Doing Business In... 2019 Comparisons

Last Updated August 02, 2019

Law and Practice

Authors



Wong & Partners member firm of Baker McKenzie International (Kuala Lumpur) is an award-winning full-service law firm. With 19 partners and over 60 associates, it is well equipped to assist across a comprehensive range of legal services, including on M&A, competition law, dispute resolution, equity and debt capital markets, employment law, joint ventures, tax and real estate law. The firm regularly acts for clients looking to conduct complex inbound and outbound investments, as well as foreign direct investments into the country. The firm's clients consist of some of the most respected multinational and domestic corporations across various highly regulated industries, including financial services, consumer goods, industrial manufacturing, technology, media and telecommunications.

The Malaysian legal system is based on the English common law system in which sources of law consist of legislation and case law precedents. Many Malaysian statutes draw upon equivalent legislation from common law counterparts and English law continues to be strongly persuasive in cases argued in Malaysian courts.

There are five layers to the Malaysian civil court structure, namely the Magistrates’ Courts, Sessions Courts, High Courts, the Court of Appeal and the Federal Court. Where civil claims are filed depends upon the subject matter and quantum of the claim. The Magistrates’ Courts and Sessions Courts are categorised as 'Subordinate Courts', while the High Courts, Court of Appeal and Federal Court are categorised as 'Superior Courts'.

The High Courts have two separate co-ordinate jurisdictions, with the High Court of Malaya having jurisdiction to hear cases in Peninsular Malaysia and the High Court of Sabah and Sarawak having jurisdiction to hear cases in Sabah, Sarawak and the Federal Territory of Labuan.

Decisions of cases filed at the High Courts in the first instance may be appealed to the Court of Appeal, and the decision of the Court of Appeal may be appealed to the Federal Court (subject to the Federal Court granting leave to appeal). The Federal Court is the final court of appeal for matters originating from the High Court.

The High Court has original jurisdiction to hear disputes where the amount claimed or the value of the subject matter in dispute is greater than that which the Subordinate Courts have jurisdiction to hear. The thresholds are as follows:

  • Magistrates’ Court – up to MYR100,000;
  • Sessions Court – up to MYR1,000,000; and
  • High Court – above MYR1,000,000.

In Malaysia, there is no blanket legislation specifically regulating foreign investment. Restrictions vary on an industry-by-industry basis. Therefore, whether approval is required depends on the nature of the particular investment.

By way of background, the Malaysian government had previously administered national policies aimed generally at securing the involvement of Bumiputeras (ie, the indigenous population of Malaysia) in the economic life of the nation. A Malaysian body known as the Foreign Investment Committee (FIC) implemented guidelines limiting, among others, foreign participation in acquisitions of equity interests, mergers and takeovers (the FIC Guidelines). However, as part of the Malaysian government's efforts to liberalise foreign investments in Malaysia, the FIC was abolished and the FIC Guidelines were repealed in June 2009. Nevertheless, various government ministries and agencies continue to restrict foreign acquisitions of equity interests in Malaysian companies in certain sectors pursuant to statutes, regulations or guidelines. In such industries, foreign investment is subject to the approval of the particular sectoral regulator.

For example, under the Distributive Trade Guidelines 2010 (DTG), proposals for foreign involvement in distributive trade in Malaysia require approval from the Ministry of Domestic Trade and Consumer Affairs. The foreign equity restrictions vary according to the distributive format (eg, 70% for hypermarkets, 30% for convenience stores and none for supermarkets). Similarly, the Ministry of Health restricts foreign participation in private healthcare (ranging from 49% to 70% or in certain cases no restrictions) depending on the type of healthcare facility offered. In respect of higher education, the Ministry of Education requires 30% Bumiputera equity participation for private higher education institutions with college, university college and university status.

However, as regulations and policies on foreign equity investments are subject to policy changes, foreign investment restrictions do change from time to time and in certain cases require clarification.

Obtaining approval for foreign investment is generally a matter of consulting with and submitting an application to the relevant regulator. The consequences of investing without approval differ depending on what has been contravened and may result in administrative or legal sanctions.

Legal control over local equity participation requirements may be enforced through powers conferred under statute or subsidiary legislation. For example, under the Industrial Co-ordination Act 1975, the Ministry of International Trade and Industry exercises legal control on the manufacturing industry by issuing operating licences and imposing, amongst others, minimum equity conditions and notification requirements for any change in shareholding. Failure to comply with these conditions may lead to fines and/or revocation of licences, permits or approvals.

Due to sectoral regulation, the commitments required by the authorities depend on the particular foreign investment. While there is no overarching legal requirement, the authorities may condition their regulatory approvals or licences with local sourcing requirements. For instance, under the DTG a foreign equity-held trade company is expected to, amongst others, implement hiring policies to reflect Malaysia's racial composition, formulate clear policies and plans to assist Bumiputera participation in the distributive trade sector, increase the utilisation of local airports and ports in the export and import of goods, and utilise local companies for legal and other professional services.

