Malaysia continues to attract interest from foreign investors and one of the most popular investments is in the real estate sector. As part of the effort to facilitate greater foreign investments in property transactions, the Malaysian government and its state governments have put in place various measures and guidelines. As such, our focus in this chapter will be on the guidelines introduced by the Malaysian government as well as restrictions imposed on foreign interests while investing in the Malaysian real property sector.
(1)
(1) Who Who is is considered considered a a "foreigner" "foreigner" or or "foreign "foreign interest" interest" in in Malaysia?Malaysia?
Under the Guideline on the Acquisition of Properties issued by the Economic Planning Unit of the Prime Minister's Department ("EPU GuidelineEPU Guideline"), foreign interest means any interest, associated group of interest, or parties acting in concert that comprises of: (a) individual who is not a Malaysian citizen; and/or (b) individual who is a Permanent Resident; and/or (c) a foreign company or institution; and/or local company or local institution whereby the parties as stated in item (a) and/or (b) and/or (c) hold more than 50% of the voting rights in that local company or local institution.
(2)
(2) Conditions Conditions and and restrictions restrictions on on acquisition acquisition of of properties properties by by a a foreign foreign interestinterest
Before a foreign interest is allowed to acquire any property, the EPU Guideline must be taken into consideration. Apart from that, the acquisition of the property by the foreign interest must get the approval from the State Authority.
EPU Guideline
Prior to this, the Malaysian government has introduced a Guideline on the Acquisition of Properties by Local and Foreign Interests issued by the Foreign Investment Committee ("FICFIC Guideline
Guideline") to regulate and administer foreign investment in Malaysia. Under the FIC Guideline, any acquisition of property by a foreign interest, including permanent resident, requires the approval of the FIC. However, many feel that the FIC Guideline was no longer relevant because of its restrictive nature. Therefore, in an effort to attract foreign investors, the Malaysian government has decided to repeal the FIC Guideline and to replace it with the EPU Guideline effective on 30 June 2009.
Under the EPU Guideline, there are only two situations that would require EPU's approval for the acquisition of property. First, when there is a direct acquisition of property valued at RM20 million and above which results in the dilution in the ownership of property held by Bumiputera interest and/or government agency. Second, when there is an indirect acquisition of property by other than Bumiputera interest through acquisition of shares, resulting in a change of control of the company owned by Bumiputera interest and/or government agency, having property more than 50 percent of its total assets, and the said property is valued more than RM20 million. In order to acquire a property as mentioned in the two situations above, a company needs to satisfy the equity and paid-up capital conditions as listed in the EPU Guideline.
Other than the above, a foreign interest is only allowed to acquire a residential unit valued at RM 1 million and above. This acquisition however does not require the approval of the EPU but falls under the purview of the State Authority.
Apart from that, there are also a number of transactions that do not require the approval from the EPU such as the acquisition of residential unit under the "Malaysia My Second Home" Programme, acquisition of industrial land by manufacturing company and acquisition of properties by a company that has obtained the endorsement from the Secretariat of the Malaysian International Islamic Centre, among others.
A foreign interest is also allowed to purchase all types of properties in Malaysia except for properties valued less than RM1 million per unit, residential units under the category of low and low-medium cost, properties built on Malay reserved land and properties allocated to Bumiputera interest in any property development project ("Bumiputera LotBumiputera Lot") as determined by the State Authority.
It must be noted however that since land matter falls under the jurisdiction of the state government, each state authority has the discretion to vary the EPU Guideline on the acquisition of property by a foreign interest based on the location and type of property: (a) Johor
(i) Johor has its own policy on the acquisition of property by foreign interest which was effective on 1 May 2014. Under this policy, foreign interest in Johor is only allowed to acquire property in secondary market (sub-sales) from existing property owned by foreign interest. If the foreign interest would like to acquire property owned by Malaysians, it will be considered on a case- to-case basis.
