Doing business in 2018

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2 / DOING BUSINESS GUIDE Foreword

Malaysia has over the last Association of Southeast Asian Malaysia, 60 years developed from a Nations (ASEAN) in view of its an attractive primary commodities exporter strategic, central location and to be a strong industrial base multi-lingual “Truly Asia” mix regional hub for foreign electrical and of Malay, Chinese and Indian electronics multinational populace. for services. corporations. As an oil and gas exporter, Malaysia continues This Guide has been prepared to benefit from recovering to assist those interested in world energy prices, but the doing business in Malaysia. government recognizes the The coverage of the subjects is need to reduce dependence on not exhaustive but is intended petroleum as the main source to deal with some of the more of revenue. In the last decade, important and/or broad as it moved up the industry questions that may arise. value chain, Malaysia has emerged as an The material contained in this attractive regional hub for Guide is based on legislation services, including financial as at 31 March 2018, unless services, information and otherwise indicated. communications technology (ICT) and logistics sectors. Malaysia is increasingly being recognised as an innovative international Islamic financial centre. It is also emerging as a springboard for regional expansion into

PwC / 3 Contents

Chapter 1 Chapter 2 Investment environment Business formation and the Location and climate regulatory environment History and political background Business formation: types of business entities Legal system General regulatory environment People, languages and social patterns Raising capital Economic structure Securities market International trade Competition policy Foreign investment Monopolies and antitrusts Principal government agencies Price control and anti-profiteering Mergers and acquisitions Court system Intellectual property rights Controls on foreign exchange

Chapter 3 Labour relations and social security Employment regulations Unions Working conditions, wages/salaries and statutory contributions Foreign personnel

4 / DOING BUSINESS GUIDE Chapter 4 Chapter 6 Introduction Audit requirements and Personal taxation to PwC accounting practices Scope of tax Appendices Statutory requirements for Malaysian Taxable income incorporated companies Basis of assessment Statutory requirements for foreign Residence status of individuals companies carrying business within Rates of tax Malaysia Employment income Financial Reporting Framework in Malaysia Exemptions and concessional tax treatment for foreign nationals Auditing requirements Deductions Tax rebates Chapter 5 Filing obligations and tax collection Business taxation Capital gains Principle taxes Income tax Corporate tax system Chapter 7 Other taxes Tax administration Transfer pricing Tourism tax Excise duties Business reorganizations Goods and services tax Stamp duty Import duties Other taxes Export duties

PwC / 5 6 / DOING BUSINESS GUIDE Chapter 1 Investment environment

Location and climate History and political background Legal system People, languages and social patterns Economic structure International trade Foreign investment Principal government agencies

PwC / 7 Location and climate

Malaysia is situated in Southeast The capital of Malaysia, the Federal Asia, in the area bordered by Territory of , is located longitudes 100 degrees and 120 on the west coast of the peninsular, degrees east and latitudes formed about 48 kilometres (30 miles) from by the equator and 7 degrees north. the country’s main port, . The landmass of Malaysia comprises However, the seat of the Malaysian Peninsula Malaysia, at the south government is now sited in , eastern tip of the Asian mainland, which was developed to be the new and East Malaysia, on the island of administrative capital of Malaysia Borneo. About four fifths of Malaysia where all the main offices of the (including and ) is various departments of the federal covered by tropical rain forests. government are located. Putrajaya is The entire country has a tropical situated 25 km from Kuala Lumpur climate, which is warm and and 20 km from the Kuala Lumpur sunny throughout the year with International Airport. temperatures from about 33 degrees Celsius in the afternoon to about 22 The bulk of commercial activity in degrees Celsius during the night. Malaysia is concentrated in the Klang The average annual rainfall is 2,712 Valley, which links Kuala Lumpur millimetres (about 107 inches). The and Port Klang. The other principal wettest months, particularly on the business centres in Peninsula Malaysia east coast of Peninsula Malaysia are , which is the oldest port in and in East Malaysia, are during the the country; Bahru, which has monsoon, which blows from October a free port (Johor Port) and is linked to March. to by two causeways; and in East Malaysia are centres for the country’s timber industry.

8 / DOING BUSINESS GUIDE History and political background

The early development of Malaysia The Federation of Malaysia was The Head of State is the Yang di- was linked to the strategic position established in 1963. It consisted of the Pertuan Agong (Paramount Ruler of Peninsula Malaysia (then called 11 states of Malaya, Sabah (formerly or King), who is elected by the nine Malaya) alongside the Straits of British North Borneo), Sarawak, and Malay hereditary rulers from among , one of the world’s major Singapore. In 1965, Singapore left the their number to serve for a term of five trade routes. Referred to in Greek Federation to become an independent years. The Paramount Ruler serves as literature as the “Golden Chersonese,” republic. Malaysia now comprises 13 constitutional monarch, acting on the it was the centre of the spice trade states and the federal territories of advice of a cabinet of ministers led by that flourished in the 15th century, Kuala Lumpur, Putrajaya and . the Prime Minister. attracting traders from as far as Nine of these states are headed by Portugal and England in the west hereditary rulers, the Sultans, who The federal legislature comprises and in the east, many of whom serve as constitutional heads of state. the (House of settled in the peninsular and were the The remaining four states are headed Representatives) and the Dewan forebears of the country’s multiracial by Yang di-Pertua Negeri (governors), Negara (Senate). The Dewan Rakyat population. Malaya, as it was known who are appointed for fixed terms of is a body of 222 members who are at that time, consisted of a number office to serve as constitutional heads elected by Malaysian voters. The of territories, each governed by a of state. Dewan Negara comprises 70 members, Malay ruler. From the 1500s, parts 44 of whom are appointed by the Yang of the peninsular fell at various Each state has its own written di-Pertuan Agong on the advice of the periods under the domination of the constitution and an elected legislative Prime Minister. The 13 state legislative Portuguese, Dutch and British. By assembly. Each state government assemblies also elect two senators each 1914 the British had extended their is led by a Menteri Besar (Chief to represent their respective states in influence over the whole of Malaya, Minister), who is appointed from the Dewan Negara. and the peninsular came under British among the members of the legislative protection. assembly. The division of powers A member of the Dewan Rakyat between the various state governments who commands the confidence of After World War II an independence on the one hand and the federal the majority of the members may be movement arose, culminating in government on the other is defined appointed Prime Minister and may independence for the 11 states in the Federal Constitution, which select cabinet ministers from among comprising the provides for a parliamentary system the members of the Dewan Rakyat on August 31, 1957. of government, with a central federal and the Dewan Negara. In practice, government and a measure of the overwhelming majority of cabinet autonomy for the 13 constituent states. ministers are drawn from the Dewan Rakyat.

PwC / 9 Legal system People, languages and social patterns

The Malaysian legal system is Population All of the world’s major religions have substantially based on the British substantial representation in Malaysia. legal system and the principles of Malaysia has a total population of The official religion is , and common law. Matters brought before 32.0 million in 2017. The Malaysian persons of the Islamic faith constitute the High Court may be appealed population has a multi-ethnic, multi- more than half the total population. to the Court of Appeal and later cultural composition, the dominant Free education is provided to pupils to the Federal Court, which is the racial group being the Malays, who between the ages of 7 and 17, and it final court of appeal in the country. with other Bumiputra1 groups, make extends to 19 for those who attain the Offences against Islamic law are tried up 69% of the population. The rest of required academic standards. After by Syariah courts, which are set up the population is made up of Chinese completion of their primary school by the respective state governments. (23%), Indians (7%) and other education (which requires 6 years to Please refer to Chapter 2 for further unlisted ethnic groups (1%). complete) the majority of students details on the Malaysian court continue their education in secondary system. Language, religion and education schools. They make up a pool of young, educated and highly productive Bahasa Malaysia, which is workers. Apart from government run romanised Malay, is the official educational institutions ranging from language. It is the language of kindergartens to vocational schools administration for the federal and and universities which are under the state governments. Correspondence care of the Ministry of Education, from the government is in Bahasa there is an expanding system of Malaysia, although certain private and international schools government departments may accept and institutions of higher learning correspondence in English. English, that cater to the educational needs of taught as a second language in various level, including professional schools, is widely used in business. and vocational training.

1. “Bumiputra” includes with cultural affinities indigenous to the region, mainly the Malays in West Malaysia, and various other indigenous natives of Sabah and Sarawak.

10 / DOING BUSINESS GUIDE PwC / 11 Economic structure

Malaysia is an upper-middle income country into a high income nation by Framework of the industry country, and one of the most 2020. The NEM and ETP plans to move developed economies in the region, the economy further up the Industry falls into three broad with a Gross Domestic Product (GDP) value- added chain by attracting categories: per capita of US$9,510. It has an investments and focusing on a 1. Indigenous small businesses, which open economy that is highly trade knowledge-based economy. were once largely concentrated dependent, with exports and imports in light industry as well as in of goods and services equivalent to Economic sectors wholesale and retail distribution about 130% of GDP according to and trading, have now successfully the World Trade Organization. The In terms of the magnitude of the evolved to be small and medium country has progressed from an various economic activities, the service enterprises (SMEs). SMEs economy dependent on agriculture sector is the largest contributor to contribution to GDP is 36.6% in and primary commodities to one GDP, accounting for 54.8% of GDP 2016 and is expected to expand to that is manufacturing-based, and is in 2017. Major sub-sectors within 41% by 2020. now transforming into a service and services include: finance, real estate 2. Large Malaysian corporations, knowledge driven economy. and business services; wholesale many of which are listed on Bursa and retail trade; and transport and Malaysia, previously known as the Malaysia’s real GDP growth has communications. The government Kuala Lumpur Stock Exchange. averaged 6.4% per year since 1970, plans to develop the services The shareholdings in these outperforming most of its regional sector further, which is expected companies are largely institutional, peers. During this period, the economy to contribute 60% of GDP by 2020, with significant proportions held began to diversify into a leading through initiatives such as the Services by government trust agencies exporter of electrical appliances, Sector Blueprint. (sovereign wealth fund). For electronic parts and components, palm instance, Government Linked oil, and natural gas. The manufacturing sector is placed Companies (GLCs) listed on Bursa second only to services, accounting Malaysia account for approximately In 2010, Malaysia launched the New for about 22.8% of GDP. Other major 40% of the total market Economic Model (NEM) and the economic activities in Malaysia include capitalization at the end of 2016. Economic Transformation Program the agriculture and mining sectors, (ETP), which aims to develop the which account for about 8.3% and 8.2% of GDP respectively in 2017.

12 / DOING BUSINESS GUIDE 3. Local operations of multinationals (MNCs), most of which are majority-owned by their foreign parent corporations. They account for about 28% of total approved investments in 2017, most of the investments went to the services and manufacturing sectors.

Economic outlook

The Malaysian economy grew by 5.9% in 2017 supported by a gradual improvement in global growth, recovery in global commodity prices and the continued growth of domestic demand.

The country’s economy is expected to remain resilient in 2018 registering between 5.0% to 5.5%, with domestic demand continuing to be the key driver of growth. Domestic demand will continue to be the anchor of growth, underpinned by private sector activity.

Private expenditure will continue to be the driver of growth with private investment and consumption expected to grow by 8.9% and 6.8% respectively in 2018. Private investments will be spurred by implementation of the government’s infrastructure projects under various economic programmes and the inflows of foreign direct investment. Meanwhile, private consumption will be mainly driven by stable income growth, improving labour market conditions and continued government incentives.

On the supply side, growth is expected to be broad-based with construction taking the lead, growing at 7.2%, followed by services (6.1%) and manufacturing (5.9%).

Inflation is expected to moderate to between 2.5% to 3.5% in 2018 reflecting a smaller contribution from global cost factors and a stronger ringgit compared to 2017. With a modest inflation and sustained economic growth, the central bank is expected to maintain overnight policy interest rate at 3.25%.

PwC / 13 New Economic Model Economic Transformation Programme (ETP) The New Economic Model (NEM) is the government’s response to the need to “shift (the economy) to a higher level of value added and productivity” that The ETP is a comprehensive effort to is based on innovation, creativity and high value add activities, in order to lift transform Malaysia into a high income the country into the ranks of a high income nation by 2020. nation by 2020, by boosting both investments and private consumption. The NEM was unveiled by the Prime Minister on 30 March 2010. Its Through collaborations between the formulation incorporates 3 basic principles, namely, high income, public and private sector, the ETP aims sustainability, and inclusiveness that undergirds the following key goals: to create a vibrant and competitive business environment for investments, focusing on two broad areas: Principle Goal • 12 NKEAs1; and • Six Strategic Reform Initiatives2 High income USD 15,000 – 20,000 per capita by 2020 (SRIs) (compared to USD 7,000 currently) The 12 NKEAs represent economic Sustainability Meets present needs without sectors that will drive the highest compromising future generations possible growth and will receive Inclusiveness All communities to fully benefit from the prioritized government support. As wealth of the country of 2014, there were 182 active entry point projects, with RM219.3 billion of Based on these principles, a holistic approach is adopted to foster competition investment committed as of December in all sectors of the economy through the implementation of market-friendly 2016, meeting 27% of its RM794.5 policies and regulations with the aim of creating new sources of growth billion (US$177 billion) target and promoting higher value added sectors (e.g. private education, health investments up to 2020. tourism, Islamic finance, ICT, creative industries and biotechnology).

1. The 12 key sectors/NKEAs are: Oil, gas and energy; ; financial services; tourism; business services; electronics and electrical; wholesale and retail; education; healthcare; communications content and infrastructure; agriculture; and the Greater Kuala Lumpur/ Klang Valley. 2. The six SRIs are: Competition, standards and liberalization; public finance reform; public service delivery; government’s facilitative role in business; human capital development; and narrowing disparities. 14 / DOING BUSINESS GUIDE The six SRIs, complement the 12 addition, average monthly household 2020.This initiative will be driven NKEAs, aim to boost the country’s income is to increase to RM10,540 by clear 30 year goals and targets competitiveness and investment in 2020. This will entail the creation which are being developed via an climate in areas such as ease of of 1.5 million jobs by 2020 under the inclusive and consultative process. doing business, talent development 11MP. The general goal for TN50 is for and improving public service Malaysia to become a top 20 country delivery. Malaysia is turning into As a platform for the country to in the world by the year 2050. a competitive place to do business, make vital policy shifts and invest it ranked 24th overall in ease of new approaches to address new and The government plans to unveil doing business in World Bank Doing existing challenges, the 11MP sets out: TN50 sometime between late 2018 Business 2018 report. It is also • Six strategic thrusts to help and early 2019. ranked the third best global services Malaysia stay ahead of the location in A.T Kearney’s Global challenges and opportunities of National Industry 4.0 framework Services Location Index 2017. the changing global and political landscape3; and Malaysia is also working on Eleventh Malaysia Plan (11MP) • Six game changers4 representing the blueprint for the National innovative approaches to accelerate Industry 4.0 policy framework. The 11MP, called “Anchoring growth the country’s development and The blueprint will outline the on people”, is the closing chapter growth nation’s objectives and aspirations of the 2020 Vision Plan to make in achieving the desired status of Malaysia a fully developed country Transformasi Nasional 2050 (TN50) the fourth industrial revolution by by 2020. Spanning 2016 to 2020, the empowering key stakeholders in plan is meant to steer development With the year 2020 approaching soon, the manufacturing and supportive efforts to ensure that the country the Government is embarking on its sectors. becomes an advanced nation that is next phase of development, namely inclusive and sustainable. focussing on “Transformasi Nasional 3. The six strategic trusts are: enhancing The plan targets a growth rate of 2050” or TN50 and the National inclusiveness, improving wellbeing for all, 5% to 6% a year for the Malaysian Industry 4.0 framework. accelerating human capital development, economy, led by sustained domestic pursuing sustainable growth, strengthening infrastructure and re-engineering economic demand, private investments and TN50 is an initiative to plan for the growth. infrastructure development. Under future of Malaysia in the period 2020 4. The six game changers are: unlocking the plan, Gross National Income to 2050. TN50 is part of the same productivity, uplifting households to middle- income, enabling technical and vocational (GNI) per capita is targeted to continuum in Malaysia’s development education and training, embarking on green increase to US$15,690 by 2020. In journey, taking the baton from Vision growth, translating innovation to wealth, and investing in competitive cities.

PwC / 15 International trade

Trade policy is basically in favour of World Trade Organisation research Free Trade Agreements free trade, with some protection for estimates that the gains from selected industries. The government trade facilitation reform has a Malaysia has concluded several is seeking the progressive removal of significant impact on ASEAN. For regional and bilateral free trade many of the existing trade barriers. instance, improving port facilities agreements and several more are still As a member of ASEAN, Malaysia and competitiveness in the internet at the negotiation stage. One of the has worked towards greater trade services sector would boost trade key features of free trade agreements liberalization among the ASEAN by 7.5% (US$22 billion) and 5.7% is the preferential tariff treatment member countries in realising the (US$17 billion) respectively, in the accorded to member countries. As to ASEAN Free Trade Area (AFTA) in region. date Malaysia has signed the following the year 2003. free trade agreements: • ASEAN Trade In Goods Agreement Another key trade initiative is the • ASEAN-China Free Trade ASEAN Economic Community Agreement (AEC). It aims for regional economic • ASEAN-Korea Free Trade and trade integration in the near Agreement future, supporting free flow of • ASEAN-Australia-New Zealand Free goods, services, investment and Trade Agreement capital among the ASEAN member • ASEAN-Japan Comprehensive countries. Economic Partnership Agreement • ASEAN-India Trade in Goods Agreement • Preferential Trade Agreement Amongst D-8 Member States • Malaysia-Pakistan Closer Economic Partnership • Malaysia-Japan Economic Partnering Agreement • Malaysia-Chile Free Trade Agreement • Malaysia-India Comprehensive Economic Cooperation Agreement

16 / DOING BUSINESS GUIDE • Malaysia-New Zealand Free Trade Imports and exports Export duty is generally imposed on Agreement the country’s main commodities such • Malaysia-Australia Free Trade Malaysia’s import and export policy as crude petroleum and palm oil. Agreement is to encourage free trade, and Licences are required for the export • Malaysia-Turkey Free Trade generally most imports and exports of primary products, such as palm oil Agreement do not require import / export and timber. These primary products licenses. are also subject to export duties at Free trade agreements under However for economic, social and rates that vary with the price of the negotiation are as follows: political reasons certain goods may product. The export from Malaysia of • Malaysia-European Union Free be prohibited from import or export. crude petroleum and liquefied natural Trade Agreement An import/export licence has to gas is controlled by Petroliam Nasional • Regional Comprehensive Economic be obtained for the importation / Berhad (), the government Partnership (RCEP) exportation of prohibited goods. owned national oil corporation. There is a tariff of varying rates The preferential tariff treatment and covering most imports. Raw A resident is freely permitted to make the rules of origin may vary from one materials, payment in Ringgit for international free trade agreement to another. trade in goods and services provided machinery, essential foodstuffs payments are made or receipts are and pharmaceutical products are received through the non-resident’s generally non-dutiable or subject to external account. Prior permission duties at lower rates. For machinery of the Controller of Foreign Exchange and equipment and raw materials is required if such settlement is not that are dutiable, application for through the non-resident’s external duty exemption may be considered if account. they are not available locally and are used directly in the manufacturing process.