Foreign investment is also commonly regulated by the imposition of Bumiputera or Malaysian equity requirements, or local vendor or sourcing requirements. For example, in order to obtain a Petronas licence to carry out upstream oil activities, applicants must comply with certain equity participation requirements depending on the category of upstream activity. It is common for upstream activities to fall under a category that would impose a 51% Bumiputera equity shareholding requirement, in addition to requirements such as the obligation to maintain a minimum of 51% Bumiputera directors, management and employees.

In certain sectors, approval may also be conditioned on minimum paid-up capital requirements. The required level of capital commitment is typically higher where there is foreign involvement. For example, a foreign-owned urban inbound travel agency and tour operator business is expected to commit MYR1.5 million in share capital, compared to up to MYR200,000 for its locally owned counterpart.

Investors may have a right of appeal if the specific legislation provides for appeals to higher administrative authorities or statutory tribunals against administrative decisions (such as the refusal to authorise an investment). Timing will depend on the provisions of the relevant legislation. For example, under the Town and Country Planning Act 1976, an appeal against the decision of a local planning authority must be brought within one month from the date of communication of the relevant decision.

Apart from this, courts in Malaysia may judicially review the authorities' exercise of powers (where they are statutory and affect legally recognised interests, or where the powers are non-statutory but justiciable in nature). Where an investor brings a judicial review challenge in court, the courts will only consider whether the decision to refuse authorisation was legal (ie, whether in doing so the authority exceeded its powers, committed an error of law, breached the rules of natural justice, made a decision that no reasonable tribunal could have reached, or abused its powers).

An application for judicial review must be made promptly, and in any event within three months from the date the grounds of application first arose or when the decision was first communicated to the applicant. The court has discretion to extend this timeframe only where there is good reason for doing so.

In Malaysia, a business may be carried on through one of several corporate vehicles, the most common of which are:

  • locally incorporated companies;
  • branches of foreign companies
  • limited liability partnerships; and
  • representatives/regional offices.

Locally Incorporated Companies

Locally incorporated companies are regulated under the Companies Act 2016 (CA). A locally incorporated company has separate legal personality and the liabilities of the shareholders are limited by the amounts invested for shares of the company, or by guarantee. A locally incorporated private limited company must have at least one shareholder and there is a minimum capital requirement of one ordinary share. The company must also have at least one director who is resident in Malaysia. There is no blanket prohibition against the establishment of a wholly foreign-owned company so long as there are no foreign equity restrictions in respect of the particular business carried on by the company.

Branches of Foreign Companies

Alternatively, a foreign company wishing to carry on business in Malaysia may register a branch under the CA. Registering a branch may be an appropriate form of operation for a foreign company that foresees that its operations in Malaysia will likely be on a short to medium-term basis. A branch does not have separate legal personality, so the liabilities of the branch are those of its parent company. A branch must appoint an agent in Malaysia who is answerable for all acts, matters and things required to be done by the branch under the CA and is personally liable for all penalties imposed on the branch unless he satisfies the court that he should not be so liable.

Representative/Regional Offices

A foreign company, especially one in the manufacturing or services sector, may also establish a representative/regional office in Malaysia. Representative/regional offices are not regulated under the CA but generally require the approval of the Malaysian Investment Development Authority (MIDA). Approval for a representative/regional office is usually given for an initial period of two years. Under the guidelines issued by MIDA, a representative/regional office is not allowed to conduct business activities in Malaysia or derive income from its operations. A representative office is limited to conducting market research and feasibility studies, while a regional office is limited to co-ordinating the activities of a foreign company in the region.

Limited Liability Partnerships (LLPs)

An LLP is an alternative business vehicle that is regulated under the Limited Liability Partnership Act 2012. Unlike a traditional partnership, an LLP has separate legal personality and the liabilities of the partners are limited in respect of claims against the LLP and the wrongful acts of other partners of the LLP. An LLP must be formed by no fewer than two persons, who may be individuals or bodies corporate. There are generally no limitations as to whether the partners of an LLP must be of local or foreign origin. However, an LLP must appoint at least one compliance officer, who must be a citizen or permanent resident of Malaysia and must ordinarily reside in Malaysia.   

In practice, foreign companies typically carry on business in Malaysia through a locally incorporated company. Many businesses have licensing or approval requirements (eg, distributive trade) which means that a locally incorporated company is required in order to carry on that business. Where such requirements do not exist, a branch or LLP may be suitable, particularly for start-ups and SMEs, as these alternative business vehicles are not subject to the higher compliance requirements of locally incorporated companies and are thus easier to administer.

An application must first be submitted to the Companies Commission of Malaysia (CCM) to confirm the availability of the company name. Once the company name is approved, an application must then be submitted to the CCM to incorporate the company. All documents for incorporation must be lodged with the CCM within 30 days of the approval of the company name, including details of the registered address, directors and shareholders. Once the CCM is satisfied that the requirements for incorporation are complied with, the CCM will issue a notice of registration, which is conclusive evidence of the incorporation of the company.

