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Doing Business in Malaysia

This guide is designed to give an insight into doing business in Malaysia. It does not cover the subject exhaustively but is intended to address some of the more important issues that may arise. If more comprehensive advice is needed, and that may often be the case, we recommend that specific legal, accounting or other applicable professional advice be sought.

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Country Profile

Malaysia, with a population of approximately 28.3million*, has a diversity of races which includes the Malays (51%), Chinese (23%), Indians (7%) being the three main ethnic groups and the balance of the population from other races as well as indigenous groups and non-Malaysian citizens. With its growing economy and a stable, democratic political system, Malaysia has made remarkable progress towards achieving its goal of becoming a knowledge-based, fully developed nation. Malaysia encourages investments in all sectors of the economy. Tax and other incentives are available in strategic and promoted sectors.

Malaysian laws are based on what is generally known as the common law system, which Malaysia has inherited from the United Kingdom. Although Malaysia is a federation of 13 states, its business and commercial laws are largely federal laws. The 13 states do however, have state laws that regulate land, business and local government.

(*Source: Official website of Department of Statistics, Malaysia)

Dispute Resolution

Malaysia has a common law based system with lawyers performing the dual functions of an advocate and a solicitor. Due process is ensured by having a tiered structure. Superior courts comprise the High Court and the appellate courts (namely, the Court of Appeal and the Federal Court), while subordinate courts comprise the Magistrates’ Court and the Sessions Court. The jurisdiction of the superior courts and the subordinate courts is broadly determined by the monetary value of the claims.

The function of adjudicating disputes primarily falls upon the Courts. The Constitution of Malaysia and its related laws contain provisions regulating the judiciary and guaranteeing judicial independence. The general public and litigants alike enjoy a high level of confidence over the conduct of the present judiciary.

Malaysia also has a well developed arbitration regime based on the UNCITRAL Model Law and is actively promoting other methods of Alternative Dispute Resolution (ADR) such as mediation and conciliation. These will be alternative methods to resolve civil, commercial or corporate disputes within the parameters and rules, as may be determined by the parties. It is commonly recognised that ADR does provide settlement of disputes in private and it is relatively expedient, inexpensive and conciliatory.

This section was last updated in February 2010.

For further information on this section and our Dispute Resolution Practice, please click here.

Employment and Administrative Law
Generally speaking, in Malaysia, employees are divided into 2 categories. The provisions of the Employment Act, 1955 are only applicable to the following employees:-

earning RM 1,500.00 or less;
engaged in manual labour;
engaged in the operation or maintenance of any mechanically propelled vehicle;
engaged in the supervision of other employees engaged in manual labour;
engaged in any capacity in any vessel registered in Malaysia and who:-


is not an officer certified under the Merchant Shipping Acts of the United Kingdom as amended from time to time;
is not a holder of a local certificate as defined in Part VII of the Merchant Shipping Ordinance, 1952; or
has not entered into an agreement under Part III of the Merchant Shipping Ordinance, 1952; or
(f) engaged as a domestic servant.

The Employment Act 1955 is a comprehensive piece of legislation for the protection of workers in Malaysia and deals with many aspects of employment, for example, wages, annual leave, lawful deductions, notice period for termination, lay-off benefits, disciplinary action and so on.

For employees who do not fall under any of the above-mentioned categories of workers, their terms of reference would be the terms as contained in the contract of employment/employee handbook. Parties possess freedom to contract but employers are encouraged to observe and practise good industrial relations.

Hence, some employers do use certain provisions of the Employment Act, 1955 as a guideline/benchmark in drawing up the terms and conditions of employment for employees who do not fall under the purview of the Employment Act, 1955.

In Malaysia, there is a system of trade unions which comprises national trade unions and in house trade unions, depending on the different types of industries. As a result, there are unionised employees who are covered by collective agreements even though they may not fall under the protection of the Employment Act, 1955. However, even if an employee is not a member of the relevant in-house union but falls under one of the categories provided for in the collective agreement, then the said employee may be covered by the provisions of the collective agreement (as and where applicable).

Employers should also be aware of the provisions in the Employees Provident Fund Act, 1991 (which regulates a retirement scheme) and Employees’ Social Security Act, 1969 (which regulates an insurance scheme) wherein the same applies to employees both within and outside the scope of the Employment Act, 1955. Non-contribution by the employer in situations where contribution is mandatory is in contravention of the said Acts and may attract a penal sentence.