PwC / 17 Foreign investment

Malaysia welcomes and actively the Foreign Investment Committee’s Services sub-sectors attracts foreign investments. It investment guidelines from 30 June 27 services sub-sectors were offers a combination of incentives for 2009. liberalized in 2009 with no equity foreign investors, without restrictions conditions imposed. These sub-sectors on the repatriation of capital and Some of the liberalizations initiated by were in the areas of ICT, education and profits. There is a well developed the Malaysian government include: training, healthcare, welfare, logistics, infrastructure of support services tourism and business services. and facilities, and a labour force that Manufacturing sector is priced relatively lower than in Equity holdings in manufacturing There was further liberalization (in developed countries. companies licensed by MITI are phases) in 2012 of 18 services allowed 100% foreign participation. Subsectors including Malaysia has significant natural telecommunications, departmental resources. Government policy Financial sector and specialty stores, private hospital encourages development and The limit on foreign equity ownership services, medical and dental specialist processing in the manufacturing of investment banks, Islamic banks, services, accounting and taxation, sector through a number of incentives insurance companies and takaful legal services, courier services; available for resource-based operators is up to 70%. Additionally, education and training services. manufacturing. Special incentives are 100% foreign ownership was allowed also given to promote manufacturing for fund management companies and In addition to relaxation for foreign related, regional operations and up to 70% foreign ownership for unit equity interest, the government has services-based industries, industries trust management companies and also relaxed the requirements for that are technology-intensive and stockbrokers. Bumiputra equity interest. With involve high technology. the repeal of the Guidelines for the 100% foreign equity ownership is Acquisition of Interest, Mergers In line with the government’s plan for allowed for unit trust management and Takeovers by Local and Foreign the implementation of the NEM, the companies and new foreign unit Interest with effect from 2009, the Prime Minister has liberalized major trust management companies may Foreign Investment Committee (FIC) sectors of the economy through the also enter Malaysia. For credit rating no longer imposes the requirement of years, namely, the services sector, agencies, equity shareholdings will at least 30% Bumiputra equity in an the financial services sector as well be liberalized from 1 January 2017. acquired Malaysian company. as the capital market. One significant Fully foreign owned international step taken was the deregulation of credit rating agencies may also enter Malaysia from that date.

18 / DOING BUSINESS GUIDE Notwithstanding the above, strategic Repatriation of profits and Labour attitude towards sectors of national interest will investment guarantee foreign investment continue to be safeguarded through sector regulators. Companies in sectors Profits are freely remittable. The Malaysian labour force welcomes such as water, telecommunications, Investment guarantee agreements foreign investment as a source of ports and energy continue to be (IGA) have been concluded with a employment. The industrial relations subject to equity conditions as imposed number of countries. IGAs serve to: climate has traditionally been by their respective sector regulator. • Protect against nationalization and cordial and is likely to continue to expropriation be so. The government encourages Such measures will encourage the • Ensure prompt and adequate the employment structure to reflect entry of foreign players, including compensation in the event of the multi-racial composition of the those with intentions to set-up a nationalization or expropriation Malaysian population. regional base in view of Malaysia’s • Provide free transfer of profits, strong international linkages capital and other fees Work permits can be obtained for (including Islamic finance). However, • Ensure settlement of investment skilled foreign personnel, but it is with a challenging global economic disputes under the Convention expected that the foreign investor environment, only strategic investors on the Settlement of Investment will make a sincere effort to train with a long-term view of Malaysia Disputes of which Malaysia has Malaysians to fill these positions over are expected to consider capitalizing been a member since 1966 time. on this platform of liberal market- friendly policies. Malaysia is now See Appendix A(1.1) for list of Taxation policy better placed alongside its regional countries with which Malaysia has peers in attracting foreign investments signed IGAs. The current corporate tax rate is 24%. and providing a business friendly environment for high technology, Tax holidays (for companies granted creative and value add sectors. “pioneer status”), investment tax allowance and a multiplicity of other forms of incentives are available for qualifying projects. The various tax incentives can be complex, and some

PwC / 19 are mutually exclusive. Professional Examples of tax incentives available Currently, eligible projects range from advice should be sought in order to are as follows: projects of national and strategic maximize the benefits from these importance, high technology, research incentives. Pioneer status (PS) and investment & development, healthcare, education, tax allowance (ITA) to those undertaking green technology Tax incentives PS incentive is an exemption from activities such as energy conservation income tax on 70% of statutory and generation of energy using In cognisance of the importance of income (adjusted income after renewable resources. the role of private sector investment deducting depreciation allowances) in ensuring sustainable growth in for a period of five years. ITA is an Enhanced PS and ITA incentives the medium and long term, the allowance of 60% of qualifying are also given to MSC (Multimedia government has instituted measures capital expenditure (QCE) incurred Super Corridor) status companies. to enhance investment activity in on a building or plant and machinery MSC status is awarded to both local Malaysia. One of the measures is for a period of five years. ITA is an and foreign companies that develop through tax incentives. Tax incentives alternative incentive to PS. or use multimedia technologies to are generally applicable to investors produce or enhance their products and who establish tax resident companies Companies in the manufacturing, services and for process development. in Malaysia. The policy is to encourage agricultural, hotel and tourism sectors MSC status companies are situated in foreign companies wishing to engage or any other industrial or commercial special zoned areas in Malaysia. in continuing operations in Malaysia sector that participates in a promoted to incorporate local subsidiaries. Tax activity of producing a promoted Islamic financial services sector incentives to promote investments in product may be eligible for the PS There are also an array of incentives Malaysia are generally in the form of or ITA incentive when qualifying available in furtherance of the tax exemptions on profit, capital based conditions are met. government’s objective of developing incentives in the form of allowances or Malaysia into a leading international deductions based on the quantum of There are also enhanced PS and ITA Islamic Financial Centre. These range capital expenditure incurred. incentives available for companies from tax deduction given for issuance undertaking projects in promoted costs of various Islamic securities products or activities where the to tax exemptions granted for fees government intends to further earned from management of funds in expedite growth. Enhanced PS usually accordance to syariah principles. takes the form of a full tax exemption whilst ITA is given on 100% of QCE.

20 / DOING BUSINESS GUIDE Principal hub “Pre-packaged” incentives A principal hub is a locally As part of the Government’s efforts incorporated company which uses to attract high quality investments, Malaysia as a base for conducting its specially “pre-packaged” incentives regional and global businesses and are available to companies resident operations through management, in Malaysia carrying on an “approved control and support of key functions. business”. An “approved business” These include management of risks, is defined to mean any business decision making and strategic business approved by the Minister of Finance activities such as trading, finance, (“the Minister”) under the special management and human resource. incentive scheme. Under this scheme, a company is entitled to claim either: Income tax at tiered rates (0%, 5%, or • Tax exemption of 70% (or any other 10%) is given for a period of up to ten rate as prescribed by the Minister) years, subject to conditions being met of the company’s statutory income; (for applications from 1 May 2015 to or 31 December 2020). Other available • Tax exemption of 70% (or any other non-fiscal incentives available include: rate as prescribed by the Minister) • No equity/ownership conditions. of statutory income granted based • Foreign exchange administration on a percentage (as determined by flexibilities and expatriate the Minister) of qualifying capital positions. expenditure incurred. • Customs duty exemption for raw materials, components, or finished products brought into free zones, licensed and bonded warehouses for production or repackaging, cargo consolidation, and integration before distribution to its final customers for goods-based companies.

PwC / 21 Principal government agencies

Development Regions See Appendix A(1.2)* for a list of The following development regions were launched as part of the Malaysian government agencies (with brief government’s plan for national economic advancement through regional descriptions of the function of each development and growth acceleration in various strategic locations by promotion agency.) of domestic and foreign investments:

Economic Region Location 1. Southern Johor (www.iskandarmalaysia.com.my) 2. Northern Corridor Economic Region States of , , (http://www.koridorutara.com.my/) Penang and northern

3. East Coast Economic Region States of , (www.ecerdc.com.my) , and district of Mersing in Johor 4. Sabah Development Corridor Western, central and (www.sedia.com.my/) eastern regions of Sabah 5. Sarawak Corridor of Renewable Energy Central Sarawak (www.recoda.com.my)

Basic to the strategy for promotion of investments in these development regions is the provision of all necessary infrastructure (financial and non-financial) for the creation of a business-friendly environment, including tax and other financial incentives. Apart from existing incentives which are available for promoted activities and products provided under the Promotion of Investments Act 1986 (PS, ITA, etc.) and the Income Tax Act 1967, special incentives which are customized for the purpose of each development region have been (or will be) developed. To date, special legislation has been enacted for Iskandar Malaysia and the East Coast Economic Region.

22 / DOING BUSINESS GUIDE PwC / 23 24 / DOING BUSINESS GUIDE Chapter 2 Business formation and the regulatory environment

Business formation: types of business entities General regulatory environment Raising capital Securities market Competition policy Monopolies and antitrusts Price control and anti-profiteering Mergers and acquisitions Court system Intellectual property rights Controls on foreign exchange

PwC / 25 Business formation: types of business entities

Types of entity to subscribe for shares or debentures of Two or more individuals or bodies the company or to deposit money with corporate may form an LLP for any The following are the forms of the company. Shareholders / members lawful business in accordance with business organization available in of a private company shall not be the terms of the LLP Agreement. Malaysia. more than fifty and are also restricted An LLP may also be formed for the in their right to transfer their shares purposes of carrying on professional Company in the company. A public company services of which the partners must be Effective 31 January 2017, companies is employed where it is intended to natural persons of same professional are governed by the new Companies invite the public to subscribe for shares practice and have in force, professional Act 2016, which provides for three or debentures in the company or to indemnity insurance approved by the types of companies: deposit money with the company. Registrar. 1. Company limited by shares; 2. Company limited by guarantee; or Limited Liability Partnership (LLP) An LLP has perpetual succession and 3. Unlimited company. LLP is an alternative business any change in the partners will not vehicle regulated under the Limited affect the existence, rights or liabilities In practical terms, almost all Liability Partnerships Act 2012, of a LLP. companies will be companies limited which combines the characteristics by shares, i.e., companies with limited of a company and a conventional Partnership or sole proprietorship liability, the maximum liability of a partnership. All sole proprietorships and member being limited to the value partnerships (excluding LLPs) of share capital. Companies may be An LLP is a separate legal entity from are unincorporated and must be formed as either private companies or its partners. The liabilities of the registered with the Registrar of public companies. partners of an LLP are limited while Businesses also under the auspices of the LLP has unlimited capability in the Companies Commission Malaysia A private company is one which is conducting business and holding (CCM). As unincorporated entities, prohibited by its articles of association property. sole proprietorships and partnerships to issue any invitation to the public have unlimited liability. In the case of partnerships, partners are both jointly and severally liable for the debts and obligations of the partnerships.

26 / DOING BUSINESS GUIDE Joint venture Representative/Regional office affiliates, subsidiaries and agents in Joint ventures are structured either The representative regional Southeast Asia and the Asia Pacific. as partnerships or as incorporated office does not undertake any The regional office established companies; the term “joint venture” commercial activities and only is responsible for the designated does not denote a separate and distinct represents its head office/principal activities of the company/ business entity. to undertake designated functions. organisation within the region it The representative/regional office’s operates. Branch of foreign company operation is completely funded from A foreign company is a company sources outside Malaysia. incorporated outside Malaysia. A Foreign enterprise entities foreign company that desires to The representative office/ regional establish a place of business or to office is not required to be Most foreign investors incorporate carry on business within Malaysia, incorporated under the Companies Act one or more companies in Malaysia may establish a branch by filing 2016. The set up of a representative/ through which all operations in the required returns to CCM. The regional office requires the approval of Malaysia are carried out. establishment of a branch is not the Malaysian Government. encouraged for a foreign company Foreign companies that come to engaged in wholesale or retail trade. • Representative office: An office of Malaysia solely to undertake a a foreign company/organisation construction project or some similar A foreign company or organization approved to collect relevant form of infrastructure development that does not have the intention to information on investment occasionally form unincorporated joint undertake commercial activities opportunities in the country, ventures with a local company. The in Malaysia and only represents its especially in the manufacturing choice of such structures is usually head office / principal to undertake and services sector, enhance necessitated by the tax environment designated functions may apply to the bilateral trade relations, promote in the home country of the foreign appropriate Government Authority for the export of Malaysian goods and company. a Representative / Regional Office. services and carry out research and development (R&D). For a comparison of the relative • Regional office: An office of a advantages of a corporation, branch foreign company/organisation that and sole proprietorship or partnership serves as the coordination centre structure, see Appendix B(2.1). for the company/organisation’s

PwC / 27 General regulatory environment

Various government agencies are 2. Adoption of international In recent years, the government responsible for implementation and standards and best practices to has also adopted a policy of enforcement of regulations governing improve the quality of Malaysian allowing greater flexibility on various aspects of doing business goods and services as well as foreign equity participation in local in Malaysia, such as registration access to international markets; companies. Recent measures taken of businesses, issue of licences, and in this direction are summarized enforcement of health and safety 3. Liberalisation of the services in Chapter 1 (refer to section on requirements, as well as ensuring sector which opens markets “Foreign Investments”.) compliance with various government to foreign investment while policies (for example, policies encouraging competition. The main regulatory agencies are relating to employment of workers or listed in Appendix B(2.2). to equity structures of companies). The Government had also introduced the new Companies Act 2016. This In a move to become a developed and replaced the 1965 Act, which had high income nation, the government been in place for over 50 years. has introduced six Strategic Reform The new Act will facilitate and Initiatives1 (SRIs) in 2011 to provide modernise the legal framework on the enablers for Malaysia to be how companies are incorporated, competitive. One of the six SRIs organised and managed in Malaysia. includes reforms in competition, It is being implemented in stages, standards and liberalization. It beginning from 31 January 2017. includes three main components, they are: 1. The implementation of the Competition Act 2010, which aims to boost economic growth by promoting and protecting the process of competition;

1. The six SRIs are: Competition, standards and liberalisation; public finance reform; public service delivery; government’s facilitative role in business; human capital development; and narrowing disparities.

28 / DOING BUSINESS GUIDE Raising Capital

Securities Commission (SC) The Malaysian capital market Wherever possible, SC is also The SC is the single regulator for moved from a merit-based (MBR) to simplifying and streamlining all fund raising activities and is a disclosure-based regulatory (DBR) regulation to foster an innovative established by law to regulate and framework for fund raising in 2003. and vibrant capital market oversee the orderly development of Under DBR, the onus of assessing environment. the securities and futures contracts the merit of any securities rests with markets. SC’s many regulatory the investors whose money is being Among others, the SC will focus on functions include: put at risk. The investors assess the following moving forward: • Supervising exchanges, clearing and determine the investment • Liberalising requirements for houses and central depositories; merits of the offering while the retail participation in the bond • Registering authority for SC regulates the disclosure of and sukuk market prospectuses of corporations other material information. Essentially, • Accelerating development of a than unlisted recreational clubs; in moving from MBR to DBR, the Shariah-compliant Sustainable • Approving authority for corporate capital market progresses to an and Responsible Investment bond issues; environment largely governed by ecosystem • Regulating all matters relating to self-regulation, high standards of • Implementing the SC’s digital securities and futures contracts; disclosure and due diligence as well markets strategy • Regulating the take-over and as corporate governance practices. • Introducing enhancements to mergers of companies; the IPO framework to promote • Regulating all matters relating to In striking a regulatory balance efficiencies in equity fundraising unit trust schemes; between under and over-regulation, • Licensing and supervising all SC’s regulatory framework will licensed persons; increasingly feature a more • Encouraging self-regulation; and outcomes based design, favouring • Ensuring proper conduct of market broad-based standards over institutions and licensed persons. prescriptive, detailed rules.

PwC / 29 Securities market

Bursa Malaysia Under the fund-raising framework • Secondary listings and cross Public trading/exchange of shares in launched by the SC and Bursa listings; and Malaysia is conducted through on 8 May 2009, “rules and • Transfer of listings from the ACE Malaysia Securities Berhad (BMSB), processes for equity”, fund-raising has • Market to the Main Market. the stock exchange unit of Bursa been streamlined in order to provide Malaysia Berhad (Bursa Malaysia). greater certainty, shorter time-to- All other equity-based corporate Bursa Malaysia was previously known market and lower regulatory costs. proposals such as acquisitions (other as the Kuala Lumpur Stock Exchange Under the framework, the SC’s review than reverse take-overs and back Berhad (KLSE), pursuant to its of corporate proposals will focus on door listings), disposals, placements demutualization in January 2004. the following: of securities, rights offerings and From 3 August 2009, listing of shares • Compliance with minimum issuance of warrants, would no longer is done through Bursa Malaysia’s requirements; require the SC’s approval. The SC two Markets – the Main Market for • Standards of corporate governance; would continue to vet and register established corporations, and the ACE • Resolution of conflicts of interest; prospectuses to ensure adequate and Market which is an alternative market • Preservation of public interest; and meaningful disclosures to investors. open to companies of all sizes and • Adequacy of disclosures to enable Bursa Malaysia will take on “a more from all economic sectors. investors to make informed active role as the frontline regulator investment decisions. for secondary equity fund raisings.” 2 A third new market, known as the Leading Entrepreneur Accelerator SC’s approval (under relevant Bursa Malaysia Platform (LEAP) Market was officially legislative provision) would only be Derivatives Berhad launched on 26 July 2017. This new required for the following substantive Exchange of financial and commodities market aims to provide small and corporate proposals in the Main futures in Malaysia is conducted medium enterprises (SMEs) with Market: through Bursa Malaysia Derivatives both visibility and an alternative and • Initial Public Offerings; Bhd, a futures and options exchange efficient fund-raising platform through • Acquisitions resulting in a covering financial, equity and the capital market. significant change in business commodity-related instruments. direction or policy of a listed The exchange also acts as the front corporation (reverse takeovers and line regulator for the Malaysian stock back-door listings); market and is in turn supervised by the SC. 2. Quoted from Bursa Malaysia’s Media Release on 8 May 2009.

30 / DOING BUSINESS GUIDE Competition policy Monopolies and anti-trusts

In general, the government is not and engaging (individually or There is no specific anti-monopoly against competition. Given the active collectively) in conduct which or anti-trust legislation in Malaysia. participation of the government in amounts to abuse of dominant Monopolies per se are not deemed business and the need to nurture position in any market for goods to be against the public interest and infant Malaysian industries, protection or services. If an agreement is are found in various sectors of the from competition is provided to entered into which could be economy. specific industries through licensing deemed to be preventing, distorting and fiscal measures. or restricting competition, liability will be imposed upon In 2010, the Competition Act 2010 the enterprise involved. Certain (CA) and the Competition Commission activities are excluded from the CA Act 2010 (CCA) were passed by the (e.g. agreements made to comply Malaysian parliament and have come with legislative requirements, or into force on 1 January 2012 and collective bargaining activities). 1 January 2011 respectively. The The Malaysian Competition purpose of the CA is to promote and Commission, an independent protect the process of competition body established under the CCA and interest of consumers with the is tasked with enforcing the CA. ultimate objective of promoting The commission is responsible for economic development. The CCA investigating complaints on anti- governs the establishment of a competition behaviours, carrying Competition Commission and its out market reviews and imposing powers and functions. Under the penalties on offenders. CA, enterprises are prohibited from participating in specified trade practices, namely, the making of horizontal or vertical agreements,

PwC / 31 Price control and anti-profiteering

The Price Control and Anti- PCAP 2016 applies only to food The method of determining high Profiteering Act 2011 (PCAPA) and beverages, and household profit is done using either the mark-up enables the government to determine goods (excluding cosmetics). It is percentage or the margin percentage the price of goods and services not applicable to services. It also of the goods sold or offered using the in order to curb profiteering by implements a formula-based approach formulas prescribed by the regulation. penalizing businesses that make to determine unreasonably high “unreasonably high profits”. The profits. This measure was taken to curb Act was introduced as part of the exorbitant price hikes in household government’s plan to implement items by unscrupulous businesses. goods and services tax (GST).