(ii) Other than that, unlike the restriction on the acquisition of Bumiputera Lot imposed under the EPU Guideline, a foreign interest in Johor may be allowed to own Bumiputera Lot in a housing project after the said units obtained approval from Johor State Secretary Office (Housing Division) subject to the existing balance of the foreign interest quota. Foreign interest may also own Bumiputera Lot duly registered in the name of Bumiputera in sub-sales after obtaining the approval from the State Authority. However, the Johor government restricts the type of properties that can be acquired by a foreign interest. For example, a foreign interest in Johor cannot acquire a single storey terrace unit or 1½ storey terrace unit, single or two storey of shop or office lot, stall or service workshop among others.
(b) Selangor
(i) Selangor has issued its own guideline on acquisition of properties by foreign interests or permanent residents in Selangor which came into effect on 1 September 2014.
(ii) The areas in Selangor have been divided into three Zones under this guideline as follows:
Zone
Zone 1 1 Zone Zone 2 2 Zone Zone 33
Daerah Petaling Daerah Kuala
Selangor
Daerah Hulu
Selangor
Daerah Gombak Daerah Kuala Langat Daerah Sabak
Bernam Daerah Sepang
Daerah Hulu Langat
Daerah Klang
(iii) Under the guideline, foreign interests and permanent residents are only allowed to acquire residential properties valued more than RM 2 million in areas categorised as Zone 1 and Zone 2 whereas residential properties in the area classified in Zone 3 can be acquired if the residential properties are valued at RM 1 million or above. Besides that, foreign interests can only acquire commercial and industrial properties in Selangor in all three zones if the values of the properties start from RM 3 million. Furthermore, there are also restrictions against foreign interests from acquiring landed properties, agricultural lands and properties sold through public auction in Selangor. (iv) Apart from Selangor, foreign interests are only allowed to acquire properties
in Penang, if the properties are valued at RM 2 million or more on the island and RM 1 million or more on the mainland. This applies to all types of property in Penang effective from 1 February 2014.
(c) Malacca
Malacca also introduced its own guideline on acquisition of properties by foreign interests entitled "Malacca State Guidelines on Acquisition of Properties by Foreign Interests" where foreigners are only allowed to acquire not more than 3 units of commercial properties while applications made by foreign companies will be considered on a case to case basis. In addition, the purchase price for each property to be acquired by foreign companies must be more than RM1 million per unit for landed properties with individual titles and RM500,000 per unit for properties with strata titles.
Negeri Sembilan, Perlis and Putrajaya have adopted the EPU guideline on the acquisition of property by foreign interest.
(e) Kedah
(i) In Kedah, a foreign interest is allowed to acquire certain type of residential properties, for instance, double storey houses and bungalows if the properties are valued at RM1 million or above. Foreign interest is not allowed to acquire residential properties categorised as single storey terrace house, low cost apartment, properties built on Malay reserved land and Bumiputera Lot. Besides that, foreign interests do not need to apply for State Authority approval for the acquisition of industrial lands in Kedah if the minimum price is RM1million.
(ii) For commercial properties, foreign interests are allowed to acquire three storey shops and office units subject to minimum price of RM1million. Foreigners are not allowed to acquire single or two storey shops, stalls or service workshops.
(f) Penang
(i) Since 1 July 2012, the minimum price of a strata property to be acquired by a foreign interest on the island and Seberang Perai area is RM1million. If a foreign interest intends to acquire a landed property on the island or the Seberang Perai area, the price of that landed property must be a minimum of RM2million. However, a permanent resident in Penang is allowed to acquire properties in Penang subject to a minimum price of RM250,000.
(ii) In addition, a foreign interest is not allowed to acquire the following properties:
(A) low cost and low-medium cost terrace house;
(B) low cost and low-medium cost flat;
(C) property allocated to Bumiputera interest in any property development project; and
(D) property built on a Malay Reserve Land.
