Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

MALAYSIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of July 31, 2005)

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 to the U.S. dollar at RM 3.80 per US$1. The maximum spread between the buying and selling rates is fixed at 2% for the euro, the Hong Kong dollar, the Japanese yen, the Singapore dollar, and the U.S. dollar and at 3% for all other currencies. Effective July 22, 2005, the Bank Negara Malaysia (BNM) adopted a managed float for the ringgit with reference to a currency basket. The composition of the basket is not disclosed.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 may be provided for up to 12 months from the intended date of import, while for export purposes, forward cover may be provided for up to 6 months from the export date. Effective April 1, 2005 residents and nonresidents may enter into forward contracts with licensed onshore banks and approved merchant banks as follows. First, residents may enter into forward contracts to buy or sell foreign currency against ringgit or another foreign currency to hedge (1) payments or receipts for current account transactions, based on firm commitments or on an anticipatory basis (for forward contracts entered into on an anticipatory basis, the total outstanding value of the forward contracts should not exceed the total amount paid or received in the preceding 12 months, but there is no restriction on the tenure of the forward contracts); (2) payment for permitted investment abroad including lending to nonresidents in foreign currency, other than from conversion from ringgit for placement in a foreign currency account (FCA); (3) foreign currency exposure of permitted investments abroad; and (4) prepayments or repayments of permitted foreign currency credit facilities that are payable within the next 24 months. Second, nonresidents may enter into forward contracts to buy or sell foreign currency against ringgit to hedge (1) committed payments or receipts for current account transactions that are permitted to be settled in ringgit with residents, and (2) committed inflows and outflows for investment in, or divestments of, ringgit assets other than funds in external accounts, including fixed deposits, negotiable instruments of deposits in ringgit, and over-the-counter derivatives or structured products that are tantamount to lending or borrowing of ringgit between residents and nonresidents.
Nonresident intermediaries may enter into swap arrangements not exceeding three working days with licensed onshore banks to cover payment for ringgit securities purchased by the nonresident intermediaries’ nonresident clients with the following conditions: (1) swap arrangement shall be based on a firm commitment and not be on an anticipatory basis; and (2) the maturity date of the arrangement shall be the committed payment date with no rollover option.
Multilateral development banks (MDBs) and foreign multinational corporations (MNCs) that are allowed to issue ringgit-denominated bonds may enter into forward contracts to sell foreign currency for ringgit to meet coupon or principal payment of the bonds. In addition, they may also purchase forward foreign currency for repatriation of proceeds of the issuance abroad.
Forward contracts against ringgit entered into by ADs and approved merchant banks are subject to net open position limits.
Effective April 1, 2004, residents are allowed to sell forward nonexport foreign currency receivables for ringgit or another foreign currency to an AD or an approved merchant bank for any purpose up to the tenure of the underlying transaction, provided that the transaction is supported by a firm underlying commitment to receive the currency (previously, such receivables could be sold forward up to 12 months only). Also effective that date, residents with permitted foreign currency borrowing are allowed to enter into interest rate swaps with an onshore licensed bank, an approved merchant bank, or a licensed offshore bank in Labuan, provided that the transaction was supported by a firm underlying commitment to receive the currency.
Forward exchange contracts against the ringgit or another foreign currency with nonresidents require the prior approval of the Controller of Foreign Exchange (COFE), with the following exceptions: (1) ADs may enter into short-term currency swap arrangements with nonresident custodian banks and stockbroking companies for payments of share purchases on the Malaysia Securities Exchange Berhad (MSEB) that have maturities of up to three working days and that are based on firm commitments; and (2) ADs may enter into outright ringgit forward sale contracts with nonresidents that have maturities of up to three working days and that are based on firm underlying commitments to purchase shares on the MSEB.
Forward exchange contracts against foreign currency entered into by ADs and approved banks with nonresidents are subject to net open position limits.
Arrangements for Payments and Receipts
Prescription of currency requirementsAll dealings and transactions with Israel require the prior approval of the COFE.
Controls on the use of domestic currency
For capital transactions
Transactions in capital and money market instrumentsApplications for issuance of ringgit bonds in Malaysia by MDBs and foreign MNCs are considered by the COFE based on the merit of each case.
Use of foreign exchange among residentsPrior approval of the COFE is required for a resident to make payment in foreign currency to another resident, other than payments for education or employment overseas, repayment of foreign currency credit facilities obtained from licensed onshore banks or licensed merchant banks, or payments for futures contract denominated in foreign currency traded on the Bursa Malaysia Derivatives Berhad.
Payments arrangements
Bilateral payments arrangements
OperativeThere are 23 arrangements.
InoperativeThere are 15 arrangements.
Regional arrangementsMalaysia is a member of the ASEAN.
