A Guide to

Doing Business in Malaysia

July 2008
Contents
Government and 1 Government and Legal System
Legal System
Business Organisation 3 General
Structures
Foreign Investment 6 Malaysia is a constitutional monarchy, headed by the Yang di-Pertuan Agong, customarily
referred to as the king. The Yang di-Pertuan Agong is elected for 5-year terms from among
Taxation 10
the nine Sultans of the Peninsular Malaysian states. The Yang di-Pertuan Agong is also the
Immigration 11
leader of the Islamic faith in Malaysia.
Requirements
Employment Law 13 Malaysia practices parliamentary democracy and has a three-tier government structure:
Real Property Law 14 federal, state and local. Federal executive power is vested in the Cabinet led by the Prime
Protection of Intellectual 16 Minister. The Federal Constitution of Malaysia requires the Prime Minister to command the
Property Rights confidence of the majority in the lower house of Parliament. The Cabinet is chosen from
among members of Parliament and is collectively responsible to that body.

Legislative power is divided between federal and state legislatures. Parliament makes federal
T his document is a guide
that provides only general
information and is not
laws applicable to Malaysia as a whole. It also examines the government’s policies, approves
the government’s expenditures and new taxes and also serves as the forum for criticism and
intended to be comprehensive the focus of public opinion on national affairs.
advice. It is not a substitute
The State governments are headed by State Rulers. The Ruler acts on the advice of the State
for legal or other advice
Executive Council that is chaired by the Chief Minister or Menteri Besar. All states have their
and it is given without the
own legislatures.
assumption of a duty of
care. We do not assume any
legal responsibility for the
accuracy of any particular Federal and State Governments
statement in this document.
It is advisable for anyone The distribution of executive and legislative powers between the Federal and State
who intends to do business Governments is embodied in the Federal Constitution of Malaysia.
in Malaysia, or in the case of
a specific issue or problem, to The Federal Government has authority over, among others, external affairs, defence, internal
seek professional advice. security, civil and criminal law and the administration of justice (except for certain civil law
cases among Malays or other Muslims which are adjudicated under Islamic law), federal
If you need any further citizenship, finance, trade, commerce, industry, shipping, communications, transportation,
information, please consult power, education, medicine, health, labour and tourism.
your usual lawyer at Zaid Ibrahim
& Co. or one of the following: The State Governments have, in their respective States, authority over, among others, land,
local government and services of a local character such as markets, fairs, licensing of places
• Chew Seng Kok
of public amusement.
• Lim Kar Han
Both the Federal and State Governments have concurrent jurisdiction over, among others,
• Dato' Dr. Nik Norzrul
social welfare, town and country planning, public health, sanitation, drainage, irrigation,
• Lynette Yeow housing and provisions for housing accommodation.
• Toh Beng Suan

Last Updated 25 July 2008

©Zaid Ibrahim & Co. All rights reserved. Z A I D I B R A H I M & CO • J U LY 20 0 8 1

A GUIDE TO DOING BUSINESS IN MALAYSIA

The Parliament

The Malaysian Parliament consists of the Yang di-Pertuan Agong or king, the Senate (Dewan
Negara) and the House of Representatives (Dewan Rakyat).

All 70 Senate members sit for 3-year terms, which are normally extended for an additional
3 years; 26 are elected by the 13 state assemblies, and 44 are appointed by the Yang di-
Pertuan Agong. The life of the Senate is not affected by the dissolution of Parliament. Senators
are drawn from the ranks of persons who have rendered distinguished public service or have
achieved distinction in their professions; commerce, industry, agriculture, cultural activities
or social service or are representatives of a racial minority or are capable of representing the
interests of aborigines.

The 222 representatives of the House or Dewan Rakyat are elected from single-member
districts to parliamentary terms lasting up to 5 years.

Source of Law

The foundation of the Malaysian legal system is a legacy of British colonial history. The legal
system is based on a set of written and unwritten laws. The Federal Constitution together
with the constitutions of the States, legislation enacted by Parliament (Acts of Parliament),
and delegated legislation made by statutory bodies under powers conferred on them by Acts
of Parliament, form the integral part of the written laws. The unwritten laws are comprised
of the principles of English common law, previous judicial decisions of the superior courts
and local customary law. Islamic law is another important source of law which applies only
to the Muslim population and is governed by a separate system of courts.

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Business Organisation Structures

Overview

Malaysia offers various forms of business models that can be used to set up business in the
country. A business organisation may take any of the following forms:

• Sole trader or proprietor

• Company (Private Limited Company, Public Limited Company or Branch of a Foreign

Company)

• Partnership

• Unincorporated Association

• Representative and Regional Office

• Operational Headquarter (OHQ)

• International Procurement Centre (IPC)

• Regional Distribution Centre (RDC)

The most common forms of business entities are companies, and to some extent, representative
and regional offices, OHQs, IPCs and RDCs. All companies in Malaysia are governed by
the Companies Act 1965. All companies are required to be registered with the Companies
Commission of Malaysia (CCM). Company limited by shares is the most common type of
company structure in Malaysia. Such limited companies may be either private or public.