The entire incorporation process can take approximately ten working days or less if all the required documents are in order.

Companies incorporated in Malaysia must comply with the reporting requirements imposed by the CA, which include:

  • circulating audited financial statements and reports for each financial year to relevant persons, including the shareholders, within six months of the financial year end in the case of a private company or 21 days before the annual general meeting in the case of a public company;
  • lodging of audited financial statements and reports with the CCM within 30 days of the circulation of the same to the shareholders in the case of a private company or within 30 days from the annual general meeting in the case of a public company;
  • lodging of an annual return with the CCM within 30 days of the anniversary of the incorporation of the company;
  • notifying the CCM of any amendments to the constitution of the company and lodging a copy of the amended constitution within 30 days of the special resolution to amend the constitution;
  • lodging the required statutory forms and documents with the CCM (eg, notice of increase in share capital, change in directors, change in shareholding and change in the interest of a substantial shareholder);
  • keeping accounting and other records to explain the transactions and financial position of the company sufficiently; and
  • keeping minutes of all meetings and resolutions of the shareholders and the board of directors.

In respect of private companies, there is no positive obligation on the ultimate beneficial owners to disclose their interest to the CCM. In respect of public companies, substantial shareholders (ie, persons holding an interest of not less than 5% in the voting shares of the company) are required to notify the company and the CCM of their interest and of any changes to such interest.

Companies

Companies in Malaysia adopt a single-tier board system and the business and affairs of the company are managed by the board of directors. The board of directors may delegate certain functions to committees under the board (eg, an audit committee or a nomination and remuneration committee). Typically, the management team of the company is responsible for implementing the resolutions of the board of directors and for managing the day-to-day operations of the company.

LLPs

In LLPs, partners are responsible for managing the business. The rights and duties of the partners are governed by a limited liability partnership agreement entered into between partners.

Directors' Liability

A director of a company may be held liable if the company commits an offence. Under certain statutory provisions, a director at the time of the commission of an offence by the company may be deemed to be liable. For example, the Employees Provident Fund Act 1991 provides that if a company fails to pay the required contribution with respect to retirement benefits of its employees, the directors can be held jointly liable for the outstanding contributions, unless the director proves that the offence was committed without his consent or connivance and that he had exercised all such diligence to prevent the commission of the offence.

Shareholders' Liability

It is a well-established principle in Malaysian company law that a company has separate legal personality. As such, the liabilities of the company are distinct from those of the shareholders who would not be held liable for the actions of the company. The Malaysian courts would only pierce the corporate veil and hold the shareholders liable in exceptional circumstances (eg, where the company is used as a vehicle to commit fraud or where the company is incorporated as a mere sham or façade).

The legal rules governing the employment relationship are principally derived from the following legislation (and to a lesser extent, the common law) and apply to all employees, unless specified otherwise.

  • Employment Act 1955 (EA) – governs and sets minimum standards on employment matters. It applies to eligible employees in Peninsular Malaysia, namely those with an income up to and including MYR2,000 a month; or those in certain categories of employment (ie, manual labourers or their supervisors, persons who maintain or operate mechanically propelled vehicles, domestic servants and persons in certain positions in sea-faring vessels) (EA Employees). The equivalent legislation in East Malaysia are the Sabah and Sarawak Labour Ordinances, which apply to employees who earn below MYR2,500 (collectively with EA Employees, Protected Employees).
  • Industrial Relations Act 1967 (IRA) – governs relations between employers and employees, and the prevention and settlement of disputes.
  • Trade Unions Act 1959 – regulates the registration, constitution, rights and liabilities of trade unions.
  • Employees Provident Fund Act 1991 (EPF) – requires private sector employers and employees to contribute to a national statutory pension fund. The rate of contribution is 11% for employees and 12% to 13% for employers, depending on the monthly salary of the Malaysian employee. The 11% employee contribution is deducted from source and the employer’s contribution supplements the monthly gross salary. Foreign employees and domestic servants are exempt, but may contribute voluntarily.
  • Employees' Social Security Act 1969 (SOCSO) – provides social security protection for Malaysian employees.
  • National Wages Consultative Council Act 2011 (Minimum Wages Order 2018) – prescribes the minimum wage of MYR1,100 per month or MYR5.29 per hour for the private sector without any government subsidies as of 1 January 2019.
  • Minimum Retirement Age Act 2012 – specifies that the minimum retirement age is 60 years.
  • Employment Insurance System Act 2017 (EIS) – requires employers and employees to make contributions to provide protection to retrenched employees.

An employer cannot contract out of the obligations imposed by the EA, EPF, EIS and SOCSO. It has been recently publicised that the government of Malaysia is currently considering proposals for significant changes to employment laws in Malaysia, which potentially include the expansion of the ambit of applicability of employees falling within the EA and changes to the IRA to make it easier for trade unions to be recognised.