Clearing agreementsYes.
Administration of controlThe COFE, who is also the governor of the BNM, administers foreign exchange administration rules.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
In accordance with UN sanctionsFinancial institutions have been instructed to freeze the accounts of the Taliban and of individuals and economic entities associated with terrorism. These measures were taken in accordance with the relevant UN Security Council resolutions. Effective October 28, 2004, pursuant to these resolutions, the BNM amended the list of persons belonging to or associated with the Taliban, Osama Bin Laden, and the Al-Qaida organization, whose funds have been frozen.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotes
On exports
Domestic currencyThe limit on exports of domestic currency by resident and nonresident travelers is RM 1,000 a person. The export of domestic currency exceeding this amount requires prior approval by the COFE.
Foreign currencyResidents may export foreign currency up to the equivalent of RM 10,000, and nonresidents may export up to the amount that they previously brought into Malaysia. Exports of larger amounts require prior approval by the COFE.
On imports
Domestic currencyResidents and nonresidents may import up to RM 1,000 in domestic banknotes.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyEffective April 1, 2005, residents are allowed to open FCAs with licensed onshore banks and approved merchant banks for any purpose with no overnight limit, except that resident individuals with domestic ringgit credit facility may convert ringgit into foreign currency for credit into FCAs for education and employment overseas up to an aggregate limit of $150,000. Residents without domestic ringgit credit facility may convert any amount of ringgit for credit into their FCAs. Residents with domestic ringgit credit facility may convert ringgit into foreign currency for credit into their FCAs up to the permitted limits for investment abroad.
Exporters are allowed to retain a portion of their export proceeds in FCAs with designated banks in Malaysia, with overnight limits. On April 1, 2004, these limits were increased to a range between the equivalent of $30 million and $100 million (previously, $1 million and $70 million) or any other amount that has been approved. Limits imposed on exporters were based on their average monthly export receipts over the previous 12 months. In addition, resident exporters may merge their export and nonexport FCAs in accordance with overnight limits imposed on exporters.
On April 1, 2004, resident companies with domestic borrowing were allowed to open one or more nonexport FCAs with licensed onshore banks to retain foreign currency receivables that were not export receipts with no limit on the overnight balances; those without domestic borrowing could open nonexport FCAs in licensed offshore banks in Labuan up to an aggregate overnight limit of the equivalent of $500,000. Effective April 1, 2004, resident individuals with funds abroad may maintain nonexport FCAs with onshore or offshore banks without any limit on the overnight balance. Effective April 1, 2004, residents with foreign currency funds are free to invest in any foreign currency products offered by onshore licensed banks
Approval requiredPrior approval from the COFE is required for resident to retain export proceeds abroad or convert ringgit from domestic borrowing for an amount exceeding the permitted limit.
Held abroadEffective April 1, 2005, residents are allowed to open FCAs with licensed offshore banks in Labuan or overseas banks for any purpose except for retention of export proceeds. The FCAs are not subject to any limit, except for FCAs for education and employment abroad by residents with domestic credit facilities. Resident companies maintaining FCAs with licensed offshore banks in Labuan or overseas banks are required to submit a monthly statement, Statement OA, on the accounts to the COFE. Corporate residents with domestic borrowing are allowed to open one or more FCAs with licensed offshore banks in Labuan to retain foreign currency receivables that are not export proceeds, subject to an aggregate overnight limit of the equivalent of $500,000. Other corporate residents with no domestic borrowing are allowed to open FCAs with an overseas branch of Malaysian-owned banks for crediting foreign currency receivables other than export proceeds, with no limit on overnight balances. Effective April 1, 2004, resident individuals may open FCAs to facilitate payment of education and employment expenses overseas, with an aggregate overnight limit of up to $150,000 (previously, $100,000) with licensed offshore banks in Labuan, and up to $50,000 with overseas banks. Effective April 1, 2004, resident individuals with funds abroad (not converted from ringgit) may maintain nonexport FCAs onshore or offshore without any limit on overnight balances.
Approval requiredPrior approval from the COFE is required for a resident to retain export proceeds abroad or convert ringgit from domestic borrowing for an amount exceeding the permitted limit.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyApproval is required only for converting ringgit for an amount exceeding the prescribed limit with domestic ringgit credit facilities.
Nonresident Accounts
Foreign exchange accounts permittedAll licensed banks and merchant banks are allowed to maintain these accounts for nonresidents.
