Legal Aspects of Carrying Out Business in Malaysia

Presented by

David L H Lee
Partner
27 February 2013

INTRODUCTION

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According to records obtained from the Malaysian

Investment Development Authority (MIDA), for the period
commencing on January until October 2012, Malaysia has
attracted approximately RM18.3 billion in foreign
investments, with the bulk of this figure directed into
manufacturing activities
From the list of foreign investors, it is encouraging to note
that investments from Singapore ranked third, after Saudi
Arabia and Japan, at a percentage of approximately 9.8%
With the latest investments made by Singaporean
companies in Iskandar, Malaysia, the final figures may well
surpass that percentage

Legal Considerations

Entities

types of entities

Limited Liability Partnerships

Private Limited Companies

Licensing requirements

Depending on sectors and industries

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Foreign Branch
Malaysian company

Manufacturing
Housing Development
Education

Legal Considerations

Equity Conditions

Real Estate Ownership

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Liberalization of sectors

Foreign ownership requirements

Entities

Limited Liability Partnership (LLP)

New form of entity recognized by Malaysian law from 26

December 2012
a body corporate that has legal personality separate from that
of its partners and has perpetual succession
Mutual rights, duties and obligations of partners should be
governed by an agreement, failing which the statutory
provisions prescribed by the Act will apply
Every LLP must appoint at least one compliance officer, who
must be:

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one of the partners of the LLP; or

a person qualified to be a company secretary under the
Companies Act 1965;
a person who ordinarily resides in Malaysia

Entities

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The Compliance officer must be registered with the

Companies Commission of Malaysia
Essentially, the Compliance officer acts like a company
secretary, who shall be responsible to lodge relevant
documents and notifications with Companies Commission of
Malaysia
Every LLP must maintain registers and statutory records
(such as notices of registration, partnership agreement,
certificate issued by Registrar and annual registration)
Every LLP must also keep and maintain all accounting
records for a period of not less than 7 years

Entities

Foreign Branch

Registration of foreign company to carry out business in

Malaysia
Subject to requirements of Malaysian Companies Act 1965

registered office within Malaysia

appointment of Malaysian agent

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Answerable for all acts, matters and things required to be carried

out by foreign companies
Liable for all penalties imposed on the foreign company for
contravention of the provisions of the Malaysian Companies Act
1965

notification of changes, such as change of name, change of

composition of directors

Entities

annual filings

Filing and lodgment of balance sheet accompanied by all

documents required to be lodged by the law of the country of
origin within 2 months of AGM and audited statement showing
assets used in and liabilities arising from its operations in
Malaysia

Accounts explaining transactions and financial position of the

foreign company must be kept in Malaysia
Maintenance of branch register in Malaysia

Records on transfers of shares

Notification on cessation of business

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Requirement still applies although country of origin does not

require AGMs and lodgment of audited accounts

Must notify within 7 days from date of cessation

Entities

Private Limited Company

Typical and common type of vehicle

Incorporation of Malaysian private limited company
Subject to requirements of Malaysian Companies Act 1965

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Par value of shares

The requirement to have directors with local residence address
in Malaysia
Requirement to make notifications on changes
Requirement to hold AGM and file audited accounts
Restrictions on related party transactions and financial
assistance in the form of loans to directors or persons related to
directors apply

Licensing

Requirement to obtain licences for certain industries and

service sectors

Selected industries
Manufacturing

Licensing Authority is the Malaysian Investment Development

Authority (MIDA)
The Malaysian Industrial Co-Ordination Act 1975 imposes the
requirement to obtain manufacturing licence for manufacturing
activity

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Defined as means the making, altering, blending, ornamenting,

finishing or otherwise treating or adapting any article or substance
with a view to its use, sale, transport, delivery or disposal and
includes the assembly of parts and ship repairing but shall not
include any activity normally associated with retail or wholesale
trade

Licensing

Application for licence

Once obtained, licence must be registered with the local

government where the manufacturing activity is intended to be
carried out
Licence is not transferable without prior approval
Exemption

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Application can be made for one or more products manufactured in

one or more places of manufacturing activity
Separate licence may be issued for each place of manufacturing
activity
Subject to conditions that MIDA may impose

For manufacturers with shareholders funds of less than

RM2.5million or if it employs less than 75 full-time paid employees,
no manufacturing licence is required. Confirmation letter on
exemption is required to be obtained from MIDA.