(iii) A foreign interest is also not allowed to acquire agricultural lands in Penang. However, in the event that the foreign interest intends to acquire at least 5 acres of the agricultural land, the State Authority will consider the application provided that:
(A) the foreign interest is involved in a commercial agricultural activity using modern and high technology;
(B) the foreign interest is involved in producing agricultural products to be exported;
(C) the foreign interest is involved in developing agricultural activities with modern technology and approved by PORLA, PORIM or MARDI; (D) if the agricultural land to be developed as agro tourism, golf course,
holiday homes and others;
(E) if the agricultural land is situated in a zoning area other than agriculture; or
(F) if the State Authority considers that a project to be developed on that agricultural land needs to be executed.
(g) Kelantan
In Kelantan, a foreign interest is only allowed to purchase a commercial unit, industrial land or agricultural land if the property is valued at RM500,000 or above.
Similarly, a foreign interest can only purchase a residential unit in Kelantan if the minimum price of the unit is RM500,000.
Approv al from th e Stat e Autho rity under section 433 3B of th e Nati onal Land Code 196 5 Besides obtaining EPU approval, foreign interests are required to obtain State Authority approval for the acquisition of properties in Malaysia. The application process could take about three to six months to complete. However, the State Authority approval under this section is not required for the acquisition of industrial land.
(3)
(3) Real Real Property Property Gains Gains Tax Tax ("RPGT")("RPGT")
RPGT is a tax on chargeable gains derived from disposal of property based on the RPGT Act 1976. Effective from 1 January 2014, the RPGT rates imposed on non-citizens and foreign companies are as follows:
Disposal Non-Citizens (does not include permanentresident) Foreign Company
< 3 years 30% 30%
< 4 years 30% 20%
< 5 years 30% 15%
> 5 years 5% 5%
(4)
(4) Stamp Stamp DutyDuty
Stamp duty is payable on the instrument to effect a transfer of land. The following are the rates of stamp duty payable:
Conveyance, assignment or transfer Conveyance, assignment or transfer
Properties Value (RM) Rate Duty payable (RM) Loan
On the first 100,000 RM1 per RM100 or part thereof 1,000 Ad valorem rate of RM0.50 for every RM100 or part thereof On the next 400,000 RM2 per RM100 or
part thereof
8,000
500,000 9,000
In excess of 500,000 RM3 per RM100 of part thereof
Effective from 1 January 2018, the rate of stamp duty on the instrument to convey, assign or transfer in excess of RM1million will be increased from 3% to 4%.
C. Conclusion
C. Conclusion
Premised on the foregoing, one may note that the Malaysian government has over the years increased the relevant thresholds for foreign investment in real property. It would therefore be pertinent for a foreign investor to consider the various conditions before investing in the Malaysian real property sector.
12
12
FRANCHISE FRANCHISE LAWLAW
In a slow economy, starting a franchise business seems to have been a preferred business model compared to the others so much so that the Ministry of Domestic Trade, Cooperatives and Consumerism ("MDTCCMDTCC") is considering to amend the Franchise Act 1998 ("ActAct") to further enhance the industry due to its RM26.8 million gross domestic product contribution in 2015 – The Star Online, 17 June 2016.
Like any business model, with the right framework, franchising can be a successful business expansion strategy as opposed to traditional business models. However, before becoming a successful franchisor, the franchisor should also consider the requirements of the Act that heavily regulates the franchise industry in Malaysia.
A.
A. The The Law Law and and its its ScopeScope
The franchise industry in Malaysia is mainly governed by the Act. It provides for the registration of as well as regulation of any franchise related matters. It also provides an extensive definition of what is considered a franchise under the Act.
Generally, a franchise refers to a contract / an agreement where a franchisee is granted the right to operate a franchise business following a set of rules / guidelines (also known as franchise system) along with the right to use the trade mark, trade secret or any confidential information by the franchisor. In addition, unlike a licensing arrangement, a franchisor has the right to exercise continuous control over the franchisee’s franchise business during a franchise term. Under the Act, a franchise term must be for a period of 5 years and above ("Minimum TermMinimum Term").