Domestic currency accountsAll onshore banking institutions are allowed to open ringgit account for nonresidents. Nonresident ringgit accounts in Malaysia are known as External Accounts. Sources of funds in these accounts may include (1) sales of foreign currency; (2) ringgit assets in Malaysia; (3) income from salaries, wages, rentals, commissions, interest, profits, and dividends; (4) proceeds from permitted ringgit loans extended by residents and/or extended in accordance with the terms and conditions of employment; (5) proceeds from repayment of permitted ringgit loans; (6) deposits of ringgit in cash of up to RM 10,000 a day; (7) transfers of up to RM 5,000 a transaction from and to an account by way of ringgit checks; (8) transfers of up to RM 5,000 a transaction from an account for any purpose through ATM cards, Internet banking, or ringgit checks; and (9) transfers of any amount from another external account held by the same entity.
Funds in External Accounts may be used for (1) payments for purchases of foreign currency and ringgit assets in Malaysia; (2) payments for administrative and statutory expenses incurred in Malaysia; (3) payments for goods and services in Malaysia; (4) granting of loans and advances to staff in Malaysia in accordance with the terms and conditions of employment; (5) payments of nonfinancial guarantees (when a guarantee is required); (6) repayments of permitted ringgit loans; and (7) ringgit cash withdrawals. Prior approval from the COFE is required for transfers of funds between External Accounts and for uses of funds other than for permitted purposes. There are no restrictions on the operation of External Accounts of nonresidents working in Malaysia (including their spouses, children, and parents residing in Malaysia), embassies, consulates, high commissions, central banks, or international organizations in Malaysia.
Convertible into foreign currencyThere is no restriction on the conversion of ringgit funds in External Accounts into foreign currency for repatriation. Investors may freely bring funds into and repatriate funds out of the country.
Blocked accountsPrior approval of the COFE is required for residents of Israel to open any account with any financial institution.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsPayments are allowed freely, provided they are made in foreign currency.
Minimum financing requirementsThere are minimum financing requirements for rice, fish, and fishery products that vary depending on the agreement between the parties involved.
Advance import depositsIn accordance with a special agreement, sales of rice from Myanmar are subject to advance payments.
Documentation requirements for release of foreign exchange for importsOther documents required are an invoice, a bill of lading, a sanitary or phytosanitary certificate, and a certificate of origin.
Preshipment inspectionPreshipment inspections are made by independent surveyors for rice imports.
Import licenses and other nontariff measuresThe authority for import control rests with the Royal Customs and Excise Department of the MOF. Import licensing in Malaysia is administered by various authorities, including the Ministry of International Trade and Industry (MITI), the Ministry of Plantation Industries and Commodities, the Malaysian Timber Board, the Department of Agriculture (DOA), and the Department of Veterinary Services of Malaysia (DVSM), as stated in the Animal Ordinance of 1953.
Negative listImport licenses for fish and fishery products are issued by the Fisheries Development Authorities of Malaysia (LKIM). A service charge of RM 0.05 a kilogram is imposed on imported fish and fishery products. The shipment of live fish (including among peninsular Malaysia, Sabah, and Sarawak) also requires a permit issued by the Department of Fisheries. In accordance with the Convention on International Trade in Endangered Species of Wild Fauna and Flora, a permit is required from the Department of Wildlife for the import of endangered species. Import permits for animals and animal products—including those from Sabah and Sarawak—are issued by the DVSM. Import approvals are subject to import risk analysis and accreditation of establishments/premises under the Animal Ordinance of 1953 and in accordance with the regulations of the Office of International Epizootics and other standards.
Permits for the importation of round cabbage and raw coffee must be obtained from the Federal Agricultural Marketing Authority (FAMA). Import quotas for round cabbage are issued every month, while import quotas for raw coffee are issued every three months.
The following require import permits issued by the DOA under the Plant Quarantine Act: planting material; organic fertilizer; processed mineral clay; processed sand; plants and plant parts, including seeds and other planting material; soils (e.g., clay, sand, processed and unprocessed soils); growth media; herbaria, dried flowers; organic fertilizer; and microorganisms. Imports of unprocessed food and plants from tropical America and Central Africa are prohibited under the same law. Imports of cereals and nuts from countries known to harbor khapra beetles must be treated and accompanied by a phytosanitary certificate. Imports of plant products intended for consumption or processing are subject to inspection upon arrival. Approval from the DOA is required to import fresh pineapples; otherwise, a duty of 300% is levied.
Approval from the Ministry of Health is required to import 19 chemical substances.
All radio communication apparatuses capable of telecommunication in frequency bands of less than 3,000 GHz require a license from the Standard and Industrial Research Institute of Malaysia, except for receivers designed for use in broadcasting services and radio communication apparatuses that have a valid license issued by the telecommunications authority of any country or an international automatic roaming card issued by a licensed operator.
Imports of certain iron and steel products and certain types of cement and ceramics products are prohibited unless they conform to certain standards and are imported in accordance with the Fourth Schedule, Part III, of the Customs Order of 1998.
Open general licensesImport licenses for rice are issued by the Ministry of Agriculture and Agro-Based Industry.
