Business Law in Malaysia
Business Law in Malaysia is shaped by a combination of statutory law, common law, and Islamic law, and is influenced by its history as a former British colony. Malaysia has a developed legal framework for business operations, aiming to encourage investment and ensure a fair and transparent business environment. Here is an overview of the key components of Business Law in Malaysia:
1. Business Entity Formation
In Malaysia, businesses can be structured in several ways, with the most common forms being sole proprietorships, partnerships, and companies. The Companies Commission of Malaysia (SSM) is the governing body for business registration.
Sole Proprietorship:
- This is the simplest business form where one individual owns the business. The owner has unlimited liability, meaning personal assets can be used to pay business debts.
Partnership:
- A partnership can involve two or more individuals. Partners share profits and liabilities equally unless stated otherwise in the partnership agreement. A limited liability partnership (LLP) is an alternative structure where partners' liabilities are limited to their investment.
Private Limited Company (Sdn Bhd):
- The Private Limited Company (Sdn Bhd) is the most common type of company in Malaysia. It has limited liability, meaning shareholders are only liable up to the amount they have invested. A private limited company can be registered with a minimum of one director and one shareholder. The minimum paid-up capital is RM 1.
Public Limited Company (Berhad - Bhd):
- A public limited company (Bhd) can list its shares on the Bursa Malaysia (stock exchange). It must have a minimum of two directors and at least two shareholders, and its paid-up capital requirement is higher than that of a private limited company.
Foreign Companies:
- A foreign company can establish a branch or subsidiary in Malaysia. The branch must register with the SSM and comply with local regulations. A subsidiary must be incorporated under Malaysian law and must meet the same registration requirements as a local company.
2. Company Registration
To operate a business in Malaysia, businesses must go through the following process for registration:
Registering with the Companies Commission of Malaysia (SSM):
- All companies must register with the SSM. The registration process requires submitting details about the company's name, shareholders, directors, and business objectives.
Tax Registration:
- After registering with the SSM, businesses must register for taxes with the Inland Revenue Board of Malaysia (IRBM), which issues a Taxpayer Identification Number (TIN). Businesses are subject to several taxes, including corporate income tax, Goods and Services Tax (GST), and withholding taxes.
Licensing:
- Depending on the type of business, certain licenses or permits may be required, such as trading licenses, health permits, or industry-specific certifications.
3. Taxation
Malaysia has a relatively straightforward tax system. The primary taxes for businesses are:
Corporate Income Tax (CIT):
- The corporate tax rate for Malaysian companies is 24% on taxable profits. However, small businesses may benefit from lower rates on the first RM 600,000 of taxable income, which is taxed at 17%.
Goods and Services Tax (GST):
- Malaysia implemented the Goods and Services Tax (GST) system in 2015, but it was replaced with Sales and Service Tax (SST) in 2018. The SST has two components: Sales Tax (ranging from 5% to 10% depending on the product) and Service Tax (6%) on certain services.
Withholding Tax:
- Malaysia imposes withholding taxes on certain types of income, including dividends, interest, and royalties. The rates generally range from 10% to 15%, depending on the type of payment and the tax treaty between Malaysia and the recipient's country.
Personal Income Tax:
- Personal income tax is progressive, with rates ranging from 0% to 30% depending on the individual's income level.
Other Taxes:
- Stamp duty is imposed on certain documents, such as contracts and property transactions. Malaysia also imposes taxes on capital gains and real property transactions.
4. Labor and Employment Law
Labor and employment laws in Malaysia are governed by the Employment Act 1955, the Industrial Relations Act 1967, and other related legislation. Key provisions include:
Employment Contracts:
- Employers are required to provide written contracts outlining the terms and conditions of employment. Contracts must specify details such as job responsibilities, remuneration, working hours, and benefits.
Working Hours:
- The standard working hours in Malaysia are 8 hours per day and 48 hours per week. Overtime pay is required for work beyond the standard hours.
Minimum Wage:
- Malaysia has a national minimum wage, which is reviewed regularly. As of 2022, the minimum wage is RM 1,200 per month for employees in Peninsular Malaysia, and RM 1,100 per month in Sabah, Sarawak, and Labuan.
