Malaysia

Introduction

 

About Malaysia

Malaysia is among the top 25 most competitive economies in the world, according to the World Economic Forum. It has a strong industrial base and acts as a springboard for companies expanding into ASEAN countries. Rising domestic income in Malaysia, which alongside FDI has helped to drive the country’s continued economic growth, is an additional incentive for companies to launch their expansion into ASEAN from Malaysia.

Malaysia is one of the world's leading exporters of electrical appliances, parts and components, as well as palm oil and natural gas. Malaysia's diverse economy has helped stabilise its economic outlook.

Malaysia's infrastructure is one of the best in Southeast Asia, with well-connected roads, airports and seaports. Its IT infrastructure is also one of the best for an emerging economy, and is well-supported by a skilled IT labour force.

The Malaysian government has put in place business-friendly policies to encourage FDI. China is Malaysia’s second largest export partner and funds many of the country’s major infrastructure projects. Under China's Belt and Road Initiative, Malaysia is set to receive a steady stream of investment from Chinese investors.

 

Malaysia Market Profile Infographic_small
 

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Corporate Treasury in Malaysia

Malaysia is among the top 25 most competitive economies in the world. It has a strong industrial base and acts as a springboard for companies expanding into ASEAN countries. Here, we highlight some of the key benefits relevant to treasury and cash management.

 

Financial Market Development

  • The World Economic Forum ranks Malaysia 15th in the world for its financial system in The Global Competitiveness Report 2018.
  • It ranks Malaysia 38th in the world for the soundness of its banks, while it rates the country fifth for both venture capital availability and financing for SMEs, and ninth for market capitalisation as a percentage of GDP.
  • Malaysia has good business infrastructure, an educated multi-lingual workforce and a sound legal environment.
  • Malaysia has foreign exchange controls, but there are no restrictions for non-residents to transfer profits abroad in foreign currency from their investments in Malaysia, although approval is required for some transactions above certain thresholds. Malaysia recently further liberalised its foreign exchange administration framework for residents to provide greater hedging flexibility against foreign exchange risk.

 

Sophistication of Banking Systems

  • There are 26 commercial banks in Malaysia, of which 18 are foreign-owned, and 11 investment banks. There are also 16 Islamic banks. Islamic banks held assets of MYR916.71 billion as of the end of December 2018, accounting for 31.4% of total banking assets.
  • Malaysia has an offshore financial centre in Labuan.
  • Malaysia's foreign exchange market has an average daily turnover of USD8 billion, accounting for 0.1% of global turnover (Bank for International Settlements triennial global survey 2016).
  • Malaysia has one of the most developed debt markets in the region, with both government and corporate bonds available. It has the largest sukuk market in the region. Non-residents are allowed to issue foreign-currency denominated sukuk and bonds. Outstanding local currency bonds totalled MYR1,441 billion at the end of March 2019.

 

Regulatory Bodies

  • The banking industry is regulated by the central bank, Bank Negara Malaysia. Regulations are in line with international standards. Foreign exchange controls are governed by the Controller of Foreign Exchange, who is also the Governor of Bank Negara Malaysia.

 

