MALAYSIA

Source: IMF, International Financial Statistics, June 2021.

• The Malaysian central bank is Bank Negara Malaysia (BNM - www.bnm.gov.my).

Bank supervision

• The Malaysian banking sector is supervised by the BNM.

• Lifting fees are not applied on payments between resident and non-resident accounts.

• Credit transfers are used by large companies to pay salaries and suppliers, and to make tax and treasury payments.
• High-value and urgent credit transfers can be settled in real time via the IFTS component of RENTAS. MYR/USD PVP settlement is facilitated via USD CHATS.
• Low-value and non-urgent credit transfers can be settled on a same-day basis via the IBG.
• Credit transfers can also be made in real-time via Instant Transfer (IBFT). Payments can be made via ATM, online or by mobile and are processed directly between the 20 banks that currently offer the service.
• Cross-border transfers can be made via SWIFT and settled through correspondent banks abroad.

• Direct debits are used for regular payments, such as utility bills, but are also available for one-off retail transactions.
• PayNet Debits and FPX online direct debits available. There is also a JomPAY electronic bill payment scheme operated by PayNet. There are 42 participating banks in JomPAY.
• Direct debits are cleared on a real-time basis.

• The cheque remains a common cashless payment instrument used by both consumers and companies. In 2020, PayNet processed 84.5 million cheque transactions (a 29.5% reduction from 2019) amounting to MYR 1.46 trillion.
• Cheques are truncated into electronic items before being processed by eSPICK.
• Final settlement takes place via RENTAS.
• Funds are available on a same-day or next-day basis.

• Card payments are increasingly popular, especially for retail transactions. Credit cards remain the most widely used payment card. At the end of April 2021, there were 46.7 million credit card transactions (26.4 million in April 2020), with a value of MYR 11.7 billion (MYR 6.2 billion in April 2020). Debit card transactions numbered 59.8 million (26.5 million in April 2021), with a value of MYR 6.9 billion (MYR 2.7 billion in April 2020). All debit cards support contactless payments.
• There are 47,290.6 thousand debit and 9,641.4 thousand credit cards in circulation at the end of April 2021. There were 65,000 charge cards.
• Visa and MasterCard-branded payment cards are the most widely issued. Twenty-five banks issue credit cards and 30 banks issue debit cards.
• Domestically issued debit cards, known as e-debits, are also widely available. MyDebit is the domestic debit card scheme, facilitating POS payments with an ATM card.
• PayNet payments are settled in real time.
• All cards issued have EMV chips.

• There are an estimated 19,000 ATMs in Malaysia.
• There were 739,043 POS terminals in Malaysia at the end of April 2021.
• There are two shared ATM networks: SAN and HOUSe.  Fourteen domestic banks seven foreign banks participate in SAN.
• The HOUSe ATM network links the ATMs of four large foreign banks: HSBC, OCBC, Standard Chartered and United Overseas Bank.
• Payments are processed by PayNet and settled via RENTAS on a next-day basis.
• All ATMs and POS terminals are EMV-compliant.
• Malaysia had fully migrated from signature to Personal Identification Number (PIN) verification for payment card transactions conducted at POS terminals.

• There are 48 non-bank providers of e-money cards.
• The dominant electronic wallet schemes are Touch ‘n Go, Boost and GrabPay.
• In 2019, there were 2,093 million e-money transactions (1,920 million in 2018) with a value of MYR 18.2 billion (MYR 11 billion 2018). There were 93.5 million e-money cards in circulation at the end of 2019.
• There are approximately 119,467.6 thousand e-money cards in circulation.
• Mobile payments are increasingly popular. PayNet’s DuitNow QR is the national QR standard.
• Instant P2P payments can be made via PayNet’s DuitNow using just a mobile number, for example. Payments are made in real time via PayNet’s real-time retail payment platform. Consumers may transfer up to MYR 50,000 per transaction. For companies the maximum is MYR 10 million per transaction.
• The FPX payment system can be used to facilitate online transactions and e-commerce purchases. For individuals, the maximum value of each transaction in MYR 30,000 and for companies MYR 1 million.