In January 2015, the Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations 2014 was put in place to operationalise the PCAPA. The regulations, which were introduced ahead of the GST implementation on 1 April 2015, were set to expire by 31 December 2016.

In December 2016, a new Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit for Goods) Regulations 2016 (PCAP 2016) was introduced to replace all earlier regulations, with effect from 1 January 2017.

32 / DOING BUSINESS GUIDE Mergers and acquisitions

The regulatory framework for take Some of the key changes under the • Where the offeree has a primary overs and mergers in Malaysia was Rules and New Code are as follows: listing on a foreign stock exchange revised on 15 August 2016 with the • Removal of the requirement of a and a secondary listing in Malaysia, revocation of the Malaysian Code on minimum 50% shareholding for the Rules provide that the SC may Take-Overs and Mergers 2010 (Old parties intending to initiate a take- consider disapplying the Rules, Code). In its place, the Minister of over scheme (e.g. arrangement, provided that the applicant is able Finance prescribed the Malaysian compromise, amalgamations to demonstrate that the relevant Code on Take-Overs and Mergers 2016 and selective capital reductions). foreign take-over regulation accords (New Code), a legislative supplement Previously, any person intending an equivalent level of protection to issued under the Malaysian Capital to initiate a takeover scheme must offeree shareholders as provided Markets and Services Act. The Rules on hold at least 50% of the voting under the Rules. Take-Overs, Mergers and Compulsory share or right in the target company • In mandatory take-overs arising Acquisition 2016 (Rules) was also in order to do so. from an arrangement, agreement issued contemporaneously by the SC. • In the case of unlisted public or understanding to control companies, the takeover framework between offeror and persons acting The New Code consists of 12 will only apply to sizeable unlisted in concert (PACs), the offer price overarching general principles which public companies having more than shall be the higher of the highest must be observed and complied with 50 shareholders and net assets of purchase price paid by the offeror by all persons engaged in any take- RM15 million or more. Business and PACs, or the volume weighted over or merger transaction. The Rules trusts listed in Malaysia are also average traded price (VWAP) of are the equivalent of the superseded subject to the framework. the offeree for the last 20 market practice notes that set out the • In respect of an offeree with days prior to the triggering of the operative provisions for take-overs. primary listing on both a stock mandatory take-over offer. The SC exchange in Malaysia and outside has the discretion to disregard any The SC stated that the New Code of Malaysia, and which as a result unusually high or low traded prices and Rules are intended to “facilitate may be subject to dual jurisdiction within the relevant period for the market activities in a fast changing of the SC and the foreign take-over VWAP. environment, whilst ensuring regulator, early consultation with appropriate shareholder protection” the SC is required so that guidance For more information on the Rules and and to ensure that the take-over may be given on how to resolve to view the details of the 12 general framework “will be facilitative to any conflicts between the relevant principles outlined in the New Code, commercial realities while providing regulatory frameworks. visit www.sc.com.my/legislation- protection to shareholders where guidelines/take-overs-code/. required”.

PwC / 33 Court system

General Courts, and jurisdiction to hear matters heard by the High Court in The Malaysian legal system is appeals from the Subordinate Court its original jurisdiction (i.e. where the substantially based on the British in civil and criminal matters. They case has not been appealed from the legal system and the principles of have unlimited civil jurisdiction, Subordinate Courts). common law. At the lowest level in the however they generally confine hierarchy of courts in Malaysia is the themselves to matters on which the Besides the ordinary courts of law, Magistrates Court, the next being the Magistrates and Sessions Courts there are also scores of specialized Sessions Court, then the High have no jurisdictions, i.e. civil actions statutory tribunals, for example the Court, then the Court of Appeal. At the where the claim exceeds RM1,000,000 Industrial Court, Labour Court and apex is the Federal Court. There are (other than actions involving motor the Tribunal for Consumer Claims. generally two types of trials, civil and vehicle accidents, landlord and tenant These quasi-judicial bodies serve to criminal. disputes and distress) and criminal provide an alternative, inexpensive cases where the offences carry the and expedited means to settle The Magistrates Court and Sessions death penalty. disputes between parties within their Court have jurisdiction in both civil specialised jurisdictions. and criminal matters. The former The Court of Appeal generally hears hears all civil matters where the claim all civil appeals against decisions of Syariah Courts does not exceed RM100,000. The the High Courts except where it is There is a parallel system of state latter has jurisdiction to try all civil against judgment or orders made Syariah Courts which has limited actions or suits where the claim does by consent. It also hears appeals of jurisdiction over matters of state not exceed RM1,000,000, except criminal decisions of the High Court. Islamic law. The Syariah Courts in matters relating to motor vehicle It is the court of final jurisdiction for have jurisdiction only over matters accidents, landlord and tenant and cases which began in any subordinate involving . distress, where the Sessions Courts courts. have unlimited jurisdiction. Income tax appeals The highest court in Malaysia is the Income tax appeals are first heard There are two High Courts, the Federal Court. The Federal Court by Special Commissioners of Income High Court in Malaya and the High may hear appeals of civil decisions Tax who have all the powers of a Court in Sabah and Sarawak. The of the Court of Appeal where the subordinate court. Appeals against the two High Courts in Malaysia have Federal Court grants leave to do so. It decision of the Special Commissioners general supervisory and revisionary also hears criminal appeals from the of Income Tax are made to the High jurisdiction over all the Subordinate Court of Appeal, but only in respect of Court, and then to the Court of Appeal, which is the final court for appeal for such cases.

34 / DOING BUSINESS GUIDE Intellectual property rights

Intellectual Property Corporation Malaysia is a member of the World Intellectual Property Organization (WIPO), of Malaysia a signatory to the Agreement on Trade Related Aspects of Intellectual Property The administration of Intellectual Rights (TRIPS) signed under the auspices of the World Trade Organization (WTO), Property Rights (IPR) is undertaken and a signatory to the Paris Convention and Berne Convention which govern by the Intellectual Property intellectual property rights. Malaysia has also acceded to the Patents Cooperation Corporation of Malaysia (MyIPO) Treaty (PCT) in the year 2006 and effective from 16 August 2006, the PCT which is a corporate body established International Application can be made at MyIPO. under the Intellectual Property Corporation of Malaysia Act Malaysia’s intellectual property laws are in conformity with international standards 2002. MyIPO is an agency under and provide protection to local and foreign investors. The various legislations are the Ministry of Domestic Trade, listed below Cooperative and Consumerism. Its functions include the following: Legislation Protection for • Establishment of a strong and effective administration of Patents Act 1983 Patents intellectual property; Patents Regulations 1986 • Strengthening of intellectual Trade Marks Act 1976 Trade marks property laws; Trade Marks Regulations 1997 • Providing comprehensive and Trade Descriptions Act 2011 user-friendly information on Industrial Designs Act 1996 Industrial designs intellectual property; Industrial Designs Regulations 1999 • Promoting public awareness Copyright (Amended) Act 2012 Copyrights programmes on the importance of Various regulations intellectual property; and • Providing advisory on intellectual Geographical Indications Act (Upon registration) protection of property. 2000 Geographical Indications goods following the name of the Regulations 2001 place where the goods are produced, where a given quality, reputation or other characteristic of the goods is essentially attributable to their geographical origin. Layout Designs and Integrated Layout designs of integrated Circuit Act 2000 circuits

PwC / 35 Controls on foreign exchange

Malaysia has a system of exchange • To pay in foreign currency to a Borrowings in foreign currency by a control measures aimed at monitoring non-resident for any purpose resident the settlement of foreign currency (other than derivatives), including A resident company is free to: payments and receipts as well as settlement of import of goods and • borrow any amount in foreign encouraging the use of the country’s services. currency from its resident and non- financial resources for productive resident entities within its group purposes in Malaysia. The Financial Investments abroad by a resident of entities or direct shareholder or Services Act 2013 is the main Investment assets in foreign currency licensed onshore banks. However, legislation governing dealings and assets are subject to the following: where a non-resident special transactions in foreign currency whilst • A resident without domestic Ringgit purpose vehicle is set up solely the Exchange Control Notices issued credit facilities is free to invest any to obtain borrowings from any by the , amount abroad. person which is not part of the i.e. Bank Negara Malaysia (BNM) • A resident entity with domestic resident entity’s group of entities, embody the general permissions and Ringgit borrowing is able to the borrowings are subject to the directions of the Controller of Foreign invest any amount abroad from prevailing aggregate limit of RM100 Exchange (the Controller). conversion of Ringgit up to RM50 million equivalent from non- million per annum (based on residents. Some of the controls put into place aggregate borrowing of entities • procure from non-resident include: within its group of entities or direct suppliers, any amount of foreign shareholder). However for resident currency supplier’s credit for capital Remittances abroad by a resident companies that meet prudential goods. A resident is freely permitted: requirements, direct investment • To pay in Ringgit (to be converted abroad is permitted without limit. Borrowings in Ringgit by non- when remitting abroad) to a non- Written permission is required residents resident for settlement of domestic from BNM to undertake these Non-residents are permitted to borrow or international trade in goods investments. any amount of Ringgit credit facilities and services provided payments • An individual with domestic credit from residents to finance activities in are made or receipts are received facilities is able to invest any the real sector of Malaysia. Real sector through the non-resident’s external amount abroad from conversion is the sector where there is production account. of Ringgit up to RM1 million per of goods and services which includes annum.

36 / DOING BUSINESS GUIDE all industries except for financial • Non-resident accounts (external services. Non-residents are allowed accounts) to finance or purchase any residential Non-residents may maintain any or commercial property in Malaysia number of external accounts with any (excluding financing for purchase of financial institution in Malaysia and land only). there is no restriction on the amount of Ringgit funds to be retained in the Types of accounts external accounts. • Foreign currency accounts In general, a resident is allowed to open foreign currency accounts with licensed onshore banks, or non-resident financial institutions for any purpose. For resident exporters, export proceeds must be credited into foreign currency accounts maintained with licensed onshore banks only and where the proceeds is from export of goods, only up to 25% of the proceeds can be retained in foreign currency with the balance converted into Ringgit. There is no restriction on the maintenance of a foreign currency account by a non- resident.

PwC / 37 38 / DOING BUSINESS GUIDE Chapter 3 Labour relations and social security

Employment regulations Unions Working conditions, wages/salaries and statutory contributions Foreign personnel

PwC / 39 Employment regulations

Employment Act 1955 The Industrial Relations Act 1967

The provisions of the Employment The Industrial Relations Act 1967 The Department of Industrial Act 1955 (Employment Act) cover (the Act) and the Industrial Relations Relations Malaysia continues to play any person who works under a Regulations 1980, form the legal an important role in maintaining contract of service with an employer framework within which the industrial a harmonious environment in the and who does not earn more than relations system in Malaysia operates. labour market, by helping to avert RM2,000 (wef 1 April 2012, previously The objective of the Act, as stated in industrial action through active RM1,500) a month on wages, or its preamble, is “to provide for the intervention, consultations as well as specific categories of employees. regulation of the relations between negotiations between parties. In the Employees earning more than employers and workmen and their event of a dispute, the Act provides RM2,000 but not exceeding RM5,000 trade unions, and the prevention for free negotiation between trade may use the enforcement provisions and settlement of any differences unions and employers on a voluntary of the Employment Act to enforce or disputes arising from their basis. Disputes may be reported to monetary claims under their contracts. relationship and generally to deal with the Ministry of Human Resources This is applicable to West Malaysia trade disputes and matters arising for conciliation and referred to the only. The Sabah and Sarawak Labour therefrom”. The Act aims to provide Industrial Court for settlement. Ordinances (the ordinances) cover safeguards for legitimate rights, Awards made by the Industrial Court certain types of employees who have prerogatives and interest of employees are final and legally binding. The entered into or work under a contract and employers and their trade unions, Act prohibits strikes or lockouts after of service with their employers. The and to ensure that trade disputes are a dispute has been referred to the ordinances include foreign workers settled speedily and in a just manner, Industrial Court. of these specified occupations. Where so as not to prejudice public and the persons are not covered by the national interests. Employment Act and the ordinances, common law relating to employment will apply to them.

40 / DOING BUSINESS GUIDE Unions

The Employment (Part-Time Others Omnibus or general workers’ unions Employees) Regulations 2010 are not permitted, but unions (EPTER) The following legislative enactments/ belonging to the same industry may code are relevant in providing for the apply to form a federation of trade The EPTER came into effect on 1 health, safety and general well-being unions or become affiliated with the October 2010 and provides protection of employees: Malaysian Trade Unions Congress or for part-time employees (PTE) who • Factories and Machinery Act 1967 the Malaysian Labour Organization. are hitherto, not protected under any - law relating to the safety of labour law. Some of the protection employees in the use of machinery; All trade unions are required by law and benefits provided under the • Occupational Safety and Health Act to be registered with the Registrar of EPTER include payments for hours 1994 - imposes general duties upon Trade Unions and must comply with worked beyond normal hours, paid employers, self-employed persons the requirements of the Trade Unions holidays, paid annual leave, sick and employees to secure workplace Act 1959. This Act sets out rules for the leave and weekly rest days for PTE health and safety; conduct of union business, such as the who fall within the regulations. This • Code of Practice on the Prevention election of officers, strike ballots and regulation will require employers to and Eradication of Sexual the use of union funds. make contributions to the national Harassment in the Workplace - Employees Provident Fund (EPF) provides guidelines for employers and Social Security Organization on the establishment of in-house (SOCSO) for most part-time mechanism at the enterprise level workers who are eligible for such to prevent and eradicate sexual contributions. harassment in the workplace. With effect from 1 April 2012, new Part XVA has been inserted into the Employment Act 1955 which deals with matters pertaining to sexual harassment.

PwC / 41 Working conditions, wages/salaries and statutory contributions

The Malaysian Investment Development who are not Malaysian citizens or permanent residents are not required to Authority (MIDA) publishes on its contribute to EPF although they may elect to do so. The rates of contributions website at www.mida.gov.my a guide are as follows: on the Cost of Doing Business in Malaysia which provides information on The statutory rates of contributions are as follows:

regulatory requirements relating to the Malaysian citizens and Expatriates and foreign following: permanent residents workers1 • Paid leave (annual leave; maternity (mandatory) leave; sick leave; ) See Appendix % of contribution of employee’s wages (minimum) C(3.1) Contribution by Employer Employee Employer Employee • Paid holiday; Till age 60 13% 11% RM5 per 11% • Normal working hours; (Income ≤ RM5,000)2 person • Payment for overtime work; • Salaries (maximum and minimum) Till age 60 12% 11% RM5 per 11% for executives and non-executives in (Income > RM5,000) person the manufacturing sector. Age 60 till 75 6% 5.5% RM5 per 5.5% • Statutory contributions in respect of person employees to the following funds: Age 60 till 75 6.5% 5.5% RM5 per 5.5% (Income ≤ RM5,000)2 person Employees’ Provident Fund (EPF) The Employees Provident Fund 1. Not required to contribute to EPF, but can elect to contribute. Act 1991 requires employers 2. If the employer pays bonus to an employee who receives monthly wages of RM5,000.00 and employees to make monthly and below and upon receiving the said bonus renders the wages received for that month to contributions to the EPF to secure exceed RM5,000.00, the calculation of the employer contribution rate shall be calculated at lump sum payments to employees the rate of 13% / 6.5%, and the total contribution which includes cents shall be rounded to at the age of 60 or earlier in the next Ringgit. the case of incapacity or upon permanent departure from Malaysia. Contributions are mandatory for employees who are Malaysian citizens or permanent residents. Expatriates and foreign workers,

42 / DOING BUSINESS GUIDE Social Security Organization Human Resources List of Industry covered under HRDF (SOCSO) Development Fund (HRDF) 1. Manufacturing Sector The Social Security Organization HRDF provides financial assistance • Electrical and Electronic is an insurance scheme that cover for training by contributing employers • Metal Product Employment Injury and Invalidity under certain designated training • Mineral Product Pension Scheme. All employees are schemes. • Food and Beverages covered by the Employment Injury The employer that fall under the • Transport Equipment Insurance Scheme (EIIS) and the industries listed by HRDF are required • Plastic Invalidity Pension Schemes (IPS), to register with the HRDF and • Wood & Wood based and Cork which are administered by the Social contribute in respect of employees who • Machinery Security Organization (SOCSO). are Malaysian citizens. • Industrial Chemicals Employees falling within the schemes • Paper and Pulp will continue to remain within the Currently there are 63 sub • Iron and Steel schemes. A monthly contribution sectors covered by HRDF under • Rubber Product must be made for each eligible Manufacturing, Services Mining and • Furniture and Fixtures employee. There are two categories of Quarrying. • Printing and Publishing contributions: HRDF has standardized the minimum • Textile and Apparel • The first category of contribution number of local employees to register • Petroleum and Coal (to both EIIS and IPS) is by both with HRDF to 10 for all employers • Optical and Photography the employer and employee. The under the existing coverage of 63 sub • Glass and Glass Product amount is based on the employee’s sectors. The contribution rate will be • Petroleum Refinery monthly wages, restricted to at 1%. • Footwear a maximum of RM69.05 and • Ceramic RM19.75 for employer and HRDF will allow voluntary registration • Tobacco employee respectively. to all employers under the existing 63 • Leather • The second category of contribution subsectors that employs 5 to 9 local (EIIS only) is solely by the employee to contribute HRDF at 0.5% 2. Mining & Quarrying Sector employer for an employee who is of their monthly wages. • Petroleum and gas extraction not eligible for coverage under the • Mineral and stone quarrying IPS, restricted to a maximum of RM49.40 .

PwC / 43 3. Service Sector • Food and beverage services Employment Insurance System • Energy • Production of motion The Employment Insurance System, • Hypermarket/Supermarket/ picture, video and television (EIS) was first implemented in January Departmental Store programme, sound recording 2018 as a social security network • Direct Selling and music publishing aimed at helping workers who lost • Commercial Land Transport and • Information service their jobs for financial assistance and Railway Transport Services • Tourism enterprise seeking new jobs. EIS is administered • Warehousing Services • Building and landscape by Social Security Organisation • Port Services services (SOCSO). • Hotel Industry • Event management services • Freight Forwarding • Early childhood education It is mandatory for all private • Shipping • Health support services sector employer to make monthly • Air Transport • Franchise contribution for each of their • Tour Operating Business (In- • Sale and repair of motor employees. The maximum bound only) vehicles contribution wage ceiling is fixed at • Postal or Courier • Private broadcasting services RM4000 per month. EIS contribution • Telecommunication • Driving school rate is at 0.2% of the employees of • Research & Development • Veterinary services the employee’s monthly wages and • Engineering Support & payable by the employer and employee Maintenance Services respectively. The monthly contribution • Security Services amount for employee and employer • Computer Services will range from a minimum of • Advertising RM0.05 to a maximum of RM7.90 per • Private Hospital Services employee as per the Second Schedule. • Higher Education • Training • Gas, steam and air-conditioning supply • Water treatment and supply • Sewerage • Waste management and material recovery services

44 / DOING BUSINESS GUIDE Foreign personnel

Approval for expatriate posts Other approving agencies for The following minimum paid-up share expatriate posts are: capital requirements must be fulfilled Approvals for expatriate posts are • Multimedia Development before an application for an expatriate given by different authorized bodies Corporation (MDec) – for position can be processed by the or agencies depending on the type of expatriate posts and skilled workers expatriate committee: core business of the company. The in IT based companies with MSC Malaysian Investment Development status. 100% Malaysian owned company: Authority (MIDA) approves expatriate • Public Service Department (PSD) – RM250,000 posts in the following fields: doctors and nurses in government • Manufacturing hospitals and clinics; lecturers and Malaysian and foreign owned • Manufacturing related services tutors in government institutions of company: – Regional Office; Operational higher learning; contract posts in RM350,000 Headquarters; Overseas Mission; public services and jobs offered by International Procurement Centre, the Public Service Commission or 100% foreign owned company: etc. related government agencies. RM500,000 • Hotel and tourism industry • Central Bank of Malaysia - posts • Research and Development in banking, finance and insurance Company undertaking distributive sectors. trade and foreign owned restaurant: • Securities Commission – RM1,000,000 employment in security and share market. • Department of Immigration Restrictions on employment Malaysia (the expatriate of foreign personnel committee) – employment in sectors other than the above. The government permits a company investing in Malaysia to bring in technical expertise or other executive personnel necessary for the functioning of the company. However, it is the government’s policy that jobs should be filled by Malaysians eventually. The Malaysian government is desirous that Malaysians are eventually trained and employed at all levels of employment.

