Malaysia

Introduction

 

About Malaysia

Malaysia is among the top 20 most competitive economies in the world. It has a strong industrial base and acts as a springboard for companies expanding into ASEAN countries. Rising domestic income in Malaysia, the backbone to its continued economic growth, is an additional incentive for companies to launch their expansion into ASEAN from Malaysia.

Malaysia is also 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 also 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, which in turn is well-supported with a skilled IT labour force.

The Malaysian government has set in place business-friendly policies to encourage foreign direct investment (FDI). Malaysia is also China's third largest trading partner in Asia, and is also heavily funded by China for major infrastructurel projects. Under China's Belt and Road initiative, Malaysia is set to receive steady investments from Chinese investors.

 

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Corporate Treasury in Malaysia

Malaysia is among the top 20 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 9th in the world for financial market development in The Global Competitiveness Report 2015/2016.
  • It ranks Malaysia 43rd in the world for the soundness of its banks, while it rates the country 2nd for ease of access to loans and 24th for legal rights.
  • 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.

 

Sophistication of banking systems:

  • There are 27 commercial banks in Malaysia, of which 19 are foreign-owned, 18 Islamic banks and 11 investment banks. Islamic banking has a 28% market share with RM742bn of assets.
  • Malaysia has an offshore financial centre in Labuan.
  • Malaysia's foreign exchange market has an average daily turnover of USD 8 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.

 

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 companies that meet certain conditions pay a rate of 18% on the first MYR500,000. Petroleum operations are taxed at 38%, falling to 25% for marginal fields.
  • Resident companies and non-resident companies are taxed on income derived from Malaysia.
  • Branch profits of a company are taxed at normal CIT rates. No tax is withheld on profits transferred to a foreign head office.
  • Goods and Services Tax is 6%.
  • Stamp duty is imposed on chargeable instruments, including loans agreements. Rates range from 0.3% to 3%.
  • There is no withholding tax for resident companies. For non-resident companies there is no WHT on dividends. Rates on interest range from 0% to 15% depending on individual treaties.
  • Malaysia has a wide variety of tax incentives for companies in the manufacturing, agricultural, hotel, tourism, Islamic banking, industrial and commercial sectors, such as exemption from CIT on 70% of income for five years. There are also tax incentives for companies operating in Special Economic Regions.
  • Companies that use Malaysia as a principal hub are charged CIT at tiered rates of 0%, 5% and 10% for up to 10 years, subject to conditions.
  • Interest income accrued in Malaysia is subject to CIT. There are exemptions for interest income received in Malaysia from outside of Malaysia. Interest expenses are generally deductible.
  • Malaysia has tax treaties with more than 70 countries and territories and is a signatory of the Multilateral Competent Authority Agreement.
  • 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 regional treasury centres, including a 70% CIT exemption for five years, no WHT on interest income, no stamp duty on loan agreements, and foreign-exchange administration flexibilities.
  • 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.
  • Cushman & Wakefield ranked Malaysia as the third-top location in the world for Shared Service Centres in 2016.
  • 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 42 banks in Malaysia.
  • Notional pooling is permitted. Domestic and cross-border cash concentration between resident and non-resident companies requires approval from the BNM’s Controller of Foreign Exchange.

 

Banking

 

Banking System

  • There are 27 commercial banks (of which 19 are foreign banks), 16 domestic and two international Islamic banks and 11 investment banks.
  • The banking sector is dominated by the eight domestic commercial banks: Affin Bank, Alliance Bank Malaysia, CIMB Bank, AmBank, 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 and Maybank Islamic is the leading Islamic bank in the country and is prominent in the region.
  • Foreign banks operate in Malaysia's financial sector, however, they are subject to restrictions, such as banning offshore ringgit trading and prohibiting foreign banks from 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. MYR offshore remittances above a total of MYR 1 million per year for individuals and MYR 50 million per year for companies require Bank Negara Malaysia (BNM) approval.    
  • 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 MYR 50 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.
  • USD 10,000 of domestic currency may be freely imported or exported; above this amount, approval must be sought from the BNM.
  • There are 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

 

RENTAS

(Real Time Transfer of Funds and Securities)

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

  • Owned and operated by the BNM.
  • 68 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.
  • 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

 

Paper-based and cheque clearing system

  • Owned by the BNM and operated by its subsidiary, MyClear.
  • 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.
  • 30 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.

MEPS

(Malaysian Electronic Payment System)

Interbank payment system network

  • Operated by MyClear.
  • Processes ATM, online and stored-value card payments.
  • 21 bank participants

 

 

Payment Instruments

 

Credit transfers:

  • There are only automated credit transfers.
  • High value and urgent transactions settled through RENTAS same day.
  • Low value (less than MYR 500,000) 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 MEPS Instant Transfer (done via ATMs, online or mobile).

 

Direct debits (autodebits):

  • Used for low value, regular payments such as utility bills.
  • MyClear Direct Debits is a popular form of direct debit.
  • Online bill payments made through the FPX payment system (requires an online bank account with one of the 25 participating banks) and are processed in real time.
  • JomPAY is Malaysia’s bill payment scheme, operated by MyClear with 42 bank participants.

 

Cheques:

  • Common form of cashless payment for retail and commercial payments.
  • The increasing use of electronic payments is seeing a decline in cheque usage.
  • Cheques truncated into electronic product and cleared through eSPICK. Available to beneficiaries next day.

 

Card payments:

  • Card payments, notably credit cards, have significantly grown 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 43.9 million debit cards and 9.2 million credit cards in 2017.
  • The main card brands are Visa and MasterCard and Bankcard is the national credit card. All cards are EMV-compliant.
  • There are 320,913 EFTPOS and approximately 12,000 ATM terminals.

 

Demographics

 

Recent developments

 

Central Bank Launches API Implementation Group

Bank Negara Malaysia has set up an open Application Programming Interface (API) implementation group as part of its efforts to promote innovation and competition in the FinTech sector. The group, which includes members from the banking industry, FinTech community and key stakeholders, will develop open API standards for the financial sector to promote best practice and avoid fragmentation. Nine Malaysian banks have also joined forces to build and develop a trade finance blockchain project.

Read more about the development here

 

New Laws for Cryptocurrency Exchanges

New laws requiring cryptocurrency exchanges to be more diligent about collecting and verifying information on their users’ identity have come into force. The rules, issued by Bank Negara Malaysia, apply to all activities for exchanges offering fiat-to-crypto and crypto-to-crypto trading services. Exchanges must now collect customers’ full names, addresses and dates of birth, as well as details about the purpose of their transactions. The central bank stressed the move was not an endorsement of cryptocurrencies.

Read more about the development here.

 

E-wallets to Propel Malaysia Towards a Cashless Society

At least 10 new e-wallet platforms are set to be launched in Malaysia in 2018. Bank Negara Malaysia has already issued more than 30 e-wallet licences. The growth in the sector is expected to help the country achieve its goal of being a cashless society ahead of its 2050 target, according to online payment solutions provider iPay88. Currently 80% of transactions use cash, with only 20% carried out online or by credit card. E-wallets are expected to replace the 80% portion.

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 Outlook database, October 2016; CIA World Factbook; Trading Economics; PwC

Please note that the information contained in this document, assembled based on information available and accurate as at July 2017, is of a general nature only and is subject to change whether for economic, political, social or other reasons.

 

Last updated on 20 May 2018