Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

MALAYSIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of April 30, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: November 11, 1968.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)On May 8, 2006, the authorities notified the IMF that all banking institutions and all licensed offshore financial institutions have been informed of the amendments to the list of persons belonging to, or associated with, the Taliban, Osama bin Laden, and the Al-Qaida organization, in accordance with the UN Security Council list updated February 22, 2006. Financial 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.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Malaysia is the Malaysian ringgit.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateThe Bank Negara Malaysia (BNM) operates a de jure managed float for the ringgit with reference to a currency basket. The composition of the basket is not disclosed. Based on information on the exchange rate behavior, the de facto exchange rate regime of Malaysia has been reclassified, effective January 1, 2006, to the category managed floating with no predetermined path for the exchange rate from the category conventional pegged arrangement.
Exchange taxn.a.
Exchange subsidyn.a.
Forward exchange marketAll forward exchange contracts undertaken by residents and forward exchange contracts by nonresidents involving ringgit must be made only with licensed onshore banks. Residents are free to enter into forward exchange contracts against ringgit or a foreign currency with licensed onshore banks for the following purposes: (1) hedging for any payments or receipts for current account transactions. The contracts may be based on a firm commitment or on an anticipatory basis. For forward contracts entered into on an anticipatory basis, the total outstanding value of the contracts should not exceed the total amount paid or received in the preceding 12 months; (2) effective April 1, 2007, hedging for any committed capital inflows or outflows such as drawdown or repayment of permitted foreign currency credit facilities and payment for permitted investment in foreign currency assets. Previously, hedging of foreign currency loan repayments was allowed only for commitments of up to 24 months; and (3) hedging the value of permitted foreign currency investments. Nonresidents may enter into forward contracts to buy or sell foreign currency against ringgit with licensed onshore banks to hedge (1) committed payments or receipts for current account transactions, which are permitted to be settled in ringgit with residents, and (2) committed inflows and outflows for investments in, or divestments of, ringgit assets other than (a) funds in the external account, including fixed deposits; (b) negotiable instruments of deposits in ringgit; and (c) over-the-counter derivatives or structured products, which are tantamount to lending or borrowing of ringgit between residents and nonresidents. Effective April 1, 2007, licensed onshore banks may appoint overseas branches of their banking group as a vehicle to facilitate the settlement of any ringgit assets of their nonresident clients. The ringgit transactions undertaken by the overseas branches are subject to the following conditions: (1) the overseas bank must conduct only straight pass-through transactions matched with a back-to-back arrangement on both amount and tenure with the licensed onshore banks. There must not be gapping of the ringgit positions in the books of the overseas branches; (2) the arrangement is available only to nonresident investors with a firm underlying commitment to invest in ringgit assets; and (3) the licensed onshore banks undertake full responsibility to ensure compliance on the conditions by establishing internal control and procedures as well as documentation of the overseas branches’ transactions for audit purposes. 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) a swap arrangement must be based on a firm commitment and not on an anticipatory basis and (2) the maturity date of the arrangement must 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 purchase forward foreign currency for repatriation of proceeds of the issuance abroad. A resident with a firm underlying commitment may enter into interest rate swaps with licensed onshore banks or licensed offshore banks in Labuan. All payments or receipts involving licensed offshore banks in Labuan must be made in foreign currency. The maturity date of the forward foreign exchange contract must be the expected date of receipt or payment of the underlying transactions. For forward sale of export proceeds, the maturity date of the forward contract should not be later than six months after the intended date of export.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsAll dealings and transactions with or in the currency of Israel require the prior approval of the controller of foreign exchange (COFE).
Controls on the use of domestic currencyCross-border payment in domestic currency is not allowed.
For current transactions and paymentsYes.
For capital transactions
Transactions in capital and money market instrumentsPrior approval of the COFE is required for payment in ringgit between a resident and a nonresident for foreign currency capital and money market instruments.