PwC / 45 46 / DOING BUSINESS GUIDE Chapter 4 Audit requirements and accounting practices

Statutory requirements for Malaysian incorporated companies Statutory requirements for foreign companies carrying on business within Malaysia Financial Reporting Framework in Malaysia Auditing requirements

PwC / 47 Statutory requirements for Malaysian-incorporated companies

Accounting and other records Accounting and other records are to The financial statements or where be retained for seven years after the applicable consolidated financial Every company incorporated under completion of the transactions or statements for a financial year shall the Companies Act 2016 is required operations to which they relate. give a true and fair view of the to keep accounting and other records financial position as at the end of so as to sufficiently explain the System of Internal Control the financial year and the financial transactions and financial position of performance for the financial year of the company and enable preparation The directors of a public company the company or where applicable of of financial statements showing true or a subsidiary of a public company the company and all its subsidiaries and fair view to be conveniently and shall have in place a system of internal which are dealt with in the properly audited. All transactions control that will provide reasonable consolidated financial statements as a must be recorded within 60 days of assurance that the assets of the whole. completion. These accounting and company are safeguarded against loss other records are the responsibility of from unauthorised use or disposition, The financial statements shall contain, the company’s directors. to give a proper account of assets in the notes to the statements, the and all transactions are properly information as the Registrar of These accounting and other records authorised and that the transactions Companies (Registrar) may determine must be kept at the company’s are recorded as necessary to enable the and may include but not limited to the registered office (which must be preparation of true and fair view of the directors’ remuneration, the directors’ in Malaysia) or such other place as financial statements of the company. retirement benefits, compensation to the directors think fit. Accounting and directors for loss of office, loans, quasi- other records relating to operations Financial statements loans and other dealings in favour outside Malaysia may be kept at a of directors, auditors’ remuneration place outside Malaysia, provided such The directors must present a set of for their service as auditors given accounting and other records are sent financial statements in accordance by or from the company or from any to and kept at a place in Malaysia. The with the approved accounting subsidiary of the company. accounting and other records must be standards issued or adopted by made available for inspection by the Malaysian Accounting directors at all times. Standards Board (MASB) and the requirements of the Companies Act 2016.

48 / DOING BUSINESS GUIDE Directors’ report For a private company, the financial Statement by directors on the statements and directors’ report must financial statements The matters required to be covered be circulated within 6 months of the in the directors’ report are set out in company’s financial year end and A statement signed by at least two Section 253 and Fifth Schedule of must be lodged with the Registrar directors and in the case of a sole the Companies Act 2016. A directors’ within 30 days from the date the director, by that director in accordance report must be attached to every financial statements and the directors’ with the resolution of the Board of financial statements. reports are circulated to its members. director(s) stating whether in their or For a public company, the financial his opinion the financial statements A directors’ report may include a statements and directors’ report must or where applicable the consolidated business review. be circulated at least 21 days before financial statements is or are drawn the annual general meeting and must up, in accordance with the applicable Duty of Circulation and Lodgement be lodged with the Registrar within 30 accounting standards, to give a true of Financial Statements and days from its annual general meeting. and fair view of the financial position Directors’ reports and financial performance of the All amounts shown in the financial company and of the group. The directors of every company must statements and directors’ reports prepare financial statements within 18 lodged with the Companies Statutory declaration by the director months from the date of incorporation Commission of Malaysia (CCM) shall or person responsible for financial and, subsequently within 6 months be presented in Malaysian currency management of the company’s financial year end. and if such financial statements and Every company must circulate a reports are in a language other than In addition, a statutory declaration by copy of its financial statements and the national language or English a director or where the director is not directors’ report for each financial year language, there must be a translation primarily responsible for the financial to shareholders, auditors, debenture in the national language or English management of the company, by the holders and every person who is language certified to be a correct person responsible for the financial entitled to receive notice of general translation by the Registrar annexed to management of the company, setting meetings. such financial statements and reports. forth that director’s or person’s opinion as to the correctness of the financial statements and attested by the Commissioner for Oaths, must also be attached to the financial statements.

PwC / 49 Statutory requirements for foreign companies carrying on business within Malaysia

Auditors’ report Public listed companies are also conveniently and properly audited. All required to provide quarterly transactions must be recorded within The financial statements should be report on the statement of profit 60 days of completion. duly audited by an approved auditor and loss and other comprehensive except for those private companies income, statement of financial Filing requirements qualified and elected for audit position, statement of cash flows exemption. and explanatory notes to their A foreign company with operations shareholders within 2 months after in Malaysia is required to lodge with The auditors’ report shall state the end of each quarter. Guidelines for the CCM within two months of its whether the financial statements disseminating material information annual general meeting a copy of have been properly drawn up in on public listed companies are set out its financial statements and other accordance with the applicable in the Listing Requirements of Bursa documents required to be attached approved accounting standards and Malaysia Securities Berhad. to its financial statements by the law the Companies Act 2016 so as to give applicable to the company in its place a true and fair view of the financial Accounting and other records of incorporation or origin. Where the position, financial performance and foreign company is not required to cash flows of the group and of the A foreign company desiring to hold an annual general meeting and company. establish a place of business or to prepare a financial statements by the carry on business within Malaysia is law of the place of its incorporation, Additional disclosure requirements required by the Companies Act 2016 to the company is required to prepare for public listed companies register itself with the CCM. a financial statements containing such particulars as if it were a public Public listed companies are also The Companies Act 2016 requires company incorporated in Malaysia. required to comply with the the accounting and other records disclosures required by the Listing of a foreign company’s operations In addition, a foreign company is Requirements of Bursa Malaysia in Malaysia to be kept in Malaysia required to lodge with the CCM a duly Securities Berhad in their annual that will sufficiently explain the audited financial statements and other reports. The timeline for filing annual transactions and financial position documents required to be attached reports with the stock exchange is of the foreign company arising out of with the financial statements and within 4 months from close of financial its operations in Malaysia and shall a duly audited statement showing year. cause these records to be kept in such its assets used in Malaysia and its a manner as to enable them to be liabilities arising out of its operations

50 / DOING BUSINESS GUIDE in Malaysia as at the date to which its financial statements was made up, so far as is practicable, complies with the applicable approved accounting standards and which gives a true and fair view of the foreign company’s operations in Malaysia.

Financial statements

The requirement of financial statements is similar to those companies incorporated in Malaysia. In addition, foreign companies that are listed in Malaysia can apply the acceptable internationally recognised accounting standards or MASB approved accounting standards.

Foreign companies that are listed in Malaysia are required to comply with the disclosure requirements stated in the Listing Requirements of Bursa Malaysia Securities Berhad in their annual reports, timeline for filing annual reports and quarterly reports similar to a Malaysian-incorporated company listed in Malaysia.

PwC / 51 Financial Reporting Framework in Malaysia

The MASB has been established as the TEs shall comply with the MFRS by, an entity that is a management sole authority for issuing accounting Framework for annual periods company as defined in section 2 of standards and other financial reporting beginning on or after 1 January the Interest Schemes Act 2016 is not a pronouncements in Malaysia. All 2018. They may apply the older private entity. financial statements prepared Malaysian national GAAP (known An entity may only be treated as pursuant to any law administered by as Financial Reporting Standards a private entity in relation to such the Securities Commission Malaysia (FRS) Framework) for annual periods annual periods or interim periods (SC), Bank Negara Malaysia (BNM) beginning before 1 January 2018. throughout which it is a private entity. and the CCM have to comply with An entity that consolidates or equity approved accounting standards issued accounts the TEs are also granted Private entities shall comply with by the MASB. similar exception. either: 1. Malaysian Private Entities MASB Approved Accounting MASB Approved Accounting Reporting Standards (MPERS) Standards for Entities other than Standards for Private Entities in their entirety for financial Private Entities statements with annual periods A private entity is a private company as beginning on or after 1 January Entities other than Private Entities defined in section 2 of the Companies 2016. The MPERS is based on the shall apply the Malaysian Financial Act 2016 that: International Financial Reporting Reporting Standards (MFRS) (a) is not itself required to prepare Standard for Small and Medium- Framework which is identical to the or lodge any financial statements sized Entities (IFRS for SMEs) International Financial Reporting under any law administered by the issued by the International Standards (IFRS), with the exception SC or BNM; and Accounting Standards Board of Transitioning Entities (TEs). TEs (b) is not a subsidiary or associate of, (IASB) in 2009 and IASB’s 2015 are entities subject to the application or jointly controlled by an entity Amendments to the IFRS for SME of MFRS 141 Agriculture and/or IC which is required to prepare or issued in May 2015 except for Interpretation 15 Agreements for the lodge any financial statements property development activities; Construction of Real Estate. under any law administered by the 2. MFRS in their entirety; or SC or BNM. 3. FRS in their entirety for financial statements with annual periods Notwithstanding the above, a private beginning before 1 January 2018, company that is itself, or is a subsidiary only for TEs. or associate of, or jointly controlled

52 / DOING BUSINESS GUIDE Auditing requirements

Auditors to appoint one or more auditors Audit exemption for private upon application in writing from any companies To qualify for appointment as an shareholder of the company. auditor, a person must be approved Pursuant to the Companies Act as an “approved auditor” by the Audit requirements for private 2016, the Registrar have the power Minister of Finance and complied companies to exempt any private company with the provisions as set out in the from the requirement to appoint an Companies Act 2016. No auditor will The directors of a private company auditor according to the conditions as be so approved if he is not a member of (other than those companies determined by the Registrar. the Malaysian Institute of Accountants meet the audit exemption criteria (MIA). and have elected for the audit CCM had on 4 August 2017 issued exemption) must appoint an auditor a Practice Directive setting out Audit requirements for public at least 30 days before the end of the the qualifying criteria for private companies period for the submission of the first companies from having to appoint an financial statements to the Registrar auditor in a financial year. A private The directors of a public company (for newly incorporated companies) company that meets the MASB’s must appoint an auditor at any time or to fill a casual vacancy the office definition of a private entity and meets before the first annual general meeting of auditor. If the directors fail to the criteria of one of the following of the company or to fill a casual appoint an auditor, the shareholders 3 categories may elect for audit vacancy the office of auditor. If the must appoint an auditor by ordinary exemption. The categories are set out directors fail to appoint an auditor, resolution. Auditor must be below: the shareholders must appoint an appointed 30 days before the expiry (a) Dormant company, i.e. a company auditor by ordinary resolution. After of the period allowed for lodgement that has been dormant from the the first annual general meeting, the of the previous year’s financial time of its incorporation or it is shareholders have the right to appoint statements with the Registrar. If a dormant throughout the current an auditor by ordinary resolution private company fails to appoint an financial year and in the immediate at the annual general meeting or auditor, the Registrar has the power preceding financial year. For when the company fails to appoint an to appoint one or more auditors dormant companies incorporated auditor at an annual general meeting. upon application in writing from any on or after 31 January 2017, the If a public company fails to appoint an shareholder of the company. audit exemption is effective for auditor, the Registrar has the power

PwC / 53 the financial statements with (c) Threshold-Qualified company, i.e. Registrar accompanied with required annual periods commencing on a company that: certificate in accordance with the or after 31 January 2017 and for (i) has revenue not exceeding requirements of Companies Act 2016. dormant companies incorporated RM100,000 during the current The unaudited financial statements on or before 30 January 2017, financial year and in the prepared shall comply with applicable audit exemption is effective for the immediate past 2 financial approved accounting standards, financial statements with annual years; and shall be lodged together with periods commencing on or after 1 the directors’ report, statement by (ii) its total assets in the current September 2017; directors and statutory declaration. financial year’s statement of (b) Zero-Revenue company, i.e. a financial position does not Approved standards on auditing company that does not have exceed RM300,000 and in the any revenue during the current immediate past 2 financial Approved company auditor shall financial year, does not have any years; and conduct the audit of the financial revenue in the immediate past two (iii) has not more than 5 employees statements in accordance with both financial years and its total assets at the end of its current approved standards on auditing in in the current financial year’s financial year and in each of its Malaysia and International Standards statement of financial position immediate past 2 financial year on Auditing (ISA). does not exceed RM300,000 ends. as well as in the statement of Therefore, an audit of a company financial position of the immediate The audit exemption is effective for incorporated under the Companies past 2 financial years. The audit financial statements with annual Act 2016 in Malaysia is conducted in exemption is effective for financial periods commencing on or after 1 July accordance with globally statements with annual periods 2018. accepted standards. commencing on or after 1 January 2018; Any company that elects for audit exemption must circulate and lodge its unaudited financial statements with

54 / DOING BUSINESS GUIDE PwC / 55 56 / DOING BUSINESS GUIDE Chapter 5 Business taxation

Principle taxes Income tax Corporate tax system Tax administration Transfer pricing Business reorganizations

PwC / 57 Principal taxes Income tax

The principal taxes are shown below: Scope of tax Taxable income and gains

Taxes on income Income tax is imposed on income The sources of income subject to tax Income tax accruing in or derived from Malaysia include those listed below: Petroleum income tax with the general exception of resident • Gains or profits from any trade, companies carrying on a business business, profession, or vocation. Taxes on transactions of air/sea transport, banking or • Gains or profits from employment, Customs and excise duties insurance, which are subject to income including allowances and benefits Goods and Services tax tax on a world income scope. (Specific in kind. Entertainment duty exemptions are available for Malaysian • Dividends, interest and discounts. Stamp duty banks, insurance companies and • Rents, royalties and premiums. Windfall profit levy takaful companies subject to specified • Pensions, annuities and other Contract levy conditions.) periodic payments. • Any gains or profits not falling Taxes on capital gains Classes of taxpayers within the gains listed above There is no capital gains tax except • Amounts received by a non-resident for real property gains tax (RPGT) The principal classes of domestic person for provision of technical which is a tax on gains arising from the and foreign taxpayers covered by the advice, assistance or services, or disposal of real property or shares in income tax legislation are companies, the provision of services relating to real property companies (RPC). individuals, trade associations, the installation or operation of any co-operative societies, trusts, and apparatus or plant. estates. Generally, partnerships are • Rent or other payments for the use not taxable entities. They are treated of movable property received by a as conduits in which the partners non-resident. and not the partnership, are taxed on the partnership income. However, a Limited Liability Partnership, is given the same tax treatment as companies.

58 / DOING BUSINESS GUIDE Corporate tax system

Residence of companies on 30 June 2018, is the financial corporation is “trading within” year ending 30 June 2018. All Malaysia (taxable) or “trading with” A company is tax resident in Malaysia non-business sources of income of Malaysia (non-taxable). for the basis year for a year of a company are also assessed on the assessment if at any time during the basis of the financial year. If a double taxation agreement with basis year, the management and the home country of the foreign control of its affairs are exercised Taxation of shareholders corporation is in force, the taxation of in Malaysia. Generally, a company business profits derived by the foreign would be regarded as resident in Malaysia is on a single-tier corporation is limited to the profits Malaysia if at any time during the system. Under this system, tax on that are attributable to its permanent basis period for a year of assessment, a company’s profits is a final tax. establishment situated in Malaysia. at least one meeting of the Board Dividends are exempt in the hands of Directors is held in Malaysia of shareholders, and companies With respect to income such as concerning the management and are not required to deduct tax at royalties, interest or service fees that is control of the company. source from dividends distributed to not attributable to a business carried shareholders. on in Malaysia, the tax liability of the Year of assessment and non-resident will be settled by way basis period Foreign corporations – of withholding tax deducted by the liability to tax paying entity. The year of assessment (YA) is the year coinciding with the calendar Foreign corporations (similar to year. For example, the YA 2018 is the Malaysian corporations) are taxed year ending 31 December 2018. The on income accruing in or derived basis period for a business source is from Malaysia. A broad basis for normally the financial year ending in determining whether or not business that particular YA. For example the profits are derived from Malaysia is basis period for YA 2018 for a to determine whether the foreign business which closes its accounts

PwC / 59 Rates of tax

Resident companies are taxed at the rate of 24%. However, a resident Non-resident companies are taxed at the company with paid-up capital of RM2.5 million or less is taxed at the rate of 24% on their business income. following rates (provided that specified conditions are met with): Certain income received by a non-resident Chargeable income RM Rate (%) (YA 2018) company that is not attributable to a business carried on by that non-resident in On the first 500,000 18 Malaysia is subject to tax at the following In excess of 500,000 24 rates (unless the relevant double taxation agreement provides for some other rate): For YA 2017 and 2018, resident companies are eligible for a reduced income tax rate on the incremental portion of chargeable income from a Rate (%) business source compared to the immediate preceding YA. The reduced Royalty 10 tax rates are based on the percentage of increase in chargeable income from a business source: Rental of moveable 10 property % of increase in % point of Income tax rate Technical or 10 chargeable income reduction applicable for management service fee* from a business incremental portion Interest 15 source compared of chargeable Dividends Exempt to the immediate income from a preceding YA business source (%) Income other than the 10 above Less than 5.00% 0 24 5.00% - 9.99% 1 23 * Only services rendered in Malaysia are 10.00% - 14.99% 2 22 liable to tax. 15.00% - 19.99% 3 21 20.00% and above 4 20

60 / DOING BUSINESS GUIDE Withholding tax Payments of the above types of income to non-residents (except for dividends) are subject to withholding tax which is due and payable to the Inland Revenue Board (IRB) within one month after paying or crediting such payments. The rates of withholding tax are as shown above, except where the double taxation agreement (DTA) between the Malaysia and the country in which the recipient is resident, provides for a lower rate, in which case the DTA rate would be the withholding tax rate. Appendix D(5.1) shows the list of countries that have concluded DTAs with Malaysia and the rates of tax applicable to interest, royalties and technical fees provided in the respective agreements.

PwC / 61 Gross income and profits Capital allowances Other buildings that qualify include from business the following: The depreciation charged in the • Buildings used solely for storage Gross income subject to income tax books in arriving at the commercial of goods for export or storage of is generally based on the audited profit is not deductible for tax imported goods that are to be financial statements of the company. purposes. The law, however, processed and re-exported; Business profits are computed on the provides for corresponding • Buildings used by a water, basis of the audited accounts, with deductions for certain fixed assets electricity or telecommunications adjustments made for non-taxable used for the purposes of the business undertaking for the purpose of and non tax deductible items. in the form of capital allowances supplying water or electricity or (CA). The broad categories of providing telecommunications Non-taxable income qualifying expenditure are described services to the public; Capital receipts are non-taxable. below. • Licensed private hospitals, Certain types of income may also maternity or nursing homes; be specifically exempted by statute. Industrial buildings (IB) • Buildings used as an old folks “Single-tier” dividends as well as IB allowances are given on home or a school or educational dividends paid out of tax exempt qualifying expenditure incurred institution or for approved income received by a corporation on the construction or purchase industrial, technical or vocational are exempt from tax in the hands of of buildings or structures used as training; shareholders. factories, docks, wharves, jetties, • Buildings used for approved service warehouses, farm buildings, or in projects; and Deductible expenses the working of a mine. Expenditure • Certain buildings used for the on land cannot be included in provision of living accommodations Deductions are allowed for all qualifying building expenditure, or child-care facilities for outgoings and expenses incurred and buildings used as showrooms, employees. wholly and exclusively in producing retail shops, offices, and dwelling gross income, unless specifically houses, do not normally qualify as The cost of construction of public disallowed. Non-allowable expenses IB. However, an office may qualify roads and ancillary structures for the include domestic or private expenses, for CA if it forms part of an IB and its business of toll collection also qualifies income tax or similar taxes, pre- cost does not exceed 10 percent of for IB allowances. incorporation, preliminary or start the total building cost. up expenses, capital withdrawn, or capital expenditure on improvements.

