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Malaysia |
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Malaysia Key Corporate Features
Malaysia is on the Malay Peninsula in southeast Asia. The nation also includes Sabah and Sarawak on the island of Borneo to the east. Its area slightly exceeds that of New Mexico. Most of Malaysia is covered by forest, with a mountain range running the length of the peninsula. Extensive forests provide ebony, sandalwood, teak, and other woods. History The ancestors of the people that now inhabit the Malaysian peninsula first migrated to the area between 2500 and 1500 B.C. Those living in the coastal regions had early contact with Chinese and Indians; seafaring traders from India brought with them Hinduism, which was blended with the local animist beliefs. As Muslims conquered India, they spread the religion of Islam to Malaysia. In the 15th century A.D., Islam acquired a firm hold on the region when the Hindu ruler of the powerful city-state of Malacca, Parameswara Dewa Shah, converted to Islam. British and Dutch interest in the region grew in the 1800s, with the British East India Company establishing a trading settlement on the island of Singapore. Trade soared, with Singapore's population growing from only 5,000 in 1820 to nearly 100,000 in just 50 years. In the 1880s, Britain formally established protectorates in Malaysia. At about the same time, rubber trees were introduced from Brazil. With the mass production of automobiles, rubber became a valuable export, and laborers were brought in from India to work the rubber plantations. Following the Japanese occupation of Malaysia during World War II, a growing nationalist movement prompted the British to establish the semi-autonomous Federation of Malaya in 1948. But Communist guerrillas took to the jungles to begin a war of national liberation against the British, who declared a state of emergency to quell the insurgency, which lasted until 1960. The independent state of Malaysia came into existence on Sept. 16, 1963, as a federation of Malaya, Singapore, Sabah (North Borneo), and Sarawak. In 1965, Singapore withdrew from the federation to become a separate nation. Since 1966, the 11 states of former Malaya have been known as West Malaysia, and Sabah and Sarawak have been known as East Malaysia. By the late 1960s Malaysia was torn by communal rioting directed against Chinese and Indians, who controlled a disproportionate share of the country's wealth. Beginning in 1968, the government moved to achieve greater economic balance through a national economic policy. Malaysia was significantly affected in 1978 by the “boat people” fleeing Vietnam. Because the refugees were mostly ethnic Chinese, the government was apprehensive about any increase in a minority that previously had been the source of internal conflict in the country. In April 1988, it announced that within the year it would cease accepting refugees. In the 1980s, Dr. Mohamad Mahathir succeeded Datuk Hussein as prime minister. Mahathir instituted economic reforms that would transform Malaysia into one of the so-called Asian Tigers. Throughout the 1990s, Mahathir embarked on a massive project to build a new capital from scratch in an attempt to bypass congested Kuala Lumpur. Beginning in 1997 and continuing through the next year, Malaysia suffered from the Asian currency crisis. Instead of following the economic prescriptions of the International Monetary Fund and World Bank, the prime minister opted for fixed exchange rates and capital controls. In late 1999, Malyasia was on the road to economic recovery, and it appeared Mahathir's measures were working. Mahathir sacked his heir apparent, Anwar Ibrahim, from his posts as deputy prime minister and finance minister in Sept. 1998, after a disagreement over how to deal with the country's economic problems. In defiance, Anwar launched a reform movement attacking the government. The prime minister then jailed Anwar, who was beaten and convicted of trumped-up corruption and sex crimes. The prime minister announced plans to retire in late 2003. He named Abdullah Ahmad Badawi, deputy prime minister, as his successor. In Oct. 2003, Matathir retired after 22 years in office. His rule led to his country's enormous economic growth but was also characterized by repression and human rights abuses. One of his final acts in office, anti-Jewish remarks at the Organization of the Islamic Conference, provoked outrage in the international community: “The Europeans killed 6 million Jews out of 12 million, but today the Jews rule the world by proxy. They get others to fight and die for them.” Malyasia's new president, Abdullah Badawi, has a more statesman-like reputation, and in his first year in office made headway on reducing corruption and instituting reforms. In March 2004, the ruling National Front coalition won an astonishing 90% of parliamentary seats. 1. Operational Headquarters An approved Operational Headquarters (OHQ) refers to a locally incorporated company that carries on a business in Malaysia to provide qualifying services to its offices or related companies outside Malaysia. The OHQ is prohibited from providing treasury and fund management services and corporate financial advisory services to non-related companies in Malaysia. An approved OHQ set up by a financial institution is also prohibited from providing treasury and fund management services to its related companies in Malaysia unless the related companies are institutions licensed under the Banking and Financial Institutions Act 1989 (BAFIA). To qualify as an approved OHQ, the company must fulfil the following criteria:
The qualifying services to be provided by an approved OHQ are as follows:
Other facilities accorded to an approved OHQ:
