Corporate Treasury & Cash Management in Malaysia
Corporate Treasury & Cash Management in Malaysia
Malaysia has a strong industrial base and acts as a springboard for companies expanding into the Association of Southeast Asian Nations (ASEAN) countries. A rise in domestic income in Malaysia, alongside foreign direct investment (FDI), has helped drive the country’s continued economic growth and is an additional incentive for companies to launch their expansion into ASEAN from Malaysia.
Malaysia is one of the world's leading exporters of electrical appliances, parts and components, as well as palm oil, petroleum products and natural gas. Exports have been one of the key drivers of economic growth in recent years.
Malaysia's infrastructure is one of the best in Southeast Asia, comprising well-connected roads, airports and seaports. Its information technology (IT) infrastructure is excellent for an emerging economy, and it is well-supported by a skilled IT labour force.
The Malaysian government has put in place business-friendly policies to encourage FDI. Malaysia’s largest export partners are Singapore, China and Japan.
Corporate Treasury in Malaysia
Malaysia, a developing economy and a global leader in the World Bank’s Doing Business 2020 rankings, is aiming to further improve its business climate and to foster entrepreneurial activity, job creation and investments. In this section, we highlight some of the key factors relevant to treasury and cash management.
Financial Market Development
- Kuala Lumpur is ranked 47th in the 2021 Global Financial Centres Index by Z/Yen Group.
- Malaysia has good business infrastructure, an educated multi-lingual workforce and a sound legal environment.
- Malaysia has foreign exchange (FX) controls, but there are no restrictions for non-residents to transfer profits abroad in foreign currency from their investments in Malaysia. Resident importers and exporters require approval for certain transactions.
- In recent years, Malaysia has further liberalised its foreign exchange administration framework for residents to provide greater hedging flexibility against foreign exchange risk.
Sophistication of Banking Systems
- There are 11 investment banks and 26 commercial banks in Malaysia, of which 18 are foreign-owned. There are also 16 Islamic banks.
- Malaysia has an offshore financial centre in Labuan.
- Malaysia has one of the most developed debt markets in the region, with both government and corporate bonds available. Additionally, it has the largest sukuk market in the region. Non-residents are allowed to issue foreign-currency denominated sukuk and bonds. Outstanding local currency bonds totalled MYR1,648.9 billion at the end of March 2021.
- The banking industry is regulated by the central bank, Bank Negara Malaysia (BNM), with regulations in line with international standards. Foreign exchange controls are governed by the Controller of Foreign Exchange, who is also the Governor of Bank Negara Malaysia.
- The corporate income tax rate is 24%. Resident small- and medium-sized companies (subject to meeting certain conditions) are taxed with a progressive slab rate of 17% on the first MYR600,000, with the remaining amount taxed at 24%.
- Both resident and non-resident companies are taxed on their Malaysian-sourced income.
- Profits from the branch of a foreign company are taxed at the same rate as a resident company’s profits. There is no branch profits remittance tax on the remittance of profits to the head office by the branch of a foreign company.
- Sales tax of 5% or 10% is charged on certain classes of taxable goods which are manufactured in or imported into Malaysia. A service tax of 6% is charged on taxable services carried out by a registered person in Malaysia.
- Interest income accrued in Malaysia is subject to corporate income tax (CIT). There are exemptions for interest income received in Malaysia from outside of Malaysia. Interest expenses that are used for business purposes are generally tax deductible. Earning stripping rules apply to interest expenses of more than RM500,000 in a year of assessment, in connection with financial assistance in a controlled transaction. Tax deductions of up to 20% of the earnings before interest, taxes, depreciation, and amortization (EBITDA) are allowed. Interest expenses more than the maximum deduction allowed can be carried forward indefinitely, subject to satisfaction of the substantial shareholder continuity test.
- There is no capital gains tax in Malaysia, except for gains derived from the disposal of real property or on the sale of shares in a real property company.
- Stamp duty is imposed at different rates on certain instruments, with loan agreements generally attracting a 0.5% stamp duty.
- Withholding tax of 15% is charged on interest paid or payable to non-resident companies, where no tax treaty is in place. Rates range from 0% to 15% where a tax treaty is in place and non-resident companies can provide a Certificate of Residence. There is no withholding tax on dividends.
- Malaysia has a wide variety of tax incentives for companies in the manufacturing, agricultural, hotel, tourism, Islamic banking and IT sectors. The incentives include tax holidays of up to ten years (pioneer status) and investment tax allowances. There are also tax incentives for companies operating in Special Economic Regions.
- Companies that are approved as principal hubs are subject to corporate income tax at tiered rates of 0%, 5% and 10% for up to ten years, subject to meeting certain application conditions by 31 December 2022.
- Malaysia has tax treaties with more than 75 countries and territories.
- Malaysia is a signatory to the Organisation for Economic Co-operation and Development’s Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations to provide a single, global picture on some key indicators of economic activity within multinational enterprises.
Benefits for Shared Service Centres:
- Malaysia is a regional financial services hub and an innovative international Islamic financial centre.
- Malaysia is a popular location for Shared Services Centres due to its large, cost-effective English-speaking labour pool. Malaysia’s Muslim population means that some companies run both their Asian and Middle Eastern operations from the country.
- It is a member of the Asian Payment Network, a common payment settlement platform within the Asia Pacific region, while its national JomPAY system is used by over 400 banks in Malaysia.
