excise duty.
The Malaysian government generally encourages foreign investment, therefore a wide range of incentives are available to certain industries, such as manufacturing, biotechnology, energy conservation, agriculture, tourism (including hotel) and approved services sectors as well as research and development, training and environmental protection activities. Incentives that are more prevalent include pioneer status, investment tax allowances, accelerated capital allowances and reinvestment allowances.
For example, pioneer status may be granted to all companies participating in a promoted activity or producing a promoted product. This originally covers four main sectors, namely manufacturing, agricultural, hotel and tourism. Subsequent amendments to the Promotion of Investments Act 1986 have then expanded the scope to include certain commercial sectors connected to manufacturing, which are research and development and technical or vocational training.
The most outstanding advantage of acquiring pioneer status is the total or partial exemption from income tax for a period of five years, and the tax relief period may be extended for a further five years for certain manufacturing activities. The exempt income is credited to the exempt account from which exempt dividends are distributed to the shareholders of the company.
Alternatively, a company may apply for investment tax allowance, which provides an allowance of 60 to 100 per cent on its quality capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred.
The relevant authority that processes the application of the said incentives is MIDA.
13 What are the main taxes that apply to cross-border or foreign-owned business and investors?
Essentially, resident and non-resident companies conducting business and earning taxable income in Malaysia are taxed on income earned in or derived from Malaysia (ie, the corporate income tax). A company is considered as a resident company in Malaysia for tax purposes if, at any time during the tax year, management and control of its business or affairs are exercised in Malaysia. In practice, the place where the directors’ meetings are held is usually treated as the place where the management and control of the business are exercised. The corporate chargeable income tax rate for the year of assessment 2017–2018 is 24 per cent.
In addition, real property gains tax is charged on gains arising from the disposal of real property, which includes land, buildings or shares of Real Property Company (ie, a company where 75 per cent of its tangible assets are in properties).
Withholding tax is imposed on payments to non-residents in respect of (i) interest, royalties, payment to non-resident contractors, consultants or professionals having a permanent establishment in Malaysia; (ii) remuneration of a public entertainer, payment for use of property or installation or operation of plant and machinery, technical fees; as well as (iii) rent on moveable property. However, it is not imposed on dividends paid to foreign investors.
14 Which industry sectors are regulated or controlled by the government?
The Malaysian government regulates and controls among others, three main industries (ie, energy, oil and gas and financial industries):
- the energy industry is regulated by the Energy Commission;
- the oil and gas industry is regulated by the Petroleum Development Act 1974 and Gas Supply Act; and
- the financial industry is governed by the FSA 2013.
15 Who are the key industry regulators, and what are their powers?
The key regulator for energy industry is the Energy Commission, which is a statutory body established under the Energy Commission Act 2001 and is responsible for regulating the energy sector, particularly the electricity supply and piped gas supply industries in Peninsular Malaysia and Sabah. Sarawak Energy Berhad is a company wholly owned by the state government of Sarawak, responsible for the generation, transmission and distribution of electricity for the state of Sarawak.
In the oil and gas industry, the key industry regulators are Petroliam Nasional Berhad (PETRONAS), Ministry of Domestic Trade and Consumer Affairs (MDTCA) and the Ministry of International Trade and Industry (MITI). MDTCA has the authority to issue licenses for the marketing and distribution of petroleum and petrochemical products. While PETRONAS regulates all the activities in the upstream petroleum sector, MITI regulates all the activities in the downstream sector.
With regard to financial industry, Bank Negara Malaysia (BNM) is the key regulator. It owns and operates the Scripless Securities Trading System, which effects and records movements and settlement of all Malaysian government securities and scripless private debt. It also oversees the monetary policies and ensure financial stability of the country and is entrusted with the role of administering and implementation of the Banking and Financial Institutions Act 1989 (repealed with Financial Services Act 2013).
16 What are the other main enforcement authorities relevant to businesses?
The other business-related main enforcement authorities are set out as follows:
Competition among business owners is monitored by the Malaysia Competition Commission (MyCC) established under the Competition Commission Act 2010. MyCC’s main role is to safeguard the process of free and fair competition in the commercial markets for the benefit of consumers, business efficiency and the improvement of the economy in general.
The Inland Revenue Board of Malaysia, which was established under the Inland Revenue Board of Malaysia Act 1995, acts as an agent of the government to provide services in administering, assessing, collecting and enforcing payment of various taxes and duties as may be agreed between the government and the Board. The Board also serves to advise the government on tax-related matters.