Licensing

Building and Construction

Licensing Authority is Construction Industry Development Board

(CIDB)
Licence required pursuant to the Construction Industry
Development Board Act 1994
Any person who undertakes to carry out or carry out and
complete any construction work without registering as a
registered contractor with the CIDB commits an offence under
this Act
Construction works means the construction, extension,
installation, repair, maintenance, renewal, removal, renovation,
alteration, dismantling or demolition of

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any building, erection, edifice, structure, wall, fence or chimney,

whether constructed wholly or partly above or below ground level;
any road, harbour works, railway, cableway, canal or aerodrome;

Licensing

any drainage, irrigation or river control works;

any electrical, mechanical, water, gas, petrochemical or
telecommunication works; or
any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer,
aqueduct, culvert, drive, shaft, tunnel or reclamation works,
and includes any works which form an integral part of, or are
preparatory to or temporary for the works described in paragraphs
(a) to (e), including site clearance, soil investigation and
improvement, earth-moving, excavation, laying of foundation, site
restoration and landscaping

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Foreign contractor means a company incorporated in Malaysia or

in a foreign country which has a foreigners equity holding of thirtyone per cent (31%) or more
The applicant must be registered with the Registrar of Companies or
relevant authority for its business operation before its application
can be considered by CIDB and registered with the CIDB for at least
3 years.

Licensing

Housing Development

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Licence from the Ministry of Housing and Local Development is

required before any housing development is permitted
Besides housing development licence, advertising and sales
permit is also required before any sale or advertisement is
permitted to be carried out
housing development is defined to mean to develop or
construct or cause to be constructed in any manner whatsoever
more than four units of housing accommodation and includes
the collection of moneys or the carrying on of any building
operations for the purpose of erecting housing accommodation
in, on, over or under any land; or the sale of more than four lots
of land or building lots with the view of constructing more than
four units of housing accommodation

Licensing

housing accommodation is defined to include any building,

tenement or messuage which is wholly or principally
constructed, adapted or intended for human habitation or partly
for human habitation and partly for business premises and such
other type of accommodation as may be prescribed by the
Minister from time to time to be a housing accommodation
pursuant to section 3A
Who may apply?

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any person, body of persons, company, firm or society (by

whatever name described), who or which engages in or carries on
or undertakes or causes to be undertaken a housing development

Licensing

Conditions for application

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the applicant has a capital issued and paid up in cash of not less
than two hundred and fifty thousand ringgit;
the applicant makes a deposit with the Controller of not less than
two hundred thousand ringgit in cash or in such other form as the
Minister may determine;
Neither the applicant nor any of its directors has not been
convicted of any offence on fraud or dishonesty
Applicant must open a housing development bank account to
receive proceeds of housing development and utilization of
proceeds are governed by the Housing Development (Control and
Licensing) Act 1966

Licensing

Oil & Gas

Licence is required for manufacturing of petroleum or

petrochemcal products
Licensing authority is Ministry of International Trade and
Industry
Licence from PETRONAS is required to supply goods and
services to PETRONAS

Education

Approval to operate a private international school is required

from the Minister of Education
Application must be made to the Ministry for consideration and
approval by Education

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Applicant must be a private limited company

Equity condition no longer applies

Licensing

Minimum paid up share capital must be at a minimum of

RM100,000 on application subject to any condition to increase
Applicant must form a Board of Governors to govern the school
Details of the curriculum, examining body, syllabus, activities of the
school, principal and teachers and the premises must be submitted
to the Minister at the time of application
Important to identify the site where the school will be operated
Approvals from the Minister are usually conditional upon:

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Registration with the Local Government where school is located, which

must be preceded by approval from Fire and Rescue Department and
Health Department after inspection of school premises
Once these approvals are obtained, the Local Government will register
the private international school