Another relevant legislation which applies to both sets of employees, is the Industrial Relations Act, 1967. Section 20 of the same provides recourse for an employee who has been dismissed without just cause or excuse.

Employment disputes are mainly heard by the Labour Court and Industrial Court in Malaysia.

This section was last updated in February 2010.

For further information on the above sections and our Employment & Administrative Law Practice, please click here.

Foreign Equity Requirements

The rules in respect of foreign equity requirements in Malaysia are generally contained in guidelines issued by the relevant Ministries, governmental agencies or regulatory bodies.

Prior to July 2009, the Foreign Investment Committee (“FIC”) which was established in 1974 was the Government agency primarily responsible for co-ordinating and regulating proposals for the acquisitions of assets or any interest, mergers and takeovers of companies and businesses in Malaysia.

The “Guidelines for the Regulation of Acquisition of Assets, Mergers and Take Overs” (popularly known as the “FIC Guidelines”) promulgated by the FIC set out the circumstances in which an acquisition of an asset, or an acquisition, merger or takeover of a company or business in Malaysia require its prior approval.

Under the former FIC Guidelines, an equity condition typically imposed by the FIC was a minimum Bumiputera (which generally refers to a person who is a Malay or a native aborigine as defined under the Federal Constitution) equity in a company of at least 30%.

In 2009, a series of liberalisation measures were announced, the highlight of which was the Prime Minister’s announcement on 30 June 2009 of the deregulation of the FIC Guidelines as well as the removal of the 30% Bumiputera requirement by way of further liberalisation of the equity requirements.

Notwithstanding such liberalisation, equity regulations may still be in place for certain sectors. Companies in such sectors will continue to be subject to the equity conditions as imposed by their respective sector regulator.

The manufacturing industry, for instance, continues to fall within the purview of the Ministry of International Trade and Industry (“MITI”). Where a manufacturing licence from the MITI is required, the foreign equity restrictions or conditions, if any, in respect of such venture will be as determined by MITI. The coordinating authority for applications to MITI is the Malaysian Industrial Development Authority (“MIDA”). In line with the relaxation of the equity policy guidelines and to encourage foreign investments, 100% foreign equity is allowed for certain sectors of the manufacturing business.

Apart from MITI, sectoral regulations may also be in place for the distributive trade and services sector pursuant to the guidelines issued by the Ministry of Domestic Trade and Consumer Affairs, which has recently been renamed as the Ministry of Domestic Trade, Co-operatives and Consumerism (“MDTCC”).

Other sectoral regulators are agencies such as the Energy Commission, Securities Commission, Commercial Vehicles Licensing Board, National Water Services Commission and the Malaysian Communications and Multimedia Commission, to name a few. Therefore a foreign investor should consider whether there are any foreign or equity restrictions applicable to the industry that it proposes to participate in before embarking on the new business venture.


This section was last updated in February 2010.

For further information on this section and our Corporate & Commercial Practice, please click here.

Forms of Business Organisation

While the Malaysian government has placed great emphasis on the development of the country’s own pool of human capital, the Malaysian government has always welcomed foreign talent and recognises that Malaysian workers can benefit and learn from their interaction with expatriates.

In the immigration context, an expatriate generally refers to a foreigner legally working in Malaysia and drawing a monthly salary of at least RM5,000 and who holds one (1) of the following posts:



Key Posts
These are high level (1st level) managerial posts in foreign owned private companies and firms operating in Malaysia. Key posts are posts essential to companies to safeguard their interests and investments in Malaysia. Expatriates holding such posts are responsible for determining their companies’ policies in achieving their goals and objectives. Examples of such posts are executive chairman, chief executive officer, managing director, general manager, technical director, production manager, project manager or factory manager.

Executive Posts
These are intermediate level (2nd level) managerial and professional posts. Expatriates holding such posts must have the academic qualifications, practical experience, skill and expertise relevant to their respective jobs and are responsible for implementing their respective companies’ policies and supervising their staff. Examples of such posts are marketing manager, logistics manager, investment manager, quality control manager, and professionals such as chief engineer, engineering manager, lecturer, doctor, architect.

Non-Executive Posts
These posts are held by persons performing technical jobs that require specific technical or practical skills and experience. Examples of such posts are welder, mould maker, mould designer, tool and die maker, manufacturing systems designer, food/nutrient technologist, fashion designer, specialist in furniture design and ergonomics, heat setting technician, sewing specialist, craftsman/engraving and product/flavouring specialist.