Private Company

A private company limited by shares has provisions in its Memorandum and Articles of
Associations that:

• restricts the right to transfer its shares;

• limits the number of its members to 50, excluding employees and some former
employees;

• prohibits any invitation to the public to subscribe for its shares and debentures; and

• prohibits any invitation to the public to deposit money with the company.

Public Company

A public company can be formed or, alternatively a private company can be converted into
a public company subject to certain requirements in the Companies Act. A public company
limited by shares can offer shares to the public if it has registered a prospectus with the
Securities Commission and has lodged a copy of the prospectus with the CCM on or before
the date of its issue.

A public company can apply to have its shares quoted on Bursa Malaysia (the Malaysian
stock exchange) subject to compliance with the requirements laid down by Bursa Malaysia
and the Securities Commission. Any subsequent issue of securities (for instance, issue by way
of rights or bonus, or issue arising from an acquisition) would require the approval of the
Securities Commission.

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Branch of a Foreign Company

A foreign company desiring to set up a place of business or undertake business activities

in Malaysia may do so by locally incorporating a company, or by registering itself as a
foreign company in Malaysia. The terminology ‘branch office’ is normally used for a foreign
company registered in Malaysia. The branch office has to be registered with the CCM before
it commences business or establishes a place of business in Malaysia.

Representative Office and Regional Office

Foreign companies involved in the manufacturing and trading sectors may establish
representative and regional offices in Malaysia to perform certain activities for their head
office or principal. There is no requirement for such representative and regional offices to
be incorporated under the Companies Act. Representative Office of a foreign company is
allowed to collect relevant information regarding investment opportunities in the country
especially in the manufacturing sector; to develop bilateral trade relations; to promote
the export of Malaysian goods and products; and to carry out research and development
activities. A Representative Office is however not allowed to have any business transaction
or to derive income from its operation.

A Regional Office is an office of a foreign corporation that serves as the coordination

centre for the corporation’s affiliates, subsidiaries, and agents in the Southeast Asia and the
Asia Pacific. It should have the responsibility over designated activities of the corporation
within the region it operates. However, a Regional Office is not allowed to do any business
transaction or derive income from its operation.

Expatriate posts are allowed in Representative and Regional Offices depending on the
functions and activities of the Representative Office or Regional Office. Approval for such
posts is on a renewable two-year basis. Expatriates working in Regional Offices are taxed
only on the portion of their chargeable income attributable to the number of days they are
in Malaysia.

Operational Headquarter (OHQ)

An approved OHQ refers to a locally incorporated company, whether Malaysian-owned or

foreign-owned, which carries on a business in Malaysia of providing qualifying services to its
offices or its related companies outside Malaysia. A company may be granted OHQ status
if it fulfills certain qualifying criteria. An OHQ enjoys a number of benefits including tax
exemption for a period of 10 years on income from:

• qualifying services rendered to its offices or related companies outside Malaysia;

• interest on foreign currency loans extended to its offices or related companies outside
Malaysia; and

• royalties received from research and development work carried out on behalf of its
offices or related companies outside Malaysia.

In addition to the above, expatriates working in OHQs are taxed only on the portion of their
chargeable income attributable to the number of days they are in Malaysia.

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International Procurement Centre (IPC)

An IPC is a locally incorporated company, whether Malaysian or foreign-owned, which

carries on a business in Malaysia to undertake the procurement and sale of raw materials,
components, and finished products for related and unrelated companies in Malaysia and
abroad. This includes procurement from and sale to local sources and third countries. An IPC
enjoys the following incentives:

• approval for expatriate posts based on the requirements of the IPC;

• permission to open foreign currency accounts with any onshore licensed commercial
bank to retain export proceeds, without any limit imposed;

• permission to enter into foreign exchange forward contracts with any onshore licensed
commercial bank to hedge exchange risk based on its projected sales;

• 100% equity holding by the promoter; and

• permission to bring in raw materials, components, or finished products, without

paying custom duties, into free industrial zones, licensed manufacturing warehouses,
free commercial zones and bonded warehouses for repacking, cargo consolidation and
integration before distribution to the final consumers.

Subject to the relevant qualifying criteria, an IPC is also eligible for full tax exemption of its
statutory income for 10 years and dividends paid from the exempt income will be exempted
from tax in the hands of its shareholders.

Regional Distribution Centre (RDC)

An approved RDC is a collection and consolidation centre for finished goods, components
and spare parts produced by its own group of companies for its own brand to be distributed
to dealers, importers or its subsidiaries or other unrelated companies within or outside the
country. The activities involved are bulk breaking, repackaging and labelling. RDCs enjoy
benefits such as tax incentives and custom duty exemptions that are similar to those accorded
to an IPC.