Use of foreign exchange among residentsResidents are allowed to make payment in foreign currency to another resident, for payments for education or employment overseas, repayment of foreign currency credit facilities obtained from licensed onshore banks, payments for futures contracts denominated in foreign currency traded on the Bursa Malaysia, and for settlement of foreign currency products offered onshore. Effective April 1, 2007, resident corporations are allowed to lend in foreign currency the proceeds arising from listing shares on foreign stock exchanges to other resident companies within the same corporate group and to issue foreign currency bonds in Malaysia.
Payments arrangements
Bilateral payments arrangements
OperativeThere are 22 arrangements.
InoperativeThere is one arrangement.
Regional arrangementsMalaysia is a member of the ASEAN Swap Arrangement (ASA) under ASEAN and the Bilateral Swap Arrangements (BSAs) under ASEAN+3. The ASA and the BSAs are regional financial arrangements.
Clearing agreementsYes.
Barter agreements and open accountsn.a.
Administration of controlThe COFE, who is also the governor of the BNM, administers foreign exchange administration rules.
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 currencyEffective March 31, 2006, resident travelers may export foreign currency up to the equivalent of $10,000 (previously, the equivalent of RM 10,000), and nonresident travelers may export up to the amount they previously brought into Malaysia. Exports of larger amounts require prior approval by the COFE.
On imports
Domestic currencyResident and nonresident travelers may import up to RM 1,000 in domestic banknotes.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyResidents are allowed to open foreign currency accounts (FCAs) with licensed onshore banks for any purpose with no overnight limit. Effective April 1, 2007, residents are allowed to open and maintain joint foreign currency accounts for any purpose. Previously, residents were allowed to maintain joint foreign currency accounts only for purposes of education and employment overseas.
Approval requiredEffective April 1, 2007, prior approval from the COFE is required for residents with domestic ringgit credit facility to convert ringgit into foreign currency exceeding RM 1 million a year for individuals and RM 50 million a year for a corporate group for credit to an FCA.
Held abroadEffective April 1, 2007, residents are allowed to open FCAs with licensed offshore banks in Labuan or overseas banks for any purpose except retention of export proceeds. FCAs are not subject to any limit. 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. Previously, residents were allowed to open FCAs to facilitate payment of education and employment expenses overseas, with an aggregate overnight limit of up to $150,000 with licensed offshore banks in Labuan, and up to $50,000 with overseas banks.
Approval requiredPrior approval from the COFE is required for a resident (1) to retain export proceeds abroad or (2) with domestic currency credit facilities to convert ringgit into foreign currency for deposit into an FCA exceeding the permitted limits.
Accounts in domestic currency held abroadThese accounts are not allowed.
Accounts in domestic currency convertible into foreign currencyEffective April 1, 2007, prior approval from the COFE is required for residents with domestic ringgit credit facility to convert ringgit into foreign currency exceeding RM 1 million a year for individuals and RM 50 million a year for a corporate group for investment in foreign currency, for credit to an FCA. Previously, the limit was RM 100,000 and RM 10 million, respectively.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedAll licensed onshore banks are allowed to maintain these accounts for nonresidents.
Domestic currency accountsAll licensed onshore banks are allowed to open ringgit accounts 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) sales of 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 an account for any purpose through automated teller machine cards, Internet banking, or ringgit checks; and (8) 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 for personal use 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 to residents (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 of different account holders 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 currencyNonresidents are free to convert ringgit funds in external accounts into foreign currency for repatriation.
Blocked accountsPrior approval of the COFE is required for residents of Israel to open accounts with financial institutions in Malaysia.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetPayments for imports may be made freely in foreign currency.
Financing requirements for importsResidents may obtain trade credits extended by the supplier for all types of goods and services. However, credits extended by a nonresident supplier for capital goods for a period longer than 12 months are considered foreign currency credit facilities. Foreign currency trade financing facilities obtained from nonresidents other than the supplier are limited to a maximum of RM 5 million in aggregate on a corporate group basis.
Minimum financing requirementsThere are minimum financing requirements for rice, fish, and fishery products that vary depending on the agreement between the parties involved.
Advance payment requirementsIn accordance with a special agreement, sales of rice from Myanmar are subject to advance payments.
Advance import depositsn.r.
Documentation requirements for release of foreign exchange for imports
Domiciliation requirementn.r.
Preshipment inspectionPreshipment inspections are made by independent surveyors for rice imports.