The Malaysian Anti-Corruption Commission is an independent body incorporated under the Malaysian Anti-Corruption Commission Act 2009, which manages, investigates and prosecutes corruption in the public and private sectors.
The Department of Personal Data Protection (DPDP) is an agency under the Ministry of Communications and Multimedia, which was established on 16 May 2011. The DPDP is headed by the Director General cum Commissioner, who is charged with the carrying out the functions and powers assigned to the Commissioner under the Personal Data Protection Act 2010 (PDPA). The PDPA was passed by the Parliament to focus on the processing of personal data in commercial transactions and to any avoid of misuse and abuse of personal data. The main obligation of the DPDP is to enforce and regulate the PDPA.
The Companies Commission of Malaysia (CCM) serves as an agency to, among other things, regulate matters relating to corporations, companies and businesses in relation to laws administrated as well as to provide company and business information to the public.
17 On which areas have regulators particularly focused their recent enforcement activities?
Malaysian regulators have recently focused on their enforcement activities in battling money laundering and terrorism financing. Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA), which was gazetted on 5 July 2001 and came into force on 15 January 2002 was introduced to curb this phenomenon.
AMLA provides for the offences of money laundering and terrorism financing and the measures to be undertaken to prevent money laundering and terrorism financing offence. All reporting institutions such as the banking sector, insurance sector and money services business sector are required by law to undertake preventive measures to prevent their institutions from being used as a conduit for money laundering and terrorism financing activities. The preventive measures include conducting risk assessment, application of customer due diligence, submission of suspicious transaction reports and cash threshold reports, maintenance and retention of records of transactions and implementation of Anti-Money Laundering and Counter Financing of Terrorism compliance programme that is reflective of the reporting institutions’ money laundering and terrorism financing risk profile.
18 What are the principal bribery, corruption and money laundering concerns for businesses?
Malaysian anti-corruption and anti-bribery are largely regulated by the Malaysian Anti-Corruption Commission Act 2009. Bribes may be in any form, monetary or otherwise; whereas corruption is generally defined as the abuse of entrusted power for a private gain and the act of giving or receiving of any gratification or reward in the form of case or in-kind, irrespective of value for performing a task in relation to one’s job description.
On the other hand, anti-money laundering is primarily covered by the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AML). Under this legislation, money laundering is generally defined as the act of any person who engages in a transaction that involves the proceeds of any unlawful activity or deals, conceals, disguises or impedes the establishment of the true nature, origin or other critical details of the proceeds of unlawful activities.
Non-compliance with AML constitutes an offence under the AML and may result in a fine of not less than five times the sum or value of the proceeds of an unlawful activity or imprisonment for a term up to 15 years.
19 What are the main data protection and privacy risks for businesses?
Different businesses collect different set of data in relation to their businesses. However, all businesses collect personal data on their employees. Handling the data of employees is now one of the main risks for businesses so that the DPDP has in a proposal paper [No. 3/2014], entitled ‘Guide On The Management of Employee Data Under Personal Data Protection Act 2010 (PDPA)’, advised that employers revisit their approaches and contracts related to employment, including putting in place the necessary mechanisms and processes to comply with the seven principles of the PDPA.
The seven principles of the PDPA are set out below.
The General Principle prohibits a business from processing an employee’s personal data except with the employee’s consent.
While there are provisions in the PDPA providing exemption to the requirement of obtaining consent to qualify for exemption, a business must now evaluate and determine what information is absolutely necessary for the discharge of both its duty as employer and the employees’ duties and obligations to avoid excessive data collection. This may create more work for the employer.
To comply with the General Principle, it is best that businesses:
- obtain consent from the employees when collecting normal personal data; and
- obtain explicit consent when collecting sensitive personal data, which are data on the physical, mental health or condition, the political opinions, religious beliefs or other similar beliefs of an employee.
Notice and Choice Principle
Under this principle, businesses must ensure that employees receive an appropriate notice on:
- the nature of the information collected;
- whether the information would be shared with a third party; and
- the fact that the employee has the right to access the information collected.
Businesses should exercise caution when it comes to sharing of employees’ personal data with third parties, in particular the associate or sister companies that belong to the same group, as the PDPA provides that a data user may not share data with third parties unless the consent of the individual is obtained.