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Foreign Investment
The Ministry Of International Trade And Industry

The Ministry of International Trade and Industry (MITI) aims to promote and safeguard
Malaysian interest in the international trade arena, to spur the development of industrial
activities and to further enhance Malaysia’s economic growth. The Malaysian Industrial
Development Authority (MIDA), as an agency under MITI, is the government’s principal
agency in charge of promotion and co-ordination of industrial development in Malaysia
including foreign investments especially in the manufacturing sectors. MIDA is the first point
of contact for investors who intend to set up projects in manufacturing and its related support
service sectors in Malaysia. Detail information about the incentives granted to investors of
various industries in Malaysia may be obtained from MIDA website at www.mida.gov.my

Foreign Investment Committee Guidelines

The Foreign Investment Committee (FIC) is a committee within the Economic Planning
Unit of the Prime Minister’s Department, which, amongst others, reviews and regulates
the acquisitions by foreign interests of assets and interests in Malaysian companies and
businesses. Foreign investment in Malaysia is generally governed by the FIC. Specific
industries may also be regulated by other government authorities. FIC approval is required
in certain transactions as set out in its guidelines (FIC Guidelines). Under the FIC Guidelines,
the general rule of thumb is that a minimum 30% of the effective shareholding in Malaysian
companies is to be held by Bumiputeras while the remaining equity can be held either by
foreign interests or by Malaysian interests or both. ‘Bumiputera’ are generally Malays and
other persons indigenous to Malaysia.

Some transactions to which the FIC Guidelines on acquisition of interests, mergers and take-
overs apply are as follows:

• Any proposed acquisition of interest in a local company or business in Malaysia which is

RM10 million or more in value, by local or foreign interests;

• Any proposed acquisition of interest in any local company or business in Malaysia

regardless of whether the value is less than RM10 million by:

- any foreign interest of the voting rights to the level of 15% or more or which will
result in an increase of the voting rights to the level of 15% or more; or

- any associated or non-associated group of foreign interests of the cumulative voting

rights to the level of 30% or more or which will result in an increase of the
cumulative voting rights to the level of 30% or more;

• Any proposed acquisition of interest by any associated or non-associated group

of foreign interests, in aggregate of 30% or more of the voting rights of any local
company/business or such interest which will result in an increase of the voting rights to
30% or more in any local company/business;

• Any proposed merger or take-over of any local company or business in Malaysia by

local or foreign interests;

• Any proposed joint venture involving two or more parties in a local company;

• Any control of a local company or business in Malaysia through any form of

management agreement, technical assistance agreement or other arrangements;

• Any charging of shares in a local company to any foreign interest where the value of
loan or the market value of the shares is RM10 million or more.

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There are some exemptions to the FIC Guidelines, including any acquisition of interest in
manufacturing companies licensed by MITI and acquisition of interest in companies that
have been granted Multimedia Super Corridor (MSC) status and certain other status.

Where the FIC Guidelines are applicable, the FIC will generally impose equity conditions, share
capital conditions and employment conditions on companies undertaking the transactions,
to be complied within a specified period.

Although the FIC Guidelines are not issued pursuant to any legislation or statute, non-
compliance with the FIC Guidelines may have adverse practical consequences especially where
the foreign investor needs to apply for other governmental licence, permit or approval.

Exchange Control Regulations

The Malaysian exchange control regime is governed by the Exchange Control Act 1953 and
the Exchange Control of Malaysia Notices (ECMs) and clarifications issued by the Malaysian
central bank, Bank Negara Malaysia (BNM). As the regulator, BNM’s approval is required
for certain dealings and transactions. Generally, there are no restrictions on repatriation
of capital, profit, dividends, interest and rental income by foreign investors, subject to the
payments being made in foreign currency (other than the currency of Israel). The ECMs set
out various approvals which BNM has granted and clarifies transactions and applications
where prior approvals are required.

The Iskandar Development Region (IDR)

The Iskandar Development Region (IDR) spans an area of 2216.34 sq km in South Johor and
is one of the key engines of growth identified under the 9th Malaysia Plan. The IDR aims to
be a first-class global hub for business, living and leisure. More than RM4 billion has been
allocated under the 9th Malaysia Plan towards infrastructure development in IDR.

The IDR was officially launched on 4 November 2006. The Iskandar Regional Development
Authority (IRDA) established in February 2007 is the statutory body that acts as the one-stop
centre responsible for establishing policies, directions and strategies, and co-coordinating as
well as facilitating the development of IDR.

An initial Incentive and Support Package that applies to certain designated zones within
the IDR had been announced by government in March 2007. The locations of these zones
will be announced by the IRDA in the third quarter of 2007.The incentives will be enjoyed
by qualifying companies in 6 targeted sectors within the approved zones. The 6 targeted
sectors are:

• creative industries

• educational services

• financial advisory and consulting services

• healthcare services

• logistics services

• tourism related services

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The incentives for the qualifying companies in the approved zones are:

• Exemption from the Foreign Investment Committee (FIC) Guidelines.

• Exemption from corporate income tax for a period of 10 years from the commencement
of operation on the condition that operation of the company commences before the
end of year 2015.