In Malaysia, employment contracts may be written or verbal, and express or implied. Contracts with Protected Employees are subject to mandatory statutory provisions under the EA. For example, Protected Employees may qualify for prescribed statutory entitlements, including annual leave, termination notice and sick leave (to varying extents depending on the employees' length of service). Non-Protected Employees have their entitlements and benefits governed principally by the terms of their employment contracts and the common law. However, they are equally entitled to maternity leave and sexual harassment protection under the EA.

Malaysia recognises fixed-term employment contracts in so far as they are used for employees who perform project-based, short-term or seasonal work. Whether an employment contract is a fixed-term or indefinite contract is a matter of fact and degree, and Industrial Court decisions on unfair dismissals have indicated that in determining this issue, it will assess factors such as the nature of the employer's business, the employee's responsibilities in relation to the employer's business requirements and whether such contracts are routinely renewed.

Part-time employment contracts are also recognised. Part-time employees are statutorily defined as a person whose average hours of work are more than 30% but do not exceed 70% of the normal work hours of a full-time employee employed in a similar capacity in the same enterprise. Part-time employees who are also eligible under the EA enjoy similar, but reduced, statutory protection.

Protected Employees cannot work more than 48 hours per week and eight hours per day, or in excess of a period of ten consecutive hours beginning from when the employee commences work for the day, including any rest breaks. They are also entitled to a 30-minute paid break after every five hours of consecutive work. Overtime hours are permissible, subject to a total of 12 hours per day and 104 overtime hours per month. Protected Employees are also entitled to overtime pay prescribed at a percentage of their rate of pay. Non-Protected Employees have their working hour entitlements governed by the terms of their employment contracts.

Malaysia does not recognise 'at will' employment. As such, unilateral changes to 'fundamental' terms and conditions of employment, such as termination notice and annual leave (as opposed to policies to regulate the workplace, such as IT usage policy), cannot be implemented without constructive dismissal risks and therefore require express, voluntary consent from the employee. All dismissals must be for "just cause or excuse" and if a former employer's decision is challenged in the Industrial Court, it must show that there were proper grounds for dismissal (ie, redundancy, poor performance or misconduct), and that it has complied with certain procedures and requirements specific to the ground for termination.

The courts view retrenchment by way of redundancy as a last resort. The employer must first consider and, if appropriate, carry out alternatives such as a reduction of overhead expenses and working hours. Thereafter, selection for redundancy must accord with the following established principles for carrying out redundancy exercises:

  • employees who have attained their retirement age must be selected over other employees;
  • casual workers and fixed-term employees must be selected over permanent employees;
  • within the same job scope, foreign workers must be selected over local employees; and
  • the employee with the least number of years’ service must be the first employee to be identified for selection (known as the 'last in-first out' principle).

Subject to the specific ground of termination, dismissed employees are generally entitled to termination notice and fair severance payments, varying according to the employee's length of service. For Non-Protected Employees, these are generally determined by the provisions of their employment contract. However, the prevailing market practice is to make an ex gratia payment of one month's salary per year of employment. Although there is no Industrial Court-recognised quantum of severance, the non-payment of ex-gratia severance by an employer who was in a financial position to do so could contribute towards the unfairness of the dismissal.

Generally, employment contracts in Malaysia do not provide for employees to be represented, informed or consulted by management.

In the context of termination of employment, an employer can mitigate the risk of a successful unfair dismissal claim against it by (a) informing employees of the possibility of termination as soon as possible, which may extend to consultation with the affected employees; and (b) involving trade unions as much as possible during the termination process.

Under the Income Tax Act 1967 (ITA), income tax is imposed on income accruing in or derived from Malaysia, or received in Malaysia from outside Malaysia. Employment income is deemed to be derived from Malaysia for any period during which, amongst others:

  • employment is exercised in Malaysia;
  • the employee performs outside Malaysia duties incidental to the exercise of the employment in Malaysia;
  • a person is a director of a company and that company is resident in Malaysia for the year of assessment; and
  • employment is exercised aboard a ship or aircraft used in a business operated by a person who is resident in Malaysia for the year of assessment.

In other words, the source of employment (ie, the location of the employer) is not by itself conclusive for determining the issue of derivation. Individual income tax rates for residents range from 0% to 28%, while non-residents are taxed at a flat rate of 28%.

Employers in Malaysia have statutory obligations to make contributions to the Employees Provident Fund and the Social Security Organisation for applicable employees.

Residence of Companies

The test to determine the tax residence of a company is based on the 'control and management' test. A company carrying on a business is resident in Malaysia for a year of assessment if at any time during that year, the management and control of its business is exercised in Malaysia.

Corporate Income Tax

Income tax is imposed on income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia. The rate of income tax for resident and non-resident companies (except for SMEs; ie, companies with a paid-up capital in respect of ordinary shares of not more than MYR2.5 million) is 24%. SMEs are subject to income tax at the rate of 17% on the first MYR500,000 of chargeable income and 24% on the remaining chargeable income with effect from the year of assessment 2019. The chargeable income that is subject to tax comprises of gross income, less permitted deductions.

