Chapter

MALAYSIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: November 11, 1968.
Exchange Arrangement
CurrencyThe currency of Malaysia is the Malaysian ringgit.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe exchange rate of the ringgit is pegged against the dollar at RM 3.80 per $1.
Exchange taxn.a.
Exchange subsidyn.a.
Forward exchange marketForward exchange contracts may be effected for both commercial and financial transactions. For financial transactions, prior approval is required. For commercial transactions, forward cover for imports is provided for up to 12 months from the intended date of import, while for export purposes, the forward cover would be up to six months from the export date. Forward exchange contracts against the ringgit with nonresidents require the prior approval of the Controller of Foreign Exchange (COFE).
Arrangements for Payments and Receipts
Prescription of currency requirementsSpecial rules apply to settlements with Israel and the Federal Republic of Yugoslavia (Serbia/Montenegro).
Payment arrangements
Bilateral payment arrangements
OperativeThere are 15 arrangements.
InoperativeThere are 11 arrangements.
Regional arrangementsMalaysia is a member of ASEAN.
Clearing agreementsYes.
Administration of controlThe COFE, who is also the Governor of the Bank Negara Malaysia (BNM), administers exchange control.
International security restrictions
In accordance with Executive Board Decision No. 144-(52/51)Malaysia imposes certain restrictions on payments and transfers for current international transactions with respect to the Federal Republic of Yugoslavia (Serbia/Montenegro).
In accordance with UN sanctionsYes.
Payment arrearsNo.
Controls on trade in gold (coins and/or bull ion)No.
Controls on exports and imports of banknotesEffective February 5, 1999, the ceiling allowed for the import and export of ringgit for border trade with Thailand was raised.
On exports
Domestic currencyThe limit on exports of ringgit by resident and nonresident travelers is RM 1,000 a person. The export of domestic currency by other means, irrespective of the amount, requires prior approval.
Foreign currencyThe export of foreign currency by nontravelers requires prior approval. A limit of RM 10,000 or its equivalent for exports of foreign currency by resident travelers and up to the amount brought into Malaysia by nonresident travelers is in effect.
On imports
Domestic currencyThe import of currency notes by a traveler is limited to RM 1,000. The importation of ringgit banknotes by institutions other than commercial banks, or by any other means, requires prior approval from the COFE.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyExporters are allowed to retain a portion of their export proceeds in foreign currency accounts with designated banks in Malaysia with an overnight limit between $1 million and $10 million or any other approved amount. Limits imposed on exporters are based on their average export receipts over the last 12 months.