Equity Conditions

In delivering its speech on Malaysias Budget, the Prime

Minister announced liberalization of several service subsectors, whereby foreigners will be permitted to own up to
100%

Amongst the sectors involved are:

Telecommunication services

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service provider licences

Network facilities provider
Network service provider

International schools
Private Higher Education Services

Equity Conditions Liberalization of Sub-Sectors

Private Hospital Services

Foreign medical specialists and experts of any speciality and

foreign dentists are allowed to practise in private hospitals

Accounting and Taxation Services

Engineering Services
Legal services

The liberalization of these sectors are still subject to any

licensing requirements that may be imposed by the licensing
authorities
Besides these sub-sectors, there are still sectors where equity
conditions are still imposed, such as oil & gas sector and
government procurement
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Real Estate Ownership

Land matters fall within the purview of State Governments

It is left to State Governments to determine foreign

ownership of land, and the conditions if any to be attached
to such foreign ownership

Prevailing laws:

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National Land Code

Relevant State Land law, in particular for States of Penang
and Malacca
Where Malay Reserve land applies, reference must be made
to the State laws legislated by the relevant State Government

Real Estate Ownership

Besides the prevailing federal and state laws, real estate

ownership in Malaysia is also subject to the guidelines
issued by the Economic Planning Unit (EPU) of the Prime
Ministers Department
Essentially, in cases where
in the case of direct acquisition of real estate of RM20million
and above, the acquisition results in a dilution of ownership
by Bumiputra or government agency; or
In the case of indirect acquisition by non Bumiputra interest
through acquisition of shares of RM20million and above, the
acquisition results in the dilution of interest by Bumiputra or
government agency of more than 50% to be diluted
prior approval from EPU is required

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Real Estate Ownership

Conditions likely to be imposed by EPU:

Acquisition must be made by a Malaysian company only

Company used to acquire must contain at least 30%

bumiputra interest; and

Paid up share capital must be at least RM250,000

The requirement to obtain approval from EPU do not apply to

residential properties valued at RM500,000 and above

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Real Estate Ownership

Where
commercial properties valued at RM500,000 and above; or
agriculture land valued at RM500,000 and above or at least 5
acres and acquired for purposes of agriculture activities, or
agro-tourism projects, or agricultural or agro-based industrial
activities; or
Acquisition of industrial land at RM500,000 and above
no prior approval from EPU is required. However, the
Guidelines require titles of these properties to be registered
in the name of a Malaysian company.

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Real Estate Ownership

Notwithstanding anything prescribed by local land laws, the

National Land Code requires all dealings with land in
favour of foreigners to be first approved by the relevant
State Authority

The National Land Code defines foreign interest to be:

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Section 433B relating to dealings with land

Section 433E relating to dealings with interest in land
A foreign company; or
A local company with 50% or more of its shares or voting
power held by foreigner persons and/or foreign company
referred above; or
A local company with 50% or more of its shares are held by
the foreign owned local company referred to above with
foreign persons and/or foreign company

Real Estate Ownership

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In the State of Johor, besides the requirement to obtain

prior consent from the State Authority or EPU, as the case
may be, the Johor State also imposes a levy of RM10,000
for each transfer of title to foreign interest

As for Iskandar Malaysia, the Iskandar Development

Regional Authority has introduced incentives to attract
investors. In so far as Medini is concerned, acquisitions by
approved companies are exempted from EPU Guidelines.
The requirements imposed by the Johor State Government
still apply.

THANK YOU
Kuala Lumpur Office

6th Flr, Plaza See Hoy Chan

Jalan Raja Chulan
50200 Kuala Lumpur
Malaysia
Tel: 603 2050 1888
Fax: 603 2031 8618
[email protected]

Johor Baru Office

Suite 15.02, 15th Floor
Menara Zurich
15, Jalan Dato' Abdullah Tahir
80300 Johor Bahru
Malaysia
Tel: +607 331 6136
Fax: +607 332 2898