• Exemption from withholding tax on royalty and technical fee payments to non-residents
for a period of 10 years from the commencement of operations.

• Freedom to source capital globally.

• Unrestricted employment of foreign employees within the approved zones.

More information about IDR may be obtained from www.sjer.com.my

The Multimedia Super Corridor (MSC)

The Multimedia Super Corridor (MSC) is a government initiative to spur the information
and communication technology (ICT) industry in Malaysia. The MSC was conceptualised in
1996 and has since grown into a thriving ICT hub. To ensure the success of the MSC, the
government has, in a Bill of Guarantees, committed to:

• Provide a world-class physical and information infrastructure;

• Allow unrestricted employment of local and foreign knowledge workers;

• Ensure freedom of ownership by exempting companies with MSC Status from local
ownership requirements;

• Give the freedom to source capital globally for MSC infrastructure, and the right to
borrow funds globally;

• Provide competitive financial incentives, including no income tax for up to 10 years or

an investment tax allowance, and no duties on import of multimedia equipment;

• Become a regional leader in intellectual property protection and cyberlaws;

• Ensure no Internet censorship;

• Provide globally competitive telecommunications tariffs;

• Tender key MSC infrastructure contracts to leading companies willing to use the MSC
as their regional hub; and

• Provide an effective one-stop agency.

The Multimedia Development Corporation Sdn Bhd (MDC) is the one-stop agency to accept
and process applications by companies for MSC status. Companies with MSC status are
entitled to enjoy the government incentives provided pursuant to the Bill of Guarantees.

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A company seeking MSC Status and its benefits is required to:

• be a provider or a heavy user of multimedia products and services;

• employ a substantial number of knowledge workers;

• provide technology transfer and/or contribute towards the development of the MSC or
support Malaysia’s k-economy (knowledge-based economy) initiatives;

• establish a separate legal entity for the MSC qualifying multimedia business and
activities;

• locate in a MSC designated cybercities; and

• comply with environmental guidelines.

Labuan International Business and Financial Centre

The Federal Territory of Labuan, an island located off the coast of Sabah, East Malaysia, was
established as an International Offshore Financial Centre in October 1990 and the Labuan
Offshore Financial Services Authority (LOFSA) is the one-stop approving and regulatory
agency for offshore businesses operating in Labuan. In January 2008, Labuan IOFC was
rebranded into the Labuan International Business and Financial Centre in line with its new
focus as an international financial centre.

The offshore businesses in Labuan are virtually unaffected by the country’s exchange control
measures and the nature of offshore businesses in Labuan is basically foreign currency-
based. Offshore companies and offshore trusts undertaking offshore activities are accorded
preferential tax treatment. Offshore activities are classified into offshore trading activities
(including banking, insurance, trading, management, licensing) and offshore non-trading
activities (including holding of investments in securities, stocks, shares, loans, deposits and
immovable properties by an offshore company on its own behalf).

Offshore companies and persons employed by offshore companies enjoy several tax incentives.
For example, an offshore company carrying on an offshore trading activity can opt to pay
tax each year at the rate of 3% of its net audited profits, or a fixed sum of RM20,000 a
year. Further, an offshore company carrying on an offshore non-trading activity for the basis
period for a year of assessment is not subject to tax for that year of assessment. When a
company has no basis period for a year of assessment, it is taxed a fixed rate of RM20,000
for that year of assessment. With effect from assessment year 2009, offshore companies will
also enjoy the flexibility to elect to be taxed under the domestic corporate tax regime.

In Labuan, the following types of income are exempted from tax in the hands of a Malaysian
or foreign recipient:

• dividends received by, or received from an offshore company;

• distributions received from an offshore trust by the beneficiaries;

• royalties received by a non-resident or another offshore company;

• interest received from, or by, an offshore company under certain circumstances and
amounts received from an offshore company for providing services.

In addition, documents relating to offshore business activities of an offshore company

(including memorandum and articles of association of an offshore company and transfer of
shares in an offshore company) are exempted from stamp duty.

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Taxation
Corporate Income Tax

A company, whether resident or not, is assessable on income accrued in or derived from

Malaysia. The current corporate income tax rate (for assessment year 2008) is 26%. The rate
will be further reduced to 25% for assessment year 2009. A company carrying on petroleum
upstream operations is subject to a Petroleum Income Tax of 38%. Currently, corporate tax
is based on the imputation system. With effect from assessment year 2008, the current
imputation tax system will be replaced, over a transition period of 6 year, with a single-tier
tax system. Under the single-tier system, profits are taxed only at the company’s level and
dividends received are exempted from tax.

Personal Income Tax

Whether an individual is a “resident” in Malaysia under the Malaysian Income Tax Act 1967
is determined by the duration of his stay in the country. Generally, an individual residing in
Malaysia for 182 days or more in a year has resident status. A resident individual is taxed
on his chargeable income at a graduated rate from 0% to 28% after deducting relevant
tax relief. There are also available tax rebates. A non-resident individual is liable to tax (on
income earned in Malaysia) at the rate of 28% without any personal relief.