Tax

  • The corporate income tax rate is 24%. Resident small- and medium-sized companies (subject to meeting certain conditions) are subject to tax on a progressive or slab rate of 17% on the first MYR500,000 with the balance at 24%.
  • Both resident and non-resident companies are taxed on their Malaysian-sourced income.
  • Profits from the branch of a foreign company are taxed at the same rate as a resident company’s profits. There is no branch profits remittance tax on the remittance of profits to the head office by the branch of a foreign company.
  • Sales tax of 5% or 10% is charged on certain classes of taxable goods which are manufactured in or imported into Malaysia. A service tax of 6% is charged on taxable services carried out by a registered person in Malaysia and in respect of imported services acquired by business in Malaysia from any vendors outside Malaysia, such services will be subject to service tax under the reverse charge mechanism.
  • Interest income accrued in Malaysia is subject to corporate income tax. There are exemptions for interest income received in Malaysia from outside of Malaysia.
  • Interest expenses that are used for business purposes are generally tax deductible.  Earning stripping rules, which were introduced during the 2018 Budget, finally came into effect on 1 July 2019 with the introduction of the Income Tax (Restriction on Deductibility of Interest) Rules 2019 gazetted on 28 June 2019. Broadly, interest expense (subject to de minimis rule of RM500,000 in a year of assessment) in connection with or on any financial assistance in a controlled transaction granted directly or indirectly to the business will be allowed tax deduction up to 20% of the tax EBITDA. The interest so restricted is allowed to be carried forward indefinitely subject to satisfaction of the substantial shareholder continuity test.
  • There is no capital gains tax in Malaysia except for gains derived from the disposal of real property or on the sale of shares in a real property company.
  • Stamp duty is imposed on certain instruments, including loan agreements. Different instruments attract different rates. For example, loan agreements generally attract a 0.5% stamp duty. A reduced rate of 0.1% is available for loan agreements without security and repayable on demand or in single bullet repayment.
  • Withholding tax of 15% is charged on interest paid or payable to non-resident companies where no tax treaty is in place. Rates range from 0% to 15% where a tax treaty is in place and non-resident companies can provide a Certificate of Residence. There is no withholding tax on dividends.
  • Malaysia has a wide variety of tax incentives for companies in the manufacturing, agricultural, hotel, tourism, Islamic banking and IT sectors, and some of the tax incentives include tax holidays of up to ten years (pioneer status) and investment tax allowances. There are also tax incentives for companies operating in Special Economic Regions.
  • Companies that are approved as principal hubs are subject to corporate income tax at tiered rates of 0%, 5% and 10% for up to ten years, subject to meeting conditions.
  • Malaysia has tax treaties with more than 70 countries and territories.
  • Malaysia is a signatory to the Organisation for Economic Co-operation and Development’s Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations, to provide a single, global picture on some key indicators of economic activity within multinational enterprises.

 

Benefits for Shared Service Centres:

  • Malaysia is a regional financial services hub and an innovative international Islamic financial centre.
  • There are tax concessions for treasury management centres, with CIT charged at tiered rates of 0%, 5% or 10% for up to 10 years, subject to certain conditions being met. 
  • Malaysia is a popular location for Shared Services Centres due to its large, cost-effective English-speaking labour pool. Malaysia’s Muslim population means that some companies run both their Asian and Middle Eastern operations from the country.
  • It is a member of the Asian Payment Network, a common payment settlement platform within the Asia Pacific region, while its national JomPAY system is used by 40 banks in Malaysia.
  • Notional pooling is permitted but not widely available. Domestic and cross-border cash concentration between resident and non-resident companies requires approval from the BNM except under certain circumstances approved by BNM.

 

Banking

 

Banking System

  • There are 26 commercial banks in Malaysia (of which 18 are foreign-owned banks), 11 domestic and five international Islamic banks, and 11 investment banks.
  • The banking sector is dominated by the eight domestic commercial banks: Affin Bank, Alliance Bank Malaysia, AmBank, CIMB Bank, Hong Leong Bank, Maybank, Public Bank and RHB. They offer a broad range of retail and investment services.
  • Maybank dominates Malaysia's banking sector in terms of total assets, services and branch network. It is also a major bank in Southeast Asia. Maybank Islamic is the leading Islamic bank in the country and is also prominent in the region.
  • Foreign banks operate in Malaysia's financial sector, however, they are subject to restrictions such as: a ban on offshore ringgit trading; and a prohibition on receiving cross-border deposits from residents.
  • In March 2016, Malaysia and Thailand introduced a local currency settlement framework to ease the process of settling import/export trade accounts between the two countries and to improve efficiency of MYR and THB-denominated financial operations, such as deposits and foreign exchange hedging.

 

Bank Accounts

  • Residents: May hold foreign currency accounts both domestically and overseas. They may only hold domestic currency accounts onshore, although it is freely convertible to foreign currency. Residents with domestic MYR borrowing can invest in foreign currency assets up to an annual limit of MYR1 million for individuals and MYR50 million for companies. Approval from Bank Negara Malaysia (BNM) must be granted for any value above these limits.
  • Non-residents: May hold foreign and domestic currency accounts, whereby domestic currency accounts are freely convertible to foreign currency.
  • Interest: Only available on savings accounts.