Corporate residents and domestic borrowers are allowed to open one or more foreign currency or multicurrency accounts to retain foreign currency receivables rather than export the proceeds, subject to an aggregate overnight limit of $0.5 million.
Approval requiredPrior approval is required to retain amounts exceeding the permitted limit.
Held abroadResidents with no domestic borrowing are allowed to open foreign currency accounts with an overseas branch of Malaysian-owned banks for crediting foreign currency receivables other than export proceeds. Resident individuals are allowed to open foreign currency accounts with overseas banks for education and employment purposes with an overnight limit of up to $50,000. Residents with domestic borrowing require prior approval.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedAll commercial and merchant banks are allowed to open these accounts.
Domestic currency accountsNonresident ringgit accounts in Malaysia are known as external accounts. Credits to this account are limited to sale of foreign currency, ringgit instruments, securities, or other assets in Malaysia; salaries, wages, rentals, commissions, interest, profits, or dividends. Debits to this account are also restricted to settlement for purchase of ringgit assets and placements of deposits; payment of administrative and statutory expenses in Malaysia; payment of goods and services for use in Malaysia; and granting of loans and advances to staff in Malaysia, according to the terms and conditions of services. Prior approval is required for transfer of funds between external accounts and for uses of funds other than permitted purposes. Nevertheless, there are no restrictions on the operation of the external accounts of nonresidents working in Malaysia, embassies, consulates, high commissions, central banks, or supranational or international organizations in Malaysia.
Convertible into foreign currencyThere is no restriction on conversion and repatriation of ringgit funds in external or special external accounts, subject to payment of the appropriate levy on profits made from portfolio investments. There continues to be no restriction on conversion and repatriation of sale proceeds of investment by foreign direct investors.
Blocked accountsAll debits and credits to accounts of residents of Israel and the Federal Republic of Yugoslavia (Serbia/Montenegro) require prior approval.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsThere is a requirement to settle all imports in foreign currency.
Minimum financing requirementsn.r.
Advance payment requirementsn.r.
Advance import depositsn.r.
Documentation requirements for release of foreign exchange for importsn.r.
Import licenses and other nontariff measuresThe authority for import control rests with the Royal Customs and Excise Department of the MOF. Import licensing throughout Malaysia is administered daily by the Ministry of International Trade and Industry (MITI) together with other specified authorities, such as the Ministry of Primary Industries, the Malaysian Timber Board, the Department of Agriculture, and the Veterinary Department, on behalf of the Royal Customs and Excise Department.
Negative listImports from Israel and the Federal Republic of Yugoslavia (Serbia/Montenegro) require licenses. Finished motor vehicle imports are subject to nonautomatic import licensing, which is administered by the MITI. The movement of live animals between peninsular Malaysia, Sabah, and Sarawak is subject to a permit issued by the Veterinary Department. Imports of the meat, bones, hides, hooves, horns, and offal of any animal or any portion of an animal from all countries require an import license. Imports of primates, whether dead or alive, require an import license, subject to approval from the Department of Wildlife and National Parks and all other goods as specified in the Customs Order. Importation of unprocessed food and planting materials from tropical America and Central Africa to Malaysia are prohibited under the Plant Quarantine Act. Effective February 10, 2000, approval is required from the Ministry of Health to import 19 chemicals covered under the 1988 Convention Against Illicit Traffic in Narcotics, Drugs, and Psychotropic Substances.
Licenses with quotasCertain imports are subject to quantitative restrictions, which are reviewed periodically, to protect local industries temporarily when required.
Other nontariff measuresYes.
Import taxes and/or tariffsAntidumping duties have been imposed on PVC floor covering, self-copy paper, and corrugating medium paper from specified companies to their related companies. Effective January 1, 1999, import duty exemptions were provided to intermediate manufacturing goods. Effective February 15, 2000, temporary antidumping duties were imposed on imports of gypsum boards.
State import monopolyn.a.
Exports and Export Proceeds
Repatriation requirementsProceeds from exports must be received and repatriated according to the payment schedule specified in the commercial contract, but no longer than six months after the date of exportation. Export proceeds must be received only in foreign currency.
Surrender requirementsExporters are allowed to retain their export proceeds in foreign currency accounts with designated banks with an overnight limit of between $1 million and $10 million, or any higher approved amount.
Financing requirementsYes.
Documentation requirementsExports of rubber from peninsular Malaysia require a certificate issued by the Malaysian Rubber Exchange and Licensing Board.
Letters of creditn.r.
Guaranteesn.r.
Domiciliationn.r.
Export licensesExports to Israel and the Federal Republic of Yugoslavia (Serbia/Montenegro) require export licenses from the MITI. Exports of logs are restricted and require licenses from the Malaysian Timber Industries Board. Exports of roofing tiles, bricks, minerals, rice and paddy in any form, milk and specified milk products, textiles, some types of newspapers, as well as a few other goods, are subject to permits issued by the MITI and other specified authorities.
Export taxesExport incentives are provided to companies that export Malaysian products. The primary incentives include a double deduction of expenses incurred in overseas promotion, export credit refinancing, and duty drawbacks.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersPayments for invisibles to all countries other than Israel and the Federal Republic of Yugoslavia (Serbia/Montenego) may be made without restriction. Remittances to nonresidents of profits on all bona fide investments are permitted, upon the completion of statistical forms for amounts exceeding the equivalent of RM 10,000. Remittances of interest payments do not require prior approval as long as such payments are in accordance with the terms of the loan obtained.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsProceeds from invisibles must be repatriated according to the proceeds schedule specified in the agreement.
Surrender requirementsIf received in foreign currency, proceeds may be retained in permitted foreign currency accounts.
Restrictions on use of fundsn.a.
Capital Transactions
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Sale or issue locally by nonresidentsNonresidents must undertake all purchases and sales of ringgit securities through authorized depository institutions. Nonresident sellers of Malaysian securities were previously required to hold on to their ringgit proceeds for at least 12 months before the investment is repatriated. On February 15, 1999, this requirement was eliminated, and a graduated system of exit taxes was introduced: for investments made prior to February 15, 1999, capital is taxed at 30% if repatriated less than seven months after entry; at 20% if repatriated after seven months; and at 10% if repatriated 9 to 12 months after entry. Capital repatriated more than one year after entry is not taxed. For investments made on or after February 15, 1999, the original capital is not taxed, but the repatriated capital gains are as follows: capital gains repatriated within 12 months after the gain is realized are taxable at 30%, and for those repatriated after more than 12 months are taxable at 10%. Effective September 21, 1999, nonresident sellers of Malaysian securities may repatriate the proceeds at any time. A 10% exit levy on profits is required. Profits made from investments in MESDAQ (Malaysian stock exchange) are exempted from the exit levy regulations.