Withholding Tax

Withholding tax is imposed on certain payments made by residents to non-residents such

as interest, royalty, technical fees and rentals for moveable properties. The resident has the
obligation to withhold tax when making the payments and to pay the amount within a
certain time, failing which the resident is liable to pay a penalty equal to 10% of the unpaid
tax and the total sum shall be a debt due to the Government. Due to double tax agreements,
residents in some countries may enjoy exemption or reduced withholding tax rates.

Other Taxes

• Sales Tax is imposed at the import or manufacturing levels at a general rate of 10%.

• Service Tax applies to certain prescribed goods and services, including certain
professional and consultancy services in Malaysia, at a general rate of 5%.

• Import duty is imposed at ad valorem generally.

• Excise duties are levied on selected products manufactured in Malaysia.

• Stamp duty is imposed on various written legal documents that are executed in
Malaysia. For documents executed outside Malaysia, stamp duty is applicable if the
document purports to effect a transfer of subject matter in Malaysia.

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Immigration Requirements
Travel Document and Visa

Every person entering Malaysia must possess a valid national passport or internationally
recognised travel document valid for travel to Malaysia. Any person not in possession of a
passport or travel document which is recognised by the Malaysian Government must obtain
a document in lieu of passport. All travel documents must be valid for more than six (6)
months from the date of entry into Malaysia. In addition, foreign nationals may require a visa
to enter Malaysia depending on their nationality. If so required, the visa must be obtained
in advance at Malaysian Representative Office before entering the country. More detailed
information on visa requirements is available at the Malaysia Immigration Department’s
website www.imi.gov.my

Passes

Foreign nationals have to obtain a pass besides a visa (where required) which allows them
to stay temporarily. A pass is an endorsement in the passport constituting permission to stay
for the approved duration.

Passes issued at point of entry

Foreign visitors entering the country with a valid passport and visa can obtain a Visit Pass
(Social) issued at the point of entry solely for the purpose of a social and/or business visit such
as owners and company representatives entering Malaysia to attend a company meeting or
seminar, inspect the company’s accounts or to ensure the smooth running of the company,
investors or businessmen entering to explore business opportunities and investment
potential.

Passes issued upon arrival in Malaysia

Other than applications for entry for the purpose of social or business visits, all applications
for other passes i.e., Employment Pass, Visit Pass (Professional), Visit Pass (Temporary
Employment), Dependant’s Pass and Student Pass must be made upon arrival in Malaysia.
Applicants for such passes must have sponsorship in Malaysia where the sponsors agree to be
responsible for the maintenance and repatriation of the visitors from Malaysia if necessary.

An Employment Pass is required for foreigners who enter the country to take up a contract
of employment with a minimum period of 2 years and earn a monthly income of not less
than RM2,500. Wives and children of foreigners who have been issued with employment
pass can apply for Dependants’ Passes.

Visit Passes (Professional) are issued to foreigners on short-term contract with any agency
such as artistes, researchers, lecturers/speakers, members of international organisations. The
validity period of the pass varies but it does not exceed 12 months at any one time.

A Visit Pass (Temporary Employment) is issued to a person who enters the country to take
up temporary employment for less than 24 months or earns a monthly income of less than
RM2,500.

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Employment of Expatriate Personnel

Where there is a shortage of trained Malaysians, foreign companies are allowed to bring in
expatriate personnel. In addition to this, foreign companies are also allowed ‘key posts’, that
is, posts that are permanently filled by foreigners.

There are 2 stages in the employment of expatriates, namely an application for expatriate
post and an endorsement of employment pass by the Immigration Department.

Stage 1: Application for Expatriate Post

This is the stage where a company submits its application for expatriate posts. The Government
has appointed the following agencies to evaluate and approve expatriate posts:

• Ministry of Industrial Development Authority for manufacturing and its related

service sectors.

• Multimedia Development Corporation for the information technology sector, specifically

companies that have been awarded Multimedia Super Corridor Status.

• Central Bank of Malaysia for the financial, insurance and banking sectors.

• Securities Commission (SC) for the securities and futures market.

• Malaysian Biotechnology Corporation for the biotechnology industry.

• Expatriate Committee for expatriate posts in sectors other than the above mentioned sectors.

Stage 2 : Endorsement of Employment Pass

Upon approval of the expatriate posts by the approving agency, the company must submit
an application to the Immigration Department for endorsement of the Employment Pass.
Once the Employment Pass has been endorsed, the expatriate can be hired.