Letters of creditn.r.
Import licenses used as exchange licensesn.r.
OtherOther documents required are an invoice, a bill of lading, a sanitary or phytosanitary certificate, and a certificate of origin.
Import licenses and other nontariff measuresThe authority for import control rests with the Royal Malaysian Customs 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.
Positive listA positive list is established by the Malaysian Trade Classification and Customs Duties Order 2007.
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, which stipulates, among other conditions, the requirement of a certificate of health from the exporting country. In addition, all shipments of live fish into Malaysia are subject to inspection at the entry point. In accordance with CITES, 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, and 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 on arrival. Approval from the DOA is required to import fresh pineapples; in addition, 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 (e.g., sugar) are subject to quantitative restrictions, which are reviewed periodically, to protect local industries temporarily when necessary.
Import taxes and/or tariffsAntidumping duties are imposed on imports of, among others, self-copy paper from the EU and Indonesia, and newsprint paper from Canada, Indonesia, the United States, and the Republic of Korea.
Taxes collected through the exchange systemn.a.
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.
References to legal instruments and hyperlinksn.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 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 any amount of export proceeds in FCAs with onshore licensed banks.
Financing requirementsForeign currency trade financing facilities involving export proceeds can be obtained only from licensed onshore banks.
Documentation requirements
Letters of creditn.r.
Guaranteesn.r.
Domiciliationn.r.
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.
OtherExports of rubber from peninsular Malaysia require a certificate issued by the Malaysian Rubber Exchange and Licensing Board.
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 CITES, a permit from the Department of Wildlife is required for exports of endangered species. The FAMA acts on behalf of the Royal Malaysian Customs 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 licenses or permits from the MITI are required for exports of scrap and waste metals, certain iron and steel products, and toxic chemicals and their precursors under the Chemical Weapons Convention. Effective September 1, 2006, all applications for live fish import and export permits must be made through an Internet-based system, e-permit. Importers or exporters may get online approval through this system, provided the conditions set out in the requirements are met.
Without quotasYes.
Export taxesExport taxes on most commodities, except for crude palm oil and crude oil, have been abolished. Export taxes on other items are negligible.
Collected through the exchange systemn.a.
Other export taxesn.a.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersPayments for invisibles and current transfers may be made without restriction to all countries other than Israel. For any payment from a resident to a nonresident in excess of RM 50,000, supporting documents must be submitted to the remitting bank for statistical purposes.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Surrender requirementsProceeds may be retained in permitted foreign currency accounts or converted into ringgit with a licensed onshore bank.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsResident companies on a corporate group basis and individuals without domestic ringgit facilities are free to invest in foreign currency assets using their own foreign currency and ringgit funds. Resident companies on a corporate group basis and individuals with domestic ringgit credit facilities may fund their investment in foreign currency assets using (1) any amount from their own foreign currency funds; (2) effective April 1, 2007, any amount of proceeds from listing shares through an initial public offering on the main board of the Bursa Malaysia (stock exchange in Malaysia); or (3) effective April 1, 2007, conversion of ringgit into foreign currency up to the following limits: (a) RM 50 million in aggregate a calendar year, on a corporate group basis for companies and (b) RM 1 million a calendar year for individuals (previously, RM 10 million and RM 100,000, respectively). Effective April 1, 2007, restrictions on Labuan offshore banks to transact in ringgit assets on behalf of nonresident clients were removed to enhance the role and scope of business of Labuan offshore banks.
Repatriation requirementsn.a.
Surrender requirementsn.a.
Controls on capital and money market instrumentsA withholding 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 Securities Commission (SC); (2) securities issued by the government of Malaysia; and (3) foreign-currency-denominated sukuk (the Islamic equivalent of bonds) originating in Malaysia.
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. In addition, remittances of funds for investment in foreign shares offered by the overseas parent or related company under the Employee Share Option/Purchase Scheme may be made freely.