62 / DOING BUSINESS GUIDE Where more than one-tenth of the An initial allowance is granted in the vehicles purchased on or after 28 floor space of a special industrial year the expenditure is incurred. An October 2000, where the “on-the- building is used for letting of property, annual allowance at the prescribed road price” of the vehicle does not only the part of the building not used rates of 10, 14 or 20% calculated exceed RM150,000, the maximum for purposes of letting of property on qualifying expenditure, is given qualifying expenditure is restricted to qualifies as industrial building. for every year wherein the asset is RM100,000. in use at the end of the year for the The Ministry of Finance may also purposes of the business. Where an Plantations and forests prescribe a building that is used for asset is acquired under hire purchase Expenditure on new planting the purpose of a person’s business as (installment payments), initial and (as distinct from expenditure on an IB. annual allowances are granted on replanting, which is deductible) and the capital repayments made during on the construction of roads in a Rates of IB allowance the year. plantation, qualifies for an agriculture The rate of initial allowance for IB is allowance of 50% of cost for two years. 10%, while annual allowance is given Accelerated capital allowance may Expenditure on the construction of at 3% of qualifying expenditure. be allowed under specific statutory roads in a forest, or of buildings that provisions for certain plant and are likely to be of little or no value Plant and machinery machinery whereby the whole cost when the plantation ceases to be Qualifying plant expenditure include: of the asset may be fully written off worked, or when timber ceases to be • The cost of assets used in a within periods of between 1 and extracted, qualifies for an agriculture business (such as plant and 3 years, depending on the type of allowance of 10% of cost for ten machinery, office equipment, asset. Small-value assets costing years. The cost of construction of furniture and fittings and motor less than RM1,300 each are eligible buildings used for staff welfare or as vehicles); for 100% capital allowance, subject living accommodation, qualifies for an • Cost of installation and to a cap of RM13,000 on the total agriculture allowance of 20% of cost construction of plant and value of such assets. There is also a for five years. machinery; and limit on the qualifying expenditure • Expenditure on fish ponds, animal on motor vehicles not licensed pens, cages, and other structures for commercial transportation of used for pastoral pursuits. goods or passengers (restricted to RM50,000). However, for new

PwC / 63 Mining Companies are not allowed to deduct Disposals within 2 years A mining allowance is given on unutilized CA brought forward from In the case of an asset sold within two expenditure on searching for, a prior year against income of a years of purchase, CA that has been discovering, gaining access to, or particular YA if the shareholders of the previously granted may be withdrawn acquiring the source of or rights company at the beginning of the basis unless there is commercial justification to mineral deposits of a depleting period for that YA are not substantially for the disposal. nature. The construction of works the same as the shareholders of the and buildings that are likely to be of company at the end of the basis period Controlled transfers little or no value when the source is for the (prior) YA in which the loss No balancing adjustments will no longer worked also qualifies for was initially ascertained. However, be made where assets are sold or mining allowance. This allowance the Ministry of Finance has issued transferred between companies under is calculated so as to write off the guidelines which state that the above common control. In such cases, the expenditure over the life of the mine. rule restricting carry-forward CA actual consideration for the transfer Machinery and equipment not meeting based on the shareholder continuity of the asset is disregarded, and the the ‘no value’ test qualify for initial and test would only apply to dormant disposer/acquirer is deemed to have annual allowances at normal rates for companies. disposed of/acquired the assets at plant and machinery. their tax-written down values. Balancing adjustments upon Deduction of capital allowances disposal of assets CA on assets used in one business Balancing adjustments will arise cannot be deducted against income upon the disposal of assets on which from another business, or against CA have been claimed. A balancing income from other non-business charge/allowance is the excess/ sources. shortfall of the sale proceeds over the tax written down value of the asset When there is insufficient adjusted disposed of. The balancing charge is income to absorb the full amount of restricted to the amount of allowances allowances available, the unutilized previously claimed. amount is carried forward for deduction against future business income from the same source.

64 / DOING BUSINESS GUIDE Losses Group relief Capital gains and other taxes Group relief is available to all locally Business losses can be set off against incorporated, resident companies Other than real property gains tax income from all sources in the that fulfilled certain conditions. (RPGT), no tax is imposed on capital current year. Any unutilized losses Companies that qualify were allowed gains. For more details on RPGT and can be carried forward indefinitely to surrender a maximum of 70 % of other taxes, please refer to Chapter 7. to be utilized against income from its adjusted loss for a YA to one or any business source. Companies are more related companies. Companies not allowed to deduct a loss brought opting for group relief must make an forward from a prior year against irrevocable election to surrender or income of a particular YA if the claim the tax loss in the return to be shareholders of the company at the filed with the IRB for that YA. beginning of the basis period for that YA are not substantially the same Companies currently enjoying as the shareholders of the company certain incentives such as pioneer at the end of the basis period for status, investment tax allowance, the (prior) YA in which the loss reinvestment allowance etc. are not was initially ascertained. However, eligible for group relief. the Ministry of Finance has issued guidelines which state that the above rule restricting carry-forward losses based on the shareholder continuity test would only apply to dormant companies.

PwC / 65 Tax administration

Submission of returns and estimate can be submitted in the 6th Public rulings and advance rulings assessments and 9th months of the basis period for a year of assessment. Companies are To facilitate compliance with the Under the Self Assessment System then required to pay tax by monthly SAS, the Director General of Inland (SAS) companies are required to installments (based on the estimates Revenue (DGIR) is empowered by law submit a return of income within 7 submitted) commencing from the to issue public rulings. Public rulings months after the closing of accounts. second month of the company’s basis set out the interpretation of the DGIR Particulars required to be specified period (financial year). in respect of a particular tax law, and in the return include the amount of the policy and procedures that are to chargeable income and tax payable A company commencing operations be applied. Public rulings are binding by the company. Upon submission of in a YA, is not required to furnish on the DGIR but a taxpayer who has the return, an assessment is deemed estimates of tax payable or make applied the treatment as set out in to have been made on the company. instalment payments if the basis a particular public ruling may still The return is deemed to be a notice period for the YA in which the appeal against an assessment which is of assessment, which is deemed to be company commences operations is less based on the public ruling. All public served on the company on the date than 6 months. rulings may be downloaded from the that it is submitted. IRB’s website at www.hasil.gov.my. Tax payable by a company under an Tax collection assessment upon submission of a A taxpayer may request for an return is due and payable by the “due advance ruling from the DGIR, who Companies are required to furnish date”. The “due date” is defined as the may make an advance ruling on how estimates of their tax payable for last day on expiry of 7 months from any provision of the law applies to a YA not later than 30 days before the date on which the accounts are an arrangement described in the the beginning of the basis period. closed. application. An advance ruling is only However, a newly established company applicable to the person making the with paid-up capital of RM 2.5 million application and is not subject to review and less that meets certain specified when issued. However, the taxpayer conditions, is exempted from this retains his right of appeal against any requirement for 2 years, beginning assessment issued in accordance with from the YA in which the company the tax treatment set out in the ruling. commences operation. A revised A charge will be imposed for the issuance of an advance ruling.

66 / DOING BUSINESS GUIDE Transfer pricing

Transfer pricing (TP) legislation It is proposed that the Earning Advance pricing arrangements Stripping Rules (ESR) is to be (APA) The basis for determining proper implemented in replacement for the compensation is, almost universally, Thin Capitalisation Rules with effect Companies are allowed to apply the arm’s length principle which has from 1 January 2019. Under the ESR, for APAs from the DGIR. The also been accepted by the IRB. the interest deduction will be limited objective of establishing APAs is to to a ratio as determined by the tax provide an avenue for taxpayers to The arm’s length principle was authorities, possibly ranging from obtain certainty upfront that their incorporated into Section 140A of 10% to 30% of the company’s profit related party transactions meet the the Malaysian Income Tax Act, 1967 before interest, taxes, depreciation and arm’s length standard. The IRB has (ITA). It allows the DGIR to adjust any amortization. issued the APA Rules 2012 and APA transfer prices between related parties Guidelines 2012 to give guidance on in Malaysia which, in the view of the the matter. DGIR, do not meet the arm’s length standard.

What constitutes “arm’s length” is not defined in the ITA. Consequently, the IRB have issued the TP Rules 2012 and the revised TP Guidelines 2012 to give guidance on the arm’s length standard that is acceptable to the IRB. The TP Rules and Guidelines seek to provide guidance on the application of the law on controlled transactions, the acceptable methodologies as provided in the rules and administrative requirements including the types of records and documentation expected from taxpayers involved in transfer pricing arrangements.

PwC / 67 Business reorganizations

Incorporation Merger or amalgamation In other cases of transfer, the transfer values of the fixed assets will constitute The transfer of a business by a sole The merging of two corporations qualifying expenditure for the purpose proprietor or a partnership to a by an exchange of shares normally of computing capital allowances of corporation will result in the profits has no tax consequences unless the transferee corporation, and for the of the business being subject to tax one of them is a real property transferor corporation, the disposal at the corporate tax rate of 24% company. In such cases, there value of assets disposed of, on which as from the date of transfer, as may be RPGT implications arising computation of balancing charge or opposed to being taxed at graduated from an exchange of shares as the allowances will be based. rates for personal tax. Unutilized transaction may be regarded as business losses and CA available to an acquisition and disposal of real Group relief (outlined above) is the Malaysian branch of a foreign property company shares available to all locally incorporated tax company are non-transferable upon resident companies that fulfil certain local incorporation. If the two corporations being conditions. merged are under common control, transfer of any asset between them There may also be stamp duty is regarded as a “controlled transfer” implications when assets are wherein the disposer/acquirer transferred. Relief from stamp is deemed to have disposed of / duty may be available where assets acquired the assets at the tax written are transferred under a scheme of down value. (“Control” means reconstruction or amalgamation of management control or the holding companies and certain prescribed of 50 % or more of the shares by conditions are satisfied. Relief is also the disposer/acquirer or other available under certain circumstances controlling corporation.) on the transfer of assets between associated companies where either company owns 90% or more of the other company or where a third company owns 90% or more of both. (See Chapter 7)

68 / DOING BUSINESS GUIDE PwC / 69 70 / DOING BUSINESS GUIDE Chapter 6 Personal taxation

Scope of tax Taxable income Basis of assessment Residence status of individuals Rates of tax Employment income Exemptions and concessional tax treatment for foreign nationals Deductions Tax rebates Filing obligations and tax collection Capital gains

PwC / 71 Scope of tax Residence status of individuals

Income tax is imposed on income An individual is regarded as a tax • in Malaysia for 90 days or more accruing in or derived from resident if he meets any of the following during the year and, in any 3 Malaysia by any person. conditions, i.e. if he is: of the 4 immediately preceding • in Malaysia for at least 182 days in a years, he was in Malaysia for at calendar year; least 90 days or was resident in Taxable income • in Malaysia for a period of less than Malaysia; 182 days during the year (shorter • resident for the year immediately An individual is taxable on the period) but that period is linked to following that year and for each income that is sourced from a period of physical presence of 182 of the 3 immediately preceding Malaysia. (See Chapter 5.) Gains or more “consecutive” days in the years. or profits from an employment, following or preceding year (longer profession or vocation are taxable if period). Temporary absences from derived from Malaysia. Employment Malaysia for the following reasons income is regarded as derived form part of the longer period if he is from Malaysia if the employment is in Malaysia immediately prior to and exercised in Malaysia and is subject after that temporary absence: to Malaysian tax, even if the income i) absence connected with his is paid outside of Malaysia. service in Malaysia and owing to service matters or attending conferences or seminars or Basis of assessment study abroad; ii) absence owing to ill-health Income is assessed to tax on a involving himself or any current year basis. All income of immediate member of the persons other than a company, family; and cooperative, limited liability iii) absence in respect of social visits partnership or trust body, are not exceeding 14 days in the assessed on a calendar year basis. aggregate; The year of assessment (YA) is the year coinciding with the calendar year, for example, the YA 2017 is the year ended 31 December 2017.

72 / DOING BUSINESS GUIDE Rates of tax – Exemptions and concessional tax treatment resident and non-resident for foreign nationals individuals

Please see Appendix E(6.1). • Non-resident employees, who are -- on housing allowance and short-term visitors (other than Labuan Territory allowance public entertainers), are exempt received by a citizen from an from tax on their income from employment in Labuan with a Employment income employment exercised in Malaysia Labuan entity (exempt to the if the aggregate period(s) of extent of 50% of gross Gross employment income includes employment in a calendar year do -- allowance) (YA 2011 to YA 2020) the following: not exceed 60 days or a continuous • A qualified person (defined a) wages, salary, leave pay, fees, period of employment overlapping by legislation), who may be a commissions, bonuses, gratuities, two calendar years does not exceed Malaysian or foreign citizen, perquisites (Appendix E(6.2))or 60 days. If a short-term visiting and who is a knowledge worker allowances (whether in money or employee is resident in a country residing in Iskandar Malaysia is otherwise), that has a double tax treaty with taxed at the rate of 15% on income b) benefits in kind (Appendix E(6.2)), Malaysia, the qualifying period from an employment with a c) value of living accommodation is generally extended to 183 days designated company engaged in a provided by the employer for the provided certain other prescribed qualified activity in that specified employee, conditions are satisfied. region. The employment must d) receipts from unapproved • Income tax exemption is granted have commenced on or after 24 pension or provident fund arising -- to foreign nationals who are October 2009 but not later than 31 from contributions made by exercising an employment in December 2015. We understand the employer in respect of that a managerial capacity with a that the commencement criteria employee, and Labuan entity in Labuan, co- has been extended to 2020. The e) compensation for loss of located office or marketing office reduced tax rate is only applicable employment (YA 2011 to YA 2020 only). The in respect of employment income exemption is on 50% of gross from that designated company Restricted exemptions are available income from such employment. beginning from 1 January 2010. in respect of some perquisites and -- on director’s fees received by a benefits-in-kind (Appendix E(6.2)). director of a Labuan entity, who is a non-Malaysian citizen, for the YA 2011 to 2020

PwC / 73 Deductions

• An approved individual under the Expenses and other payments to approved institutions are also Returning Expert Programme who Employees are allowed a deduction deductible but limited to 7% of is a resident is taxed at the rate for any expenditure wholly aggregate income. of 15% on income in respect of and exclusively incurred in the having or exercising employment performance of their duties, but Personal relief with a person in Malaysia for 5 deduction of capital allowance (e.g. Personal reliefs are deductible from consecutive years of assessment. on a vehicle used in the performance the total income of a tax resident • Expatriates (non Malaysian of their duties) is not available. Where individual to arrive at taxable income. citizens) working in approved an employer provides an allowance See Appendix E(6.3) for the list of Operational Headquarters, for business purposes, such as for personal reliefs available. Regional Offices, International entertaining clients or customers, Procurement Centres, Regional the employee may only deduct up to Distribution Centres or Treasury the amount of the actual expenditure Management Centres, who are incurred or the allowance received. Tax Rebates based in Malaysia are taxed on Non-business expenses, such as a time apportionment basis in Individuals who are tax resident in medical expenses and taxes, are not accordance with the employment Malaysia may qualify for the following deductible. Expenses of a private income attributable to the tax rebates which are deducted from or domestic nature are expressly number of days the employment is tax chargeable on that individual: excluded from deduction. For exercised in Malaysia. • Individuals with chargeable income example, the cost of engaging of not more than RM35,000 are domestic help for housekeeping while granted a rebate of RM400. one is away at work is not deductible. • A rebate is also granted for Mortgage interest incurred to finance any zakat, fitrah or any other the purchase of a house is deductible Islamic religious dues (obligatory only to the extent of any rental income payments) paid during the year and derived from the house (which is a evidenced by receipts issued by an taxable source). Subscriptions to an appropriate religious authority. association related to the individual’s profession and fees incurred for The above rebate granted is deducted training courses related to one’s from tax charged and any excess is not profession are deductible. Donations refundable.

74 / DOING BUSINESS GUIDE Filing obligations and tax collection Capital gains

Self assessment Payment of tax Real property gains tax A Self Assessment System (SAS) for Tax payments by employees are There is no capital gains tax in individuals has been implemented collected through compulsory Malaysia other than Real Property under which the taxpayer is monthly deductions from salary or Gains Tax (RPGT). See Chapter 7 responsible for computing his own bi-monthly instalment plan issued (Other Taxes) for more details. chargeable income and tax payable, by the Inland Revenue Board (IRB). as well as making payments of any Under the SAS, the balance of tax balance of tax due. for a year of assessment is due and payable on the following dates (the The tax return form for a YA (year due dates) following that YA: ended 31 December) is due for • 30 April for individuals deriving submission not later than 30 April non-business income, following the year of assessment for • 30 June for those with business individuals without business income, income as well as other income and 30 June following the year sources. of assessment for individuals with business income. Taxpayers now have the option of submitting their returns manually or by “e-filing” through the Inland Revenue Board’s website.

Upon submission of the Return Form, the taxpayer is deemed to have been served with a notice of assessment for which tax is due and payable.

PwC / 75 76 / DOING BUSINESS GUIDE Chapter 7 Other taxes

Tourism tax Goods and services tax Import duties Export duties Excise duties Stamp duty Other taxes

PwC / 77 Tourism tax

Effective from 1 September 2017, tourism tax is levied on tourists staying at any accommodation premises made available by an operator of the accommodation premises. The rate of tax is fixed at RM10 per room per night. A Malaysian national or a permanent resident of Malaysia is exempted from payment of tourism tax.

78 / DOING BUSINESS GUIDE Goods and Services Tax

The Goods and Services Tax (GST) Businesses which make wholly Exempt supply has been implemented in Malaysia zero-rated supplies may apply to the An exempt supply is a supply of goods effective 1 April 2015 at a rate of Director General of Customs & Excise or services that is exempt from GST. 6%1. The GST is administrated and to be exempted from GST registration. Examples of exempt supplies are collected by the Royal Malaysian sale of residential properties, private Customs Department (RMCD). Any overseas company which is healthcare services, and private required to register for GST in education, Detailed list of exempt Scope of tax Malaysia but does not have any supplies can be found in the GST GST is chargeable on all taxable business establishment or fixed (Exempt Supply) Order 2014. supplies of goods and services made establishment in Malaysia must in the course or furtherance of any appoint an agent in Malaysia to Place of supply business in Malaysia by a taxable register and account for the GST. A supply of goods is treated as made person. GST is also charged on in Malaysia if the supply involves importation of goods and services into Types of supply the removal of goods from a place Malaysia. Standard-rated supply in Malaysia. This applies to goods A standard-rated supply is a supply of that ultimately remain in Malaysia GST registration goods or services that is subject to GST and goods that are exported out Businesses making taxable supplies at a rate of 6%. All supplies of goods of Malaysia. A supply of services is (i.e. standard-rated and zero-rated or services and imported services regarded as made in Malaysia if the supplies) in Malaysia must register for except those which are prescribed as supplier has a business establishment GST if their annual turnover of such zero-rated and exempt supplies will be or fixed establishment in Malaysia, or taxable supplies exceeds the threshold standard-rated supplies. the supplier’s usual place of residence of RM500,000. Businesses with annual is in Malaysia. turnover below the threshold are not Zero-rated supply required to register but may register on A zero-rated supply is a supply of A fixed establishment includes a a voluntary basis. goods or services that is subject to branch or an agency through which a GST at a rate of 0%. Examples of person carries on a business. Calculation of annual turnover for zero rated supplies are exported registration purposes is based on the goods, international transportation total value of taxable supplies for any of passengers, medicines in the rolling 12-month period. National Essential Medicines List and 1. As at 16 May 2018, the GST standard rate has international services. Detailed list of been gazetted to 0%, effective from 1 June 2018. The government has also announced zero-rated supplies can be found in the that the sales and services tax will be brought GST (Zero-Rated Supply) Order 2014. back in place of GST.