There are additional criteria in the application of expatriate post depending on sector of
business, which is based on minimum paid up capital of the company, recommendation/
registration by monitoring agencies (if applicable), appropriateness of scope of job, salary,
age, expertise and working experience of an expatriate. As an example, the following
additional criteria apply to the manufacturing sector:

• Automatic approval for up to 10 expatriate posts (including 5 key posts) for

manufacturing companies with foreign paid-up capital of US$2 million and above;

• Automatic approval for up to 5 expatriate posts (including at least 1 key post) for
manufacturing companies with foreign paid-up capital of more than US$200,000 but
less than US2 million;

• Where the manufacturing companies with foreign paid-up capital of less than
US$200,000, the following applies:

• Key posts can be considered where the foreign paid-up capital is at least
RM500,000; and

• The number of key posts, executive posts and non-executive posts allowed depends on
the merits of each case.

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Employment Law
Terms and Conditions of Employment

The main legislation regulating terms and conditions of employment is the Employment Act
1955 (“Employment Act”). The protection under the Employment Act is extended only to
employees whose monthly wages do not exceed RM1,500, manual workers and a few other
specified categories.

The Employment Act stipulates the minimum terms and benefits. The employer is not
prevented from giving better terms but any term or condition of employment which is less
favourable is automatically rendered null and void and substituted by the provision in the
Employment Act.

The Employment Act and Regulations made under it confer benefits such as rest days, public
holidays, annual leave, sick leave, hospitalization leave, maternity leave and termination
benefits. The Employment Act also regulates the hours of work. The normal working hours
in a week cannot exceed 48 hours and the normal working hours in a day cannot exceed 8
hours. These limits can be exceeded under certain specified circumstances. The Employment
Act also specifies the rates to be paid for overtime work and work on rest days and public
holidays. Maximum overtime permissible in a month is 104 hours.

Collective Agreements

It is necessary for a trade union to obtain recognition from the employer before it is can
begin collective bargaining. The collective agreement, which must be for a minimum period
of 3 years, is legally binding and enforceable if it has been taken cognizance of by the
Industrial Court. Strike action is prohibited in respect of any matter already covered by the
collective agreement.

Retrenchment

The employer is entitled to retrench excess employees. Selection is based on the Last-In- First-
Out Rule in the category. Foreign workers are to be retrenched first before any local worker
in the same category can be retrenched. No governmental approval is necessary but there is
a requirement to notify the Ministry of Human Resources. Employees within the protection
of the Employment Act 1955 are entitled to statutory termination benefits.

Statutory Contributions

It is compulsory for employees and their employers to make monthly contributions to a

statutory retirement fund. Expatriate employees are exempted unless they opt to contribute
in which case it becomes compulsory too for their employer. The contributions are made to
the account of the individual employee. At present, the employer contributes 12% of the
employee’s monthly salary while the employee contributes 11%.

Monthly contributions will also have to be made to the Social Security Organisation Fund
both by the employer and employees who earn a monthly salary of RM3,000 and below.
The Fund pays compensation for death and invalidity or disablement benefits arising from
employment injuries. Those employees whose monthly salary progress above RM3,000
remain contributors. For those who earn above RM3,000 a month, participation is at their
option but once they decide to contribute, their employers will also have to comply.

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Real Property Law

Overview

The National Land Code 1965 (NLC) is the governing legislation in West Malaysia. The States
in East Malaysia (Sabah and Sarawak) are each governed by their own land laws, namely, the
Sabah Land Ordinance and the Sarawak Land Code.

The NLC is based on the Torrens System in Australia. Under the Torrens system, title to or
interest in land vests and divests only upon registration. Under the NLC, dealings which
are capable of being registered are transfers, leases, charges and easements whereas the
dealings which are not capable of being registered are tenancies and liens.

As far as the dealings which are capable of being registered are concerned, no title to or
interest in land will be transferred or created until the instruments effecting these dealings
have been registered. Registration under the NLC is effected when a prescribed memorial
of the dealing is made on the register document of title under the hand and seal of the
registering authority.

Records kept by the local land registries/offices contain all the relevant data and information
on land and shows the ownership and other rights that exist on the land. Everyone is allowed
to inspect the records upon payment of a fee.

State land is generally disposed of by way of alienation. Each state now has the authority
to alienate land generally for a maximum lease period of 99 years. Freehold alienations are
possible only in exceptional cases. Land may be alienated by the relevant state with the
imposition of special conditions, restrictions-in-interest and categories of land use (either one
of three categories namely, Agriculture, Building or Industry) on land titles enabling the state
to control land development.

Acquisition of Properties by Foreigners

Under the NLC, a non-citizen or a foreign company is not allowed to acquire any land (other
than industrial land) in West Malaysia unless the prior approval of the relevant State Authority
has been obtained. The State Authority may impose certain terms and conditions or a levy in
granting its approval for any disposal to or acquisition by a non-Malaysian entity.

In addition to the State Authority, any acquisition of property by foreign interests (including
permanent residents of Malaysia), requires the approval of the Foreign Investment Committee
(FIC) unless they are exempted. The policies with regard to foreigners purchasing real
properties are contained in the FIC Guidelines on the acquisition of properties by local and
foreign interests (FIC Properties Guidelines).