Licenses with quotasCertain imports are subject to quantitative restrictions, which are reviewed periodically, to protect local industries temporarily when necessary.
Other nontariff measuresYes.
Import taxes and/or tariffsAntidumping duties are imposed on imports of plaster and gypsum boards from Thailand.
State import monopolyUnder a privatization agreement, the corporation BERNAS was granted the sole right to import rice into Malaysia for 15 years beginning in 1996.
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 later than six months from the date of export. Export proceeds must be received in foreign currency except the currency of Israel.
Surrender requirementsExporters may retain a portion of their export proceeds in FCAs with onshore licensed banks. Effective April 1, 2004, the overnight limits that exporters may retain in these accounts are within the range of $30 million and $100 million (previously, $1 million and $70 million).
Financing requirementsNo.
Documentation requirementsExports of rubber from peninsular Malaysia require a certificate issued by the Malaysian Rubber Exchange and Licensing Board.
Preshipment inspectionThe export of live fish is subject to preshipment inspection and, if requested, a certificate of health, a certificate of sanitation, and a certificate of origin may be issued by the Department of Fisheries.
Veterinary examination, laboratory testing, and animal quarantine procedures—as well as accreditation of establishments/premises for export of animals and animal products—are carried out by the DVSM in accordance with import requirements of importing countries.
Export licensesCertain exportable products are monitored to avoid shortages in the domestic market. Export licenses for fish and fishery products are issued by the LKIM. The shipment of live fish (including among peninsular Malaysia, Sabah, and Sarawak) also requires a permit issued by the Department of Fisheries. In accordance with the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), a permit from the Department of Wildlife is required for exports of endangered species.
Export licenses or permits from the FAMA are required for exports of star fruit to Western Europe, West Asia, and Hong Kong SAR; for exports of garlic to the EU; and for exports of Eksotika papaya overseas. FAMA acts on behalf of the Royal Customs and Excise Department to endorse exports or reexports of all types of vegetables, especially to Singapore, Brunei Darussalam, Indonesia, Thailand, and other countries. Exports of plants, seeds, or shoots for purposes of propagation require export permits issued by the DOA. Exports of endangered species of plants require a CITES permit from the DOA. Export permits and veterinary health certification from the DVSM are required for exports of animals and animal products. Export licenses (issued by the Malaysian Pineapple Industry Board) are required for fresh pineapple and canned pineapple products. A service charge of RM 0.184 a kilogram is imposed on exports of canned pineapple.
Export taxesExport taxes on most commodities, except for crude palm oil and crude oil, have been abolished. Export taxes on other items are negligible.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersPayments for invisibles to all countries other than Israel and Serbia and Montenegro may be made without restriction. Payments—such as profits, dividends, rental income, and interest related to bona fide investments—may be remitted to nonresidents freely, subject to the provision of information on amounts exceeding RM 50,000 a transaction. Remittances of interest payments to nonresident lenders are freely allowed as long as the payments are in accordance with the terms of the loan. For any payment from a resident to a nonresident in excess of RM 50,000 or its equivalent in foreign currency, supporting documents must be submitted to the remitting bank for statistical purposes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsProceeds from invisibles must be repatriated according to the proceeds schedule specified in the agreement.
Surrender requirementsProceeds may be retained in permitted foreign currency accounts or converted into ringgit through an AD.
Restrictions on use of fundsn.a.
Capital Transactions
Controls on capital transactionsIn general, residents may obtain freely credit facilities in foreign currency up to the equivalent of RM 5 million in aggregate, and they may transfer funds to nonresidents up to the equivalent of RM 10,000 in foreign currency for productive investment purposes without approval; for funds exceeding this amount, prior approval is required.
Controls on capital and money market instrumentsEffective April 1, 2005, residents (companies on a corporate group basis or individuals) without domestic ringgit credit facilities may make investments abroad funded as follows: (1) any amount of own foreign currency funds retained onshore or offshore; (2) up to RM 10 million equivalent in aggregate from a foreign currency credit facility; and (3) any amount through conversion of ringgit belonging to the residents. Effective April 1, 2005, residents (companies on a corporate group basis or individuals) with domestic ringgit credit facilities are also allowed to fund their investment abroad as follows: (1) any amount of own foreign currency funds retained onshore or offshore; (2) up to RM 10 million or the equivalent in aggregate from a foreign currency credit facility; and (3) conversion of ringgit into foreign currency up to the following limits: (a) RM 10 million equivalent in aggregate a calendar year, on corporate group basis for companies; and (b) RM 100,000 a calendar year for individuals.