- Notional pooling is permitted but not widely available. Domestic and cross-border cash concentration between resident and non-resident companies requires approval from BNM, except under certain circumstances.
- Residents: May hold foreign currency accounts both domestically and overseas. They may only hold domestic currency accounts onshore, although it is freely convertible to foreign currency. Residents with domestic MYR borrowing who wish to invest in foreign currency assets can do so for free provided the conversion of the MYR into foreign currency does not exceed a total of MYR1 million per year for individuals and MYR50 million per year for companies. If the limits above are breached, approval from BNM must be sought.
- Non-residents: May hold foreign and domestic currency accounts, whereby domestic currency accounts are freely convertible to foreign currency.
- Interest: Only available on savings accounts.
Legal and Regulatory
- BNM oversees and regulates the banking sector, including foreign currency control. A company is regarded as resident if it is incorporated or centrally controlled or managed in Malaysia.
- Overseas investments of over MYR50 million (or foreign currency equivalent) made by a resident company and funded through domestic borrowing must seek prior approval from BNM and must also be registered with BNM.
- Foreign currency may be freely imported or exported by residents and non-residents.
- USD10,000 of domestic currency may be freely imported or exported; approval must be sought from BNM for higher amounts.
- Malaysia has set up a financial intelligence unit, the Unit Perisikan Kewangan (UPW), which is part of BNM and a member of the Egmont Group.
Interbank electronic payment system
|Malaysia's Real-time Gross Settlement (RTGS) system
(Interbank Funds Transfer System)
(Scripless Securities Trading System)
(National Electronic Cheque Information Clearing System)
|Paper-based and cheque clearing system
|Electronic funds transfer payment system
- Only automated credit transfers are available.
- High value and urgent transactions settled through RENTAS on the same day.
- Low value (less than MYR500,000) and non-urgent transactions processed through IBG system, with final settlement done through RENTAS on the same or the next day.
- Used for payroll, supplier and third-party transactions.
- The expansion of the ATM network has increased the use of credit transfer through the use of Instant Transfer (done via ATMs, online or mobile).
Direct Debits (auto debits)
- A popular form of payment used for low value, regular payments such as utility bills.
- Online bill and e-commerce payments can be made through the Financial Process Exchange (FPX) payment system, requiring an online bank account with one of the 26 participating banks and processed in real time.
- JomPAY is Malaysia’s bill payment scheme using internet or mobile banking—operated by PayNet with 42 bank participants.
- Card payments have grown significantly in popularity with a marked growth in the use of debit cards. Debit card use is on the rise, and the drop in the interchange fee from 1% to 0.15% was introduced to promote it further.
- All domestic payment cards have migrated from signature-based to PIN-enabled. Contactless transactions for low-value purchases (up to MYR250 per transaction) are also growing in popularity.
- There were 47.29 million debit cards and 9.64 million credit cards in use as of June 2020, along with 739,043 Electronic Funds Transfer at Point of Sale (EFTPOS) terminals and over 15,200 ATM machines, though they have seen a decline in usage.
- The main card brands are Visa and MasterCard. Bankcard is the national credit card. All cards are Europay, MasterCard and Visa (EMV)-compliant.
- MyDebit is a domestic direct-debit payment scheme operated by PayNet, which facilitates POS purchases with ATM cards issued by Malaysian banks.
- The government has introduced initiatives to encourage the move to a cashless society by 2050, such as concessions to digital players and the cost of processing digital payments. Currently, 80% of payments are carried out in cash, with only 20% done digitally or through credit transfer.
- Digital wallets are becoming more popular for retail and commercial payments, although currently they comprise only 10% of total payments. BNM approved 31 electronic money licences in recent years, supporting the initiative to create a cashless society. Popular digital wallets are Alipay, WeChat Pay and Touch ‘n Go.
- DuitNow facilitates instant money transfers 24/7 via mobile numbers, identity card (NRIC) or passport numbers, or business registration numbers linked to bank or e-money accounts.
- Local banks such as Maybank and CIMB Bank have launched their own mobile wallets, which also offer mobile banking facilities. Local taxi app Grab has launched Grab Pay with Maybank. Mobile wallets, however, have had a slow uptake.
- Malaysia’s e-commerce market has shown significant growth over the last five years and is now worth USD4 billion, almost half of which is mobile commerce.
- Cryptocurrency is not recognized as legal tender.
- Virtual currency exchanges are subject to regulation and increased transparency under the Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) policy guidelines.
- BNM has implemented the National Regulatory Sandbox to provide opportunities to fintech companies to innovate freely.
Cash, Cheques and Money Orders
- Cheques are a common form of cashless payment for retail and commercial payments.
- The increasing use of electronic payments has led to a decline in cheque usage.
- The government has increased the cost of processing cheques in an effort to encourage electronic payments.
- Cheques truncated into electronic product and cleared through eSPICK are available to beneficiaries the next day.
- Pos Malaysia and other vendors such as Maybank and Western Union offer national and international remittance services.
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Sources (Intro & Corporate Treasury)
IMF, World Economic Forum, PwC, Bank Negara Malaysia, Bank for International Settlements, Asian Development Bank, Trading Economics, DBS, World Bank, CIA World Factbook, CEIC
Sources (Banking & Payments)
DuitNow, Maybank, PayNet, Visa, JomPAY, J. P. Morgan