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| SABAH
INVESTMENT INCENTIVES & POLICIES |
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Exchange
Control |
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The Banking System in Malaysia
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| Bank
Negara Malaysia (KK) |
The
Central Bank
Negara Malaysia is the central bank and is responsible
for supervising the banking system. It also issues the Malaysian
currency, acts as banker and financial adviser to the government,
administers foreign exchange control regulations, and is lender
of last resort to the banking system.
Financial Institutions
In Malaysia, 37 licensed commercial banks operate
through a total of 1,340 branches, while representative offices
have been established by 37 foreign banks. These representative
offices are not permitted to conduct normal banking business.
A wide range of merchant banking services are provided by 12 merchant
banks, many of which have affiliations with merchant banks established
overseas.
Other banks include an Islamic bank, which provides all the conventional
banking services, based on Islamic concepts of banking and credit.
Bank Islam Malaysia has 68 branches in the country.
40 finance companies operate throughout 896 branches, which accept
retail deposits and provide finance for installment (hire purchase)
and leasing transactions and housing loans. The services of these
finance companies are supplemented by 156 registered leasing companies.
The banking system (comprising the commercial banks, merchant banks
and finance companies) and the industrial finance institutions are
the major institutional sources of credit to the industrial sector
in Malaysia. The industrial finance institutions in the country
comprise Malaysian Industrial Development Finance Berhad (MIDF)
and it's subsidiary, Malaysian Industrial Estates Sendirian Berhad
(MIEL), Bank Pembangunan Malaysia Berhad, Bank Industry Malaysia
Berhad, Sabah Development Bank Berhad, Borneo Development Corporation
(Sabah) and Borneo Development Corporation (Sarawak).
Seven discount houses in Malaysia accept short-term funds. They
are only permitted to invest the funds in treasury bills, government
securities, bankers’ acceptances, and negotiable certificates of
deposit. There are also 12 factoring companies offering facilities
to factor receivable.
The Export-import Bank of Malaysia (Exim Bank) was established in
August 1995 for the purposes of financing and facilitating Malaysia’s
foreign trade and investments. It concentrates on providing medium
to long-term credit to Malaysian exporters and investors as well
as buyers of Malaysian goods. (MECIB), offers export insurance cover
and guarantee.
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The
Securities Market in Malaysia
The Kuala Lumpur Stock Exchange (KLSE) was
established in 1973 to provide a central market place for buyers and
sellers to transact business in the shares, bonds and various other
securities of Malaysian-listed companies.
Trading on the KLSE was fully computerized in 1992. Since then, the
system has been continually enhanced and today enables stockbroking
companies to closely monitor and minimize their risk exposure on a
real-time and online basis.
In the area of clearing and settlement, the KLSE is moving towards
full implementation of the Central Depository System (CDS) by the
end of 1996. The CDS replaces the current practice of holding and
moving physical scrip of quoted shares with a computerized book entry
system.
The Securities Commission (SC) was established in 1993 to ensure the
orderly development of securities and futures markets in Malaysia.
The SC regulates the issue of securities, designation of futures contracts,
and takeovers and mergers of companies. It is also responsible for
supervising and monitoring the activities of any exchange, clearing
house and central depository. |
Commodity
Futures
The Kuala
Lumpur Commodity Exchange (KLCE), established in 1980, caters for futures
trading in crude palm oil, tin, cocoa, crude palm kernel oil and rubber
contracts.
All futures contracts traded on the KLCE are registered and cleared by the
clearing -house known as the Malaysian Futures Clearing Corporation (MFCC).
The MFCC guarantees financial performance of all the futures contracts traded
on the KLCE and registered with the clearing-house.
The Commodities Trading Commission (CTC), a government regulatory agency,
is responsible for supervising the activities of the KLCE and the commodity
futures industry in Malaysia. The industry is regulated under the Commodities
Trading Act 1985.