PwC / 79 Time of supply Relief from charging or payment of the goods and services supplied Generally, the time of supply is the GST • for each description, distinguish earliest of the following events: The Minister of Finance is empowered the type of supply for zero-rated, (i) Goods are removed / made to grant relief, as he deems fit, to: standard-rated and exempt, the available or services are • any person from payment of GST on quantity of the goods or the extent performed; any taxable supplies or imports of the services supplied and the (ii) Tax invoice is issued; or • any taxable person from charging amount payable, excluding GST (iii) Payment is received. GST on any taxable supplies • any discount offered Conditions may be imposed for the • the total amount payable excluding However, if no payment is received above relief to be granted. GST, the rate of tax and the total before the goods are removed/ GST chargeable to be shown made available or the services are Examples of taxable supplies granted separately performed, and a tax invoice is issued relief from GST are: • the total amount payable including within 21 days, the time of supply • retail sales of RON95 petrol and the total GST payable would be the date of the tax invoice. diesel • approved medical equipment A tax invoice is not required to be Value of supply supplied to private healthcare issued for zero rated supplies. A GST Where the supply is for a consideration facilities registered person is allowed to issue an in money, the value of the supply • goods supplied at duty free shop electronic tax invoice in-lieu of a tax shall be taken to be an amount, with invoice in paper form. the addition of the tax chargeable, Issuance of tax invoice equal to the consideration. However, A GST registered person is required A GST registered person may apply if the supply is for a consideration to issue a tax invoice containing the to the Director General for certain not in money, the value of supply following particulars when he makes a particulars to be omitted from the tax shall be taken to be an amount, with taxable supply: invoice. the addition of the tax chargeable, • the word “tax invoice” in a equal to the open market value of that prominent place Input tax claim consideration. • the tax invoice serial number Input tax credit can only be claimed by • the date of issuance of the tax a GST registered person when he holds invoice a valid tax invoice for his acquisition. • his name, address and GST In addition, the acquisition must be: identification number • in the course or furtherance of • a description sufficient to identify business

80 / DOING BUSINESS GUIDE • attributable to the making of businesses such as manufacturing, Refund taxable supplies; and toll-manufacturing, second-hand car Where a refund is due from RMCD, it • not specifically disallowed trading, jewellery manufacturing, is to be made within: farming and warehousing. Some of • 14 working days from the date of Examples of acquisitions which the these schemes help relieve cash flow the online submission of the GST input tax is specifically disallowed are: difficulties arising from the charging return; or • purchase, importation, hiring, or paying of GST. However, these • 28 working days from the date of repair, maintenance and schemes are subject to qualifying the manual submission of the GST refurbishment of a passenger motor conditions. return. car However, the refunds may be subject • club subscription Filing of GST returns and payment to verification which may prolong • benefits for employee’s family of taxes the period in which the amount is members refunded. • entertainment to non-employees or Taxable period non-customer A GST registered person making annual taxable supplies of RM5 Records keeping Every taxable person must keep A GST registered person who makes million or more would be on a monthly full and up-to-date records for all both taxable and exempt supplies is taxable period whilst a GST registered transactions which affect or may only allowed to claim input tax on person making annual taxable supplies affect his tax liability, including the acquisitions attributable to his taxable of less than RM5 million would be on a following: supplies. Input tax on acquisition that quarterly taxable period. • All records of goods and services is attributable to both taxable and supplied by or to that taxable exempt supplies has to be apportioned Filing of GST return person including tax invoices, based on the value of taxable supplies GST returns can be filed manually invoices, receipts, debit notes, as a percentage of total supplies using the GST-03 form or online at the credit notes and export declaration (taxable and exempt), or other Taxpayers Access Point (TAP) portal. forms formula approved by the Director • All records of importations of goods General. Due date The due date for filing of GST returns • All other records as the Director General may determine Special schemes and the making of GST payments There are a number of special schemes (if any) is the last day of the month The records above must be kept for a which prescribe special GST treatment following the end of the taxable period of 7 years in either Malay or for certain transactions in specific period. English language.

PwC / 81 Import duties

Imports of goods are generally subject Value of goods to import duties. The value of goods for the purpose of computing import duties is determined Rates of tax largely in accordance with the World Import duties are generally levied on Trade Organisation (WTO) principles an ad valorem basis, but they may also of customs valuation. be imposed on a specific basis. The ad valorem rates range from 2% to 60%. Exemptions Raw materials, machinery, essential Manufacturers may apply to the foodstuffs, and pharmaceutical relevant authorities for exemption products are generally non-dutiable or from import duties for the following: subject to duties at lower rates. • raw materials and components used directly for the manufacture Tariff rate quota of goods for export and domestic With effect from 1 April 2008, markets. Malaysia implemented tariff rate • dutiable machinery and equipment quota (TRQ) on selected agricultural which are used directly in the products, such as chicken, milk and manufacturing process. cream, hen eggs, cabbages. Under TRQ, the tariff charged depends on Prohibition of imports the volume of imports. Imports within Import restrictions are seldom quota (volume) attract duties at a imposed except on a limited range lower tariff rate while a higher tariff of products for protection of local rate applies on goods in excess of the industries or for reasons of security quota volume “out-quota tariff rate”. and public safety. An import licence The quota applicable is determined by has to be obtained for the importation the relevant agency, e.g. Department of prohibited goods. of Veterinary Services.

82 / DOING BUSINESS GUIDE Excise duties Export duties

Excise duties are imposed on a selected Rates of duties Export duties are generally imposed range of goods manufactured in The rates of excise duties vary from on Malaysia’s main commodities Malaysia or imported into Malaysia. a composite rate of RM 1.10 and such as crude petroleum and palm Goods which are subject to excise duty 15% for certain types of spirituous oil for revenue purpose. include beer/stout, cider and perry, beverages, to as much as 105% for rice wine, mead, undenatured ethyl motorcars (depending on engine alcohol, brandy, whisky, rum and other capacity). spirits obtained by distilling fermented sugar-cane products,, gin and geneva, Payment of duty cigarettes containing tobacco, motor As a general rule, duty is payable at vehicles, motorcycles, playing cards the time the goods leave the place and mahjong tiles. No excise duty is of manufacture. However, for motor payable on dutiable goods that are vehicles, duty is payable at the time exported. the vehicles are registered with the Road Transport Department. Licensing Unless exempted from licensing, a manufacturer of tobacco, intoxicating liquor or goods subject to excise duties must have a licence to manufacture such goods.

A warehouse licence is required for storage of goods subject to excise duty. However, a licence to manufacture tobacco, intoxicating liquor or goods subject to excise duty also permits the holder to store such goods.

PwC / 83 Stamp duty

Stamp duty is chargeable on Rates of tax instruments and not on transactions. The rates of duty vary according to the nature of the instruments and transacted If a transaction can be effected values. Generally, the transfer of properties can give rise to significant stamp duty. without creating an instrument of transfer, no duty is payable. Properties (other than shares or marketable securities) Generally, transfers of real property or mortgages on real property and Value (RM) Rate Duty payable transfers of marketable securities (RM) (excluding stocks and shares of public listed companies) attract On the first 100,000 RM1 per RM100 or 1,000 part thereof stamp duties. On the next 400,000 RM2 per RM100 or 8,000 part thereof 500,000 9,000 In excess of 500,000 RM3 per RM100 or part thereof

Shares RM3 for every RM1,000 or any fraction thereof based on consideration or value, whichever is greater. The Stamp Office generally adopts one of the 3 methods for valuation of ordinary shares for purposes of stamp duty: • price earnings ratio; • net tangible assets; and • sale consideration.

84 / DOING BUSINESS GUIDE Loan, services and equipment lease agreement Relief from stamp duty Relief from stamp duty may be Stamp duty of 0.5% on the value of the loan/services/lease. However stamp available where assets are transferred duty may be exempted or stamp duty in excess of 0.1% may be remitted for the under a scheme of reconstruction following instruments: or amalgamation of companies and certain prescribed conditions are (i) Service agreement: satisfied. Relief is also available under certain circumstances on the Stamp duty transfer of assets between associated All service agreement (one tier) Ad valorem rate of companies where either company 0.1% owns 90% or more of the other company or where a third company Multi-tier service agreement owns 90% or more of both (a) Non-government contract First level Ad valorem rate of (i.e. between private entity 0.1% Relief from stamp duty (either by way and service providers Subsequent Up to RM50 of exemption or remission) are also level(s) available for transactions involving specified instruments and subject to (b) Government contract (i.e. First level Exempted prescribed conditions. between Federal /State Second level Ad valorem rate of Government of Malaysia or 0.1% State / local authority and service providers) Subsequent Up to RM50 level(s)

(ii) Loan agreement / loan instrument: Ringgit Malaysia loan agreements generally attract stamp duty at 0.5%. However, a reduced stamp duty liability of 0.1% is available for loan agreements or loan instrument without security and repayable on demand or in single bullet repayment.

PwC / 85 Real Property Gains Tax (RPGT)

RPGT is a tax that is imposed on capital gains arising from the sale of real property or shares in a real property company (“chargeable assets”). A real property company (RPC) is a controlled company that owns or acquires real property or RPC shares with a defined value of not less than 75 percent of its total tangible assets. RPGT is imposed at the following rates:

Disposal from the Companies Individuals Individuals date acquisition and other (citizens & (non- bodies permanent citizens) residents) Within 3 years 30 30 30 In the 4th year 20 20 30 In the 5th year 15 15 30 In the 6th year 5 Nil 5 onwards

86 / DOING BUSINESS GUIDE Windfall profit levy Human Resource Development Fund (HRDF) levy

A levy is imposed on crude palm oil Employers engaged in the manufacturing and services sectors that employ more and crude palm kernel oil where the than a specified number of employees must contribute to the HRDF. The levy price exceeds RM2,500 per metric required to be paid is at the rate of 1 % of the employees’ monthly wages on a ton in Peninsula Malaysia, and monthly basis. Employers in the manufacturing sector whose paid-up capital RM3,000 per metric ton in Sabah and is less than RM2.5 million and with 10 employees and above but less than 50 Sarawak. employees may opt to be registered and make levy payments at the reduced rate of 0.5 % of the employees’ monthly wages.

Contract levy Assessment, quit rent and road tax

A levy of 0.125% on contract Assessment rates and quit rent is payable by property owners according to works having a contract sum above the legislation of the local or municipal authorities on properties located in RM500,000 is imposed on every areas under their jurisdiction. Essentially, these levies are intended for the registered contractor by the maintenance and the provision of essential services to the areas. The tax is levied Construction Industry Development as a percentage either of the capital value or the taxable value of the property. Board (CIDB). Road tax is levied on owners of motor vehicles at rates that vary according to the type of vehicle and engine capacity.

PwC / 87 88 / DOING BUSINESS GUIDE About PwC

PwC / 89 Delivering the value you’re looking for

PwC’s global network PwC in Malaysia Assurance Our Assurance Group provides PwC firms provide industry-focused We have played an integral part in the assurance on your business’ financial assurance, tax and advisory services growth and progress of Malaysia since performance and operations in these to enhance value for their clients. 1900. Today, we work with many large areas: More than 236,000 people in multinationals, public sector entities • Statutory audit 158 countries in firms across the and Malaysian companies, delivering • Internal audit PwC network share their thinking, solutions to them through our • Financial accounting experience and solutions to develop assurance, tax and advisory services. • Non-financial performance and fresh perspectives and practical reporting advice. Our aim is to deliver value to you at • Regulatory compliance all times. How we use our knowledge • Independent systems and process and experience to deliver that value, assurance depends on what you want to achieve. • Risk advisory services We’ll start by asking questions. Are • Financial Reporting Standards you looking to build trust? Give your readiness and conversion shareholders more value? Or do you want to do something new with your We can also help you improve your business? external financial reporting and adapt to new regulatory requirements. Our You can expect, when working with clients are both big and small – but we anyone of our team of more than 2,600 always tailor our audit approach to people in Kuala Lumpur, Pulau Pinang, meet your needs. , Melaka, and Labuan, that we’ll get to know you, your business and your goals. That’s how we’ll help you get there.

90 / DOING BUSINESS GUIDE Tax Deals services Contacts Addressing your tax needs is a way Our Deals team helps you do better of improving your overall business deals and create value through Assurance or financial health. Our solution sets mergers, acquisitions, disposals and Soo Hoo Khoon Yean include: restructuring. We help you develop Partner • Corporate tax compliance & the right strategy before the deal, T: +60 (3) 2173 0762 planning execute the deal seamlessly, identify E: [email protected] • International assignments and issues and points of negotiation and personal tax compliance value, and implement changes for Tax • Corporate services improvements after the deal. Jagdev Singh • Indirect tax Senior Executive Director • Transfer pricing and Consulting services T: +60 (3) 2173 1469 investigations In Consulting, we aim to help you E: [email protected] build effective organisations, We work with both organisations innovate and grow, reduce costs, Deals services and individuals to optimise their tax manage risk and regulation, and Tan Siow Ming efficiencies, implement innovative manage talent better. At the end of Senior Executive Director tax planning and maintain the day, you work smarter and grow T: +60 (3) 2173 1228 compliance. faster. E: [email protected]

Consulting services Andrew Chan Partner T: +60 (3) 2173 0348 E: andrew.wk.chan@strategyand. my.pwc.com

PwC / 91 92 / DOING BUSINESS GUIDE Appendices

A (1.1) Investment guarantee agreements (1.2) Government departments and agencies B (2.1) Structuring an investment (2.2) Important Regulatory Agencies C (3.1) Minimum conditions of employment D (5.1) Double Tax Treaties and withholding tax rates E (6.1) Rates of personal tax (6.2) Value of perquisites from employment and benefits-in-kind (6.3) Personal reliefs

PwC / 93 Investment guarantee agreements

APPENDIX A (1.1)

94 / DOING BUSINESS GUIDE Investment guarantee agreements

Malaysia has signed Investment Guarantee Agreements with the following groupings and countries:

Groupings • Association of South-East Asian Nations (ASEAN)

Countries Albania Ghana Senegal Algeria Guinea Slovak, Republic of Argentina Hungary Spain Austria Bahrain Italy Sudan, Republic of Jordan Sweden Belgo-Luxembourg Kazakhstan Switzerland Burkina Faso Korea, North Syrian Arab Republic Cambodia Korea, South Taiwan () Canada Kuwait Turkey Chile, Republic of Lebanon Turkmenistan China, People’s Republic of Macedonia United Arab Emirates Croatia Mongolia of America Cuba Morocco United Kingdom Czech Republic Namibia Uruguay Denmark Uzbekistan Egypt Peru Vietnam Ethiopia, Republic of Poland Yemen Finland Romania Zimbabwe San Marino Saudi Arabia

Source: Ministry of International Trade and Industry website at 11 April 2017

PwC / 95 Government departments and agencies

APPENDIX A (1.2)

96 / DOING BUSINESS GUIDE Government departments and agencies

Ministry of International Trade Malaysian Investment Development one-stop Business Information Centre and Industry (MITI) Authority (MIDA) (BIC) on the 2nd floor of the MIDA (Kementerian Perdagangan (Lembaga Pembangunan Pelaburan Sentral building where information Antarabangsa dan Industri) Menara Malaysia) on investment, trade, financing MITI, No. 7, MIDA Sentral, No.5, and productivity in Malaysia’s Jalan Sultan Haji Ahmad Shah, Jalan Stesen Sentral 5 manufacturing and its related services 50480 Kuala Lumpur, Malaysia Kuala Lumpur Sentral sectors are available. MIDA also has 50470 Kuala Lumpur offices in Bangkok, Boston, Chicago, T: +60 (3) 8000 8000 Dubai, Frankfurt, Guangzhou, F: +60 (3) 6206 4693 T: +60 (3) 2267 3633 Houston, Johannesburg, , Los E: [email protected] F: +60 (3) 2274 7970 Angeles, Milan, Mumbai, Munich, New W: www.miti.gov.my/ E: [email protected] York, Paris, Osaka, San Jose, Seoul, W: www.mida.gov.my/ Shanghai, Singapore, Stockholm, This ministry has overall responsibility Sydney, Taipei and Tokyo. for all aspects of international trade MIDA controls the promotion and industrial development. and coordination of all industrial Malaysia External Trade Development activities. MIDA provides assistance Corporation (MATRADE) to companies intending to invest Menara MATRADE, in the manufacturing and services Jalan Sultan Haji Ahmad Shah, sectors as well as facilitates the 50480 Kuala Lumpur, Malaysia implementation and operation of the projects MIDA provides services which T: +60 (3) 6207 7077 include providing information on the F: +60 (3) 6203 7037/7033 opportunities for investments as well E: [email protected] as facilitating companies which are W: www.matrade.gov.my/ looking for joint venture partners. MIDA also evaluates applications for MATRADE is an export development manufacturing licenses, tax incentives, organization that assists Malaysian expatriate posts and duty exemptions entrepreneurs to develop foreign on raw materials, components, markets for products and services machinery and equipment for projects from Malaysia. It also organizes trade in manufacturing and its related missions, facilitates participation in services. MIDA has established a trade fairs, and puts buyers and sellers

PwC / 97 together and assist foreign importers Inland Revenue Board Bank Negara Malaysia to source for trade related information (Lembaga Hasil Dalam Negeri) Ground Floor, D Block by providing market and relevant Menara Hasil, Persiaran Rimba Jalan Dato’ Onn advice. MATRADE is supported by 40 Permai, Cyber 8, 50480 Kuala Lumpur. overseas offices around the world. 63000 Cyberjaya Hotline: 1-300-88-5465 (1-300-88-LINK) Malaysia Productivity Hotline: 1-800-88-5436 T: +60 (3) 2174 1717 Corporation (MPC) T: +60 (3) 8313 8888 F: +60 (3) 2174 1515 (Perbadanan Produktiviti Malaysia) F: +60 (3) 8313 7801/7806 E: [email protected] Lorong Produktiviti, Jalan Sultan W: www.hasil.gov.my W: www.bnm.gov.my/ 46200 , Selangor Bank Negara Malaysia (the Central Bank The Board is responsible for the of Malaysia), is a statutory body which T: +60 (3) 7955 7266 overall administration, assessment started operations on 26 January 1959. F: +60 (3) 7957 8068 and collection of income tax and other The role of Bank Negara Malaysia is to E: [email protected] direct taxes. promote monetary and financial stability. W: www.mpc.gov.my Royal Malaysian Customs Securities Commission MPC’s mission hinges on its efforts to (Jabatan Kastam Diraja Malaysia) (Suruhanjaya Sekuriti) enhance productivity and quality in Kompleks Kementerian No 3, Persiaran Bukit Kiara, line with the national industrialization Kewangan No 3, Bukit Kiara plan by providing training, promotion, Persiaran Perdana, 50490 Kuala Lumpur consultancy and research services. Presint 2, 62596, Putrajaya T: +60 (3) 6204 8777 Ministry of Finance (MoF) F: +60 (3) 6201 5078 No. 5 Persiaran Perdana Presint 2, T: +60 (3) 8882 2100/2300/2500 E: [email protected] Federal Government Administrative E: [email protected] W: www.sc.com.my/ Centre, 62592, WP Putrajaya. W: www.customs.gov.my/ This statutory body is entrusted with T: +60 (3) 8000 8000 This department is principally a the responsibility of regulating and F: +60 (3) 888 3893 / (3) 8882 3894 revenue-collecting department that is systematically developing the Malaysia’s W: www.treasury.gov.my/ responsible for the administration and capital markets. It has direct responsibility enforcement of regulations relating to in supervising and monitoring the The Ministry of Finance, abbreviated customs and excise duties, sales tax, activities of market institutions and MOF, is a ministry of the Government service tax and the goods and services regulating all persons licensed under of Malaysia that is charged with tax. the Capital Markets and Services Act the responsibility for government 2007. Its activities include approving expenditure and revenue raising. corporate bond issues, regulating the issuance of securities, futures contracts, and all matters relating to unit trusts and takeover and mergers. SC also