On capital market securitiesRinggit assets purchased by residents from nonresidents may be settled in ringgit or in any foreign currency other than the currency of Israel and nonresidents may transfer ringgit securities to other nonresidents. Settlements for such transfers may be made in ringgit or foreign currency if settled in Malaysia, or in foreign currency if settled abroad. Additionally, remittances of funds for investment in foreign shares offered by the overseas parent or related company under the Employee Share Option/Purchase Scheme (ESOS) may be made freely.
Shares or other securities of a participating nature
Sale or issue locally by nonresidentsIssuance of ringgit securities by nonresidents requires approval, but proceeds from the sale of these securities may be repatriated at any time.
Purchase abroad by residentsResidents without domestic credit facilities are allowed to purchase foreign shares or other securities. Residents with domestic credit facilities are subject to permitted investment limit if the investment is financed with ringgit funds.
Sale or issue abroad by residentsControls do not apply to the sale of securities abroad by residents, but approval must be obtained to issue securities other than ordinary shares and irredeemable preference shares. Under securities laws, the Securities Commission’s (SC) approval is required when a public company intends to issue securities, whether within or outside of Malaysia. Approval is granted based on criteria set forth in securities laws and SC guidelines.
Bonds or other debt securities
Purchase locally by nonresidentsA tax exemption is given on interest income derived by nonresident individuals and companies from the following: (1) ringgit denominated securities and debentures, other than convertible loan stocks approved by the SC, or (2) securities issued by the Government of Malaysia.
Sale or issue locally by nonresidentsIssuance locally by nonresidents requires approval. Effective April 1, 2004, the BNM may consider applications on the issuance of ringgit bonds in Malaysia by MDBs and foreign MNCs.
Purchase abroad by residentsThe regulations governing shares or other securities of a participating nature apply.
Sale or issue abroad by residentsPrimary offerings or issuance by residents requires approval. Sales of bonds or other debt securities abroad are allowed freely. However, proceeds from these sales must be repatriated.
On money market instruments
Sale or issue locally by nonresidentsSome restrictions apply on issuers of money market instruments.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsSales are freely permitted. Securities regulations require approval for the issue of money market instruments if such instruments are within the scope of the definition of securities under the Securities Commission Act.
On collective investment securities
Sale or issue locally by nonresidentsThere is no limit on the sale of Malaysian securities in the country by nonresidents, and there is no restriction on the repatriation abroad of proceeds from such sales. All funds must be managed and administered by a management company that is a public company incorporated in Malaysia and approved by the SC. The issue of securities requires the prior approval of COFE.
Purchase abroad by residentsThe regulations governing shares or other securities of a participating nature apply.
Sale or issue abroad by residentsThe regulations governing shares or other securities of a participating nature apply. In addition, residents are generally required to obtain approval from the COFE and the SC to make available, to offer for subscription or purchase, to issue an invitation to subscribe to or purchase securities of a public company abroad, or to list such securities abroad. However, approval is not required for residents to sell unit trust schemes abroad.
Controls on derivatives and other instrumentsResidents must obtain approval for the making of payments for derivatives and other instruments not traded on a futures exchange in Malaysia.
Purchase locally by nonresidentsNo controls apply on the trading of futures and options by nonresidents on the Malaysian Derivatives Exchange.
Sale or issue locally by nonresidentsThe issuance of derivatives by nonresidents requires approval from the COFE. The purchase of foreign currency–denominated derivatives not traded on a futures exchange in Malaysia by residents to nonresidents requires prior approval.
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 from the COFE to issue and to sell financial instruments abroad.
Controls on credit operations
Commercial credits
By residents to nonresidentsThe terms of export credits extended to nonresidents must not exceed six months from the date of export shipment.
To residents from nonresidentsResidents may obtain trade credit terms extended by a supplier for all types of goods and services. However, credit terms extended by a nonresident supplier for capital goods for periods longer than 12 months are considered as foreign currency credit facilities. Approval is required for credits exceeding the equivalent of RM 5 million in aggregate on a corporate group basis.
Financial credits
By residents to nonresidentsNo controls apply to credits not exceeding RM 10,000 in ringgit. Lending to nonresidents in foreign currency is subject to investment limits. Resident stockbroking companies may extend margin financing facilities to nonresident clients for the purchase of shares listed on the MSEB, provided that the companies comply with all relevant MSEB rules. Resident insurance companies may extend policy loans in ringgit to nonresident policy holders, in accordance with the terms and conditions of the policies. The amount of ringgit loans extended may not exceed the policy’s attained cash surrender value, and may be made for the duration of the policies. Effective April 1, 2004, banking institutions may extend ringgit loans to nonresidents (other than to a stockbroking company, custodian bank, or correspondent bank) up to an aggregate amount of RM 10 million (previously, RM 200,000) for any purpose, except for the purchase or construction of any immovable property in Malaysia or for the purchase of land only. Effective April 1, 2004, residents (banks and nonbanks) may extend ringgit loans to nonresidents to finance or refinance the purchase or construction of any immovable property in Malaysia (excluding the purchase of land only) up to a maximum of three property loans in aggregate.