Shares or other securities of a participating nature
Sale or issue locally by nonresidentsEffective April 1, 2007, nonresident corporations are allowed to utilize abroad proceeds arising from the listing of shares through an initial public offering on the main board of the Bursa Malaysia. Previously, these transactions were subject to approval. Foreign incorporated companies that seek listing on the Bursa Malaysia are subject to meeting certain criteria that look into, among other things, the level of foreign operations and the standards of investor protection of the place of incorporation. Any acquisition of voting shares may be required to comply with Section 33 of the Securities Commission Act (SCA) and Malaysian Code on Takeovers and Mergers, 1998. Furthermore, the Foreign Investment Committee (FIC) Guidelines on the Acquisition of Interests, Mergers, and Takeovers by Local and Foreign Interests (FIC Guidelines) may be applicable.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsResident corporations may issue shares on foreign stock exchanges. Controls 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 preferred shares. Under securities laws, SC approval is required when a public company intends to issue securities, whether within or outside Malaysia. Approval is granted based on criteria set forth in securities laws, SC guidelines, and FIC guidelines.
Bonds or other debt securities
Sale or issue locally by nonresidentsIssuance locally by nonresidents requires approval. The BNM may consider applications on the issuance of ringgit and foreign currency bonds in Malaysia by MDBs, foreign governments, foreign government agencies, and foreign MNCs on the merit of each case.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsPrimary offerings or issuance by residents require approval, although the SC has relaxed various regulatory requirements. Sales of bonds or other debt securities abroad are allowed freely. However, proceeds from these sales must be repatriated. Effective April 1, 2007, residents are allowed to issue foreign currency bonds in Malaysia.
On money market instruments
Sale or issue locally by nonresidentsSome restrictions apply to issuers of money market instruments.
Purchase abroad by residentsThe regulations governing shares or other securities of a participating nature apply.
Sale or issue abroad by residentsSales are freely permitted. Securities regulations require approval for issuing money market instruments if such instruments are within the definition of securities under the SCA.
On collective investment securitiesAll collective investment securities (CIS) must be managed and administered by a Malaysia-incorporated company. CIS funds distributed to the general public must be managed and administered by a management company that is a public company incorporated in Malaysia and approved by the SC. Effective April 1, 2006, CIS funds of limited distribution to sophisticated investors (restricted investment schemes) must be managed and administered by a fund management company licensed by the SC.
Sale or issue locally by nonresidentsThe issue of CIS requires the prior approval of the SC and COFE. An issue of CIS by nonresidents may not be sold locally unless it fulfills the requirements of the SCA, and the guidelines on unit trust funds and is distributed by an approved Malaysian management company. There is no restriction on the repatriation abroad of proceeds from such sales.
Purchase abroad by residentsYes.
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 SC to make available, to offer for subscription or purchase, or 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. Residents selling CIS abroad must adhere to the relevant securities and CIS laws.
Controls on derivatives and other instrumentsResidents must obtain approval for making payments for derivatives and other instruments not traded on an exchange in Malaysia.
Purchase locally by nonresidentsNo controls apply on the trading of futures and options by nonresidents on the Bursa Malaysia.
Sale or issue locally by nonresidentsThe issuance of derivatives by nonresidents requires approval from the COFE. The payment for the purchase of foreign-currency-denominated derivatives not traded on a futures exchange in Malaysia by residents to nonresidents requires prior approval. Issuance of warrants and securities of a nonparticipatory nature requires the SC’s approval. Where the derivatives, etc., fall within the definition of futures contracts under the Futures Industry Act 1993, the nonresident must be licensed by the SC. Sale of specified futures contracts on specified exchanges is permitted pursuant to Futures Industry (Specified Exchanges) Order 2005. Nonresidents are not permitted to market or offer to Malaysian residents futures contracts or securities of a nonparticipatory nature abroad through any medium, including electronic communication.
Purchase abroad by residentsPrior approval is required. A resident must obtain permission to make payments to a nonresident for any spot or forward contract or interest rate futures not transacted with a licensed onshore bank or 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. Issuance of securities of a nonparticipatory nature abroad requires the SC’s approval.
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 credits extended by a supplier for all types of goods and services. However, credits extended by a nonresident supplier for capital goods for periods longer than 12 months are considered foreign currency credit facilities. Residents are free to obtain foreign currency trade financing up to RM 5 million in aggregate on a corporate group basis from nonresidents other than the supplier. Approval is required for amounts exceeding the permitted limit.
