Doing business in Malaysia 2018 www.pwc.com/my Disclaimer This Guide includes information obtained or derived from a variety of publicly available sources. PwC has not sought to establish the reliability of these sources or verified such information. All such information is provided “as is” and PwC does not give any representation or warranty of any kind (whether expressed or implied) about the suitability, reliability, timeliness, completeness and accuracy of this publication. This publication is for general guidance only and should not be construed as professional advice. Accordingly, it is not intended to form the basis of any decision and you are advised to seek specific professional advice on any transaction or matter that may be affected by this publication before making any decision or taking any action. 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 Kuala Lumpur, 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, Port Klang. The landmass of Malaysia comprises However, the seat of the Malaysian Peninsula Malaysia, at the south government is now sited in Putrajaya, 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 Sabah and Sarawak) 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 Penang, which is the oldest port in and in East Malaysia, are during the the country; Johor Bahru, which has monsoon, which blows from October a free port (Johor Port) and is linked to March. to Singapore by two causeways; Kota Kinabalu and Kuching 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 Malacca, 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 Labuan. 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 China in the east, many of whom serve as constitutional heads of state. the Dewan Rakyat (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 Federation of Malaya 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 Islam, 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,