Resident commercial banks may extend stockbroking companies and custodian banks ringgit overdraft credit facilities in aggregate not exceeding RM 200 million overnight for the financing of funding gaps arising from the unforeseen or inadvertent technical delays in relation to settlement of trades in the MSEB.
To residents from nonresidentsEffective April 1, 2005, resident companies are allowed to obtain (1) foreign currency trade financing, including those related to exports, of any amount and tenure from licensed onshore banks; and (2) foreign currency credit facilities up to the equivalent of RM 50 million (previously, RM 5 million) in aggregate on a corporate group basis from licensed onshore banks, licensed merchant banks, and nonresidents. Foreign currency trade financing facilities, excluding those related to exports, obtained from nonresidents are limited to a maximum of RM 5 million equivalent in aggregate on a corporate group basis. Resident individuals are allowed to obtain foreign currency credit facilities up to the equivalent of RM 10 million (previously, RM 5 million) in aggregate from licensed onshore banks, licensed merchant banks and nonresidents. Effective April 1, 2005, resident individuals or companies are allowed to prepay foreign currency credit facilities. Previously, residents were permitted to obtain credits in foreign currency up to the equivalent of RM 5 million in aggregate from licensed banks, licensed merchant banks, and nonresidents; for amounts exceeding RM 5 million prior approval was required, but approval was generally granted if funds were to be used for productive purposes. Residents require prior approval to obtain any amount of loans in ringgit from nonresidents.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsAny payment to a nonresident related to guarantees must be made in foreign currency.
To residents from nonresidentsResident companies are permitted to obtain financial guarantees, provided the aggregate amount of credit facility in foreign currency, including the financial guarantee, does not exceed the equivalent of RM 50 million. Prior approval from the COFE is required for amounts exceeding this limit. There are, however, no controls on the amount of financial guarantees obtained from licensed offshore banks in Labuan. All payments related to the guarantees, other than those obtained from licensed offshore banks in Labuan, must be made in foreign currency.
Controls on direct investment
Outward direct investmentThe regulations governing the control on capital transactions apply.
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 property (such as land or land with a commercial or residential unit); (2) acquisition of assets or interest, mergers, or takeovers of companies and businesses in Malaysia by any means that will cause ownership or control to pass to foreign interests; (3) acquisition (or acquisition that will result in an increase) of 15% or more of the voting power (equity interest) 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 regardless of whether the value is less than RM 10 million with the exception of open market acquisitions on the MSEB; (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) acquisition of interest and control of more than 50% of the voting power in a company or business in Malaysia, even if the value is less than RM 10 million. The processing of acquisition proposals in licensed manufacturing companies is centralized at the MITI, while applications that also require approvals under the securities and futures laws and approval under the FIC guidelines is centralized at the SC; these proposals no longer require consideration by the FIC. The threshold level that requires approval under the FIC guidelines is RM 10 million for the acquisition of property by a non-Bumiputera interest from a Bumiputera interest; RM 20 million for acquisition of property by a local interest. The threshold level for the acquisition of property by a foreign interest, including permanent residents, would depend on the type of property acquired with no limit on the number of properties.
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 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. Companies with Multimedia Super Corridor status are allowed to have 100% foreign equity. Foreign equity holdings in manufacturing projects are allowed up to 100% for all types of investments.
Controls on liquidation of direct investmentThe proceeds of investments by nonresidents may be repatriated freely.
Controls on real estate transactions
Purchase abroad by residentsThe regulations governing purchases of shares or other securities of a participating nature abroad by residents apply.
Purchase locally by nonresidentsPurchases of residential, shop lot, commercial, and office space by nonresidents may be made freely, provided that the purchase price is more than RM 150,000. Financing for such acquisitions may be obtained from financial institutions outside of or within Malaysia and may be made by nonresident individuals in their own capacity without incorporating as a Malaysian entity.
Controls on personal capital transactions
LoansThe regulations governing financial credits apply.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadOnly ADs in foreign currency and approved merchant banks are allowed to borrow freely in foreign currency from nonresidents. Other financial institutions require prior approval if the aggregate amount exceeds the equivalent of RM 50 million.
Maintenance of accounts abroadEffective April 1, 2005, resident credit institutions are allowed to open foreign currency accounts with licensed onshore banks, approved merchant banks, offshore banks in Labuan and overseas banks. Previously, credit institutions other than ADs and approved merchant banks required approval to maintain these accounts.
Lending to nonresidents (financial or commercial credits)The regulations governing financial credits apply.