Purchase abroad by residentsNo controls apply for transactions valued at less than RM 10,000; but for those amounting to RM 10,000 or more, prior approval is required.
Sale or issue abroad by residentsNo exchange controls apply to a resident on the sale of securities abroad. However, a resident must obtain approval to issue securities abroad. Approval is given if the proceeds associated with these issues are used to finance productive activities in Malaysia, particularly for projects that generate foreign exchange earnings or save on the future outflow of foreign exchange through the production of import substitution goods. The proceeds from the sale or permitted issuance of securities are required to be transferred to Malaysia.
Bonds or other debt securities
Sale or issue locally by nonresidentsIssuance by nonresidents requires approval.
Purchase abroad by residentsThe same conditions apply as for shares or other securities of a participating nature.
Sale or issue abroad by residentsIssuance by residents requires an approval.
On money market instruments
Purchase abroad by residentsThe same regulations apply as for shares or other securities of a participating nature.
Sale or issue abroad by residentsWhen residents issue money market instruments abroad, it is considered to be obtaining credit facilities. Residents are freely permitted to obtain credit facilities in foreign currency only up to RM 5 million or its equivalent. For amounts exceeding this figure, prior approval is required. Approval is given for foreign currency credit facilities raised on reasonable terms to finance productive activities in Malaysia, particularly for projects that generate sufficient foreign exchange to service the external debt so created.
On collective investment securities
Sale or issue locally by nonresidentsThere is no exchange control on the sale of Malaysian securities in the country by nonresidents. However, repatriation of capital or profit is subjected to a 10% exit levy on profits from investments made after February 15, 1999.
Purchase abroad by residentsThe same regulations apply as for shares or other securities of a participating nature.
Sale or issue abroad by residentsThe same regulations apply as for shares or other securities of a participating nature.
Controls on derivatives and other instrumentsEffective January 13, 1999, capital flows for the purpose of trading in derivatives in the Commodity and Monetary Exchange of Malaysia and the Kuala Lumpur Options and Financial Futures Exchanges by nonresidents do not require approval when the transactions are conducted through a Designated External Account.
Purchase locally by nonresidentsPrior approval is required for nonresidents to buy or sell forward ringgit vis-à-vis foreign currency. However, nonresidents are allowed to buy outright forward ringgit to settle trades done on the MESDAQ for tenure of not more than five working days. This is only applicable to firm, committed trades and not to anticipated market purchases.
Purchase abroad by residentsA resident must obtain permission to make payments to a nonresident for any spot or forward contract or interest rate futures not transacted at a futures exchange in Malaysia.
Sale or issue abroad by residentsResidents must obtain permission to issue and to sell financial instruments abroad.
Controls on credit operations
Commercial credits
By residents to nonresidentsNo controls apply to residents in the extension of trade credit to nonresidents for export of goods from Malaysia up to a maximum period of six months from the date of export. There is a prohibition of domestic credit facilities to nonresident correspondent banks and nonresident stockbrokerage companies (subject to RM 5 million limit previously), and of residents obtaining ringgit credit facilities from any nonresident individuals (subject to RM 100,000 limit previously).
To residents from nonresidentsResidents are permitted to obtain credit facilities in foreign currency up to the equivalent of RM 5 million in the aggregate from licensed banks, licensed merchant banks, and nonresidents. Any larger amount would require prior approval. Residents are not allowed to obtain loans in ringgit from nonresidents. There is no control for residents to obtain commercial credits from nonresidents for the importation of capital goods for a period not exceeding 12 months. Extensions of domestic credit facilities by authorized dealers to nonresident stockbroking companies are allowed in amounts up to RM 200 million intraday and RM 5 million overnight in the case of technical or other inadvertent delays.
Financial credits
By residents to nonresidentsNo controls apply to credits granted by residents in foreign currency to nonresidents of less than RM 10,000. Ringgit loans could be extended by banking institutions up to an aggregate amount of RM 200,000 for purposes other than financing immovable properties in Malaysia. For financing a residential property, financing is allowed for up to 60% of the purchase price for construction of property. Approval is required for credit facilities exceeding the limit.
To residents from nonresidentsResidents are permitted to obtain total credit in foreign currency of up to RM 5 million from licensed banks, licensed merchant banks, and nonresidents. Any larger amount would require prior approval. Residents are not allowed to obtain loans in ringgit from nonresidents.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsThese transactions are permitted subject to informing the COFE. However, any payment to a nonresident in relation to or consequential to the guarantee must be made in foreign currency.
To residents from nonresidentsResidents are permitted to obtain financial guarantees, provided the aggregate amount of credit facility, including the financial guarantee, does not exceed RM 5 million. There is, however, no control on the amount of financial guarantee to be obtained from offshore banks in Labuan. In all cases, all payments related to the guarantees are made in foreign currency; otherwise, approval is required.
Controls on direct investment
Outward direct investmentInvestments abroad exceeding RM 10,000 in any form require approval.
Inward direct investmentControls are imposed on equity shares in line with the National Economic Policy. The following inward investments require prior approval from the Foreign Investment Committee (FIC): (1) acquisition of any substantial fixed assets by foreign interests; (2) acquisition of assets or interests, mergers, and takeovers of companies and businesses in Malaysia by any means that will cause ownership or control to pass to foreign interests; (3) acquisition of 15% or more of the voting power (equity interests) by any foreign interest or associated group or by a foreign interest in the aggregate of 30% or more of the voting power of a Malaysian company or business; (4) control of Malaysian companies and businesses through any form of joint-venture agreement, management agreement, or technical assistance arrangement; (5) merger or takeover of any company or business in Malaysia; and (6) any other proposed acquisition of assets or interests exceeding RM 5 million in value.