The FIC Properties Guidelines apply to, among others, the following transactions which
require the approval of the FIC:

• Any acquisition of property by foreign interest including Permanent Resident requires

the approval of FIC except for purchase of residential properties costing RM250,000
and above with no limit on the number of property acquired;

• Foreign interest is only allowed to acquire property other than residential unit valued at
more than RM150,000 per unit with no limit on the number of property acquire;

• The State Authority has the discretion to consider the acquisition based on the area or
location of the property, types of property and percentage of the total units in a project;

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A GUIDE TO DOING BUSINESS IN MALAYSIA

• Acquisition of commercial property valued at less than RM10 million by foreign interest
does not have to incorporate a local company subject to the commercial property is
only for own use;

• Foreign interest is only allowed to acquire agricultural land valued more than
RM250,000 or at least five (5) acres in area subject to the conditions for acquisition;

• Acquisition of agricultural land by foreign interest is only allowed for the following
purposes
a) to carry out agricultural activities on a commercial scale using modern or high
technology; or
b) to carry out agro-tourism project; or
c) to carry out agricultural or agro-based industrial activities for the production of
goods for export. However, for this purpose relaxation on equity condition may
be considered.
Other acquisitions that are exempted from the FIC approvals include amongst others,
acquisition of properties by Multimedia Super Corridor (MSC) status companies for operation
purposes in the MSC area, transfer of land under a will or court order and acquisition of
industrial property by manufacturing companies licensed by the Ministry of International
Trade and Industry (MITI) for own manufacturing purposes.

Real Property Gains Tax

Under the Real Property Gains Tax Act, 1976, gains arising from the disposal of any real
property in Malaysia or any share in a real property company are subject to real properties
gain tax. However, all disposals of properties after 31 March 2007 are now exempted from
the Real Property Gains Tax.

Stamp Duty

Under the Stamp Act, 1949, any conveyance of property in Malaysia attracts an ad valorem
stamp duty based on the consideration or market value of the property.

Leases and Tenancies

Under the NLC, a lease is granted for a term exceeding 3 years, subject to a maximum term of
99 years if it relates to the whole of any alienated land and a maximum term of 30 years if it
relates to a part of land. On the other hand, tenancies are for terms not exceeding 3 years.

Every lease must be granted by an instrument which format is provided under the NLC.
The NLC also provides for agreements that may be incorporated in any lease. However, the
parties may modify the terms as they think fit, except for certain implied agreements relating
to payment of rent as specified in the lease (on the lessee’s part) and payment of all rent due
to the state authority (on the lessor’s part). Foreign interest that wishes to take a lease of
property for a term of 10 years and above is required to obtain the FIC approval.

A tenancy can be effected either in writing or verbally. A tenancy is not capable of registration
under the NLC. However, a tenant can be protected against subsequent dealings on the
land by an endorsement of the tenant’s claim on the register document of title to the land.
Tenant has to apply to the Registrar for such an endorsement by submitting the documents
required.

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A GUIDE TO DOING BUSINESS IN MALAYSIA

Protection of Intellectual Property Rights

Overview

The Malaysian intellectual property regime affords protection via an extensive statutory
scheme covering intellectual property rights including copyright, trade marks, designs,
patents and layout designs of integrated circuits in compliance with Malaysia’s obligation
as a signatory to the Agreement on Trade Related Aspects of Intellectual Property (TRIPS).
Malaysia has acceded to the World Intellectual Property Organisation, the Paris Convention
for the Protection of Industrial Property, the Berne Convention for the Protection of Literary
and Artistic works, as well as the Patent Cooperation Treaty.

The Intellectual Property Corporation of Malaysia (MyIPO) is a statutory body established to,
among others, generally assist in the administration and enforcement of intellectual property
laws and issues or matters relating to intellectual property.

Copyright

The Copyright Act 1987 and its regulations govern the law on copyright in Malaysia. Malaysia
acceded to the Berne Convention on 1 October 1990.

The types of works protected by copyright in Malaysia are literary, musical and artistic works,
films, sound recordings and broadcasts. Derivative works are also protected. The owner of
the copyright in a literary, musical or artistic work, a film, a sound recording or a derivative
work has the exclusive right to control certain acts in these works, including reproduction,
and communication, performance or distribution to the public, either in its original or
derivative form.

Copyright protection in literary, musical or artistic works is for the duration of the life of the
author plus 50 years after death. There is no requirement for registration. Civil remedies are
available to a copyright owner whose copyright is infringed. Malaysia also imposes criminal
penalties for violations of its copyright laws.

Patents

Patent law in Malaysia is governed by the Patents Act 1983 and the Patent Regulations
1986. The owner of a patent has the exclusive rights, in relation to the patent, to exploit the
patented invention, assign or transmit the patent, or to conclude licensee contracts. Anyone
seeking to deal with the patent where the rights are exclusive to the owner will need to get
prior consent from the latter.

