Malaysia

> Key Corporate Features
> General Information
> Company Information
> Taxation

Key Corporate Features

General Information

During the late 18th and 19th centuries, Great Britain established colonies and protectorates in the area of current Malaysia; these were occupied by Japan from 1942 to 1945. In 1948, the British-ruled territories on the Malay Peninsula formed the Federation of Malaya, which became independent in 1957. Malaysia was formed in 1963 when the former British colonies of Singapore and the East Malaysian states of Sabah and Sarawak on the northern coast of Borneo joined the Federation. The first several years of the country's history were marred by Indonesian efforts to control Malaysia, Philippine claims to Sabah, and Singapore's secession from the Federation in 1965. During the 22-year term of Prime Minister Mahathir bin Mohamad (1981-2003), Malaysia was successful in diversifying its economy from dependence on exports of raw materials, to expansion in manufacturing, services, and tourism.

Malaysia, a middle-income country, transformed itself from 1971 through the late 1990s from a producer of raw materials into an emerging multi-sector economy. Growth was almost exclusively driven by exports - particularly of electronics. As a result, Malaysia was hard hit by the global economic downturn and the slump in the information technology (IT) sector in 2001 and 2002. The economy grew 4.9% in 2003, notwithstanding a difficult first half, when external pressures from Severe Acute Respiratory Syndrome (SARS) and the Iraq War led to caution in the business community. Growth topped 7% in 2004 and 5% per year in 2005-06. As an oil and gas exporter, Malaysia has profited from higher world energy prices, although the rising cost of domestic gasoline and diesel fuel forced Kuala Lumpur to reduce government subsidies, contributing to higher inflation. Malaysia "unpegged" the ringgit from the US dollar in 2005 and the currency appreciated 6% against the dollar in 2006. Healthy foreign exchange reserves and a small external debt greatly reduce the risk that Malaysia will experience a financial crisis over the near term similar to the one in 1997. The economy remains dependent on continued growth in the US, China, and Japan - top export destinations and key sources of foreign investment. The government presented its five-year national development agenda in April 2006 through the Ninth Malaysia Plan, a comprehensive blueprint for the allocation of the national budget from 2006-10. The plan targets the development of higher value-added manufacturing and an expansion of the services sector.

Malaysia is on the Malay Peninsula in southeast Asia. The nation also includes Sabah and Sarawak on the island of Borneo to the east. Its area slightly exceeds that of New Mexico. Most of Malaysia is covered by forest, with a mountain range running the length of the peninsula. Extensive forests provide ebony, sandalwood, teak, and other woods.

Company Information

The most common type of company in Malaysia is a company limited by shares (public limited and private limited companies). Private limited companies cannot sell shares to the public, and are distinguished by the appellation "Sendirian Berhad", shortened to "Sdn Bhd" or "S/B". Public limited companies source their capital by selling shares to the public, and are distinguished by the appellation "Berhad", shortened to "Bhd". Companies in Malaysia are governed by the Companies Act 1965, which protects the rights and interests of shareholders and investors, and provides regulations for the incorporation of companies, the formulation of company constitutions, management and closures. A company must have a minimum of two members, but a private limited company is limited to 50 members (public limited companies have no member limit). A minimum paid-up capital of only RM2 is needed to start a private limited company, while public limited companies need a paid-up capital of not less than RM60mil (if it seeks to be listed on the Kuala Lumpur Stock Exchange Main Board) or not less than RM40mil (if it seeks to be listed on the KLSE Second Board).

Companies wishing to operate in Malaysia must register with the Companies Commission of Malaysia (Companies Division). Foreign companies must incorporate a local company or register a branch in Malaysia in order to conduct business in this country. The company must also undergo the same procedure as a local company, that is to file an application to inquire if the intended name is still available.

A reservation period of three months will also be granted if the name is available, during which time the company must submit copies of documents like Certificate of Incorporation, Company Charter, List of Directors, a memorandum of appointment authorising a Malaysian resident to accept any notices served on the company and Statutory Declaration, plus relevant fees.

Any documents in a language other than Bahasa Malaysia or English must have an accompanying certified translation. The Registrar of Companies will bestow upon the applying company the status of a foreign company operating in Malaysia once all procedures are completed and approved.

Taxation

General

All income of companies and individuals accrued in, derived from or remitted to Malaysia, are liable to tax. However, income derived from outside Malaysia and remitted to Malaysia by resident companies (except those involved in the banking, insurance, air and sea transportation business), non-resident companies and non-resident individuals are exempted from tax. To modernise and streamline the tax administration system, the assessment of income tax was changed to a current year basis of assessment from the year 2000. In 2001, the Self-Assessment System replaced the Official Assessment System for companies.

Apart from income tax, there are other direct taxes such as stamp duty and real property gains tax, and indirect taxes such as sales tax, service tax, excise duty, import duty and export duty.

The following sources of income are liable to tax:

	Gains and profits from a trade, profession and business
	Gains or profits from an employment (salaries, remunerations, etc.)
	Dividends, interests or discounts
	Rents, royalties or premiums
	Pensions, annuities or other periodic payments
	Other gains or profits of an income nature.

Company tax

A tax rate of 28% applies to both resident and non-resident companies.

Withholding tax

Non-resident individuals are subject to a final withholding tax of:

	10% on special classes of income such as the use of moveable property; technical advice, assistance or services; installation services on the supply of plant, machinery, etc.; and personal services associated with the use of intangible property. Effective from 21 September 2002, payments to non-residents for services rendered abroad will not be liable to the withholding tax of 10%.
	10% on royalties
	15% on interest
	15% on the services of a public entertainer.

An employee on a short-term visit to Malaysia enjoys tax exemption in respect of his income from an employment exercised in Malaysia when bis presence does not exceed 60 days in a calendar year. However, the income of a non-resident individual who performs independent services such as consultancy services is not exempted from tax.

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