Incorporation of a Malaysian company by a foreign entity does not require the approval of the FIC. However, increases in the paid-up capital of a Malaysian company that involve any foreign entity require the approval of the FIC under the following circumstances: (1) the total value of the foreign entity’s new subscription exceeds RM 5 million; (2) the total of the foreign entity’s new subscription exceeds 15% of the voting power in the relevant company; (3) as a result of the increase in paid-up capital, any foreign entity increases its voting power to more than 15% in the relevant company; (4) the total of the new subscription by several foreign entities increases their joint voting power to 30% or more of the voting power in the relevant company; (5) as a result of the increase in paid-up capital, the aggregate holding of several foreign entities increases to 30% or more of the voting power in the relevant company; and (6) an increase in the paid-up capital of any Malaysian company to more than RM 5 million on incorporation, the holdings of foreign entities constitutes more than 15% of the voting power, or the joint holdings of several foreign entities constitutes 30% or more of the voting power of the company concerned.



In addition, the permitted percentage of equity held by foreigners also depends on the percentage of production exported, whether high-technology products are purchased or whether priority products are produced for the domestic market. For projects involving extracting, mining, and processing mineral ores, a majority foreign equity participation of up to 100% is permitted. Multimedia Super Corridor status companies are allowed to have 100% foreign equity.
Controls on liquidation of direct investmentThe proceeds of investments may be repatriated freely after resale, upon the completion of a statistical form, for amounts of RM 10,000 or more.
Controls on real estate transactions
Purchase abroad by residentsThe same regulations apply as for purchases of shares or other securities of a participating nature abroad by residents.
Purchase locally by nonresidentsUnder Special Guidelines, no limitation or condition is imposed on the purchase of residential, shop lot, and office space by foreigners subject to the following criteria: (1) the purchase under consideration must be more than RM 250,000; (2) the project must be newly completed or at least 50% in progress; and (3) financing for the above acquisition must be obtained from overseas financial institutions outside Malaysia.
Controls on personal capital movements
Loans
By residents to nonresidentsThe same regulations apply as for financial credits.
To residents from nonresidentsYes.
Gifts, endowments, inheritances, and legaciesn.r.
Transfer of assetsn.r.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadOnly authorized dealers and permitted merchant banks are allowed to borrow freely in foreign currency from nonresidents. Other financial institutions are subject to prior approval if the aggregate amount exceeds RM 5 million.
Maintenance of accounts abroadOnly authorized dealers in foreign currencies and merchant banks are permitted to maintain accounts abroad. Other credit institutions require approval to maintain these accounts.
Lending to nonresidents (financial or commercial credits)Authorized dealers are allowed to extend loans in foreign currency to nonresidents. A banking institution is, however, allowed to extend credit in ringgit to: (1) nonresidents, other than banks or stockbroking companies up to an aggregate of RM 200,000 for any purpose except to finance the acquisition or development of immovable property in Malaysia; and (2) nonresidents who are working in Malaysia up to 60% of the purchase price or construction cost for residential property.