Sales and Service Tax

Effective from 1 September 2018, the goods and services tax regime was repealed and replaced with a new sales tax and service tax.

Sales tax is charged on taxable goods manufactured in or imported into Malaysia, at the rate of 5%, 10% or a specified rate depending on the category of taxable goods.

Service tax is charged at 6% on taxable services provided in Malaysia by a registered person in the course of business and on imported taxable services. Taxable services include accommodation services, food and beverage services, and professional services.

Withholding Tax

Malaysia imposes a withholding tax on certain payments to non-residents, such as royalties, technical fees, installation fees and rental of movable property. The rate of withholding tax is generally between 10% and 15% unless there exists a double taxation agreement between Malaysia and the country of the non-resident, in which case the withholding tax rate may be reduced.

Taxes on Dividends

There is no further income tax on dividends received from a Malaysian company. Tax imposed on the company’s profits will be the final tax and dividends distributed to their shareholders will not be subject to further tax.

Real Property Gains Tax (RPGT)

RPGT is imposed on gains accruing on the disposal of any real property in Malaysia, and applies to all persons whether or not that person is resident in Malaysia. The rate of RPGT for companies ranges from 10% to 30% depending on the number of years since the date of acquisition of the real property.

The Malaysian government offers a wide range of tax incentives across various sectors in order to promote investment activity. Among the most significant tax incentives offered in Malaysia are Pioneer Status and the Investment Tax Allowance.

Pioneer Status is an income tax exemption on 70% of statutory income for a period of five years. The Investment Tax Allowance is an allowance of 60% of qualifying capital expenditure for a period of five years. Pioneer Status and the Investment Tax Allowance are mutually exclusive (ie, a company can only enjoy either one of the incentives at the same time).

Companies in the manufacturing, agricultural, tourism or any sector that comprises a promoted activity or is producing a promoted product may be eligible for Pioneer Status or the Investment Tax Allowance if the qualifying conditions are met.

Enhanced Pioneer Status (ie, 100% exemption on statutory income) and Investment Tax Allowance (ie, allowance of 100% of qualifying capital expenditure) are also available for companies carrying out projects relating to selected promoted activities and products, such as projects of national and strategic importance, hi-tech, R&D and green technology activities. Companies with Multimedia Super Corridor status are also entitled to enhanced Pioneer Status and Investment Tax Allowance.

There are no tax consolidation provisions in Malaysia. However, the ITA provides for group relief for locally incorporated resident companies. The group relief is limited to 70% of the current year’s unabsorbed tax losses to be set-off against the income of another company in the group, subject to certain conditions. With effect from the year of assessment 2019, losses can only be surrendered after twelve months from the commencement of operations of the surrendering company and only for a period of three consecutive years of assessment.

Initial proposals to introduce thin capitalisation rules in Malaysia were abandoned but the government has proposed the introduction of Earnings Stripping Rules (ESR). The ITA was amended to permit the introduction of the ESR, which would apply retrospectively from 1 January 2019. However, the implementing rules have yet to be issued. Based on previous announcements, the proposed ESR will provide that an entity's deduction for interest expenses will be limited to a percentage of its earnings based on a fixed ratio rule.

The ITA contains transfer pricing provisions that govern transactions between related companies, requiring them to be conducted at arm's length. Failing this, the Inland Revenue Board (IRB) may disregard or make adjustments to such transactions.

The Income Tax (Transfer Pricing) Rules 2012 (Transfer Pricing Rules) require the preparation of contemporaneous transfer pricing documentation for transactions between related companies. To complement the Transfer Pricing Rules, the IRB has also issued transfer pricing guidelines to provide taxpayers with further guidance on the administrative requirements in preparing transfer pricing documentation and the application of transfer pricing methodologies to related-party transactions.

Malaysia has also introduced country-by-country (CbC) reporting rules, which require relevant reporting entities (ie, the ultimate parent entities of Malaysian multinational corporations with at least MYR3 billion in total consolidated group revenue annually) to prepare and file a CbC report.

The general anti-avoidance rule in the ITA applies to any transaction that has the direct or indirect effect of:

  • altering the incidence of tax that would otherwise have been payable;
  • relieving any person from any liability that would have arisen to pay tax or to make a tax return;
  • evading or avoiding any duty or liability imposed under the ITA; or
  • hindering or preventing the operation of the ITA in any respect.

The IRB may disregard or vary such transactions and make adjustments with a view to counteract the whole or any part of the effect of the transaction.

The Competition Act 2010 (MCA) is the principal statute governing competition law in Malaysia and it grants administrative and enforcement powers to the Malaysia Competition Commission (MyCC). The Malaysian regime generally does not include merger control. However, sector-specific voluntary merger control regimes exist in the civil aviation, and communications and multimedia industries.

Civil Aviation Industry

Mergers in the civil aviation industry fall under the purview of the Malaysian Aviation Commission (MAVCOM), which prohibits any merger that will substantially lessen competition in any aviation service market. Parties may voluntarily notify the merger or proposed merger to determine if the merger in question will infringe the prohibition under the Malaysian Aviation Commission Act 2015.

