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FIC Guidelines do
not have the force of law
The FIC Guidelines thus
do not have the force of law; however in a recent case (in
connection with a real property transaction) the Malaysian court held
that a transaction designed to mislead the FIC as to the real owners of
a piece of property was contrary to Malaysian public policy.
In practice, however,
non-compliance with the FIC Guidelines may have adverse consequences on
the company concerned when it deals with governmental authorities such
as the Immigration Department (in relation to application for employment
passes) and the Stamp Duty Branch of the Inland Revenue (stamping of
transfers of shares).
The reason for the FIC
guidelines not being enacted as law may be due to the political
sensitivity of the goals which the FIC Guidelines seek to achieve. The
FIC itself have said that the equity conditions imposed under the FIC
Guidelines are
“for the restructuring
the community in order to improve the imbalance in the economic
conditions between races. Since the intention is to make Malaysia a
country which is always united, peaceful and prosperous, it is
believed that all companies which are affected by the conditions will
give their full cooperation and will endeavour earnestly to comply
with the conditions.”
General Shareholding
Distribution Guideline
The FIC’s policy for
shareholding spread between foreigners, Bumiputras and other Malaysians
is 30:30:40. This is only a general guide for the economy as a whole and
the FIC will determine the shareholding spread required for each company
on a case by case basis.
The FIC may in some cases allow a foreigner to acquire more than 30% in
a company but require the foreign company to sell down its stake to
Malaysians after a certain number of years.
The FIC policy on shareholding spread is overridden by specific
shareholding limits on certain industries such as banking, stockbroking
and companies having Multimedia Super Corridor status.
Export oriented companies are subject to higher foreign shareholding
limit with no requirement to divest locally (see below). See also the
recent liberalisation of equity holding in manufacturing companies summarised
in the table above.
When FIC Approval
Required
The FIC Guidelines
requires the prior permission of the FIC to be obtained before the
following transaction can be effected:
(a) an acquisition of a
substantial fixed asset in Malaysia by a foreign interest and a
foreign interest includes non-Malaysian individuals, companies
incorporated outside Malaysia, and Malaysian incorporated companies in
which foreign interests hold more than 50% of the voting shares or has
management control;
(b) an acquisition of
an asset or any interest in a Malaysian company or business which will
result in ownership or control passing to foreign interests;
(c) an acquisition of
at least 15% of the voting power by any one foreign interest or group
(or at least 30% in aggregate by foreign interests);
(d) control of
Malaysian company or business through a joint venture agreement,
management agreement, technical assistance agreement or other
agreement;
(e) a merger or
takeover of a Malaysian company or business;
(f) an acquisition of
assets or interest exceeding in value RM5 million.
Manufacturing and Export Oriented Companies
All manufacturing
companies (except those with shareholders' funds of less than RM2.5
million and engaging less than 75 fulltime employees) are required to
apply for a manufacturing licence from the Ministry
of International Trade and Industry. Such licence will usually
contain specific conditions and requirements relating to equity and
employment structure, export, utilisation of local raw materials,
transfer of technology, etc. .
The guidelines for
foreign shareholding in domestic manufacturing companies are as follows:
- for projects exporting
80% or more of total production, up to 100% will be allowed;
- for other export
oriented projects exporting between 51% to 79%
of production, up to 79% may be allowed;
- for projects
exporting between 20% to 50% of production, between 30% to 51% may be
allowed;
- for projects
exporting less than 20%, up to a maximum of 30%.
The Malaysian
Industrial Development Authority has more information on Malaysian
policy on foreign investments in the manufacturing sector.
Exceptions to the FIC Guidelines
FIC approval is not
required if the company is incorporated for the purposes of name
protection or if the company is dormant. Where a dormant company has
commenced trading or operation the company is required to apply for FIC
approval within a year of commencement. Recently the Malaysian
government has announced a few relaxations on the foreign shareholding
limits on Malaysian companies in several sectors. For example in
telecommunications foreign shareholders can now hold up to 61%
shareholding.
The FIC guidelines also
do not apply to shares acquired on the stock exchange for short term
portfolio investment purposes.
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