The extension of loans in ringgit to nonresidents exceeding the amounts or for purposes other than those stipulated above requires prior approval.



Banking institutions are not allowed to extend loans in ringgit to any foreign bank or foreign stockbroking company.



Stockbroking companies are allowed to extend margin financing facilities to nonresident clients for the purchase of shares listed on the Kuala Lumpur Stock Exchange (KLSE), subject to compliance with rules imposed by the KLSE.
Lending locally in foreign exchangeAuthorized dealers and merchant banks are allowed to lend in foreign currency to residents. A resident borrower, however, requires prior approval if total aggregate borrowing exceeds RM 5 million.
Purchase of locally issued securities denominated in foreign exchangePurchases are allowed, provided that the issuance of the securities has been approved.
Investment regulations
Abroad by banksInvestment inequity and property and purchases of debt securities in excess of RM 10,000 require prior approval.
In banks by nonresidentsForeigners are generally limited to an aggregate participation of not more than 30% equity interest in a bank.
Open foreign exchange position limitsThe criteria in determining banks’ net overnight foreign currency open position limits are based on a matrix that takes into account their shareholders’ funds and dealing capacity.
Provisions specific to institutional investors
Limits (max.) on portfolio invested abroadInsurers are required to support the aggregate of their liabilities and margin of solvency (referred to as “the Amount”) with admitted assets as specified by the BNM. For the financial year ending in 1999, insurers are required to maintain a minimum of 70% and 80%, respectively, of “the Amount” in the form of admitted assets.



The rules allow a licensed insurer in respect of its Malaysian insurance fund to hold for investment purposes up to a maximum of 5% of “the Amount” in assets of a foreign jurisdiction with a sovereign rating that is not lower than the sovereign rating of Malaysia. However, investment in any one foreign jurisdiction is restricted to 2% of “the Amount.” A licensed insurer is also allowed to hold assets of a foreign jurisdiction where it is carrying on business to enable it to meet its foreign liabilities in that jurisdiction.
Limits (min.) on portfolio invested locallyEmployee Provident Fund (EPF) investment in foreign securities is subject to approval of amounts exceeding RM 10,000. The EPF is required to invest a minimum of 50% of its annual investible funds in securities issued or guaranteed by the federal government, provided that the total amount of funds invested in such securities is not less than 70% of its total investment.



Unit trust funds may invest up to 10% of the fund’s net asset value in securities listed on foreign stock exchanges. Prior approval from the Securities Commission is required for such investment.
Other controls imposed by securities lawsThere are no controls on foreign firms trading in the corporate debt, equity, and derivative market. However, the following guidelines as set out by the FIC should be observed: (1) any proposed acquisition of 15% or more of the voting power by any one foreign interest or associated group, or foreign interests in the aggregate of 30% or more of the voting power of a Malaysian company or business; (2) acquisition of assets or interests, merges, and takeovers of companies and businesses in Malaysia, whether by Malaysian or foreign interests; and (3) any other proposed acquisition of assets or interests exceeding in value RM 5 million, whether by Malaysians or foreign interests require approval. Foreign companies with no substantial business operations in Malaysia are not normally granted listing on the local stock exchange.
Changes During 1999
Arrangements for payments and receiptsFebruary 5. The ceiling allowed for the import and export of ringgit for border trade with Thailand was raised.
Imports and import paymentsJanuary 1. Import duty exemptions were provided to intermediate manufacturing goods.
Capital transactionsFebruary 15. Investors were allowed to repatriate the proceeds from portfolio investments, subject to paying a levy.



April 15. Repatriation of investments in MESDAQ are exempt from paying the levy.



September 21. Nonresidents were allowed to repatriate proceeds from sales of securities after paying a 10% exit levy.
Controls on capital and money market instrumentsFebruary 15. The requirement that nonresident holdings of Malaysian securities be kept in Malaysia for at least one year was replaced by a graduated system of exit taxes on capital and capital gains.
Controls on derivatives and other instrumentsJanuary 13. Capital flows for the purpose of trading in derivatives in the Commodity and Monetary Exchange of Malaysia and the Kuala Lumpur Options and Financial Futures Exchanges by nonresidents do not require approval when the transactions are conducted through a Designated External Account.
Changes During 2000
Imports and import paymentsFebruary 10. Approval from the Ministry of Health is required to import 19 chemical substances.



February 15. Temporary antidumping duties were imposed on imports of gypsum boards.

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