A foreigner intending to work in Malaysia must obtain one of the following from the Immigration Department of Malaysia before he can start work:



Employment Pass

An Employment Pass may be issued by the Controller of Immigration (the “Controller”) to any person other than a prohibited immigrant who satisfies the Controller that he wishes to enter Malaysia (otherwise than as a visitor, tourist, transit passenger or student) in order to take up employment under a contract of service with the Government of Malaysia or any State in Malaysia or any City Council or Municipality in Malaysia or to take up employment in Malaysia under a contract:

for a minimum period of two years employment in Malaysia with an approved company or firm; and under which such person is entitled to a salary of not less than RM5,000 per month.

However, if the Controller is satisfied that no person resident in Malaysia is available to undertake employment of the kind referred to in any such contract, and that it would be unreasonable to expect an employer to pay such a salary, he may waive the above requirements.

Every Employment Pass issued to any person shall be subject to the condition that during the validity of the Employment Pass, the holder shall not, without the consent in writing of the Controller, engage in any form of paid employment or in any business or professional occupation in Malaysia, other than such particular employment, business or professional occupation as shall be specified in such Employment Pass.

All applications for an employment pass must be sponsored by a resident in Malaysia. The sponsor must agree to be responsible for the maintenance and repatriation of the foreigner employee/expatriate from Malaysia should it become necessary.

Application for an Employment Pass should be made at least two (2) months prior to the expected commencement date of employment in Malaysia. Citizens of certain countries such as India, China, Sri Lanka, Myanmar, Pakistan, Philippines, Vietnam, Bangladesh and North Korea have to be outside Malaysia when their application for an Employment Pass is made.

Visit Pass (Temporary Employment)

Where the contract of employment is for a period of less than 2 years, the foreigner cannot apply for an Employment Pass but may apply for a Visit Pass (Temporary Employment).

The same considerations stated above in relation to an Employment Pass apply equally to a Visit Pass (Temporary Employment).

However, in addition thereto, the sponsor of a Visit Pass (Temporary Employment) applicant has to furnish to the Controller a personal bond guaranteeing that the person to whom the Visit Pass (Temporary Employment) is to be issued will comply with the provisions of the Immigration Act, 1959/63 and any regulations made thereunder and with any conditions imposed in respect of or endorsed on the Visit Pass (Temporary Employment). The quantum of the personal bond varies depending on the nationality of the holder of the Visit Pass (Temporary Employment).

Visit Pass (Professional)

A Visit Pass (Professional) is issued to foreigners who wish to enter Malaysia for the purpose of engaging in short term attachments with any agencies. The validity period of the Visit Pass (Professional) varies but shall not exceed twelve (12) months. The foreigner must remain on the payroll of its foreign employer.

The foreigner must be outside Malaysia at the time of the application for a Visit Pass (Professional) and will only be allowed entry when the Visit Pass (Professional) is approved.

Among the categories of people who require a Visit Pass (Professional) are artistes for the performance, filming and promotion by foreign artists in Malaysia and foreigners who serve as professionals or experts, such as technical consultants and advisors.

All applicants must have a sponsor and a personal bond is required to be furnished to the Controller.

Application for a Visit Pass (Professional) should be made at least two (2) months prior to the arrival of the expatriate employee.

This section was last updated in February 2010.

For further information on this section and our Immigration Practice, please click here.

Intellectual Property

Malaysia is a signatory to various international treaties insofar as Intellectual Property (“IP”) is concerned. Such treaties/agreements include, World Intellectual Property Organisation Convention Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), The Berne Convention, Patent Cooperation Treaty, Paris Convention, amongst others.

Malaysia’s accession and compliance with international treaties/agreements has meant that the IP legal infrastructure conforms with international standards insofar as protection of IP in Malaysia is concerned. The IP regime in Malaysia includes both statutory protection and common law protection.

IP consists of various rights – the five primary elements being:

industrial designs; and
trade secrets.

It is imperative to know the type of IP asset a company or business owns in order to protect, enforce and exploit the same in Malaysia.

Foreign businesses may wish to address the necessary clearance searches (such as trade marks, designs, patents, domain names, company searches) to ensure that they do not encroach upon third party rights. Similarly, for local businesses the necessary clearance searches must be done to preserve and protect IP rights.

The primary clearance searches include:

trade marks / patent / industrial designs searches;
domain name searches;
market surveys; and
company name searches.

The above searches can be conducted both on a national and international level via a network of international professionals.

*This section was last updated in February 2010.