2. International Procurement Centres An International Procurement Centre (lPC) is a locally incorporated company, which carries on a business in Malaysia to undertake procurement and sale of raw materials, components and finished products to its group of related companies and to unrelated companies in Malaysia and abroad. To be eligible, the company must fulfil the following criteria:
As a general rule, sales by an approved IPC status company to the domestic market is limited to not more than 20% of its annual sales value. An IPC is also allowed to source goods from outside Malaysia for shipment to overseas destinations via drop shipment for up to 30% of its annual sales turnover. Sales to the domestic market is limited to 20% of its sales turnover. If sales to the domestic market exceed 20%, the additional sales will not be tax exempt. Sales to Free Zones (FZ's) and Licensed Manufacturing Warehouses (LMW's) are considered as domestic sales. It must serve as a collection and consolidation centre for finished goods, components and spare parts from overseas or within the country to be distributed to dealers, importers or its subsidiaries or associated companies within or outside the country. 3. Regional Distribution Centres A Regional Distribution Centre (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. Among the activities involved are bulk breaking, repackaging and labeling. To be eligible, the company must fulfil the following criteria:
As a general rule, sales by an approved RDC to the domestic market is limited to not more than 20% of its annual sales value.If sales to the domestic market exceed 20%, the additional sales will not be tax exempt. Sales to free zones (FZ's) and licensed manufacturing warehouses (LMW's) are considered as domestic sales. A RDC must have an annual sales turnover of at least RM 100 million. Representative Office / Regional Office A Representative Office / Regional Office of a foreign corporation in the manufacturing and trading sector is an office which is established in Malaysia to perform permissible activities for its head office / principal. The Representative Office / Regional Office should be totally funded from sources outside Malaysia. The approved Representative Office / Regional Office is not required to be incorporated or registered under the Companies Act 1965. A Representative Office is an office of a foreign company approved to collect relevant information on investment opportunities in the country especially in the manufacturing sector, develop bilateral trade relations, promote the export of Malaysian goods / products and carry out research and development (R & D). 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 South-East Asia and the Asia Pacific. The Regional Office established is responsible for designated activities of the corporation within the region it operates. The Representative Office / Regional Office established is not allowed to carry out any business transaction nor derive income from its operations. The number of expatriates allowed depends on the functions and activities of the Regional Office / Representative Office. Expatriates will only be considered for managerial and technical posts. The work permit is given on a two year basis and is renewable. Expatriates working in a Regional Office are taxed only on the portion of their chargeable income attributable to the number of days that they are in the country. General All income of companies and individuals accrued in, derived from or remitted to Malaysia, are liable to tax. However, income derived from outside Malaysia and remitted to Malaysia by resident companies (except those involved in the banking, insurance, air and sea transportation business), non-resident companies and and non-resident individuals are exempted from tax. To modernise and streamline the tax administration system, the assessment of income tax was changed to a current year basis of assessment from the year 2000. In 2001, the Self-Assessment System replaced the Official Assessment System for companies. This Self-Assessment System will be implemented for businesses, partnerships, cooperatives and salaried groups in 2004. Apart from income tax, there are other direct taxes such as stamp duty and real property gains tax, and indirect taxes such as sales tax, service tax, excise duty, import duty and export duty. The following sources of income are liable to tax:
Company tax A tax rate of 28% applies to both resident and non-resident companies. A company carrying on petroleum upstream operations is subject to a Petroleum IncomeTax of 38%. Withholding tax Non-resident individuals are subject to a final withholding tax of:
An employee on a short-term visit to Malaysia enjoys tax exemption in respect of his income from an employment exercised in Malaysia when bis presence does not exceed 60 days in a calendar year. However, the income of a non-resident individual who performs independent services such as consultancy services is not exempted from tax. Tax exemptions Operational Headquarters: An approved OHQ will be exempted from income tax for a period of 10 years for the following sources of income:
Tax exemptions Regional Distribution and International Procurement Centres : An approved RDC / IPC Status Company is also eligible for the following tax incentives :
Other tax incentives: The direct tax incentives grant partial or total relief from income tax payment for a specified period, while indirect tax incentives come in the form of exemptions from import duty, sales tax and excise duty. The following kinds of incentives are eligible (please ask Personal Office B. V. on details):
Contact: info@personaloffice.com
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