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Offshore Financial Services
The Federal Territory of Labuan was established
as an International Offshore Financial Centre in October 1990. Legislation
was enacted to provide preferential tax treatment for the following
activities:
Offshore banking operations
Trust and fund management
Offshore insurance and offshore insurance-related business
Offshore investment holding business
Incentives offered under this legislation
include the following:
Minimum Tax
An offshore company carrying on an offshore trading
activity can choose to pay either: a tax at the rate of 3% of its
net profits or a fixed sum of RM20, 000 a year; or a fee of RM20,
000 a year to the Registrar of Companies.
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. An offshore company,
which has no basis period for a year of assessment is taxed a fixed
rate of RM20, 000 for that year of assessment.
Abatement of Tax for Professional Services
Income derived by a person or his employee or
a company from qualifying professional services rendered to an offshore
company in Labuan is exempt from tax up to an amount equivalent to
50% of the adjusted income from that source. This exemption is applicable
from the year of assessment 1992 to the year of assessment 1997. Qualifying
professional service means legal, accounting, financial or secretarial
service and includes the services provided by a trust company as defined
in the Labuan Trust Companies Act 1990.
Abatement of Tax for Business
Relating to or Letting of a Qualified Asset Income
of a person derived from the carrying on of a business which relates
to a qualifying asset or the letting of a qualifying asset in Labuan,
is exempt from tax up to an amount equivalent to 50% of the adjusted
income from that source. This exemption applies where the person has
undertaken the construction project of the qualifying asset himself
or has purchased that qualifying asset from the person who undertook
the construction project of that asset.
This exemption is applicable for a period of five consecutive years
of assessment, commencing from the year of assessment in which the
adjusted income first arises from that source, that is, the total
exemption given to both the person who constructed and the person
who purchased the qualifying asset will not exceed five years of assessment.
The incentive will not be available if the construction project of
a qualifying asset has not commenced before 1 October 1993 or Pioneer
Status/Pioneer Certificate or Investment Tax Allowance has been granted
under the Promotion of Investments Act 1986 in respect of the business
which relates to or the letting of the qualifying asset.
Abatement of Tax for Employment
Income derived by a non-citizen individual from
an employment exercised in a managerial capacity in an offshore company
in Labuan is exempt from tax up to an amount equivalent to 50% of
the gross income from that employment. This exemption applies from
the year of assessment 1992 to the year of assessment 1997.
Exemptions from Tax
The following exemptions are available under the
Income Tax Act 1967 effective from the year of assessment 1991:
a.Dividend received by an offshore company from a Malaysian resident
company is not subject to income tax and no refund or set-off is given
in respect of tax deducted from such dividend.
b.Dividend paid by an offshore company out of income derived from
an offshore business activity or out of exempt income is not subject
to income tax in the hands of the recipient. Such dividend will be
paid gross without any tax deducted at source.
c.Distribution made by an offshore trust is not subject to income
tax in the hands of the beneficiary.
d.Royalty paid by an offshore company to a non-resident person or
another offshore company is not subject to income tax and hence is
not subject to withholding tax.
e.Interest paid by an offshore company to a non-resident person or
another offshore company is not subject to income tax. However, where
the interest accrues to a banking, finance company or insurance business
carried on by the non-resident person in Malaysia, that interest will
be subject to income tax as part of business income.
f.Interest paid by an offshore company to a resident person, other
than a person carrying on a banking, finance company or insurance
business in Malaysia, is not subject to income tax.
g.Technical or management fee paid by an offshore company to a non-resident
or another offshore company is not subject to income tax. |
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Exchange Control Administrative
Practices
The present exchange control regime is liberal
and applies uniformly to transactions with all countries except Israel,
Serbia and Montenegro, against which special restrictive rules apply.
The main exchange control rules, which are of direct relevance to
foreign investors, are as follows:
Direct and Portfolio Investment
No permission is required from the Controller
of Foreign Exchange (hereinafter referred to as the Controller) for
a non-resident to undertake direct or portfolio investment in Malaysia.
Remittance Abroad
Payments to countries outside Malaysia may be
made in any foreign currency other than the currencies of Israel,
Serbia or Montenegro. Payments within Malaysia must be made in Ringgit
(RM.), the Malaysian unit of currency.