Financial credits
By residents to nonresidentsA nonresident may obtain any amount of foreign currency credit facilities from licensed onshore banks. Effective April 1, 2007, a nonbank resident may lend in foreign currency to a nonresident up to the permitted limit for investment in foreign currency assets. A nonresident is free to obtain ringgit credit facilities from (1) a nonbank resident up to RM 10,000 for any purpose; (2) licensed onshore banks up to an aggregate of RM 10 million for use in Malaysia if the nonresident is not a correspondent bank or a stockbroking company or a custodian bank; (3) a licensed onshore bank, effective April 1, 2007, any amount of ringgit overdraft facility if a nonresident is a stockbroking or a custodian bank (previously, a RM 200 million limit applied on overdraft credit facilities). The facilities are strictly for settlement due to inadvertent or technical delays as well as time zone differences, and the facility must not exceed two working days with no rollover options; (4) resident stockbroking companies for margin financing by a nonresident that is not a correspondent bank or a stockbroking company; (5) resident insurers up to the cash surrender value of insurance policies purchased by nonresidents; and (6) residents of any number of property loans to finance the purchase or construction of residential or commercial properties in Malaysia, effective April 1, 2007. Previously, only three such loans were allowed to finance investments related to immovable properties.
To residents from nonresidentsEffective April 1, 2007, residents are allowed to obtain foreign currency credit facilities up to the equivalent of RM 100 million (previously, RM 50 million) in aggregate on a corporate group basis from licensed onshore banks and nonresidents as well as through issuance of foreign currency bonds in Malaysia. Residents 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 and nonresidents. Prior approval is required for amounts exceeding the above permitted limits. Residents are allowed to prepay foreign currency credit facilities.
Guarantees, sureties, and financial backup facilitiesEffective April 1, 2007, residents are required to seek prior permission from the COFE to issue a financial guarantee to or on behalf of a nonresident or obtain a financial guarantee from nonresidents.
By residents to nonresidentsA licensed onshore bank is free to issue a financial guarantee on behalf or in favor of a nonresident. Any payment to a nonresident related to guarantees must be made in foreign currency.
To residents from nonresidentsA licensed onshore bank or a nonbank resident is free to obtain a financial guarantee from a nonresident.
Controls on direct investment
Outward direct investmentThe regulations governing capital and money market instruments apply.
Inward direct investmentControls are imposed on equity shares in accordance with the national economic policy; however, no foreign exchange restrictions apply. The following inward investments require prior approval under the FIC guidelines: (1) acquisition of property (such as land, land with commercial or residential buildings) by local or foreign interests, depending on the value of the properties. Effective January 1, 2007, the guidelines were relaxed on the acquisition of residential property with a value of not less than RM 250,000; (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 be transferred from local to foreign interests even if the value is less than RM 10 million; (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 or nonassociated group of 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 Bursa Malaysia intended for short-term holding; (4) control of Malaysian companies and businesses through any form of joint-venture agreement, management agreement, or technical assistance arrangement; and (5) merger or takeover of any company or business in Malaysia. Applications requiring approval of the SC under the securities and futures laws as well as approval under the FIC guidelines are centralized at the SC. Notwithstanding the above, certain exemptions or relaxation of the foreign equity limits are granted to companies with Multimedia Super Corridor (MSC) status; companies with major foreign-based operations seeking listing on the Bursa Malaysia; and intermediaries licensed under the relevant acts and regulations administered by the SC, such as the investment banks, local and foreign fund managers, investment advisers, and exempt dealers. For the acquisition of more than 33% of voting shares or if holding more than 33% but less than 50%, and for the acquisition of more than 2% in any six-month period, compliance with Section 33 of the SCA and Malaysian Code on Takeovers and Mergers, 1998, may be required.
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 by residents abroad apply.
Purchase locally by nonresidentsPurchases of residential, commercial, and office property by nonresidents may be made freely, provided 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 nonresidents in their own capacity without incorporating as a Malaysian entity. Effective April 1, 2007, nonresidents may borrow from residents to finance investments related to any number of properties. Previously, nonresidents were not allowed to obtain more than three property loans.