Leave and Benefits:
- Employees are entitled to annual leave (a minimum of 8 days per year after one year of employment), sick leave, maternity leave (60 days), and public holidays. EPF (Employees Provident Fund) and SOCSO (Social Security Organization) contributions are mandatory for employees.
Termination and Severance:
- Employment can be terminated by either the employer or the employee, but certain procedures must be followed. Employees are entitled to severance pay if terminated without cause.
5. Intellectual Property (IP)
Malaysia recognizes and enforces intellectual property rights under various laws:
Trademarks:
- The Trademarks Act 2019 governs the registration and protection of trademarks in Malaysia. A trademark can be registered for 10 years and is renewable indefinitely.
Patents:
- The Patents Act 1983 protects new inventions in Malaysia. Patents are granted for a period of 20 years from the filing date.
Copyright:
- The Copyright Act 1987 protects the rights of creators of original works. Copyright protection lasts for the life of the author plus 50 years.
Industrial Designs:
- The Industrial Designs Act 1996 protects the visual design of objects that are new or original. Protection lasts for 5 years, with the option to renew for an additional 5 years.
Trade Secrets:
- Trade secrets are protected under the Trade Secrets Protection Act 2018 and common law principles.
6. Competition and Consumer Protection
Malaysia has laws aimed at promoting fair competition and protecting consumers:
Competition Law:
- The Competition Act 2010 prohibits anti-competitive practices, including price-fixing, abuse of market dominance, and anti-competitive mergers and acquisitions. The Malaysia Competition Commission (MyCC) enforces this law.
Consumer Protection:
- The Consumer Protection Act 1999 protects consumers from unfair trade practices, misleading advertisements, and defective goods. It also provides for a Consumer Tribunal to settle disputes between consumers and businesses.
7. Environmental Law
Environmental law in Malaysia is governed by various statutes that regulate activities that may affect the environment, such as waste disposal, pollution control, and natural resource management:
Environmental Quality Act 1974:
- This Act is the primary law for regulating environmental pollution. It addresses issues like air, water, and noise pollution, as well as the management of hazardous substances.
Environmental Impact Assessment (EIA):
- Under the Environmental Quality (Prescribed Activities) (EIA) Order 2015, an EIA is required for projects that may have a significant impact on the environment, such as large-scale construction, mining, or industrial activities.
Forest and Natural Resource Laws:
- The National Forestry Act 1984 and other related legislation regulate the management and conservation of Malaysia's natural resources, including forests, wildlife, and marine environments.
8. Dispute Resolution
Businesses in Malaysia can resolve disputes through various means, including:
Courts:
- Commercial disputes are usually settled by the Civil Courts, with higher courts, such as the High Court, handling more complex cases.
Arbitration:
- Arbitration is a preferred method for resolving commercial disputes in Malaysia. The Malaysian Arbitration Act 2005 provides the legal framework for arbitration, and Malaysia is a signatory to the New York Convention, which facilitates the enforcement of foreign arbitral awards.
Mediation:
- Mediation is an alternative dispute resolution (ADR) method. The Malaysian Mediation Centre facilitates the resolution of disputes without going to court.
9. Foreign Investment and Incentives
Malaysia has various incentives to attract foreign investment:
Malaysia Investment Development Authority (MIDA):
- MIDA provides incentives to foreign investors, particularly in the manufacturing, high-tech, and service industries. Incentives include tax exemptions, grants, and investment allowances.
Free Trade Zones:
- Malaysia has established free trade zones that offer incentives such as tax exemptions and other benefits to businesses engaged in export-oriented activities.
Investment Tax Incentives:
- The government offers tax holidays, reinvestment allowances, and other incentives to attract foreign investors in specific industries, particularly in high-tech and green technologies.
Conclusion
Business Law in Malaysia offers a well-developed legal and regulatory framework for businesses, with clear provisions on business registration, taxation, employment, intellectual property, competition, and dispute resolution. The legal system is conducive to both local and foreign investments, with various incentives available for businesses looking to establish themselves in the country. As Malaysia continues to develop, the government focuses on promoting a business-friendly environment and attracting investment, particularly in industries like technology, manufacturing, and services.
RELATED Blog
0 comments