• BNP Paribas' Global Trade Solutions (GTS) team in Malaysia comprises a senior trade manager and plans are in place to further expand capabilities in the country. The team, supported by regional trade advisors in Hong Kong, serves some of the largest names in the manufacturing and mining sectors.

• Malaysia has signed free trade agreements (FTAs) with Australia, Chile, India, Japan, New Zealand, Turkey and Pakistan.
• ASEAN has signed FTAs with Australia, China, Japan, India, Hong Kong, New Zealand and South Korea.
• Malaysia and ten other Pacific Rim countries have signed the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The agreement has not yet been ratified.
• Malaysia is a signatory of the Regional Comprehensive Economic Partnership (RECP). The agreement has not yet been ratified.
• Malaysia is currently in negotiations with EFTA member states.

Sources: IMF, International Financial Statistics, June 2021.

• Licences are required when importing all controlled goods.
• Licences are required when importing certain items for reasons of copyright and environmental protection and public safety.
• Licences are issued by a number of authorities, including the Ministry of International Trade and Industry (MITI).

• Malaysia’s tariffs are typically imposed on an ad valorem basis, with a simple average applied tariff of 6.1% for industrial goods. 
• Goods such as alcohol, wine and pork are charged higher effective rates (up to 60% ad valorem).

• Resident companies are permitted to obtain import-related foreign currency credit facilities from non-residents up to MYR 100 million, or its foreign currency equivalent.

• None

• Prohibited imports are published on a negative list.

• Licences are required when exporting all controlled goods.
• Licences are required for items that are subject to government monitoring in order to prevent domestic shortages.
• Licences are issued by a number of authorities, including the Ministry of International Trade and Industry (MITI).
• The Federal Agricultural Marketing Authority (FAMA) is responsible for endorsing exports of vegetables.

• Export taxes are levied on selected commodities.

• Resident companies are permitted to obtain export-related foreign currency credit facilities from non-residents up to MYR 100 million, or its foreign currency equivalent.

• Export-Import Bank of Malaysia (Exim Bank), Malaysia’s national export credit agency, provides state supported export credit insurance and financing.
• Export credit insurance is also available from private insurance companies.
• Export financing is available privately from commercial banks.

• Prohibited exports are published on a negative list.

• Exchange controls are administered by the BNM.
• Exporters are permitted to retain up to the equivalent of MYR 200,000 in exports proceeds in foreign currency. The exporter shall repatriate the export proceeds to Malaysia in full value within six months from the date of shipment.
• The equivalent of USD 10,000 in domestic currency may be imported/exported to and from Malaysia freely. Above this sum, permission must be obtained from the BNM. Foreign currency may also be freely exported and imported by residents and non-residents without restriction.
• Settlement for goods and services in MYR from a resident to a non‑resident must be made to the non-resident’s external account. Payments or receipts from or into an external account is allowed provided that the non-resident is able to produce documentary evidence that the purpose of transaction complies with relevant FE Notices in accordance with onshore banks’ internal due diligence process.
• A resident company may borrow the foreign currency equivalent of MYR 100 million, in aggregate, from non‑resident companies and non‑resident financial institutions for use in Malaysia. A resident is free to borrow up to MYR 1 million in domestic currency from a non-resident, other than a non-resident financial institution, for use in Malaysia.
• A non-resident is free to obtain foreign currency borrowing from any licensed onshore bank for use in or outside Malaysia.
• Malaysia and Thailand have launched a local currency settlement framework for the settlement of MYR and Thai Baht (THB). The framework will make the process of obtaining THB in Malaysia and MYR in Thailand to settle import/export trade accounts much more efficient. The framework also covers MYR and THB‑denominated financial services, such as deposits and foreign‑exchange hedging.

• There are no specific tax rules in Malaysia that depart from general tax principles to determine the tax treatment of financial instruments, except for the ‘Guidelines on the Income Tax Treatment from Adopting FRS 139 – Financial Instruments: Recognition and Measurement’ issued by the Ministry of Finance. These are only applicable to financial institutions regulated by BNM that are licensed pursuant to the Financial Services Act 2013 and Islamic Financial Services Act 2013.