Controls on personal capital transactions
Loans
By residents to nonresidentsThe regulations governing investment limits apply.
To residents from nonresidentsThe regulations governing financial credits apply.
Gifts, endowments, inheritances, and legaciesn.r.
Settlements of debts abroad by immigrantsn.a.
Transfer of assetsn.r.
References to legal instruments and hyperlinksFIC Guidelines on the Acquisition of Interests, Mergers, and Takeovers by Local and Foreign Interests (FIC Guidelines on Interests); FIC Guidelines on the Acquisition of Properties by Local and Foreign Interests (FIC Guidelines on Properties).
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutionsEffective April 1, 2007, investment banks in Malaysia may undertake foreign currency business subject to a comprehensive supervisory review on the capacity and capability of the investment banks. Effective January 1, 2007, the restriction on Labuan offshore banks to transact in ringgit assets on behalf of nonresident clients has been removed to enhance the role and scope of business of Labuan offshore banks.
Borrowing abroadLicensed onshore banks are allowed to borrow freely in foreign currency from nonresidents. Effective April 1, 2007, financial institutions other than licensed onshore banks require prior approval if the aggregate amount exceeds the equivalent of RM 100 million on a corporate group basis (previously, RM 50 million).
Maintenance of accounts abroadResidents are allowed to open FCAs with licensed onshore banks, offshore banks in Labuan, and overseas banks. Effective April 1, 2007, the limit imposed on licensed onshore banks for foreign currency accounts maintained by residents was abolished.
Lending to nonresidents (financial or commercial credits)The regulations governing financial credits apply.
Lending locally in foreign exchangeThe regulations governing financial credits apply.
Purchase of locally issued securities denominated in foreign exchangePurchases are allowed, provided the issuance of the securities has been approved.
Differential treatment of deposit accounts held by nonresidentsn.a.
Investment regulations
Abroad by banksInvestments both locally and abroad are subject to certain prudential limits: (1) investments in shares and interest-in-shares may not exceed 25% of the bank’s capital base; (2) banks may not conduct direct real estate investments except for the purpose of conducting their business, or for providing housing or other amenities for their staff unless approved by the BNM. Banks are exempt from this restriction when they realize any security given to or held by them; (3) the aggregate value of long-term investment in shares, immovable properties, and units of unit trust funds and property trust funds may not exceed 50% of the bank’s capital base; (4) banks are allowed to hold private debt securities (PDS) rated BB and above by recognized rating agencies while ensuring that PDS issued by any single issuer do not exceed 10% of its capital funds. Notwithstanding the above, banking institutions are free to increase their holdings of PDS issued by a single issuer to beyond 10%, but not exceeding 35% of their capital funds, provided the amount of other credit facilities that can be extended to the single issuer within the 25% single customer credit limit is reduced proportionately; and (5) investments in property trust funds and unit trust funds may not exceed 10% of the bank’s capital funds. Investments in individual funds may not exceed 5% of the issue size of a fund or 5% of the bank’s capital funds, whichever is lower.
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 limitsEffective April 1, 2007, licensed onshore banks are not subject to net open position limits, which were previously set at 20% of a bank’s capital base.
Provisions specific to institutional investorsThe regulations governing shares or other securities of a participating nature apply.
Insurance companies
Limits (max.) on securities issued by nonresidentsThe regulations governing outward direct investment apply.
Limits (max.) on investment portfolio held abroadA licensed insurer is allowed to invest abroad up to a maximum of 5% of its margin of solvency. Effective January 18, 2007, the sublimit of 2% for investments in any one foreign jurisdiction of an insurer’s solvency margin has been removed. In addition, effective April 1, 2007, for investment-linked funds offered by resident insurers, the insurer is allowed to invest abroad up to 50% (previously, 30%) of the total net asset value (NAV) of the funds.
Limits (min.) on investment portfolio held locallyn.a.
Pension fundsn.a.
Investment firms and collective investment fundsThe general investment limits apply.
Limits (max.) on securities issued by nonresidentsn.a.