Communications and Multimedia Industry

M&A in the communications and multimedia industry by licensees under the Communications and Multimedia Act 1998 (CMA) are regulated by the Malaysia Communications and Multimedia Commission (MCMC). The CMA prohibits transactions that have the purpose or will have the effect of substantially lessening competition in a communications market. Furthermore, the Guidelines on Mergers and Acquisitions issued by MCMC on 17 May 2019 introduced a voluntary notification and assessment regime for transactions in the communications and multimedia market in Malaysia.

As there are no general merger control provisions in Malaysia, there are no general merger control procedures under the MCA.

Civil Aviation Industry

Merger parties are expected to carry out a self-assessment to determine whether any notification and application to MAVCOM is appropriate. As the notification regime is voluntary, the transaction can be closed before the notification is made to MAVCOM or before receiving MAVCOM's approval in respect of the application. The earliest time that a merger party may make such an application to MAVCOM is:

  • for an anticipated merger – when the parties have a bona fide intention to proceed with the merger; details of the merger are available; and the merger will be or has been made public; or
  • for a completed merger – at any time after the merger has been completed.

The time taken by MAVCOM to assess an application will vary depending on the complexity of the issues and the completeness of the information provided in the application.

Communications and Multimedia Industry

The voluntary notification and assessment process can be done prior to or after completion of the M&A. Parties are required to conduct a self-assessment against thresholds established by MCMC. If the parties opt to complete the transaction without obtaining MCMC's view, they must bear the risk of an objection by MCMC and enforcement actions under the CMA. MCMC may require a proposed M&A to be halted and not be completed. Where the M&A has completed, MCMC may issue directions to prevent further integration between the M&A parties, or to prevent the merged or acquired entity from trading.

MCMC’s assessment will be conducted through a two-phase process. Both phases involve the assessment of whether the M&A has the purpose, or has or may have the effect, of substantially lessening competition in a communications market, but are distinguished by the extent of the information sought from the parties and the nature of the assessment undertaken by MCMC.

The process can take up to six months.

The MCA prohibits agreements between enterprises that have the object or effect of significantly preventing, restricting or distorting competition in Malaysia (Chapter One Prohibition). This includes both horizontal agreements (ie, between competitors) and vertical agreements (ie, between enterprises operating at different levels of the supply chain).

Generally, anti-competitive agreements will not be considered 'significant' if the parties to the agreement (i) are competitors in the same market and their combined market share of the relevant market does not exceed 20%, or (ii) are not competitors and each of the parties individually holds less than a 25% share in the relevant market.

Under the MCA, certain horizontal agreements are deemed to have an anti-competitive effect on the market and there will be no further assessment on its anti-competitive effects. These include agreements that have the object of:

  • fixing the purchase or sale prices, or other trading conditions;
  • sharing markets or sources of supply;
  • limiting or controlling production, market outlets, market access, technical or technological development, or investment; and
  • bid-rigging.

While no equivalent provisions exist for vertical agreements, MyCC has indicated that it will deem minimum resale price maintenance and other forms of resale price maintenance (including maximum pricing or recommended retail pricing) to be anti-competitive. Recently, MyCC has also indicated that it will be focusing its efforts on, and will be taking firm action against, bid-rigging (particularly in the public procurement space).

Under the MCA, an enterprise may be relieved from liability for the Chapter One Prohibition if they are able to rely on the statutory defence that there are significant identifiable technological, efficiency or social benefits directly arising from the agreement that are proportionate and that the detrimental effects on competition are proportionate to the benefits provided.

Where the enterprise is deemed to have infringed the MCA, MyCC may require the infringement to cease immediately, impose a penalty not exceeding 10% of global turnover over the period in which the infringement occurred, or give other directions as it deems appropriate. MyCC also has discretion to specify further steps or give other directions (collectively, the Prohibition Sanctions).

The MCA also prohibits any conduct that amounts to an abuse of a dominant position in any Malaysian market for goods and services (Chapter Two Prohibition).

The term 'dominant position' refers to enterprises that possess such significant power in a market that they are able to adjust prices, outputs, or trading terms without effective constraint from competitors or potential competitors. MyCC's guidelines on the Chapter Two Prohibition states that a market share of above 60% indicates dominance, although market share is not in itself conclusive. The MCA contains a non-exhaustive list of factors indicating such abuse, which include predatory behaviour towards competitors; imposing an unfair purchase or selling price or other unfair trading conditions; limiting or controlling production, market outlets, market access, technical or technological development, or investment, to the detriment of consumers; and refusing to supply to a particular enterprise, or group or category of enterprises.

However, an enterprise in a dominant position can take steps that have reasonable commercial justification or that represent a reasonable commercial response to a competitor's market entry or market conduct.

Where the enterprise is deemed to have infringed the Chapter Two Prohibition, it may also be subject to the Prohibition Sanctions described in 6.3 Cartels.

