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.  

Regulatory Bodies 

• 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. 

Tax 

• 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.