98 / DOING BUSINESS GUIDE acts as a registering authority for This ministry formulates policies Department of Occupational company’s prospectus, supervises and implements measures aimed at Safety & Health (DOSH) exchanges, clearing houses and central creating a healthy commercial climate (Jabatan Keselamatan dan depositories as well as to ensure in the country and at providing Kesihatan Pekerjaan) proper conduct of market institutions adequate protection to local industries. Level 1, 3, 4 & 5 Block D4, Complex D, and licensed persons. This Ministry is the main reference Federal Government Administrative for any query/application relating to Centre, 62530 Putrajaya Labuan Financial Services foreign participation in wholesale and Authority (Labuan FSA) retail trade. T: +60 (3) 8000 8000 Level 17, Main Office Tower, F: +60 (3) 8889 2443 Financial Park Complex, Companies Commission Malaysia E: [email protected] Jalan Merdeka, (CCM) W: www.dosh.gov.my/ 87000 Labuan, Malaysia (Suruhanjaya Syarikat Malaysia) No 7, Jalan Stesen Sentral 5, This department, under the Ministry T: +60 (87) 591 200 Kuala Lumpur Sentral, of Human Resources, is responsible for F: +60 (87) 453 442 50623 Kuala Lumpur administering and enforcing various E: [email protected] occupational safety and health rules W: www.labuanibfc.com Hotline: +60 (3) 2299 4400 to ensure that the safety, health and T: +60 (3) 2299 4400 welfare of the people at work are This authority was established as F: +60 (3) 2299 4411 protected from hazards resulting from the statutory body responsible for E: [email protected] occupational activities in the various spearheading and coordinating efforts W: www.ssm.com.my/ sectors. DOSH also certifies safety to promote and develop Labuan as of machinery and factory premises. an International Business & Financial CCM acts as an agency to incorporate Approval from this department Centre (IBFC) and to streamline companies and register businesses is required before manufacturing and rationalize the administrative as well as provide the public with operations can begin. machinery in supervising the Labuan company and business information. All IBFC. companies intending to do business in Talent Corporation Malaysia Malaysia are required to register with Level 6, Surian Tower Ministry of Domestic Trade, Co- the CCM. 1, Jalan PJU 7/3, Mutiara Damansara operatives and Consumerism 47810 Petaling Jaya (MDTCC) Ministry of Human Resources Selangor (Kementerian Perdagangan Dalam (Kementerian Sumber Manusia) Negeri, Koperasi dan Kepenggunaan) Block D3 & D4, Complex D, T: +60 (3) 7839 7000 No 13, Persiaran Perdana, Presint 2, 62502, Putrajaya W: www.talentcorp.com.my 62623 Putrajaya, Malaysia T: +60 (3) 8000 8000 TalentCorp was established on Hotline: 1800 886 800 E: [email protected] 1 January 2011 under the Prime T: +60 (3) 8000 8000 W: www.mohr.gov.my/ Minister’s Department to formulate F: +60 (3) 8882 5762 and facilitate initiatives to address W: www.kpdnkk.gov.my The Labour Department of this the availability of talent in line with ministry is responsible for the the needs of the country’s economic enforcement of the Employment Act transformation. 1955.

PwC / 99 Immigration Department Malaysian Technology Development E: [email protected] (Jabatan Imigresen Malaysia) Corporation Sdn. Bhd. (MTDC) W: www.mdec.my/ Level 1-7 (Podium) No 15, Ground Floor, Menara Yayasan Tun Persiaran Perdana, Precint 2 Razak, Jalan , 55100 The MDeC is the agency responsible 62550 Putrajaya. Kuala Lumpur, Malaysia for implementing the MSC (Multimedia Super Corridor) T: +60 (3) 8000 8000 T: +60 (3) 2172 6000 Malaysia. It also serves as promoter W: www.imi.gov.my/ F: +60 (3) 2163 7541 and facilitator to companies setting up E: [email protected] operations in MSC Malaysia. The Immigration Department is part W: www.mtdc.com.my of the Ministry of Home Affairs. The Ministry of Energy, Green Technology responsibilities of this department MTDC was set up to to promote the and Water include safeguarding national commercialization of research and Block E4/5, Parcel E, Federal security; ensuring compliance with innovation for application and be an Government Administrative Centre, the Immigration Act 1959/1963, Integrated Venture Capital Solutions 62668 Putrajaya Immigration Regulations 1963 and Provider to encourage venture capital Passport Act 1966; issuing passports in technology based areas. T: +60 (3) 883 6000 and other travel documents; W: www.kettha.gov.my/portal/index. controlling entry into and departure Ministry of Communications and php from Malaysia. Multimedia Malaysia Lot 4G9, Persiaran Perdana,Precint This ministry is that is responsible for Ministry of Science, Technology 4, Central Administration of The sustainable energy, green technology, and Innovation Federal Government, 62100 Putrajaya, water supply, sewerage treatment, (Kementerian Sains, Teknologi dan Malaysia. renewable energy, water purification, Inovasi) Level 1-7, Block C4 & C5, air purification, environmental Complex C, Federal Government T: 03-8000 8000 remediation, solid waste management, Administrative Centre, Wilayah E: [email protected] eGain forecasting, energy Persekutuan Putrajaya 62662, conservation, sustainable engineering. Malaysia This ministry is responsible for communications, multimedia, Ministry of Natural Resources T: +60 (3) 8000 8000 broadcasting, information, personal and Environment F: +60 (3) 8888 9070 data protection, special affairs, media (Kementerian Sumber Asli dan W: www.mosti.gov.my/ industry, film industry, domain name, Alam Sekitar) postal, courier, mobile service, fixed Wisma Sumber Asli, No.25 Malaysian Science and Technology service, broadband, digital signature, Persiaran Perdana, Presint 4, Information Centre: universal service, international 62574 Putrajaya, Malaysia W: http://mastic.gov.my/ broadcasting, content. T: +60 (3) 8000 8000 This ministry is responsible for Multimedia Development F: +60 (3) 8889 2672 promoting awareness, research Corporation Sdn Bhd (MDeC) W: www.nre.gov.my/ and development in science and MSC Malaysia Headquarters, technology 2360 Persiaran APEC, The ministry is responsible for 63000 Cyberjaya, the nation’s nature resources Selangor Darul Ehsan management; conservation and management of environment and T: +60 (3) 8315 3000 shelters; and management of land F: +60 (3) 8315 3115 survey and mapping administration.

100 / DOING BUSINESS GUIDE Investment corridors and agencies

Greater Kuala Lumpur (GKL) Malaysia Petroleum Resources Sarawak Corridor of Renewable InvestKL Corporation (MPRC) was established Energy (SCORE) 16th Floor, Menara SSM@Sentral, to develop the oil and gas services Regional Corridor Development No. 7, Jalan Stesen Sentral 5, and equipment (OGSE) industry in Authority (RECODA) Kuala Lumpur Sentral, Malaysia. 6th Floor, 50623 Kuala Lumpur, Malaysia , Northern Corridor Economic Region Petra Jaya, T: +60 (3) 2260 2270 (NCER) 93050 Kuching Sarawak F: +60 (3) 2260 2292 Northern Corridor Implementation E: [email protected] Authority (NCIR) T: +60 (8) 255 1199 / W: www.investkl.com Level 20 & 21, Menara KWSP, No. +60 (8) 255 1189 38 Jalan Sultan Ahmad Shah, 10050 F: +60 (8) 255 1190 GKL refers to the Metropolitan Kuala George Town, Pulau Pinang W: www.recoda.com.my Lumpur in Malaysia. T: + 60 (4) 238 2888 Sabah Development Corridor (SDC) Iskandar Malaysia Iskandar Regional F: + 60 (4) 238 2998 Sabah Economic Development and Iskandar Regional Development Investment Authority (SEDIA) Authority (IRDA) NCER refers to the four northwestern Lot 1, Wisma SEDIA, #G-01, Block 8 states of Malaysia, namely Perlis, Off Jalan Pintas-Penampang Danga Bay, Jalan Skudai Penang, Kedah and northern Perak. P.O.Box 17251 80200 Johor Bahru 88873 Kota Kinabalu, Sabah, East Coast Economic Region (ECER) T: +60 (7) 233 3000 East Coast Economic Region T: +60 (8) 8 450650 F: +60 (7) 233 3001 Development Council (ECERDC) F: +60 (8) 8 450699 E: [email protected] Kuala Lumpur Office E: [email protected] W: www.iskandarmalaysia.com.my Level 22, Menara 3 PETRONAS W: www.sedia.com.my Kuala Lumpur City Centre Iskandar Malaysia refers to the 50088 Kuala Lumpur southern development corridor in Johor, Malaysia. T: +60 (3) 2035 0021 / 22 F: +60 (3) 2035 0020 Malaysia Petroleum Resources E: [email protected] Corporation (MPRC) W: www.ecerdc.com.my Unit 20-11, Level 20, G-Tower, 199 Jalan Tun Razak, ECER refers to the areas in the east 50400 Kuala Lumpur coast of which are Kelantan, Terengganu, Pahang and the T: +60 (3) 2858 8555 district of Mersing in northeast Johor. W: www.mprc.gov.my

PwC / 101 State Economic Development Corporations

State Economic Department Corporations are responsible for carrying out economic activities at the state level and developing the economy of the states in accordance with the objectives of the New Economic Policy.

Johor Kelantan Pahang Johor State Investment Centre (JSIC) Kelantan State Economic Planning Pahang State Development Level 3, Bangunan Dato Abdul Unit Corporation Rahman Andak, Block B, Kota Blok 6, Aras 1, Kota Darulnaim, 15503 (Perbadanan Kemajuan Negeri Iskandar, Nusajaya, Johor , Kelantan. Pahang) 16th Floor, Kompleks Teruntum, T: +607 290 9001 / +607 290 9008 T: +60 (9) 748 1957 25000 , Pahang F: +607 290 8000 / +607 290 9000 F: +60 (9) 744 3411 E: [email protected] / azamimah@ E: [email protected] T: +60 (9) 565 8588 jsic.com.my / [email protected] W: Please refer to ECER contacts F: +60 (9) 513 0510 W: http://jsic.com.my/ E: [email protected] Melaka (Malacca) W: www.pknp.gov.my Kedah Invest Melaka Invest Kedah Aras 4-11, Menara MITC, Jalan Perak C Block, 3rd Floor, Wisma Darulaman, Konvensyen, Kompleks MITC, Ayer Perak State Development Corporation Jalan Tunku Bendahara, 05503 Alor Keroh, 75450 Melaka Level 4, Perak Techno Trade Centre Setar, Kedah. (PTTC) 30020 Ipoh Perak Darul T: +60 (6) 232 4455 Ridzuan, Malaysia T: +60 (4) 7325326 / F: +60 (6) 232 4434 +60 (4) 7325327 E: [email protected] T: +60 (5) 5292 448 / 449 F: +60 (4) 7325484 W: www.pknm.gov.my/en/ F: +60 (5) 5292 440 E: [email protected] W: http://www.investperak.gov.my/ W: http://www.investkedah.co/ Negeri Sembilan Investment Centre 5th Floor, Block B, Wisma Negeri 70503 Negeri Sembilan Malaysia.

T: +60 (6) 765 9570 / 5981 F: +60 (6) 765 5982 E: [email protected] / [email protected] W: www.nsic.com.my

102 / DOING BUSINESS GUIDE Perlis Sarawak Perlis State Economic Ministry of Industrial Development Development Corporation Sarawak (Perbadanan Kemajuan Ekonomi 2nd, 12th & 13th Floor, Negeri Perlis) Wisma Sumber Alam, Jalan Stadium, No. 173-191, Taman Kemajuan, Petra Jaya 93050 Kuching, Sarawak Jalan Raja Syed Alwi, 01000 Kangar, T: +60 (82) 313212 Perlis, Malaysia F: +60 (82) 445337/ 312723 W:http://www.mied.sarawak.gov.my T: +60 (4) 9761 088/037/616 F: +60 (4) 976 2181 Selangor E: [email protected] Selangor State Invesment Centre W: www.pkenps.gov.my/ Berhad (SSIC) No. F1-2-G, Jalan Multimedia 7/AG, Pulau Pinang (Penang) CityPark, i-City , Invest Penang 40000 , Selangor Darul (Perbadanan Pembangunan Pulau Ehsan, Malaysia Pinang) 1, Jalan Sultan Azlan Shah T: +60 (3) 5510 2005 Penang Skills Development Centre F: +60 (3) 5519 6403/5511 2008 Building 11900 Penang, E: [email protected] Malaysia W: http://www.investselangor.my

T: +60 (4) 646 8833 Terengganu F: +60 (4) 646 8811 Terengganu State Economic Planning E: [email protected] Unit W: http://investpenang.gov.my Tingkat 12, Wisma Darul Iman, 20503 , Sabah Terengganu Ministry of Industrial Development Sabah T: +60 (9) 623 2724/1957 Tingkat Bawah, 3-6, F: +60 (9) 624 6989 Wisma Kewangan E: [email protected] Jalan Tunku Abdul Rahman W: http://upen.terengganu.gov.my 88593 Kota Kinabalu, Sabah

T: +60 (88) 264360/ 264364/ 264367 F: +60 (88) 264867 E: [email protected] W: http://www.sabah.gov.my

PwC / 103 Chambers of commerce

The chambers of commerce are responsible for the promotion, protection and advancement of all mercantile interests and all other interests affecting merchants in Malaysia.

National Chamber of Commerce EU-Malaysia Chamber of Commerce Malay Chamber of Commerce and Industry of Malaysia (NCCIM) and Industry (EMCCI) Malaysia (MCCM) Level 3, West Wing, Suite 10.01, Level 10, Menara Atlan, (Dewan Perniagaan Melayu Malaysia MENARA MATRADE, 161B Jalan Ampang, 50450 Kuala (DPMM)) Jalan Khidmat Usaha, Off Jalan Duta, Lumpur. Malaysia No. 33 & 35, Jalan Medan Setia 50480, Kuala Lumpur, Malaysia 1,Plaza Damansara, Bukit Damansara, T: +60(3) 2162 6298 50490 Kuala Lumpur T: +60 (3) 6204 9811 F: +60(3) 2162 6198 F: +60 (3) 6204 9711 E: [email protected] T: +60 (3) 2633 2233 / 2011 0703 E: [email protected] W: https://www.eumcci.com/ F: +60 (3) 03-2633 2234 W: www.nccim.cmshosted.net/ W: www.dpmm.org.my Japanese Chamber of Trade & Malaysian International Chamber of Industry, Malaysia (JACTIM) The Associated Chinese Chambers of Commerce and Industry (MICCI) Suite 6.01, 6th Floor, Commerce and Industry of Malaysia C -08-08, Plaza Mont’ Kiara, 2 Jalan Millennium Office Block, Peti #4, (ACCCIM) Kiara, Mont’ Kiara, 50480 Kuala 160, Jalan Bukit Bintang 55100 Kuala 7th Floor, Wisma Chinese Chamber, Lumpur, Malaysia Lumpur, Malaysia 258, Jalan Ampang, 50450 Kuala Lumpur T: +60 (3) 6201 7708 T: +60(3) 2142 7106 F: +60 (3) 6201 7705 F: +60(3) 2142 0483 T: +60 (3) 4253 2135 E: [email protected] E: [email protected] F: +60 (3) 4253 2524 W: www.micci.com/ W: jactim.org.my E: [email protected] W: www.acccim.org.my/ American Malaysian Chamber of Federation of Malaysian Commerce (AMCHAM) Manufacturers (FMM) Malaysian Associated Indian Chambers Suite 6-1A, Level 6 Wisma FMM of Commerce and Industry (MAICCI) Menara CIMB No. 3 Persiaran Dagang, PJU 9, JKR 3190, Jalan Ledang, Jalan Stesen Sentral 2 Bandar Sri Damansara, Off Jalan Duta, KL Sentral, 50470 Kuala Lumpur, 52200 Kuala Lumpur 50480 Kuala Lumpur Malaysia T: +60(3) 6286 7200 T: +60 (3) 2011 0478 T: +60 (3) 2283 3407 F: +60(3) 6274 1266/7288 F: +60 (3) 2011 0477 F: +60 (3) 2282 8540 E: [email protected] E: [email protected] E: [email protected] W: www.fmm.org.my W: www.maicci.org.my/ W: http://amcham.com.my/

104 / DOING BUSINESS GUIDE PwC / 105 Structuring an investment

APPENDIX B (2.1)

106 / DOING BUSINESS GUIDE Structuring an investment

Incorporation Advantages of incorporating Formation requirements • Limited liability. • Practising company/ qualified Foreign ownership of shares – • Relatively low corporate tax rate. secretaries, public accountants or equity conditions lawyers can provide assistance with the 28 % - YA 1998 to 2006 To be a developed nation by incorporation and other requirements. 27% - YA 2007 2020, the Malaysian government • Incorporation must be submitted to the 26% - YA 2008 is adopting a holistic approach CCM through an online portal. 25% - YA 2009 to implement a new economic • Registration fee is payable, depending on 24% - YA 2016 and subsequent model (NEM) that will foster the type of company incorporated. years competition in all sectors of the • With the deregulation of the FIC economy. Malaysia’s NEM is a guidelines announced by the Prime Small and medium scale companies significant departure from the Minister on 30 June 2009, the FIC no with paid-up capital not exceeding previous approach on Bumiputra longer processes any share transactions RM2.5 million are subject to income equity participation. There have or impose any equity conditions on such tax at the rate of 18% on chargeable been measures taken to open up transactions. income up to RM500,000. The the Malaysian capital market. remaining chargeable income will Please refer to Chapter 1 (“Foreign Taxation continue to be taxed at 24%. Investment”) for more details of • Tax incentives are generally available. these measures. • Benefits from tax treaties. • Payment of dividends is restricted by • Better public image. availability of profits and solvency Founder shareholders • Preferred by authorities requirements to be fulfilled. Malaysia has • Only one founder shareholder for compliance with equity moved fully into a single-tier dividend is required, individual or body ownership. system from 1 January 2014 under which corporate, who need not be dividends are fully exempt in the hands Malaysian. Availability of local funding of shareholders and payment of dividend • One resident director is required, • Funds may be obtained from the are not dependent on the availability of who need not be Malaysian but domestic capital market through franking credits. must have valid work permits and a public issue for a public listed • Professional advice should be sought on a principal residential address company. tax planning opportunities. within Malaysia. • Working capital requirements from local financial institutions.