All payments to non-residents for any purpose, including repatriation
of capital and profits, are freely permitted, subject only to the
completion of a simple statistical form for remittances of more than
RM100, 000 each or its equivalents in foreign currency. The commercial
banks are authorized to effect such payments, irrespective of the
amount.
The banks are required to refer to the Controller for approval only
in respect of payments made for the purpose of investing in foreign
securities or immovable property abroad and for extending credit to,
or placement of deposits with non-residents, whenever the remitters
have obtained any credit facility in Malaysia.
The use of domestic borrowing to finance investments abroad is generally
not encouraged.
Nevertheless, corporate residents with domestic borrowing are allowed
to remit in foreign currency up to RM10 million equivalent for overseas
investment purposes in a calendar year.
Export Proceeds
A simple form (KPW X) must be completed for all
exports, the value of which exceeds RM100, 000 f.o.b. per shipment.
This form does not require any authorization and is given to the customs
authorities at the time of shipment.
Export proceeds, which may be in any foreign currency (other than
the currencies of Israel, Serbia or Montenegro) or in Ringgit from
an external account must be repatriated to Malaysia within the period
of payment specified in the export contract. The period should not
exceed a maximum period of six months from the date of export.
Exporters are allowed to retain a portion of the proceeds in foreign
currency provided these are deposited in foreign currency accounts
with designated banks in Malaysia.
Inter-Company Accounts
No permission is required from the Controller
for a company in Malaysia to maintain inter-company accounts with
associate companies, branches or other companies outside Malaysia,
provided monthly returns as specified by the Controller are submitted
to the Controller and the following are excluded from the inter-company
accounts:
i) proceeds from the export of goods from Malaysia; and
ii) proceeds from loans extended to the Malaysian companies.
With the prior written permission of the Controller, companies are
allowed to offset the export proceeds through inter-company accounts
against payable to their affiliated or parent companies overseas for
the supply of raw materials, parts, components and other items. This
would enable the companies concerned to repatriate to Malaysia only
the value-added in the form of services performed by the Malaysian
companies.
Where the companies have been given permission for the above offsetting
arrangements, they are required to observe certain procedures in reporting
and lodging monthly returns to enable the Controller to monitor their
inter-company accounts and to ensure that the value-added in their
exports are repatriated to Malaysia in the prescribed manner.
Domestic Borrowing by Non-Resident Controlled
Companies (NRCCs) Operating in Malaysia
A Non-resident Controlled Company (NRCC) in Malaysia
may borrow up to a total of RM10 million from all sources in Malaysia
without the permission of the Controller, provided at least 60% of
its credit facilities from banking institutions is from Malaysian-owned
banking institutions. The limit for exchange control approval applies
to all forms of credit, excluding trade financing facilities where
the tenure of the credit is less than 12 months guarantee and foreign
exchange lines.
For borrowing in Malaysia in excess of
RM10 million, the permission of the Controller is required and such
approval will be given based on the genuine needs of the NRCC, the
credit situation in the country, and the amount of eligible capital
funds of the NRCC. Domestic borrowing for NRCCs should not be more
than three times their eligible capital funds. NRCCs are encouraged
not to resort to the maximum use of borrowed funds in Malaysia, while
bringing in only a nominal amount of capital of their own for their
projects in Malaysia. This is to ensure that an NRCC brings in a relatively
significant amount of funds of its own to finance its project in Malaysia
as a long-term proposition and not merely as a venture for quick profits
without any semblance of permanence.
Borrowing in Foreign Currency
Residents may borrow in foreign currency from
banks in Malaysia and non-residents up to a total of RM5 million equivalents
in aggregate without the permission of the Controller, to supplement
their financial requirements for business and productive purposes
in Malaysia as well as for overseas investments. Commercial banks
may effect remittances of loan repayments and interest on approved
foreign borrowing to non-residents, provided such repayments and interest
payments are in accordance with the terms approved for the borrowing.
Borrowing in Ringgit from Non-Residents
Foreign borrowing in Ringgit, regardless of the
amount, requires the prior approval of the Controller and such approval
is generally not granted. |
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