Businesses are responsible for ensuring that adequate security measures are in place to protect the employees’ information in its control, including the place and location of the storage, security measures incorporated into any equipment used as well as access procedures by personnel to personal data of the employees.
Businesses must take measures to securely destroy the personal data whenever they are no longer required for the purpose for which they were processed. However, businesses should also take note of obligations imposed by other laws on the requirement of retaining data of its employees even after the cessation of employment, such as section 61 of the Employment Act 1955, which provides that employers shall keep information registers of their employees for a period not less than six years.
Data Integrity Principle
Businesses must also take the necessary measures to ensure that all personal data is accurate, complete, not misleading and kept up to date.
Businesses must provide channels for employees to access to their information so that the employees can check accuracy and completeness of their own information.
Furthermore, if the business collects personal data on its customers, the above seven principles of the PDPA also apply to such personal data.
20 What are the main anti-fraud and financial statements duties?
The auditor’s responsibilities relating to fraud in an audit of financial statements are governed by the International Standard on Auditing (ISA) 240, ‘The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements’ read in conjunction with the International Standard on Auditing (ISA) 200, ‘Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing’.
Fraud in an audit of financial statements occurs when there is an intentional misstatement in the financial statements. It can be misstatement resulting from fraudulent financial reporting and misstatement resulting from misappropriation of assets.
Those charged with governance of the entity (ie, the person or organisation with responsibility for overseeing the strategic direction of the entity and obligation related to the accountability of the entity, which includes overseeing the financial reporting process) and the management shall have the primary responsibility for the prevention and detection of fraud. The management, with oversight of those charged with governance, shall place a strong emphasis on fraud prevention in order to reduce opportunities for fraud to take place and persuade individuals not to commit fraud because of the likelihood of detection and punishment.
In accordance with the ISA, an auditor also has the responsibility to obtain reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether arising from fraud or mere error. In that connection, a professional auditor ought to be able to recognise and detect the possibility that a material misstatement owing to fraud could exist.
21 What are the main competition rules companies must comply with?
Businesses need to comply with the CA 2010 to ensure the way businesses are conducted does not to infringe the various anticompetition prohibitions under the CA 2010.
The CA 2010 applies to any commercial activity by any businesses within and outside Malaysia that affects competition in any market in Malaysia; save for those commercial activities exempted by the CA 2010 in Schedule 1. These are mainly business activities regulated under the Communications and Multimedia Act 1998, the Energy Commission Act 2001 and the Petroleum Development Act 1974 as well as the Petroleum Regulations 1974, upstream activities only.
The regulator of the CA 2010 is the MyCC. There is no merger regime in Malaysia yet.
Section 4 of the CA 2010 prohibits horizontal agreements and vertical agreements between businesses that has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services.
‘Significant’ means the agreements must have more than an inconsequential impact to the relevant market. One factor is the combined market share of those participating in such an agreement. In general, anticompetitive agreements will not be considered ‘significant’ if:
- the parties to the agreement are competitors who are in the same market and their combined market share of the relevant market does not exceed 20 per cent; or
- the parties to the agreement are not competitors and all of the parties individually have less than 25 per cent in any relevant market.
Types of anticompetitive agreements
The CA 2010 deems certain specified horizontal agreements (fixing prices, fixing of trading conditions, market sharing or sharing of sources of supply, limiting or controlling production, market outlets or access, technical or technological development or investment or bid rigging dividing markets, limiting production or supply) as anticompetitive.
Horizontal agreements that facilitate information (price or non-price) sharing, restrict advertising, serve as a barrier to new entrants to the market and the standardisation of agreements to set new standards or to sell new products will be investigated and may potentially be found to be anticompetitive.
MyCC has also made it clear that it takes a strong stance against vertical agreements involving price restrictions such as setting minimum resale price, maximum price or even recommend retail price that serve as a focal point for downstream collusion, which it considers to be anticompetitive.
Other non-price vertical agreements such as tying and bundling agreements, exclusive distribution agreements covering a geographic territory, exclusive customer allocation agreements as well as up-front access payments conditions may give also rise to anticompetition concerns under section 4 of the CA 2010.
Abuse of dominant position
Section 10 of the CA 2010 addresses the conduct of dominant businesses. A business is in a dominant position if it has what is termed as ‘market power’ or if it possesses ‘such significant power in a market to adjust prices or outputs or trading terms, without effective constraint from competitors or potential competitors’.