The accession by Malaysia to the Patent Cooperation Treaty (PCT) means that Malaysia is a
designated country in respect of a patent application filed in another contracting state on
or after 16 August 2006. Malaysia will also be automatically designated for a request for
international preliminary examination as regards an application filed in another contracting
state. Malaysian applicants themselves will be able to elect for PCT applications where the
same treatment will be according to them as with applicants from contracting states.

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A GUIDE TO DOING BUSINESS IN MALAYSIA

Trade marks

Trade marks are accorded protection under the law both under common law and by
registration pursuant to the Trade Marks Act 1976 and Trade Marks Regulations 1997. Trade
marks which are either pending registration, or for which no application for registration have
been made, are protected under the common law provided the owner of such unregistered
marks can show proof of goodwill and reputation in the use of the said marks in relation to
goods or services.

The registration of a trade mark will be for a period of 10 years but may be renewed from
time to time in perpetuity. Upon registration of a trade mark, the proprietor has the exclusive
right to use the trade mark in relation to those goods or services subject to any conditions,
amendments, modifications or limitations entered in the Register of Trade Marks.

The Register of Trade Marks is kept at the Central Trade Marks Office. Inspection of the
Register can be made at the Trade Mark Office during office hours upon payment of a
prescribed fee.

Industrial Designs

The Industrial Designs Act 1996 and Industrial Designs Regulations 1999 apply to applications
for the registration of industrial designs made after 1 September 1999.

The owner on a registered industrial design will have the exclusive right to make or import
for sale or hire or for use for the purposes of any trade or business, or to sell, hire or to
offer or expose for sale or hire any article to which the registered industrial design has been
applied. Once registered, the rights associated with an industrial design will be that of a
personal property in that it will be capable of assignment and transmission by operation of
law. Registered designs are protected for an initial period of 5 years which may be extended
to a further two 5 years terms, resulting in a total period of 15 years.

Layout-designs of Integrated Circuits

The Layout-Designs of Integrated Circuits Act 2000 provides for the protection of layout
designs of integrated circuits based on originality, the creator’s own invention and the fact
that the creation is freely created.

No registration is needed. The Layout-Designs of Integrated Circuits Act grants automatically

to the owner of an original circuit layout certain rights to copy the layout, make an integrated
circuit in accordance with the layout and exploit the layout commercially. The rights can
be transferred either partly or wholly by way of assignment, license, wills or through the
enforcement of law.

The duration of protection is 10 years from the date of commercial exploitation or 15 years
from the date of creation if not commercially exploited.

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FURTHER INFORMATION
Kuala Lumpur
Level 19, Menara Milenium
Pusat Bandar Damansara, 50490 Kuala Lumpur
Tel : +603 2087 9999
Fax : +603 2094 4888 / 4666
Bangkok
in association with Bangkok International Associates
No.140/37 ITF Tower
18th Floor, Suite 11, Silom Road, Kwaeng
Suriyawong, Khet Bangkrak, 10500 Bangkok
Tel : +662 234 3720
Fax : +662 231 6204
Dubai
Level 41, Emirates Towers, Sheikh Zayed Road
P.O.Box 31303, Dubai, UAE
Tel : +971 4 319 9000
Fax : +971 4 319 9372
Hanoi
in association with AGZI LCT Limited
M01 Atlanta Place, 49 Hang Chuoi Street
Hai Ba Trung District, Hanoi
Tel : +84 4 2782768 / 769
Fax : +84 4 2782766
Ho Chi Minh City
in association with AGZI LCT Limited
Suite 1605 Saigon Trade Centre
37 Ton Duc Thang Street, District 1, Ho Chi Minh City
Tel : +84 8 8212357
Fax : +84 8 8212382
Jakarta
in association with Roosdiono & Partners
Indonesia Stock Exchange Building
Tower I, 12th Floor
Jalan Jenderal Sudirman Kav. 52-53
Jakarta 12190
Tel : +62 21 5289 5125
Fax : +62 21 5289 5112
Johor Bahru
Suite 31.01, Level 31, Johor Bahru City Square
106-108 Jalan Wong Ah Fook, 80000 Johor Bahru
Tel : +607 226 4999
Fax : +607 226 3999
Kota Bharu
PT 808, 1st Floor, Section 27
Jalan Sri Cemerlang, 15300 Kota Bharu
Tel : +609 744 7300
Fax : +609 748 5122
Kuching
Lot 100, 1st Floor, Wisma Bukit Mata
Jalan Tunku Abdul Rahman
93100 Kuching, Sarawak
Tel : +6082 241 546
Fax : +6082 251 546
Labuan IOFC
Unit Level 13(E), Main Office Tower
Financial Park Labuan, Jalan Merdeka
87000 WP Labuan
Tel : +6087 451 688 / 452 688
Fax : +6087 453 688
Penang
51-22-B&C, Menara BHL
Jalan Sultan Ahmad Shah, 10050 Penang
Tel : +604 227 0888
Fax : +604 228 6755
Singapore
16 Raffles Quay, #20-03 Hong Leong Building
Singapore 048581
Tel : +065 6820 3499
Fax : +065 6820 3493
www.zaidibrahim.com