 

Legal and Regulatory

  • The BNM oversees and regulates the banking sector.
  • A company is resident if it is incorporated or centrally controlled or managed in Malaysia.
  • Overseas investments of over MYR50 million (or foreign currency equivalent) made by a resident company funded through domestic borrowing must seek prior BNM approval and must also be registered with the BNM.
  • The BNM administers foreign currency controls.
  • Malaysia is a member of the Association of Southeast Asian Nations (ASEAN).
  • Foreign currency may be freely imported or exported by residents and non-residents.
  • USD10,000 of domestic currency may be freely imported or exported; above this amount, approval must be sought from the BNM.
  • There is anti-money laundering and counter-terrorism financing legislation in place.
  • Malaysia has set up a financial intelligence unit, the Unit Perisikan Kewangan (UPW), which is part of the BNM and a member of the Egmont Group.

 

Payments

 

Payment Systems

 

PayNet

Interbank electronic payment system
  • PayNet formed after the merger of payment consortium Malaysian Electronic Payment System (MEPS) with BNM payment operator MyClear in 2017. BNM is PayNet’s single-largest shareholder, with 11 other Malaysian financial institutions on board.
  • Operator of shared payment networks.
  • Processes ATM, online, mobile and stored value card payments.
  • Transactions settled in real time.

RENTAS

(Real Time Transfer of Funds and Securities)

Malaysia's Real-time Gross Settlement (RTGS) system

  • Owned and operated by the BNM.
  • 69 participants
  • Processes high value and urgent MYR-denominated credit transfers and foreign currency payments.
  • Final settlement of participants' net balances from other clearing houses.
  • Transactions settled in real time and with immediate finality.
  • Linked to the USD CHATS system in Hong Kong, enabling the settlement of MYR and USD payments in real time.
  • Settlement of onshore multi-currency funds and securities settlement funds launched for payments in CNY.
  • As part of pilot scheme by Euroclear and a group of Asian banks, RENTAS processes multi-currency settlements using SWIFT message formats to facilitate the development of an Asian bond market.
  • RENTAS is subdivided into two subsystems:

IFTS

(Interbank Funds Transfer System)

 

  • A subsystem of RENTAS.
  • Processes high value MYR-denominated and foreign currency interbank fund transfers submitted online.
  • For non-member applicants or beneficiaries, there is a minimum threshold of MYR 50,000 per transaction.

SSTS

(Scripless Securities Trading System)

 

  • A subsystem of RENTAS.
  • Settles Malaysian government securities, treasury bills and unlisted public debt securities.
  • Processes government bonds, Bank Negara papers and Cagamas bonds (Cagamas is the National Mortgage Corporation).

 

eSPICK

(National Electronic Cheque Information Clearing System)

Paper-based and cheque clearing system

  • Owned by the BNM and operated by PayNet.
  • Approximately 46 participants.
  • Cheques are truncated into an electronic image before being cleared.
  • Processed same day if submitted before 16.00 local time.
  • Final settlement done across participants' accounts held at the BNM through RENTAS, and available next day.

IBG

(Interbank Giro)

Electronic funds transfer payment system

  • Operated by MyClear.
  • 43 participant banks
  • Processes low value (max. threshold of MYR 500,000) and bulk electronic interbank payments to third parties.
  • Final settlement done across participants' accounts held at the BNM through RENTAS.
  • Funds available same or next day.

 

 

Payment Instruments

 

Credit Transfers

  • Only automated credit transfers are available.
  • High value and urgent transactions settled through RENTAS same day.
  • Low value (less than MYR500,000) and non-urgent transactions processed through IBG system, with final settlement done through RENTAS same or next day.
  • Used for payroll, supplier and third-party transactions.
  • The expansion of the ATM network has increased the use of credit transfer through the use of Instant Transfer (done via ATMs, online or mobile).
  • Recently released DuitNow app provides instant mobile transfers for individuals and businesses.

 

Direct Debits (auto debits)

  • A popular form of payment used for low value, regular payments such as utility bills.
  • Online bill and e-commerce payments can be made through the FPX payment system (requires an online bank account with one of the 29 participating banks) and are processed in real time.
  • JomPAY is Malaysia’s bill payment scheme using internet or mobile banking - operated by PayNet with 40 bank participants.