• Apart from transfer pricing and thin capitalisation rules, interest expenses are generally deductible for tax purposes as long as the money borrowed is:

   

  • Employed in the production of gross income; or
  • Employed to acquire assets used or held for the production of gross income.
• Restrictions on the deductibility of interest are applicable where borrowings are wholly, partly, directly or indirectly used for non-trade or investment purposes.

• Malaysia does not have specific rules for the taxation of foreign exchange conversions. Generally, foreign exchange gains or losses arising from capital transactions are ignored for tax purposes, whereas foreign exchange gains or losses arising from revenue transactions (trade) are taxed or claimed upon realisation.

• There is a specific provision in the Malaysian Income Tax Act that allows the Malaysian tax authorities to make a public ruling on the application of any provision of the Malaysian Income Tax Act in relation to any person or class of persons, or any type of arrangement, at any time.
• An advance ruling system allows a person to request an advance ruling from the Malaysian tax authorities on the application of any provision of the Malaysian Income Tax Act to that person and a particular type of arrangement.
• Taxpayers may request an advance ruling on the tax treatment of a specific transaction. Public rulings also are issued by the authorities from time to time.

• There is no capital gains tax in Malaysia.
• However, any gain on the disposal of real properties or shares of a real property company (RPC) will attract real property gains tax (RPGT).  An RPC is a controlled company which owns or acquires real properties or shares in another RPC with a market value of not less than 75% of its total tangible assets. A controlled company is a company which does not have more than 50 members and is controlled by five or fewer persons.
• The effective RPGT rate on chargeable gains of any person arising from the disposal of real property and shares in a real property company are:

* A withholding tax of 15% applies to interest paid to a non-resident, unless the rate is reduced under a tax treaty. However, interest paid to a non-resident by a bank operating in Malaysia is exempt from tax, except for interest accruing to the non-resident’s place of business in Malaysia and interest paid on funds required to maintain “net working funds”, as prescribed by the central bank. Certain other interest paid to a non-resident also may be exempt.

** A 10% withholding tax is levied on fees for certain services rendered by non-residents if the services are performed in Malaysia and payment for rental for moveable property unless the rate is specifically reduced or eliminated under a tax treaty. Payments such as commission and guarantee fees made to non-residents attract withholding tax at 10% irrespective of whether the services are rendered in Malaysia or not, unless such income constitutes, amongst other things, gains or profits from a business of the non-resident.

A 10% withholding tax applies to the rental of movable property, installation fees for services rendered in Malaysia and certain one-time income paid to non-residents, unless the rate is reduced under a tax treaty.

*** No withholding tax is levied on branch profits when they are repatriated to a head office outside Malaysia.

• Malaysia has concluded over 70 income tax treaties.
• Malaysia signed the MLI on 24 January 2018.

• Earnings stripping rules (ESR) are applicable to the basis periods from 1 July 2019. The ESR is in line with the OECD recommendations under the BEPS action 4 to address tax leakages due to excessive interest deductions on loans between related companies. Under the rules, interest deductions on loans between companies in the same group are limited based on a 20% EBITDA.

• Transfer pricing rules apply.
• Companies are allowed to apply for an advance pricing arrangement (APA) from the Malaysian tax authorities. The APA determines the transfer pricing methodology to be used in any future apportionment or allocation of income or deduction to ensure the arm’s-length nature of a cross-border transaction with an associated person. The Malaysian tax authorities have issued Advance Pricing Arrangement Guidelines that explain the procedural and administrative requirements of the legislation on APA.
• Country-by-country (CbC) reporting has been introduced. A reporting entity (i.e. a Malaysain ultimate parent entity or surrogate parent entity of a multinational group with total consolidated group revenue of MYR 3 billion or more in the financial year preceding the reporting financial year) must file a CbC report for the entire financial year no later than 12 months from the close of the reporting entity’s financial year.

Stamp duty is levied at rates between 1% to 4% of the value of property transfers, and 0.3% on share transaction documents.

• There are no specific tax rules dealing with cash pooling arrangements; general principles apply.

• There are no specific financial transactions or banking services tax rules in Malaysia.

All tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlight 2021 (www.deloitte.com).