In general, a market share above 60 per cent will be considered by MyCC as indicative of dominance. The CA prohibits businesses from engaging in any conduct which amounts to an abuse of a dominant position such as imposing an unfair purchase or selling price, limiting or controlling production, market outlets or market access, refusing to supply, applying discriminatory conditions that discourage new market entry, engaging in predatory behaviour towards competitors.
Market share in itself is not regarded as conclusive of dominance. Dominance shall be assessed in terms of the business’ ability to act without concern about competitors’ responses or ability to dictate the terms of competition in a market in Malaysia. Other factors such as barriers to entry, countervailing buyer power, etc, may also be used in the assessment of dominance.
There are two main types of abuse:
- exploitative conduct – a conduct that exploit consumers knowing that there are no new entrants or competitors resulting excessive profits. For example, setting high prices where there are no competing products, tying other products to products in dominant market position are not a reward for innovation; and
- exclusionary conduct – a conduct that prevents equally efficient competitors from competing. For example, predatory pricing, price discrimination, exclusive dealing.
Consequences of infringement
Businesses found to have violated the provision of the CA 2010 may be ordered to stop the conduct in question immediately and to take steps to bring such violation to an end. Additionally, such businesses are liable to a fine of up to 10 per cent of its worldwide turnover for the period during which the violation occurred and may also be required to change its business practices in a manner materially adverse to its present business model. Directors, CEOs, COOs and managers may also be severally and jointly held liable with penalty of hefty fines or imprisonment for obstruction of investigations.
Private individuals who suffered loss or damage as a result of the violation may bring a private action against the business. Such private action can be taken even if MyCC does not investigate or prosecute the business, or if MyCC finds in favour of the business after its investigations and could potentially result in an award of damages that exceeds the amount of the fines imposed by MyCC.
22 Outline the corporate governance regime.
It is important to note that the Companies Act 2016 (CA 2016) itself is a recent development on the corporate governance regime in Malaysia. The objective of the CA 2016 is to enhance corporate governance regime and responsibilities in relation to the affairs of the directorship of a company and strengthen the corporate governance structure through refinement of auditors’ role and responsibilities. The CA 2016 provides for the legal duty and role of the directors, which is a codification of the common law principles on directors’ duties and at the same time firmly establishes a certain degree of transparent governance within a company. Among other fundamental administrative and self-regulatory regimes of a company, the CA 2016 also stipulates the power of members and the role of the auditors.
The outline of the new corporate governance regime under the CA 2016 includes:
- clarifying the relationship between the board of directors and shadow directors;
- clarifying the minimum age for directorship, that is, 18 years old and abolishing the maximum age for directorship;
- appointment or re-appointment of directors will be based on their qualifications and merits;
- restructuring the rules pertaining to the appointment, resignation and removal of directors;
- stricter rules relating to directors’ remuneration:
- members’ agreement will be required for remuneration of directors’ of public companies;
- members will have the right to inspect the contract of service for directors’ of public companies; and
- only disinterested members can approve payment for loss of office for directors’ of public companies;
- requiring any payment for loss of office of directors of public companies to be approved by disinterested members;
- clarifying the rules relating to exemption and indemnification of directors’ and officers’ or auditors’ liability;
- enhancing the rules relating to disqualification of director; and
- significantly increased sanctions for breaches of directors’ duties.
With regard to public listed companies in Malaysia, other than the public listing requirement and rules imposed by Bursa Malaysia Berhad (Bursa), Securities Commissions of Malaysia has recently released the Malaysian Code on Corporate Governance 2017 (MCCG 2017). MCCG 2017 introduces substantial changes and recommendations with a view to raising the standards of corporate governance of companies in Malaysia. Although the MCCG 2017 is targeted at public listed companies, all companies including state-owned enterprises, small and medium-sized enterprises and licensed intermediaries are encouraged to comply with MCCG 2017.
One of the key features of MCCG 2017 is that the retention of an independent director above nine years will require shareholders’ approval whereas retention of an independent director above 12 years will require shareholders’ approval through the two-tier voting process, namely with ‘Large Shareholders’ (as defined therein) having to approve such appointments, and thereafter having to be approved by non-Large Shareholders. Under MCCG 2017, higher requirements for shareholders’ participation and engagement with the board at general meeting are introduced.
23 Can business entities incur criminal liability? What are the sanctions for businesses, related companies and their directors and officers for wrongdoing and compliance breaches?