Lending locally in foreign exchangeADs and approved merchant banks are allowed to lend in foreign currency to residents. A resident borrower, however, must obtain prior approval if total aggregate borrowing exceeds the permitted amount, i.e., equivalent to RM 50 million for resident companies and RM 10 million for resident individuals.
Purchase of locally issued securities denominated in foreign exchangePurchases are allowed, provided that the issuance of the securities has been approved and the investment is subject to the net open position limits of ADs and approved merchant banks.
Investment regulations
Abroad by banksInvestment abroad by ADs and approved merchant banks is subject to net open position limits.
In banks by nonresidentsNonresidents are generally limited to an aggregate participation of not more than 30% equity interest in a bank.
Open foreign exchange position limitsBanks are subject to the net open position limit.
Provisions specific to institutional investorsThe regulations governing shares and other securities of a participating nature apply.
Limits (max.) on securities issued by nonresidentsResidents are allowed to make payments up to RM 10,000 or its equivalent in foreign currency to nonresidents for investments abroad. For amounts exceeding this limit, approval is required.
Limits (max.) on investment portfolio held abroadInsurers are required to support their margin of solvency (which is defined to include liabilities) with documented assets, as specified by the BNM.
Insurance regulations allow a licensed insurer to hold for investment purposes with respect to its Malaysian insurance fund up to a maximum of 5% of its margin of solvency 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 its margin of solvency. A licensed insurer is also allowed to hold assets of a foreign jurisdiction where it is conducting business to enable it to meet its foreign liabilities in that jurisdiction. As of April 1, 2005, licensed insurers and takaful (Islamic insurance) operators may also invest abroad up to 5% of their margins of solvency and total assets, respectively. These entities may also invest up to 30% of net asset value of investment-linked funds.
The guidelines on unit trust funds issued by the SC in 1997 and revised in 2003 allow unit trust schemes to include investments in foreign securities traded in or under the rules of a foreign market, although this requires prior approval from the BNM, the SC, and other relevant authorities. Effective April 1, 2005, resident unit trust management companies are allowed to invest abroad up to 30% and 100% of net asset value (NAV) attributable to resident and nonresident subscribers, respectively. Effective April 1, 2005, resident fund/asset management companies are allowed to invest abroad up to (1) 100% of funds managed on behalf of nonresidents and resident clients with no domestic ringgit credit facilities; and (2) 30% of total funds managed on behalf of resident clients with domestic ringgit credit facilities. Effective April 1, 2005, resident insurance companies and takaful operators are allowed to invest abroad up to 5% of their margins of solvency or total assets, and up to 30% of NAV of investment-linked funds marketed by them.
Limits (min.) on investment portfolio held locallyEmployee Provident Fund (EPF) investment in foreign securities exceeding the permitted investment limit is subject to COFE approval. The EPF is required to invest a minimum of 50% of its annual investable 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 schemes—as prescribed in the guidelines on unit trust funds—are subject to certain rules regarding diversification of assets, including limits on investments in unlisted securities, other collective investment schemes, and participation in futures contracts, warrants, and options. In addition, there are provisions concerning investment limits—including rules on investments in securities of single issuers and of groups of companies, as well as in classes of securities—to ensure that the schemes have adequate spread and concentration of investments.
Other controls imposed by securities lawsUnder FIC guidelines, there are no controls on foreign firms trading in the corporate debt, equity, and derivative markets. However, the following require approval: (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, mergers, and takeovers of companies and businesses in Malaysia, whether by Malaysian or foreign interests; or (3) any other proposed acquisition of assets or interests exceeding RM 10 million in value, whether by Malaysians or foreign interests. Foreign incorporated companies may seek listing on MSEB subject to meeting certain criteria that looks into, among others, the level of foreign operations, level of Malaysian ownership, and the benefits gained by Malaysia.
Changes During 2004
Exchange arrangementApril 1. Residents were allowed to sell forward their nonexport foreign currency receivables for ringgit or another foreign currency to an AD or an approved merchant bank for any purpose up to the tenure of the underlying transaction (previously, such foreign currency receivables could be sold forward up to 12 months only).
April 1. Residents with permitted foreign currency borrowing were allowed to enter into interest rate swaps with onshore licensed banks, approved merchant banks, or licensed offshore banks in Labuan, provided that the transaction was supported by a firm underlying commitment.
Arrangements for payments and receiptsOctober 28. Pursuant to UN Security Council Resolutions, the BNM amended the list of persons belonging to or associated with the Taliban, Osama bin Laden, and the Al-Qaida organization, whose funds had been frozen.
Resident accountsApril 1. Exporters were allowed to retain export proceeds in FCAs with designated banks in Malaysia with overnight limits ranging between the equivalent of $30 million to $100 million, or any other amount that had been approved (previously, the limit was between $1 million and $70 million). In addition, resident exporters were also given the option to merge their export and nonexport FCAs in accordance with the overnight limits imposed on export FCAs.
