Malaysia's Industrial Co-ordination Act 1975 (ICA) was introduced with the aim to maintain an orderly development and growth in the country's manufacturing sector.
The ICA requires manufacturing companies with shareholders' funds of RM2.5 million and above or engaging 75 or more full-time paid employees to apply for a manufacturing licence for approval by the Ministry of International Trade and Industry (MITI).
Applications for manufacturing licences are to be submitted to the Malaysian Investment Development Authority (MIDA), an agency under MITI in charge of the promotion and coordination of industrial development in Malaysia.The ICA defines:
- "Manufacturing activity" as the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal; and includes the assembly of parts and ship repairing but shall not include any activity normally associated with retail or wholesale trade.
- "Shareholders' funds" as the aggregate amount of a company's paid-up capital, reserves, balance of share premium account and balance of profit and loss appropriation account, where:
- Paid-up capital shall be in respect of preference shares and ordinary shares and not including any amount in respect of bonus shares to the extent they were issued out of capital reserve created by revaluation of fixed assets
- Reserves shall be reserves other than any capital reserve created by revaluation of fixed assets and provisions for depreciation, renewals or replacements and diminution in value of assets.
- Balance of share premium account shall not include any amount credited therein at the instance of issuing bonus shares at premium out of capital reserve by revaluation of fixed assets.
- "Full-time paid employees" as all persons normally working in the establishment for at least six hours a day and at least 20 days a month for 12 months during the year and who receive a salary.
This includes traveling sales, engineering, maintenance and repair personnel who are paid by and are under the control of the establishment.
It also includes directors of incorporated enterprises except those paid solely for their attendance at board of directors meetings. The definition encompasses family workers who receive regular salaries or allowances and who contribute to the Employees Provident Fund (EPF) or other superannuation funds.
The government's guidelines for approval of industrial projects in Malaysia are based on the Capital Investment per Employee (C/E) Ratio. Projects with a C/E Ratio of less than RM55,000 are categorized as labour-intensive and thus will not qualify for a manufacturing licence or for tax incentives. Nevertheless, a project will be exempted from the above guidelines if it fulfils one of the following criteria:
- The value-added is 30% or more
- The Managerial, Technical and Supervisory (MTS) Index is 15% or more
- The project undertake promoted activities or manufacture products as listed in the List of Promoted Activities and Products for High Technology Companies
- Existing companies (formerly exempted) applying for a manufacturing licence.
Expansion of Production Capacity and Product Diversification
A licensed company which desires to expand its production capacity or diversify its product range by manufacturing additional products will need to apply to MIDA.
Malaysia has always welcomed investments in its manufacturing sector. Desirous of increasing local participation in this activity, the government encourages joint-ventures between Malaysian and foreign investors.
Equity policy for New, Expansion, or Diversification Projects
Since June 2003, foreign investors could hold 100% of the equity in all investments in new projects, as well as investments in expansion/diversification projects by existing companies, irrespective of the level of exports and without excluding any product or activity.
The equity policy also applies to:
- Companies previously exempted from obtaining a manufacturing licence but whose shareholders' funds have now reached RM2.5 million or have now engaged 75 or more full-time employees and are thus required to be licensed.
- Existing licensed companies previously exempted from complying with equity conditions, but are now required to comply due to their shareholders' funds having reached RM2.5 million.
Equity Policy Applicable for Existing Companies
Equity and export conditions imposed on companies prior to 17 June 2003 will be maintained. However, companies can request for these conditions to be removed and approval will be given based on the merits of each case.
Malaysia's commitment in creating a safe investment environment has attracted more than 8,000 international companies from over 40 countries to make Malaysia their offshore base.
A company whose equity participation has been approved will not be required to restructure its equity at any time as long as the company continues to comply with the original conditions of approval and retain the original features of the project.
Investment Guarantee Agreements
Malaysia's readiness to conclude Investment Guarantee Agreements (IGAs) is a testimony of the government's desire to increase foreign investor confidence in Malaysia. IGAs will:
- Protect against nationalisation and expropriation
- Ensure prompt and adequate compensation in the event of nationalisation or expropriation
- Provide free transfer of profits, capital and other fees
- Ensure settlement of investment disputes under the Convention on the Settlement of Investment Disputes of which Malaysia has been a member since 1966.
Malaysia has concluded IGAs with the following groupings and countries (in alphabetical order):
- Association of South-East Asian Nations (ASEAN)
- Organisation of Islamic Countries (OIC)
|Bangladesh||Iran||Slovak, Republic of|
|Bosnia Herzegovina||Jordan||Sri Lanka|
|Bostwana||Kazakstan||Sudan, Republic of|
|Burkina Faso||Korea, North||Sweden|
|Canada||Kuwait||Syarian Arab Republic|
|Chile, Republic of||Kyrgyz, Republic of||Taiwan|
|China, People's Republic of||Laos||Turkey|
|Cuba||Macedonia||United Arab Emirates|
|Czech Republic||Malawi||United States of America|
|Djibouti, Republic of||Morocco||Uruguay|
|Ethiopia, Republic of||Netherlands||Vietnam|
|Germany||Papua New Guinea|
Convention on the Settlement of Investment Disputes
In the interest of promoting and protecting foreign investment, the Malaysian government ratified the provisions of the Convention on the Settlement of Investment Disputes in 1966. The Convention, established under the auspices of the International Bank for Reconstruction and Development (IBRD), provides international conciliation or arbitration through the International Centre for Settlement of Investment Disputes located at IBRD's principal office in Washington.
Kuala Lumpur Regional Centre of Arbitration
The Kuala Lumpur Regional Centre for Arbitration was established in 1978 under the auspices of the Asian-African Legal Consultative Organization (AALCO) - an inter-governmental organization cooperating with and assisted by the Malaysian government.
A non-profit organization, the Centre serves the Asia Pacific region. It aims to provide a system to settle disputes for the benefit of parties engaged in trade, commerce and investments with and within the region.
Any dispute, controversy or claim arising out of or relating to a contract, or the breach, termination or invalidity shall be decided by arbitration in accordance with the Rules for Arbitration of the Kuala Lumpur Regional Centre for Arbitration.