Yes, as a company is recognised as a separate legal entity, it may be criminally liable under certain legislations in Malaysia. The main difference between an individual offender and a corporate entity is with regard to the issue of sanctions, for instance, a company cannot be imprisoned. The sanctions that can be imposed on a company under criminal law would involve fines and compounding and such sanctions must be specifically provided under the relevant legislation.
A company and all its officers can be criminally liable under numerous sections under the CA 2016, for instance, a director who makes the solvency statement as required under the CA 2016 without having reasonable grounds for the opinion commits a criminal offence and could be liable on conviction to imprisonment not exceeding five years or to a fine not exceeding 500,000 ringgit, or both.
With regard to punishment or sanctions in the context of corporate involvement, it is important to note that CA 2016 being the new law imposes heavier penalties and longer terms of imprisonment on directors. Among the heaviest is the improper use of property and position by a director to gain a benefit for him or herself or to cause detriment to the company can result in up to a five-year imprisonment or up to a 3 million ringgit fine, or both upon conviction. This serves as a stronger deterrent against improper behaviour and practices by directors.
In addition, a company and its officers may also be charged with criminal offence under the Environmental Quality Act 1974 and Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.
24 What types of business entity are most commonly used by foreign investors and why? What are the main requirements for their establishment and operation?
The types of business entity that are available in Malaysia are as follows: a partnership, sole proprietorship, company limited by shares, company limited by guarantee, unlimited company, branch of a foreign company and a limited liability partnership.
The most common business entity used by the foreign investor is the private company limited by shares. A private company is identified as a Sendirian Berhad or Sdn Bhd.
The shareholders have limited liability and will not be personally liable for the debts and losses of the company.
The basic legal requirements for incorporation of a private company limited by shares are as follows:
A private company limited by share must include the words ‘Sendirian Berhad’ or ‘Sdn. Bhd.’ at the end of its name.
A minimum of one director
• ordinarily resides in Malaysia by having a principal
• natural person who is at least 18 years old;
• the director shall not resign if by his resignation, the
• not be someone who has been or will be disqualified
One (1) subscriber (or initial shareholder) is required to hold shares in the company for purpose of incorporation.
Company secretary at the point of incorporation is optional.
However, the appointment of the first company secretary must be made within 30 days from the date of the incorporation of the company.
All shares issued shall have no par value.
No authorise share capital is required.
A company may or may not have a constitution.
It is not a mandatory requirement for a company to adopt a constitution unless the company wishes to issue preference shares or has different classes of shares.
Capacity of the company
No ‘object clauses’ required if the company decided not to adopt a constitution for the company.
The company has unlimited capacity and will be capable of exercising all the functions of a body corporate and have full capacity to carry on or undertake any business or activity or enter into any transactions.
It is important to note that the new CA 2016 simplifies the requirements for incorporating a company by requiring only one subscriber and one director. Under the CA 2016, the mandatory annual general meetings for private companies have been abolished, together with the existing par value regime. Nevertheless, a company is still required to lodge financial statements with the CCM. The new regime under CA 2016 helps ease the administrative process for these private companies, particularly for those which are either wholly owned or owned by only a small number of shareholders.
The information required for setting up a new company in Malaysia under the Super Form (ie, the main application form for registration of a company in Malaysia), among others, are as follows:
- name of the new company;
- status of private or public company;
- nature of the business;
- proposed registered address;
- number of shares and types; and
- details of the proposed directors, shareholders and company secretary (if any).
The application for company’s incorporation in Malaysia can be done through the MyCoID 2016 online system. The CCM will issue the notice of registration via email to the company once it has been completed and approved. The notice of registration is a conclusive evidence, which indicates that a new company has been successfully incorporated in Malaysia and business may be commenced immediately, subject to the necessary licences for the business.
25 Describe the M&A market and the merger control regime. How easy is it to complete deals in your jurisdiction?
In Malaysia, takeovers, mergers and acquisitions are primarily governed by the Capital Markets and Services Act 2007, the Malaysian Code on Take-overs and Mergers 2016 (Code) and the Rules on Take-Overs, Mergers and Compulsory Acquisitions 2016. The Code sets out the general principles that shall be observed and complied with by all persons engaged in any takeover or merger transaction and is applicable when the target company is (i) a public company whether or not it is listed on any stock exchange and any other entity as may be prescribed in the Code; (ii) an unlisted Malaysian public company with more than 50 shareholders and net assets of 15 million ringgit or more; (iii) a business trust listed on Bursa; and (iv) a real estate investment trust listed on Bursa.