The grant of patents is governed by the Patents Act 1983. In order to obtain a patent, the invention must comply with the following requirements:

  • worldwide novelty;
  • involves an inventive step; and
  • has industrial application.

An application for a patent is filed with the Intellectual Property Corporation of Malaysia (MyIPO). A preliminary examination will be conducted whereby the application is examined for formalities compliance. If the formalities are in order, a clear formalities report is issued. The applicant must then request for a substantive examination. Upon successful examination, the patent will be granted and the Registrar will issue the certificate of grant and record the patent in the Register.

A patent is valid for 20 years. The owner of a patent has the exclusive right to exploit the patented invention (eg, make, sell or use the product or process). A patent is infringed by any person who exploits the invention without the consent of the patent owner. Relief can be obtained by way of damages and an injunction to prohibit the infringement. It is also a criminal offence for any person falsely to represent that anything disposed of by them for value is a patented product or process.

Trade marks do not need to be registered to be effective in Malaysia, as the tort of passing off will provide some protection. However, registration confers significant advantages such as ease of enforcement.

The registration of trade marks is governed by the Trade Marks Act 1976. In order to be registrable, the mark must be used or intended to be used in relation to goods/services to indicate a connection in the course of trade between the goods/services and the person having the right to use the mark.

An application for registration of a trade mark is filed with MyIPO. After the application is filed, it will be examined for registrability. If there are objections, the Registrar will issue a letter and the applicant will be able to make submissions. If the Registrar accepts the submissions, the application will be advertised in the Government Gazette. Upon advertisement, there is a period of two months for anyone to oppose the registration of the trade mark. If there is no opposition, the Registry will issue a certificate of registration.

A trade mark registration is valid for ten years and can be renewed for subsequent periods of ten years. A registered trade mark is infringed by a person who, not being the registered proprietor or registered user of the trade mark, uses a mark that is identical with it or so nearly resembling it as is likely to deceive or cause confusion in the course of trade in relation to goods in respect of which the trade mark is registered. Relief can be obtained by way of damages and an injunction to prohibit the infringement.

Additionally, the owner of a registered trade mark may apply to the Registrar of Trademarks objecting to the importation of certain goods that they suspect will infringe their mark in Malaysia.

The registration of industrial designs is governed by the Industrial Designs Act 1996. In order to be registrable, a design must be new and have features of shape, configuration, pattern or ornament that appeal to and are judged solely by the eye. A design must not include features determined by a method or principle of construction, or features of shape or configuration that are dictated solely by the function that the article has to perform or are dependent upon the appearance of another article, of which the article is intended by the creator of the design to form an integral part.

An application for registration must be filed with MyIPO accompanied by design drawings and a statement of novelty.

A registered industrial design is initially valid for five years and can be renewed for a further four terms of five years each. It is an infringement if any person without the consent or licence of the owner applies the industrial design, or any fraudulent or obvious imitation of it, to any article for which the industrial design is registered, or imports such an article for which the industrial design is registered, or imports such an article into Malaysia for the purposes of trade, or sells or hires such an article without the licence or consent of the owner of the industrial design. Relief can be obtained by way of damages and an injunction to prohibit the infringement.

Copyright protection is governed by the Copyright Act 1987 (Copyright Act). Currently, there is no copyright registration system in Malaysia. Copyright in a work arises automatically once the following criteria are fulfilled:

  • the work is original;
  • the work is recorded or reduced to material form;
  • the work belongs to one of the six categories of protected works (ie, literary works, musical works, artistic works, sound recordings, films or broadcasts); and
  • the work complies with the qualifications for copyright.

The basic term of copyright is the life of the author plus 50 years. For published editions, sound recordings, photographs, films and broadcasts, the term of copyright is 50 years from the beginning of the year following the year in which the work was first published or broadcast. Performers have copyright protection to their live shows for 50 years from the beginning of the calendar year following the year in which the live performance was first given or recorded.

Infringement of a copyright is both a civil wrong and a criminal offence. The Copyright Act also provides for the protection of the moral rights of the author of the copyright work. The author may sue for a breach of their moral rights to claim damages and the publication of corrections.

Copyright protection under the Copyright Act extends to computer programs (as "literary works"). It also extends to a compilation of a database that, provided by virtue of its arrangement, constitutes an intellectual creation.

There exists the tort of breach of confidence that may provide protection for confidential information and trade secrets. The court will examine the type of information to determine whether it is of a confidential nature. The court will also look at whether the information was disclosed in circumstances expressly or impliedly imposing a duty of confidence on the recipient of information.

The main legislation relating to data protection is the Personal Data Protection Act 2010 (PDPA), which came into force on 15 November 2013. The PDPA is a Code of Practice (Code) based regime, pursuant to which various Codes regulating data protection in the aviation, banking and financial, insurance and takaful, and utilities sectors have been approved and registered. The PDPA regime is supplemented by the Personal Data Protection Regulations and other subsidiary legislation such as the Personal Data Protection (Registration of Data User) Regulations 2013, which specify classes of data users who must register under the PDPA. Examples of these classes include banks, insurers and takaful operators, private healthcare facilities, private higher education institutions, schools and private educational institutions, licensed persons who carry on or operate a tourism training institution, tour operators, travel agents or licensed tourist guides.

