OPEN ECONOMY

Malaysia 2017 | EXECUTIVE GUIDE | REVIEW: DOING BUSINESS

Malaysia continues to stand out as the destination of choice for foreign investors as a result of the government's open economic policies, strategic infrastructural planning, and central location in ASEAN.

With the government, the public sector, and private companies working closely to achieve Malaysia's ambitious 2020 targets, the country continues to be a highly attractive destination to do business in for foreign investors. Its advanced infrastructure, economic stability, strategic location in the region, and competitive costs have made it a top investment destination; however, it is the government's persistent efforts to implement a pro-business and open environment for foreign companies that has helped it become one of the world's top locations for global investors. Ranked 25th out of 138 countries in the World Economic Forum's 2016-2017 Global Competitiveness Index, making it the most competitive economy among developing nations. The country has continued to attract a considerable amount of FDI; in 2015 Malaysia posted a net FDI inflow of MYR43.4 billion, of which 64.7% came from Asia, 16.4% came from the Americas, and 14.1% was from Europe. The World Bank Group in its Doing Business 2017 Report noted Malaysia continues to maintain its strong performance in several key areas and is one the top 15 performers globally in terms of dealing with construction permits. The country is also ranked third best in the world in terms of protecting minority investors, setting the best practice in terms of information that companies must share in order to enter into transactions with interested parties. The government is keen to make further improvements, seeking to update legislation on the Companies Act in early 2017 and a new Secured Transactions Act.

In terms of setting up a business in Malaysia, a foreign company is required to register with the Companies Commission of Malaysia as per the Companies Act 1965. The Incorporation requirements under the CA are the same for domestic and foreign sole proprietorships, partnerships, and privately held and publicly traded corporations and typically the business establishment process takes less than a week to complete. A foreign investor has several options to conduct business in Malaysia, including setting up a branch office of a foreign company, acquiring all or a majority of the shares of an existing Malaysian company, incorporating a separate Malaysian company as its subsidiary, or entering into a joint venture with a Malaysian company or individual. Notably, under the repeal of the Guidelines for the Acquisition of Interest, Mergers and Takeovers by Local and Foreign Interest that was in effect as of June 30, 2009, the Foreign Investment Committee (FIC) no longer imposes the 30% Bumiputra equity threshold in an acquired Malaysian company. The country also actively promotes an environment that protects foreign investors, enacting two business reforms in 2016, one of 17 economies that implemented reforms in the East Asia and the Pacific region in the past year, the World Bank Group had reported. The credit bureau in Malaysia has begun to offer consumer credit scores, while paying taxes has been made simpler via an online system for filing and paying goods and services tax (GST). The main taxes in Malaysia are income and petroleum income tax, while taxes on transactions include a customs and goods and services tax. Malaysia does not have a capital gains tax except for real property gains tax (RPGT), which is a tax on gains arising from the disposal of real property or shares in real property companies (RPC). Income tax is imposed on any income earned from Malaysia with the exception of resident companies conducting air/sea transport, banking, or insurance business, which are then subject to taxes on a world income scope.

Companies in Malaysia are required to prepare their financial statements in accordance with the Malaysian Financial Reporting Standards (MFRS) and to have their financial statements audited. From 2016, private entities are required to prepare their financial statements in accordance with the Malaysian Private Entities Reporting Standard (MPERS).