Limits (max.) on investment portfolio held abroadThe guidelines on unit trust funds issued by the SC allow unit trust schemes to invest 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. However, effective May 29, 2006, investments in securities listed on exchanges recognized by Bursa Malaysia Securities Berhad SC require only prior notification. The guidelines on restricted investment schemes issued by the SC on April 7, 2006, allow such schemes to invest in foreign securities provided there is prior approval from the BNM and SC. Resident unit trust management companies are allowed to invest abroad up to 50% (previously, 30%) effective April 1, 2007, and 100% of the NAV attributable to resident and nonresident subscribers, respectively. Resident fund and 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) 50% (previously, 30%) of total funds managed on behalf of resident clients with domestic ringgit credit facilities effective April 1, 2007.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionn.a.
References to legal instruments and hyperlinksGuidelines on Unit Trust Funds.
Changes during 2006
Exchange measuresMay 8. The authorities notified the IMF that all banking institutions and all licensed offshore financial institutions had been informed of the amendments to the list of persons belonging to, or associated with, the Taliban, Osama bin Laden, and the Al-Qaida organization, in accordance with the UN Security Council list updated February 22, 2006.
Exchange arrangementJanuary 1. The de facto exchange rate regime of Malaysia was reclassified to the category managed floating with no predetermined path for the exchange rate from the category conventional pegged arrangement.
Arrangements for payments and receiptsMarch 31. The limit on the export of foreign currency banknotes by residents was increased to the equivalent of $10,000 from the equivalent of RM 10,000.
Exports and export proceedsSeptember 1. All applications for live fish import and export permits were required to be made through an Internet-based system, e-permit. Importers and exporters may get online approval through this system, provided the conditions set out in the requirements are met.
Capital transactions
Controls on capital and money market instrumentsApril 1. CIS funds of limited distribution to sophisticated investors (restricted investment schemes) were required to be managed and administered by a fund management company licensed by the SC.
Provisions specific to the financial sector
Provisions specific to institutional investorsApril 7. Restricted investment schemes were allowed to invest in foreign securities subject to prior approval by the BNM and the SC.
May 29. Investments in securities listed on exchanges recognized by Bursa Malaysia Securities Berhad SC require only prior notification of the BNM and other relevant authorities.
Changes during 2007
Exchange arrangementApril 1. Residents were allowed to hedge foreign currency loan repayment up to the full amount of the underlying commitment. Under the previous policy, hedging for foreign currency loan repayment was allowed for a commitment of only up to 24 months. Licensed onshore banks were allowed to appoint overseas branches of their banking group as a vehicle to facilitate the settlement of any ringgit assets of their nonresident clients. The ringgit transactions undertaken by the overseas branches are subject to the following conditions: (1) the overseas branches must conduct only straight pass-through transactions matched with a back-to-back arrangement on both amount and tenure with the licensed onshore banks. There must not be gapping of the ringgit positions in the books of the overseas branches; (2) this arrangement is made available only to nonresident investors with a firm underlying commitment to invest in ringgit assets; and (3) the licensed onshore banks must undertake full responsibility to ensure compliance on the conditions by establishing internal control and procedures as well as documentation of the overseas branches’ transactions for audit purposes.
Arrangements for payments and receiptsApril 1. Restrictions on payments in foreign currency between residents for settlement of foreign currency financial products offered onshore were abolished. Resident corporations were allowed to lend in foreign currency the proceeds arising from listing shares on foreign stock exchanges to other resident companies within the same corporate group. Resident corporations were allowed to issue foreign currency bonds in Malaysia.
Resident accountsApril 1. Residents were allowed to open and maintain joint foreign currency accounts for any purpose. Previously, residents were allowed to maintain joint foreign currency accounts only for purposes of education and employment overseas.
April 1. Prior approval from the COFE is required for residents with domestic ringgit credit facility to convert ringgit into foreign currency exceeding RM 1 million a year for individuals and RM 50 million a year for a corporate group for crediting into an FCA.
April 1. Residents were allowed to open FCAs with licensed offshore banks in Labuan or overseas banks for any purpose except for retention of export proceeds. FCAs are not subject to any limit.
Capital transactionsApril 1. Resident corporations were allowed to utilize proceeds arising from the listing of shares through initial public offering on the main board of the Bursa Malaysia for offshore investment purposes.