PwC / 107 Branch Sole proprietorship or partnership • The partners need not be resident (excluding limited liability in Malaysia, however there is Limitations on foreign participation partnership) requirement for the compliance • In general, CCM do allow the officer* to be either a partner or a registration of foreign branches except Limitation on foreign participation person qualified to act as secretaries for establishments involved in the • Foreign nationals require valid work under the Companies Act 2016 and wholesale and retail trade. permits to work in Malaysia. ordinarily reside in Malaysia. • Foreign nationals are generally Advantages not permitted to set up sole- Advantages of a LLP • Cessation of business is more proprietorships or partnership • Limited liability status for straightforward than liquidation of a businesses, except for carrying out partnership type of business. company. government or other approved • Provides flexibility of organization • Capital and profits can be freely projects. arrangement through a partnership repatriated. However for amounts agreement. exceeding RM200,000 or its Advantages • Compliance requirements are less equivalent in foreign currency, Form • Minimal regulatory requirements to onerous than a company. P has to be completed by remitting comply. • The accounts of a LLP need not be banks, on behalf of their clients. audited unless it is a condition in Disadvantages the LLP agreement. Formation and registration • Sole proprietors and partners are • More affordable business vehicle. requirements personally liable for the liabilities of • Resident agent and registered office in the business. Formation requirements Malaysia is required. • Practising company / qualified • Non-refundable registration fee is Formation requirements secretaries, public accountants payable depending on the amount • Registration as a business with the or lawyers can provide assistance of share capital of the foreign CCM. with the partnership agreement corporation which will be converted • Partnership agreement. (agreement should be provided by to the equivalent of local currency to lawyers) and other requirements. determine the registration fee. Taxation • The partnership agreement and • A maximum registration fee of • Sole proprietors are taxed as other relevant documents must be RM70,000 is payable by a foreign individuals. submitted to the CCM along with company • Partnerships are treated as payment of the required fees. • Documentation of the foreign conduits, with partners taxed on company in the country of origin their shares of the income. Taxation similar to those for a locally • A LLP is taxed as a company incorporated company must be filed Limited liability partnership (LLP) • Tax rate is at flat rate of 24% annually. • Professional advice should Founder partners be obtained on tax-planning Taxation • Minimum of two partners with opportunities. • Foreign (non-resident) corporations no limit to maximum number of have the same obligations and rights partners. The partners can be as resident companies. individuals (natural persons) or * The LLP requires the appointment of at least one • Tax rate is at a flat rate of 24%. bodies corporate or a combination compliance officer whose main responsibilities include registering changes in registered particulars • Professional advice should be obtained of both. of the LLP and keeping and maintaining the records on tax planning opportunities. of the LLP.

108 / DOING BUSINESS GUIDE PwC / 109 Important regulatory agencies

APPENDIX B (2.2)

110 / DOING BUSINESS GUIDE Some regulatory agencies

The following are some of the Immigration Department Companies Commission important regulatory agencies: of Malaysia (CCM) This department processes Ministry of International Trade and applications of work permits for new All companies, partnerships and sole Industry (MITI): or additional expatriate posts, renewal proprietors intending to do business of existing expatriate posts and in Malaysia are required to register This ministry has overall responsibility conversion of social/tourist passes into with the CCM, which is responsible for for all aspects of international trade business passes. the administration of the Registration and industrial development, acting of Businesses Act 1956 and the through the following agencies: Ministry of Science, Companies Act 2016. Technology and Innovation • Malaysian Investment Ministry of Communication and Development Authority (MIDA): This ministry has responsibility for Multimedia Malaysia Main government agency that promoting awareness, research provides assistance for investors and development in science and The ministry is primarily responsible intending to set up manufacturing technology. for communications, multimedia, and its related support services broadcasting, and personal data projects in Malaysia. Ministry of Domestic Trade, protection. It also oversees the media • Malaysia External Trade Co-operatives and Consumerism industry, film industry, domain name, Development Corporation postal, courier, mobile service, fixed (MATRADE): This ministry formulates policies, line service and broadband services. An external trade arm of MITI, strategies and reviews matters functions as a central source for pertaining to domestic trade. The regulation of the communication trade related information for The scope of the ministry covers and multimedia sector is undertaken Malaysian exporters and foreign wholesalers and retailers, co- by: importers. operatives, franchise, direct-selling, hawkers and petty traders as well as • Malaysian Communications and downstream sectors of petroleum. Multimedia Commission (MCMC) • Multimedia Development Corporation Sdn Bhd (MDEC).

PwC / 111 Ministry of Natural Resources and Local government authorities Environment These authorities are responsible The ministry is responsible for the for local regulations that affect natural resources management, business operations. Such laws relate environmental conservation mainly to buildings and structures and land management and (business premises), health, public administration. safety and security, sale of liquor, and displays (signboards, advertisements, The Department of Environment billboards, etc.). (DOE) of Malaysia under the ministry is responsible for the Various other government agencies prevention, control and abatement of regulate specific industries. In addition pollution in the country. to incorporating a company, specific licensing requirements apply to Bank Negara Malaysia companies that may wish to undertake specialized activities, e.g., finance The central bank of Malaysia and banking, insurance, real estate, regulates the country’s financial petroleum, and utilities. institutions and credit system as well as the conduct of monetary policy. This include supervising the banking industry, insurance industry, payment systems and foreign exchange market.

Securities Commission Malaysia

The statutory body is responsible for regulating and developing the capital markets in Malaysia. This include supervision of exchanges, listed companies, bond issuers, take over and mergers, and fund managers.

112 / DOING BUSINESS GUIDE PwC / 113 Minimum conditions of employment

APPENDIX C (3.1)

114 / DOING BUSINESS GUIDE Paid Leave under Employment Act 1955

The Employment Act 1955 is the main legislation on labour matters in Malaysia.

Paid annual leave for employees Paid 60 days Less than two years of service 8 days maternity Two or more but less than 5 years of service 12 days leave: Over five years of service 16 days Normal Not exceeding eight work hours in one day or 48 hours: hours in one week Paid sick leave per calendar year Paid At least 11 gazetted Less than two years of service 14 days holiday: public holidays (inclusive Two or more but less than five years of service 18 days of five compulsory Over five years of service 22 days public holidays; National Day, Birthday of the Where hospitalization is necessary up to 60 days Yang di-Pertuan Agong, Birthday of Ruler, Payment for overtime work Federal Territory Day, Normal working days: One-and-a-half Labour day and Malaysia times the hourly day) in one calendar year rate of pay and on any day declared as a public holiday under Rest days: Two times the section 8 of the Holiday hourly rate of pay Act 1951 Public holidays: Three times the hourly rate of pay

Source: Cost of Doing Business, MIDA website: www.mida.gov.my

PwC / 115 Double Tax Treaties and withholding tax rates

APPENDIX D (5.1)

116 / DOING BUSINESS GUIDE Business taxation

Rate of withholding tax % Treaty countries Interest Royalties Technical Fees Albania 10 or Nil 10 10 Australia 15 or Nil 10 or Nil Nil Austria 15 or Nil 10 10 Bahrain 5 or Nil 8 10 Bangladesh 15 or Nil 10 or Nil 10 Belgium 10, 15 or Nil 10 10 Bosnia & Herzegovina* 10 or Nil 8 10 Brunei 10 or Nil 10 10 Canada 15 or Nil 10 or Nil 10 China, People’s Republic 10 or Nil 10 10 Chile 15 10 5 Croatia 10 or Nil 10 10 Czech Republic 12 or Nil 10 10 Denmark 15 or Nil 10 or Nil 10 Egypt 15 or Nil 10 10 Fiji 15 or Nil 10 10 Finland 15 or Nil 10 or Nil 10 France 15 or Nil 10 or Nil 10 Germany 10 or Nil 7 7 Hong Kong 10 or Nil 8 5 Hungary 15 or Nil 10 10 India 10 or Nil 10 10 10 or Nil 10 10 Iran 15 or Nil 10 10

PwC / 117 Rate of withholding tax % Treaty countries Interest Royalties Technical Fees Ireland 10 or Nil 8 10 Italy 15 or Nil 10 or Nil 10 Japan 10 or Nil 10 10 Jordan 15 or Nil 10 10 Kazakhstan 10 or Nil 10 10 Korea Republic 15 or Nil 10 or Nil 10 Kyrgyz Republic 10 or Nil 10 10 Kuwait 10 or Nil 10 10 Laos 10 or Nil 10 10 Lebanese Republic 10 or Nil 8 10 Luxembourg 10 or Nil 8 8 Malta 15 or Nil 10 10 Mauritius 15 or Nil 10 10 Morocco 10 or Nil 10 10 Mongolia 10 or Nil 10 10 10 or Nil 10 10 Namibia 10 or Nil 5 5 Netherlands 10 or Nil 8 or Nil 8 New Zealand 15 or Nil 10 or Nil 10 Norway 15 or Nil 10 or Nil 10 Pakistan 15 or Nil 10 or Nil 10 Papua New Guinea 15 or Nil 10 10 15 or Nil 10 or Nil 10 Poland 15 or Nil 10 or Nil 10 Poland (new)* 10 or Nil 8 8 Qatar 5 or Nil 8 8 Romania 15 or Nil 10 or Nil 10 Russian Federation 15 or Nil 10 10 San Marino 10 or Nil 10 10 Saudi Arabia (full agreement) 5 or Nil 8 8 Senegal* 10 or Nil 10 10 Seychelles Republic 10 or Nil 10 10

118 / DOING BUSINESS GUIDE Rate of withholding tax % Treaty countries Interest Royalties Technical Fees Singapore 10 or Nil 8 5 Slovakia 10 or Nil 10 5 Sri Lanka 10 or Nil 10 10 South Africa 10 or Nil 5 5 Spain 10 or Nil 7 5 Sudan 10 or Nil 10 10 Sweden 10 or Nil 8 8 Switzerland 10 or Nil 10 or Nil 10 10 or Nil 10 10 15 or Nil 10 or Nil 10 Turkey 15 or Nil 10 10 Turkmenistan 10 or Nil 10 Nil United Arab Emirates 5 or Nil 10 10 United Kingdom 10 or Nil 8 8 Uzbekistan 10 or Nil 10 10 Venezuela 15 or Nil 10 10 Vietnam 10 or Nil 10 10 Zimbabwe* 10 or Nil 10 10

* Pending ratification

There is no withholding tax on dividends paid by Malaysian companies.

There is a restricted double tax treaty with Argentina and with the United States of America which deals with the taxation of air and sea transport operations in international traffic.

PwC / 119 Rates of personal tax

APPENDIX E (6.1)

120 / DOING BUSINESS GUIDE Rates of Personal Tax

Resident individuals Chargeable Income YA 2017 Rate % Tax Payable RM On the first 5,000 0 On the next 15,000 1 150 On the first 20,000 150 On the next 15,000 5 750 On the first 35,000 900 On the next 15,000 10 1,500 On the first 50,000 2,400 On the next 20,000 16 3,200 On the first 70,000 5,600 On the next 30,000 21 6,300 On the first 100,000 11,900 On the next 150,000 24 36,000 On the first 250,000 47,900 On the next 150,000 24.5 36,750 On the first 400,000 84,650 On the next 200,000 25 50,000 On the first 600,000 134,650 On the next 400,000 26 104,000 On the first 1,000,000 238,650 Above 1,000,000 28

PwC / 121 Chargeable Income YA 2018 Rate % Tax Payable RM On the first 5,000 0 On the next 15,000 1 150 On the first 20,000 150 On the next 15,000 3 450 On the first 35,000 600 On the next 15,000 8 1,200 On the first 50,000 1,800 On the next 20,000 14 2,800 On the first 70,000 4,600 On the next 30,000 21 6,300 On the first 100,000 10,900 On the next 150,000 24 36,000 On the first 250,000 46,900 On the next 150,000 24.5 36,750 On the first 400,000 83,650 On the next 200,000 25 50,000 On the first 600,000 133,650 On the next 400,000 26 104,000 On the first 1,000,000 237,650 Above 1,000,000 28

Non-resident individuals Knowledge workers in a specified region Types of income Rate % A qualified person (defined by legislation) Public Entertainer’s professional income 15 who is a knowledge worker residing in Interest 15 Iskandar Malaysia is taxed at the rate of 15% on income from an employment Royalty 10 with a designated company engaged in a Special classes of income: qualified activity in that specified region. • rental of moveable property 10 The employment must have commenced • technical or management services fees* 10 on or after 24 October 2009 but not later • payment for services rendered in connection with use of 10 than 31 December 2020. property or installation or operation of any plant, machinery or other apparatus purchased from a non-resident person Approved individuals under the Dividends (single tier) Exempt Returning Expert Programme An approved individual under the Business and employment income 28 Returning Expert Programme who is a Income other than the above 10 resident is taxed at the rate of 15% on income in respect of having or exercising * Only fees for technical or management services rendered in Malaysia are liable to tax. employment with a person in Malaysia for 5 consecutive years of assessment. This applies to Malaysian citizens only.

122 / DOING BUSINESS GUIDE PwC / 123 Valuation of perquisites and benefits-in-kind form employment

APPENDIX E (6.2)

124 / DOING BUSINESS GUIDE Valuation of perquisites and benefits-in-kind from employment

Valuation of perquisites The IRB has issued Public Ruling 2/2013 for the valuation of perquisites from an employment. Below are some common perquisites:

Perquisites to employee Taxable value to employee Petrol card/petrol or travel allowances Total amount paid by employer. and toll rates Exemption available up to RM6,000 per annum if the allowances/perquisites are for official duties** Childcare subsidies /allowances Total amount paid by employer. Exemption available up to RM2,400 per annum** Parking fees/allowances Fully exempted** Meal allowances Fully exempted** Interest on loan subsidies Loans totalling RM300,000 for housing/passenger motor vehicles and education** Income tax borne by employer Total amount paid by employer Award Total amount paid by employer. Exemption available up to RM2,000 per annum for the following types of award:** • long service (more than 10 years of employment with the same employer) • past achievement • service excellence, innovation, or productivity award

** Exemptions are not extended to directors of controlled companies, sole proprietors and partnerships.

PwC / 125 Valuation of benefits-in-kind (BIK) Formula method The IRB has issued Public Ruling The value of BIK is calculated based on the following prescribed formula. 3/2013 for the valuation of BIK provided to employees. Cost of asset provided as a benefit Annual value Prescribed average life span of asset of benefit There are two methods which can be used to determine the value of The prescribed average life span of certain common assets is as follows. BIK provided to the employee by the employer: Items Prescribed average life span (Years) • The formula method; and • The prescribed value method Motorcar 8 Furnishings: Whichever method is used in • Air conditioner 8 determining the value of the benefit provided, the basis of computing the • Curtains & carpets 5 benefit (whether the formula method • Furniture 15 or the prescribed value method) must • Refrigerator 10 be consistently applied throughout the • Sewing machine 15 period of the provision of the benefit. Kitchen utensils/equipment 6 Entertainment and recreation:

• Organ 10 • Piano 20 • Stereo set, TV, video recorder, CD/DVD player 7 • Swimming pool (detachable), sauna 15 • Miscellaneous 5

Prescribed value method Under the prescribed value method the following are some values of BIK prescribed in the Ruling: Value per year Household furnishings, apparatus & appliances • Semi-furnished with furniture in the lounge, dining RM840 room and bedroom • Semi-furnished as above and with air-conditioners RM1,680 or carpets or curtains • Fully furnished RM3,360 • Service charges and other bills (e.g. water, Charges and bills paid by electricity) employer Prescribed value of other benefits • Driver RM7,200 per driver • Domestic servants RM4,800 per servant • Gardeners RM3,600 per gardener • Corporate recreational club membership Membership subscription paid by employer

126 / DOING BUSINESS GUIDE The following are some exemptions for certain BIK:** Exemption • Leave passages (i) one overseas leave passage up to a maximum of RM3,000 for fares only; or (ii) 3 local leave passages including fares, meals and accommodation • Employers’ goods provided free or at a discount Exemption is available up to RM1,000 per annum. Any benefit exceeding RM1,000 will be subject to tax • Employers’ own services provided full or at a Fully exempted discount • Maternity expenses & traditional medicines Fully exempted • Telephone (including mobile telephone), Fully exempted, limited to one unit for each telephone bills, pager, personal data assistant asset (PDA) and broadband subscription

** Exemptions are not extended to directors of controlled companies, sole proprietors and partnerships

Standard rates for motorcar and fuel provided

Cost of car (when new) Annual prescribed benefit of Annual prescribed benefit of (RM) motorcar (RM) fuel* (RM) Up to 50,000 1,200 600 50,001 – 75,000 2,400 900 75,001 – 100,000 3,600 1,200 100,001 –150,000 5,000 1,500 150,001 – 200,000 7,000 1,800 200,001– 250,000 9,000 2,100 250,001 – 350,000 15,000 2,400 350,001 – 500,000 21,250 2,700 500,001 and above 25,000 3,000

* Employee is given a choice to determine fuel benefit based on annual prescribed rates or exemption available for petrol usage.

PwC / 127 Personal reliefs

APPENDIX E (6.3)

128 / DOING BUSINESS GUIDE Personal reliefs (for resident individuals)

Relief for YA 2017 (RM) Self 9,000 Disabled individual - additional relief for self 6,000 Spouse 4,000 Disabled spouse - additional spouse relief 3,500 Child • per child (below 18 years old) 2,000 • per child (over 18 years old) receiving full-time instruction of higher education in respect of: diploma level and above in Malaysia 8,000 degree level and above outside Malaysia 8,000 • per child (over 18 years old) serving under articles of indentures in a trade or profession 8,000 • Per physically / mentally disabled child 6,000 • Physically / mentally disabled child (over 18 years of age) receiving full-time instruction in an institution of 14,000 higher education or serving under articles of indentures in a trade or profession Life insurance premiums and EPF contributions 6,000* Private Retirement Scheme contributions 3,000* Deferred annuity scheme premium (YA 2012 to YA 2021) Insurance premiums for education or medical benefits 3,000* Expenses on medical treatment, special needs or career expenses for parents (evidenced by medical 5,000* certification); OR Parental care relief: - Father 1,500 - Mother 1,500 (until YA 2020) Medical expenses for self, spouse or child suffering from a serious disease (including fees of up to RM500 6,000* incurred by self, spouse or child for complete medical examination)

* Maximum relief

PwC / 129 Relief for YA 2017 (RM) Fee expended for any course of study up to tertiary level other than a degree at Masters or Doctorate level, 7,000* undertaken for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications or any course of study for a degree at Masters or Doctorate level undertaken for the purpose of acquiring any skill or qualification Purchase of supporting equipment for self (if a disabled person) or for disabled spouse, child or parent 6,000* Net deposit for child into the Skim Simpanan Pendidikan 1Malaysia account established under Perbadanan 6,000* Tabung Pendidikan Tinggi Nasional Act 1997 (until YA 2020) Relief on housing loan interest for the purchase of one unit residential property where the Sale and Purchase 10,000* Agreement is executed between 10 March 2009 and 31 December 2010 (given for 3 consecutive years) Employee’s contribution to Social Security Organisation (SOCSO) 250* Lifestyle relief consolidated with the following: 2,500* • Purchase of books, journals, magazines, printed newspaper and other similar publications for the purpose of enhancing knowledge • Purchase of personal computer, smartphone or tablet • Purchase of sports equipment and gym memberships, and • Internet subscription Purchase of breastfeeding equipment 1,000* Fees paid to childcare centre and kindergarten 1,000*

* Maximum relief

130 / DOING BUSINESS GUIDE PwC / 131 © 2018 PricewaterhouseCoopers . All rights reserved. “PricewaterhouseCoopers” and/or “PwC” refers to the individual members of the PricewaterhouseCoopers organisation in Malaysia, each of which is a separate and independent legal entity. Please see www.pwc.com/structure for further details. CS10173