For further information on this section and our Intellectual Property Practice, please click here*

Real Estate

In West Malaysia, land law is governed by the National Land Code, 1965 (“NLC”) which is modelled on the Torrens system.

The Economic Planning Unit, Prime Minister’s Department (“EPU”), which regulates the acquisition of property by foreign and local interests which involve the dilution of Bumiputera interests and/or government interests in properties valued at RM20Million and above whether bought directly or indirectly (through the acquisition of companies owning properties).

EPU approval

The Guidelineon the Acquisition of Properties issued by the EPU (“EPU Guidelines”) which came into effect on June 2009provide as follows:-

A property acquisition, except for residential units, that require the approval of the EPU is as follows:

(a) the direct acquisition of property valued at RM20 million and above, resulting in the dilution in the ownership of the property held by Bumiputera interest and/or Government agency; and

(b) the indirect acquisition of property by other than Bumiputera interest through the acquisition of shares, resulting in a change of control of the company owned by the Bumiputera interest and/or Government agency, having property more than 50% of its total assets, and its’ property asset being valued at more than RM20 million.

  Acquisition Conditions
An acquisition of properties in any of the above instances will be subject to the following equity and paid-up capital conditions:

The company shall have at least 30% Bumiputera interest shareholdings;
The paid-up capital of local companies owned by local interests shall be at least RM100,000 whilst the paid-up capital of local companies owned by foreign interests shall be at least RM250,000.
There are applicable exemptions (subject to qualifying conditions) to the above in cases where the acquisition relates to:


property in the Multimedia Super Corridor (“MSC”) by MSC status companies for their operational activities including as residences for their employees;
residential unit under the “Malaysia My Second Home” Programme;
certain regional development corridors;
the Malaysian International Islamic Financial Centre initiative;
acquisitions of residential units by foreign interests valued at more than RM500,000.00 and above; and
acquisitions of industrial properties  by foreign interests valued at more than RM500,000.00.

State Authority approval

Save and except for the acquisition of industrial land, all other acquisitions of real property will be subject to the prior written approval of the relevant State authority pursuant to the provisions of section 433B of the National Land Code 1965 (“NLC”).

It is to be noted that where the consent of the EPU and the state authority is required to be obtained, the written approval of the EPU will be required as a supporting document to the application for State Authority’s approval.

Unless approval is obtained or exempted, any disposal of land, or any instrument effecting any conveyance or disposal of any land or interest therein in favour of a non-citizen or a foreign company shall be null and void and be incapable of registration.

This section was last updated in October 2011.

For further information on this section and our Real Estate Practice, please click here.

Tax and Revenue

Direct Taxes

The general body of Malaysian tax law is to be found in tax statutes, supplemented by other legislative instruments such as subsidiary legislation and ministerial orders. The Director General of Inland Revenue and Inland Revenue Board (collectively "Revenue") are responsible for administrative functions, such as the care and management of direct tax matters. The Revenue have issued a body of public rulings and guidelines setting out the Revenue’s practices and interpretation of Malaysian tax law.

The Income Tax Act, 1967 is the principal legislation for taxing income. The general scope encompasses the income of any person accruing in or derived from Malaysia or received in Malaysia from abroad.

Special provisions govern the taxation of income of insurance companies, shipping and air transport companies, banks and financial institutions, leasing companies, unit trusts and property trusts, among others.

Malaysian income tax is imposed on a territorial, not worldwide, basis. The prevailing corporate tax rate is 25% with effect from the year of assessment ("YA") 2009. However, the first RM500,000 of chargeable income is taxed at a lower rate of 20% if, among other things:

  1. (i) the company is tax resident in Malaysia; and
  2. (ii) has a paid-up capital in respect of ordinary shares of RM2.5 million or less at the beginning of the basis period for a YA.

For every Ringgit exceeding the first RM500,000 the normal income tax rate of 25% would apply. With applicable tax holidays, incentives, exemptions and concessionary or reduced tax rates, the effective tax rates can be significantly reduced.

Withholding Tax

Withholding tax is applicable in Malaysia if a non-resident payee derives or is deemed to derive from Malaysia interest, royalty, rent for use of moveable property, contract payments for projects carried out in Malaysia, technical fees, other types of fees and certain types of payments. Rates range from 10% to 15%. The withholding tax regime can be complicated and professional advice should be sought on matters of compliance and relief.