April 1. The limit for resident corporations with domestic ringgit borrowing to invest in foreign currency assets through conversion of ringgit into foreign currency was increased to RM 50 million a calendar year from the previous limit of RM 10 million.
April 1. The limit for residents with domestic ringgit borrowing to invest in foreign currency assets through conversion of ringgit into foreign currency is increased to RM 1 million a calendar year from the previous limit of RM 100,000.
April 1. Restrictions on Labuan offshore banks to transact in ringgit assets on behalf of nonresident clients were removed to enhance the role and scope of business of Labuan offshore banks.
Controls on capital and money market instrumentsApril 1. Nonresident corporations were allowed to utilize abroad proceeds arising from the listing of shares through an initial public offering on the main board of the Bursa Malaysia.
April 1. Residents were allowed to issue foreign currency bonds in Malaysia.
Controls on credit operationsApril 1. Lending by nonbank residents to nonresidents in foreign exchange is allowed up to the following limits: (1) residents without ringgit credit facilities may lend any amount and (2) resident corporations and individuals with ringgit credit facilities may lend up to RM 5 million and RM 1 million a year, respectively.
April 1. Nonresidents were allowed to obtain an unlimited number of property loans.
April 1. Licensed onshore banks were allowed to extend to nonresident stockbroking companies and custodian banks ringgit overdraft credit facilities without limit for the financing of funding gaps arising from unforeseen or inadvertent technical delays in relation to (1) settlement of trades on the Bursa Malaysia and (2) ringgit instruments settled through the Real Time Electronic Transfer of Funds and Securities System and Bursa Malaysia. The licensed onshore banks, in granting the overdraft facility, are required to observe the following conditions: (1) the facility is not for funding purposes and is granted strictly for settlement due to inadvertent or technical delays as well as time zone differences and (2) the facility must not exceed two working days with no rollover options.
April 1. The limit on foreign currency borrowing that can be obtained by resident corporations from licensed onshore banks and nonresidents as well as through issuance of onshore foreign currency bonds was increased to RM 100 million equivalent in aggregate and on a corporate group basis from the previous RM 50 million equivalent. The proceeds may be used for domestic purposes or offshore investment. Residents are allowed to obtain foreign currency credit from nonresidents up to RM 10 million.
April 1. Residents are required to seek prior permission from the COFE to issue financial guarantees to or on behalf of a nonresident or to obtain financial guarantees from nonresidents.
Controls on direct investmentJanuary 1. The FIC Guidelines on Property on the acquisition of residential properties valued at not less than RM 250,000 for personal use by foreign investors were relaxed.
Controls on real estate transactionsApril 1. The limit on the number of residential or commercial property loans obtained by nonresidents was abolished. Under the previous policy, nonresidents were allowed to obtain a maximum of three property loans from residents to finance the purchase or construction of residential or commercial properties in Malaysia.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsJanuary 1. The restriction on Labuan offshore banks to transact in ringgit assets on behalf of nonresident clients was removed to enhance the role and scope of business of Labuan offshore banks.
April 1. Investment banks in Malaysia were allowed to undertake foreign currency business, subject to a comprehensive supervisory review of their capacity and capability.
April 1. The limit on borrowing abroad by financial institutions other than banks was increased to RM 100 million from RM 50 million.
April 1. The limit imposed on licensed onshore banks for foreign currency accounts maintained by residents was abolished.
April 1. The net open position limit of licensed onshore banks, previously capped at 20% of the banks’ capital base, was abolished.
Provisions specific to institutional investorsJanuary 18. The sublimit for investments in any one foreign jurisdiction of 2% of an insurer’s solvency margin was removed.
April 1. The limits for resident institutional investors to invest in foreign currency assets were increased as follows: (1) unit trust companies may invest up to 50% of NAV attributable to residents (previously, 30% of NAV); (2) fund management companies may invest up to 50% of funds of resident clients with domestic credit facilities (previously, up to 30%) level; and (3) insurance companies and takaful operators may invest up to 50% of NAV of investment-linked funds marketed (previously, 30% of NAV).

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