April 1. Resident companies with domestic borrowing were allowed to open nonexport FCAs with licensed onshore banks in Malaysia to retain foreign currency receivables other than export proceeds with no limit on the overnight balances. Resident companies without domestic borrowing were allowed to open nonexport FCAs in licensed offshore banks in Labuan up to an overnight limit of $500,000 or its equivalent.
April 1. Resident individuals with funds abroad (not converted from ringgit) were allowed to maintain nonexport FCAs offshore without any limit imposed on overnight balances.
April 1. Resident individuals who have foreign currency funds were allowed to invest freely in foreign currency products offered by onshore licensed banks.
April 1. For resident individuals who maintain FCAs to facilitate payments for education and employment overseas, the aggregate overnight limit was increased up to an aggregate equivalent to $150,000 each with licensed onshore banks and licensed offshore banks in Labuan (previously, the limit was $100,000 each).
Exports and export proceedsApril 1. The overnight limit on foreign currency export proceeds that may be retained by resident exporters in FCAs with onshore licensed banks in Malaysia was raised to a range between the equivalent of $30 million and $100 million (previously, $1 million to $70 million).
Capital transactions
Controls on capital and money market instrumentsApril 1. The BNM permitted applications for the issuance of ringgit bonds in Malaysia by MDBs and foreign MNCs.
Controls on credit operationsApril 1. The limits on ringgit loans by banking institutions to nonresidents (excluding stockbroking companies, custodian banks, and correspondent banks) for any purpose (excluding the purchase or construction of immovable property or the purchase of land only) were raised to an aggregate of RM 10 million (previously, RM 200,000).
April 1. Resident banks and nonbanks were permitted to extend credit facilities to nonresidents to finance or refinance the purchase or construction of any immovable property in Malaysia (excluding financing for purchases of land only) up to a maximum of three property loans in aggregate.
Changes During 2005
Exchange arrangementApril 1. Residents were permitted to enter into forward contracts with licensed onshore banks and approved merchant banks to hedge exposures related mainly to anticipated transactions (previously limited to firm commitments only), as well as exposures arising from approved investments abroad.
April 1. Nonresidents were permitted to enter into forward contracts with licensed onshore banks and approved merchant banks mainly to hedge exposures with respect to payments or receipts for current transactions and to committed investment outflows and inflows out of, or into, ringgit assets, subject to certain conditions.
July 22. The BNM adopted a managed float for the ringgit with reference to a currency basket.
Resident accountsApril 1. Residents were permitted to open FCAs with licensed offshore banks for any purpose (except retention of export proceeds), and without limit on overnight balances except in the case of FCAs for education and employment abroad of residents with domestic credit facilities.
Capital transactions
Controls on capital and money market instrumentsApril 1. Residents (individuals or companies on a corporate group basis) without domestic ringgit credit facilities were allowed to invest abroad amounts of own foreign currency held onshore or offshore, up to RM 10 million from a foreign currency facility, and any amount of ringgit converted into foreign currency.
April 1. Residents (individuals or companies on a corporate group basis) with domestic ringgit credit facilities were allowed to invest abroad amounts of own foreign currency held onshore or offshore, up to RM 10 million from a foreign credit facility, or ringgit converted to foreign currency, subject to limits of RM 10 million a calendar year on a corporate group basis for companies, and RM 100,000 a calendar year for individuals.
Controls on credit operationsApril 1. Resident individuals and companies were permitted to prepay foreign currency credits.
April 1. The limits on foreign currency credits were raised to RM 50 million for resident companies in aggregate on a corporate group basis, and RM 10 million for individuals, from RM 5 million for both. No limit applied to trade financing.
Provisions specific to commercial banks and other credit institutionsApril 1. Resident credit institutions other than ADs and approved merchant banks were no longer required prior approval to open and maintain FCAs with onshore banks, offshore banks in Labuan, overseas banks, and approved merchant banks.
Provisions specific to institutional investorsApril 1. Resident insurers and takaful operators were allowed to invest abroad up to 5% of their margins of solvency or total assets, and up to 30% of the NAV of investment-linked funds marketed by them.
April 1. Resident unit trust management companies were allowed to invest abroad up to 30% and 100% of NAV attributable to resident and nonresident subscribers, respectively.
April 1. Resident fund/asset management companies were allowed to invest abroad up to (1) 100% of funds managed on behalf of nonresidents and resident clients with no domestic ringgit credit facilities; and (2) 30% of total funds managed on behalf of resident clients with domestic ringgit credit facilities.

The official IMF classification is based on the de facto behavior of the exchange rate, so no reclassification has been made at this time.

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