However, there is no merger control regulation for private companies. It is also worth noting that, although there is no merger control regime under the Competition Act, it prohibits anticompetitive practices and abuse of dominant market position.
On a separate note, some industries require operating licences whereby approval from a sectoral regulator may be required in connection with a takeover offer. For example, the acquisition and disposal of 5 per cent or more of the issued share capital of a financial institution or its controller are subject to the prior approval of the Minister of Finance and BNM.
In addition, the CA 2016 also incorporated amendments which indicate the Malaysian government’s intention to simplify the requirements of running a business in Malaysia in order to attract foreign investment, which by extension, will include mergers and acquisitions. As discussed above, more tax incentives are also given to foreign investors in certain sectors. This is likely to stimulate deal-making.
26 Outline the corporate insolvency regime. Is bankruptcy protection available for corporates?
The enforcement of the CA 2016 introduces two new insolvency processes as new corporate rescue mechanisms - judicial management and corporate voluntary administration.
Under judicial managements, the company, its directors or a creditor are allowed to apply to court to place the company’s management into the hands of a qualified insolvency practitioner known as a ‘judicial manager’. A judicial management order will direct the affairs, business and property of the company to be managed by the judicial manager for the period from when the order is enforced, which is six months, with the possibility of a further six-month extension.
From the time the application is made until the duration of any judicial management order given, a moratorium will be in force to prevent any winding up order or any other legal proceedings against the company without the leave of court, including enforcement proceedings by secured creditors. The responsibility of the judicial manager is to prepare and present a restructuring plan for creditor approval and, upon approval by 75 per cent in value of creditors whose claims have been accepted by the judicial manager, to oversee its implementation. The judicial manager has certain powers akin to that of a liquidator in a winding-up procedure, and like a liquidator, is also subject to a degree of control and supervision by the court.
In respect of CVA, the directors of a private company may propose a debt restructuring proposal to revive the financial status of the company.
The proposal for a CVA has to be accompanied by a statement of an insolvency practitioner who has agreed to act as a nominee indicating whether or not, in his or her opinion, the debt restructuring proposal has a reasonable prospect of being approved and implemented and whether the company is likely to have sufficient funds available for the company during the proposed moratorium to enable the company to carry on its business.
If the nominee provides a positive statement regarding the proposed CVA, the directors can file with the court a document setting out the terms of the proposed CVA and other necessary documents such as a statement of the company’s affairs, a statement that the company is eligible for moratorium and a statement from the nominee that he or she has given his or her consent to act.
In order for the proposed CVA to be approved, a meeting of creditors and members must then be convened by the nominee in which a simple majority of creditors present and voting must approve the scheme and at least 75 per cent in value of the creditors present and voting must approve the scheme.
If a CVA is approved, the company may then apply for a moratorium of between 28 and 60 days during which the company cannot be wound up, no judicial manager can be appointed and no shares can be transferred.
27 How easy is it to enter into and terminate employment contracts?
In Malaysia, it is easy to enter into employment contracts.
Although termination of an employee can be done (eg, pursuant to the terms of the employment contract), the employers are generally cautious in doing so.
After every termination of employment, regardless whether it is permanent or contractual employee or employee under probationary, if the employee considers that he or she has been dismissed without just cause or excuse by the employer, he or she may make a representation in writing to the labour office to be reinstated to his or her former employment.
28 What are the key rights of local employees?
The Employment Act 1955 governs labour related matters in Malaysia. Any employee with less than 2,000 ringgit monthly salary falls under the purview of the Employment Act 1955. This Act provides minimum terms and conditions on maternity leave, public holiday, annual leave, sick leave, payment for overtime work and maximum working hours. For employees with more than 2,000 ringgit monthly salary, the terms of employment would be based on the respective employment contracts entered into with employer.
The Occupational Safety and Health Act 1994 provides the legislative framework to secure the safety, health and welfare for the entire Malaysian workforce and to protect others against risks to safety or health in connection with the activities of persons at work.
In Malaysia, under the provision of National Wages Consultative Council Act 2011, the Minimum Wage Order 2016 came into force on 1st July 2016 where an employee shall be paid an average minimum wage of not less than 1,000 ringgit per month in peninsular Malaysia or 920,00 ringgit per month in Sabah, Sarawak and the federal territory of Labuan.
The Employees Provident Fund Act 1991, which is applicable to all employees in Malaysia, provides that all employers and most employees to contribute to a state-managed provident fund. Foreign employees may voluntary to contribute to the provident fund.