 

Card Payments

  • Card payments have grown significantly in popularity, with a marked growth in the use of debit cards.
  • All domestic payment cards have migrated from signature-based to PIN-enabled. Contactless transactions for low-value purchases (up to MYR250 per transaction) are also growing in popularity. 
  • Debit card use is on the increase and the drop in the interchange fee from 1% to 0.15% was introduced to promote it further.
  • There were 42.74 million debit cards and 10.19 million credit cards in use as of May 2019, along with 570,781 EFTPOS terminals and over 11,300 ATM machines (as of 2017), though they have seen a decline in usage since 2013.
  • The main card brands are Visa and MasterCard, and Bankcard is the national credit card. All cards are EMV-compliant.
  • MyDebit is a domestic direct-debit payment scheme operated by PayNet, which facilitates point-of-sale purchases with ATM cards issued by Malaysian banks.
  • E-money (stored value) cards and apps such as Touch ‘n Go and vcash lead the cashless payment sector in terms of transaction volume.

 

Online Payments

  • The government has introduced initiatives to encourage the move to a cashless society by 2050, such as concessions to digital players and the cost of processing digital payments. Currently, 80% of payments are carried out in cash, with only 20% done digitally or through credit transfer.
  • Digital wallets are becoming more popular for retail and commercial payments, although currently they make up only 10% of total payments. The BNM approved 31 electronic money licences in 2018, supporting the initiative to create a cashless society. Popular digital wallets are Alipay, WeChat Pay and Touch ‘n Go.
  • Local banks such as Maybank and CIMB Bank have launched their own mobile wallets, which also offer mobile banking facilities. Local taxi app Grab has launched Grab Pay with Maybank in 2018. Mobile wallets, however, have had a slow uptake.
 

Digital Currencies

  • Cryptocurrency is not recognized as legal tender.
  • Virtual currency exchanges are subject to regulation and increased transparency under the Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) policy guidelines.
  • The BNM has implemented the National Regulatory Sandbox to allow fintech companies opportunities to innovate freely.  

 

Cash, Cheques and Money Orders

  • Cheques are a common form of cashless payment for retail and commercial payments.
  • The increasing use of electronic payments is seeing a decline in cheque usage.
  • The government has increased the cost of processing cheques in an effort to encourage electronic payments.
  • Cheques truncated into electronic product and cleared through eSPICK. Available to beneficiaries next day.
  • Pos Malaysia and other vendors such as Maybank and Western Union offer national and international remittance services.

 

Demographics

Malaysia Market Profile Infographic

1 5% or 10% on goods; 6% on services (services tax)

2 (Progressive) max rate for incomes over MYR1 million

 

Recent developments

 

Cross-border Payment MOU Signed

Malaysian bank Malayan Banking Bhd (Maybank) has joined forces with the National Bank of Cambodia to promote cross-border payments and remittances between the two countries. The two banks have signed a Memorandum of Understanding to work together to explore real-time transfers and cross-border payments through Maybank’s Maybank2u digital platform and Bank of Cambodia’s Bakong payment system, which uses blockchain-based technology. Maybank has previously said it aims to be the digital bank of choice for the region.

Read more about the development here.  

 

Halal Coin Faces Obstacles

A Shariah-compliant cryptocurrency faces a number of hurdles before it could be introduced, according to Islamic finance experts in Malaysia. A so-called halal coin would enable Muslims to pay for halal goods and services across borders. But in order to introduce it, the digital currency would have to comply with both conventional banking regulations and Shariah law and Islamic banking principles. Mohd Daud Bakar, who sits on Bank Negara Malaysia’s Shariah advisory council, also warned that there were differences of opinion over whether cryptocurrencies could be Shariah-compliant.

Read more about the development here

 

MyPay Offers Integrated Payment Platform

Digital payment platform MyPay is seeking to distinguish itself from its rivals in Malaysia by providing its customers with billing information and payment details for different government agencies on a single platform. As a result, customers are not only able to pay utility bills, taxes and other government fees through the platform, but they can also find out how much they owe. Malaysia’s central bank Bank Negara Malaysia has issued more than 40 licences to e-wallet operators since may this year.

Read more about the development here.  

 

This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Malaysia and take advantage of our innovative solutions to empower your business. Click here to find out more.

 

 

Sources: IMF, World Economic Forum, PwC, US Department of Commerce, Bank Negara Malaysia, Bank for International Settlements, Asian Development Bank, Trading Economics, Bank Negara Malaysia (BNM), DuitNow, Maybank, PayNet, Visa.

The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only. The information is assembled based on information available and accurate as at Oct 2019.

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