Transfer Pricing

In July 2003, the Revenue issued the Transfer Pricing Guidelines. It is largely based on the OECD Transfer Pricing Guidelines but has no force of law. With effect from 1 January 2009, transactions and financial assistance involving associated persons would be subject to the arm’s length price and thin capitalisation rules respectively.

Indirect Taxes

The Royal Customs and Excise Department Malaysia ("Customs") have the care and management of indirect taxes.

Customs Duty

Customs duties are levied upon any goods imported into or exported from Malaysia and are to be paid by the importer or exporter, as the case may be. The relevant rates are set out in the Customs Duties Order 2007 P.U. (A) 441/2007 whereas valuation of the goods would be in accordance with the Customs (Rules of Valuation) Regulations 1999 P.U. (A) 507/1999 giving effect to the WTO Valuation - WTO Guidelines.

Excise Duty

Excise duties are levied upon goods manufactured in or imported into Malaysia.

Sales Tax

Sales tax is charged and levied on all taxable goods:
•    manufactured in Malaysia and sold, used or disposed of, by any person who is, or is required to be, licensed under the Sales Tax Act 1972; or
•    imported into Malaysia by any person for home consumption.

The Minister of Finance has prescribed the rate of sales tax to be levied, ranging from 5% to 15% of the value of the goods or other applicable rates.

Service Tax

Service tax is payable on any taxable service provided by any taxable person, that is, a person carrying on the business of providing such taxable service. The rate of tax is 5%.

Goods and Services Tax ("GST")

GST is expected to be implemented in Malaysia in the fourth quarter of 2011 or later, to replace sales tax and service tax. The Goods and Services Tax Bill 2009 has already been tabled and the Government has indicated that the applicable GST rate may be set at 4%.

Tax Relief and Incentives

Malaysia has an aggressive and progressive approach towards the grant of special tax incentives, such as pioneer status, investment tax allowance and reinvestment allowance, to attract foreign direct investments, offshoring and shared services and outsourcing (SSO operations). There are also many promoted activities, products and areas such as Free Zones, the Eastern Corridor, the Multimedia Super Corridor, the Iskandar Development Region and special pre-packaged incentive schemes.

Malaysia has concluded a wide-ranging network of double taxation treaties with many jurisdictions for the prevention of double taxation of income and fiscal evasion.

Labuan International Business Financial Centre (IBFC)

Although forming a part of Malaysia, the Federal Territory of Labuan has specific laws that are only applicable to the island of Labuan. They were introduced in 1990 to promote Labuan as an international financial centre. For example, a Labuan offshore company carrying on offshore trading activities can enjoy a preferential tax rate of 3% or alternatively, elect to pay a flat tax of RM20,000 regardless of its income level. Many other tax incentives and concessions exist.

This section was last updated in February 2010.

For further information on this section and our Tax & Revenue Practice, please click here.

Telecommunications, Media and Technology

In Malaysia, the Ministry of Information Communication & Culture has the overall purview of the telecommunications and multimedia industry. The Malaysian Communications and Multimedia Commission (“Commission”) on the other hand is in charge of among others, the implementation of policies in legislation and ministerial decisions, supervising and enforcing compliance with the Malaysian Communications and Multimedia Act 1998 (“CMA”) and various licensing requirements, establishing and regulating industry forums, voluntary industry codes and mandatory standards, the administration of the Malaysian Digital Signature Act 1997 and the management of the spectrum. The Commission is also tasked with the administration of economic regulations, technical regulations, consumer protection issues and social regulations with regards to the telecommunications and multimedia industry.

The Malaysian Government encourages global competitiveness. Various government ministries/agencies, including the Malaysian Industrial Development Authority and the Ministry of International Trade and Industry, are involved in the provision of support to industries relating to information, communication and technology (“ICT”), which choose Malaysia as their destination, in the form of different financial and non-financial incentives.

The ICT sector in Malaysia has received a huge boost through the Malaysian Government’s investment of nearly RM10 billion in the establishment of Cyberjaya and Putrajaya, two high-tech parks, which form part of Malaysia’s MSC project.

For further benefits to the ICT sector, Malaysia also offers great ease in the establishment of a company, the setting up of infrastructure and staffing. Malaysia has built a network of modern and efficient infrastructure. Businesses can rely on excellent physical and telecommunication infrastructure and an advanced transportation system. The MSC has world-class facilities with a combination of cyber cities, cyber centres and cutting-edge telecommunications and power infrastructure designed to meet Malaysia’s aim to become a regional ICT hub.

This section was last updated in February 2010

For further information on our Telecommunications, Media and Technology Practice, please click here.

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