The PDPA applies to any person who processes, has control over or authorises the processing of any personal data in respect of commercial transactions. Information qualifies as 'personal data' where it (i) relates to a data subject who is identified or identifiable from that information, or from that and other information in the possession of a data user; and (ii) is capable of being processed by means of equipment operating automatically in response to instructions given for that purpose or recorded as part of a manual filing system, where specific information relating to a particular individual is readily available.

The PDPA also recognises a separate category of "sensitive personal data", which is defined as any personal data consisting of information on a data subject's physical or mental health or condition, political opinions, religious beliefs or other beliefs of a similar nature, commission or alleged commission by him or her of any offence, or any other personal data as the Minister of Communications and Multimedia may determine. Such data is more stringently regulated and the PDPA generally prohibits any person from processing or using sensitive personal data unless the data subject has given explicit consent.

The legal framework on data privacy is based on seven data protection principles, which also form the basis of the PDPA. In general terms:

  • the General Principle – prohibits the processing of personal data without the consent of the data subject;
  • the Notice and Choice Principle – requires the data subject to be provided with a written notice containing specific information relating to the data processing as soon as practicable;
  • the Disclosure Principle – prohibits the disclosure of personal data for a purpose other than the purpose for which the personal data was to be disclosed at the time of its collection or a directly related purpose;
  • the Security Principle – requires the data user to take practical steps to protect personal data from any loss, misuse, modification, unauthorised or accidental access or disclosure, alteration or destruction in the course of processing personal data;
  • the Retention Principle – requires the data user to take reasonable steps to ensure that personal data is destroyed or permanently deleted if it is no longer required for the purpose for which it was to be processed;
  • the Data Integrity Principle – requires the data user to take reasonable steps to ensure that the personal data processed is accurate, complete, not misleading and updated; and
  • the Access Principle – requires the data user to grant data subjects with access to, and the ability to correct, his personal data where it is inaccurate, incomplete, misleading or outdated.

The PDPA applies only to personal data processed in Malaysia. It does not have any extra-territorial effect and will not apply to any personal data processed outside Malaysia.

However, personal data may not be transferred to places outside Malaysia, unless such a place has been specified by the Minister of Communications and Multimedia. Notwithstanding that, there are prescribed exemptions to this restriction and data users may transfer personal data to places outside Malaysia if, amongst others:

  • the data subject has provided consent to the transfer;
  • the transfer is necessary for the performance of a contract between the data subject and the data user;
  • the transfer is for the purpose of any legal proceedings or for the purpose of obtaining legal advice; or
  • the transfer is necessary to protect the vital interests of the data subject (collectively, Prescribed Exemptions).

Note that a draft Personal Data Protection (Transfer of Personal Data to Places Outside Malaysia) Order 2017 was released in May 2017 for public consultation. It proposes a 'whitelist' of countries to which personal data from Malaysia can be transferred without having to fall within the Prescribed Exemptions. However, the order has not been enacted.

The Department of Personal Data Protection (PDP Department) falls under the Ministry of Communications and Multimedia. The PDP Department is headed by the Director-General cum Commissioner (Commissioner), who is assisted by a Deputy Director General and advised by a Personal Data Protection Advisory Committee established under the PDPA. Working collectively, the PDP Department is the responsible agency in respect of data protection and is tasked with enforcing and regulating the PDPA in Malaysia.

The Commissioner is appointed under the PDPA and is tasked with wide statutory functions, including:

  • advising on the national policy for personal data protection and related matters;
  • implementing and enforcing personal data protection laws, including the formulation of operational policies and procedures;
  • promoting and encouraging representatives of data users to prepare codes of practice and to disseminate them to their members;
  • co-operating with bodies corporate or government agencies in order to perform his functions;
  • undertaking research into and monitoring developments in the processing of personal data in order to take account of their effects on the privacy of individuals' personal data;
  • monitoring and supervising compliance with the PDPA, and issuing circulars and enforcement notices as appropriate; and
  • promoting awareness and dissemination of information to the public about the PDPA.
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Kuala Lumpur 59200
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Wong & Partners member firm of Baker McKenzie International (Kuala Lumpur) is an award-winning full-service law firm. With 19 partners and over 60 associates, it is well equipped to assist across a comprehensive range of legal services, including on M&A, competition law, dispute resolution, equity and debt capital markets, employment law, joint ventures, tax and real estate law. The firm regularly acts for clients looking to conduct complex inbound and outbound investments, as well as foreign direct investments into the country. The firm's clients consist of some of the most respected multinational and domestic corporations across various highly regulated industries, including financial services, consumer goods, industrial manufacturing, technology, media and telecommunications.

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