The Employees’ Social Security Act 1969 (SOCSO) provides social security for all employees. This is to cater for employees who have lost their working abilities or are incapacitated due to accident or illness or etc, as provided in SOCSO. The benefits available to such employees, include free medical treatment, facility for physical or vocational rehabilitation and monetary help. SOCSO also offers financial assistance through pensions to the dependants of an employee who has died.
29 What are the main restrictions on engaging foreign employees?
All foreign employee must obtain work permits before they are able to work in Malaysia. Before the foreign employee could enter into Malaysia, he or she must have a valid passport and visa (where applicable).
There are several types of working permits: visit pass (temporary employment), employment pass and a visit pass (professional).
Besides getting permits from the Malaysia immigration department, where manufacturing sector are involved, any application for expatriate posts should be submitted to MIDA.
In Malaysia, applications for employment of foreign workers must be submitted to the Ministry of Home Affairs where for foreign domestic helpers, application should be made to Malaysia’s Immigration Department. Although foreign workers are commonly seen in the manufacturing, construction and domestic help sectors, employer should check with the relevant government departments for specified criteria in applying work permit for foreigner workers, as there may be limitation such as certain nationalities are only allowed to work in certain selected sectors.
30 What are the other key employment law factors that foreign counsel, investors and businesses should be aware of?
Foreign companies in manufacturing sector could employ expatriates professing skills not available in Malaysia. However, foreign companies must fulfil certain requirements before they are allowed to employ expatriates, such as having the relevant minimum paid-up capital, giving basic salary to the expatriates and making sure that the expatriates fulfil the minimum qualifications set by MIDA.
On the issue of dismissal, where the representation to labour office is referred to an industrial court to decide whether the dismissal is with or without just cause, industrial court may order reinstatement or compensation in lieu of reinstatement if it finds that there is unlawful dismissal.
The industrial court may award compensation in lieu of reinstatement for termination of a confirmed employee to a maximum sum equivalent to 24 months of the last drawn monthly salary plus one month of such salary for each year of service.
On the other hand, compensation in lieu of reinstatement for a termination of an employee under probation is only up to a maximum sum equivalent to 12 months of the last drawn monthly salary.
31 Describe the intellectual property environment. How effective is enforcement and what are the key current issues?
According to the recent 2017 US Chamber International IP Index, which is a constructive tool to help business and policy makers measure an economy’s overall IP environment, Malaysia ranks second in Asean and 19th in the world in terms of IP protection out of the countries assessed.
The Index measures the level of IP protection in a country based on 35 different criteria and benchmarks the IP standards in 45 global economies, which cover roughly 90 per cent of global GDP.
Among the Asean countries covered by the Index, Malaysia ranks second behind Singapore, and is ahead of Indonesia, the Philippines, Thailand, Vietnam and Brunei.
Despite the improvement in Malaysia’s ranking, the President of the Asean Intellectual Property Association, Chew Phye Keat said that the government and private sector should nevertheless strive to improve, as protecting IP rights and innovation is vital to making Malaysia more attractive to foreign investors.
With the establishment of Khazanah Harta Intelek Malaysia, a centralised repository of IP to facilitate and spur commercialisation working alongside the Malaysian Intellectual Property Corporation, the IP sector in Malaysia has seen recent improvements.
For example, trademark applications have increased in the past 10 years from 25,894 in 2007 to approximately 31,954 in October last year and the number of registrations also increased from 25,490 to 27,063 in the same period. Similarly, the number of patent applications in Malaysia has increased from 2,372 in 2007 to 6,033 in October 2016 with registrations increasing from 793 to 2,636 in the same period.
With regard to enforcement of IP rights, Malaysia had in recent years endeavoured to enhance the enforcement of IP in the country.
For example, the Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC) took steps to enhance Malaysia’s enforcement regime by cooperating actively with rights holders on matters pertaining to the enforcement of IP rights, provide ongoing training of prosecutors for specialised IP courts, and in 2013 re-established a Special Anti-Piracy Taskforce.
With additional enforcement effort in place, the number of physical counterfeits have reduced. However, as we are now living in the age of the internet, the number of internet piracy incidents has risen.
To help curb the increase in internet piracy, the MDTCC established a Special Internet Forensics Unit (SIFU) to monitor sites suspected of being, or known as, purveyors of infringing content. SIFU will also launch investigations based on information or complaints raised from legitimate host sites and content providers. In order to improve such enforcement, SIFU also works closely with the Malaysian Communications and Multimedia Commission, which is responsible for overall regulation of internet content.
Despite Malaysia’s increased enforcement activities to curb online piracy, including the amendment of its copyright law to include penalties for unlawful web hosting, streaming and linking, levels of online counterfeiting remain high.
Overall, there has been improvement in the protection and enforcement of IP rights in Malaysia. However, additional and continuous efforts have to be put in place to reduce online piracy to further increase protection for rightholders.
Legal reform and policy
32 What are the key issues in legal reform, government policy and the economy?
Owing to China’s One Belt One Road initiative, the Ministry of Transport of Malaysia had in May 2017 signed a memorandum of understanding (MOU) with China’s National Development and Reform Committee.
Under this MOU, Malaysia will cooperate with China to advance basic infrastructure such as railways, ports and airports in Malaysia. This MOU is extremely beneficial to Malaysia as it allows the local transportation industry to obtain and exchange important technological knowledge.
Further, the MITI had executed a separate MOU with China’s National Development and Reform Committee to encourage economic development in lieu of the said initiative. Under this MOU, China and Malaysia will work together to develop a mutual acknowledgement and understanding of standards, an exchange of information and promoting the use of domestic supply chains as well as promoting cross-border e-commerce.
The effect of China’s One Belt One Road initiative had also resulted in additional investments by the Chinese into Malaysia in particular for the promotion of Malaysian produce such as pineapples and palm oil. As a result, Malaysia expects to export approximately 12,000 tonnes of home-grown pineapples in approved plantations, which is worth 40 ringgit million every year.
Currently the major projects in Malaysia pursuant to the One Belt One Road initiative are the Malaysia-China Kuantan Industrial Park in Pahang, Melaka Gateway, East Coast Rail Link and Xiamen University Malaysia.
On the whole, Malaysia’s economy is expected to see a positive growth based on the increasing demand for domestic produce as well as the overall growing global economy and is expected to reach a growth of 4.3–4.8 per cent in 2017, in comparison with 4.2 per cent in 2016. In addition, the advancement of the global economy could spill over into the Malaysian economy and result in improvement to trade, investment and income sectors. As a result, we have seen a growth of about 5.6 per cent in the first quarter of 2017.
In a further attempt to improve Malaysia’s economy, the government will be implementing a new tourism tax. The government has currently decided that the tourism tax is to be implemented on foreign tourists at a flat rate of 10 ringgit would apply to all hotel categories and be charged per room per night. This will, however, not be applicable for premises with five rooms or fewer, home stays and village stays. The tourism tax is aimed at improving tourists’ travelling experience as well as maintain and improve tourism attractions and cultural heritage around Malaysia. It is hoped this will encourage and increase tourism in Malaysia, thus improving the economy.
33 Are there any significant legal developments ongoing or pending? What are their effects on the business environment?
2017 had on 31 January seen the coming into force of the new Companies Act 2016 (Act 777). This new Act replaces the 1965 Act ,which had governed the rules and framework of business organisation for over 50 years.
The new provisions under the Act 777 provide major reforms and new sectors. For example, the new Act makes it easier for entrepreneurs to start their own company as it is now possible to start a private company with only one director. In addition, new Act states that it is no longer a mandatory requirement for private companies to hold an AGM.
These new changes are also aimed at better protecting shareholders of the private companies or public listed company. In the event that a company wishes to restructure its share composition via a capital reduction, it is now mandatory to issue a solvency statement for the shareholders’ approval before the directors of the company may proceed to conduct a share reduction. Consequently, shareholders are now more involved in the management of a company.
Under Act 777, there are several new provisions that introduce a tax on the compound fines on offenders in breach of the Act. There is also a presumption that an officer with control over the management of the company could be personally liable for the contravention of company law committed by the company.
Further, Act 777 also provides for civil and administrative proceedings for particular breaches of the Act accompanied with damages and penalties. Criminal proceedings can also be enforced over officers in breach of the Act instead of the company. Company directors and officers now have higher accountability and a higher standard of governance compared with the old Act.
The enactment of the new Act 777, which is level with global standards and increases the competitiveness of starting a business are likely to see an improvement in the Malaysian market as there will be an inflow of investment.
Resources and references
34 Please cite helpful references, for example sources of law, websites of major regulators and government agencies.
Published October 2018