B.
B. Registration Registration RequirementsRequirements Preliminary requirements
The Act requires a franchisor (be it local or foreign) to register its franchise with the Franchise Development Division of MDTCC ("Franchise DivisionFranchise Division") before a franchise business commences operation / a franchise business is offered for sale.
An application can be submitted online by anyone through the Malaysian Franchise Express portal at http://myfex.kpdnkk.gov.my/portal/ ("ApplicationApplication"). To facilitate the registration process, a franchisor should consider operating at least 1 franchise outlet for 3 years due to the Act’s requirement to have the franchisor’s current audited financial statements of 3 years ("StatementsStatements") submitted to the Franchise Division.
A master franchisee m ay not need to submit the Statements if certain requirements are met for example, the master franchisee has operated the franchise business for more than 1 year or the master franchisee has only been incorporated for less than 3 years. However, before a master franchisee submits the Application to the Franchise Division to obtain its approval that the Statements is not required, the master franchisee should consider whether such an application will impact any party’s commercial arrangements on the commencement / operation of the franchise business due to the length of time required by the Franchise Division to approve these approvals.
(1)
(1) Registration Registration of of a a franchisor franchisor (whether (whether local local or or foreign)foreign)
According to the Act, a franchisor refers to a person who grants a franchise to a franchisee and includes a master franchisee in relation to its relationship with a sub-franchisee. Generally, a fine will be imposed by the Registrar of Franchise (" Registrar Registrar ") if a franchisor is found by the Registrar to have failed to register as required by the Act as follows:
(a) a fine not exceeding RM250,000.00 for a body corporate; or
(b) a fine not exceeding RM100,000.00 if the person who defaults is not a body corporate.
(2)
(2) Registration Registration of of a a franchisee franchisee of of a a foreign foreign franchisorfranchisor
Before a franchisee intends to commence the franchise business, the franchisee who has been granted a franchise from a foreign franchisor shall apply to register the franchise with the Franchise Division.
Likewise, where a franchisee has been granted approval from a foreign franchisor to sell the franchise business, the franchisee is also required to register such approval with the Franchise Division.
(3)
(3) Registration Registration of of a a franchisee franchisee of of a a local local franchisorfranchisor
Where a franchisee has been granted a franchise from a local franchisor or a local master franchisee, the franchisee must register the franchise business with the Franchise Division by way of the Application within 14 days from the date of signing the franchise agreement between the franchisor and the franchisee.
(4)
(4) Sale Sale of of franchise franchise by by a a foreigner foreigner in in MalaysiaMalaysia
Where a foreign person intends to sell a franchise in Malaysia or to any Malaysian citizen, the foreign person is required to submit an Application to the Franchise Division.
C.
C. The The Franchise Franchise Agreement Agreement and and the the Disclosure Disclosure DocumentsDocuments
As part of the registration requirements, the Act requires a copy of the franchise agreement to be submitted to the Franchise Division for approval before it is signed between the parties. After obtaining the approval from the Franchise Division, the Act requires the franchisor to provide a set of documents / information (ie all the documents / information submitted by the franchisor in support of the Application) to the franchisee at least 10 days before the franchise agreement is signed by the franchisee.
Additionally, the Act also provides for certain mandatory provisions to be included in the agreement. Failure to include these provisions will render a franchise agreement null and void. Some of the provisions are:
(1)
(1) Confidential Confidential information information and and prohibition prohibition against against similar similar businessbusiness
The franchisee must provide to the franchisor a written guarantee that during the term and for two years after the franchise agreement has ended, the franchisee, its directors and their spouses and immediate family, and its employees will not disclose confidential information or engage in businesses similar to the franchise operated by the franchisor.
(2)
(2) Cooling Cooling off off periodperiod
A franchise agreement must also provide for a cooling off period of not less than 7 working days during which the franchisee has the option to terminate the agreement and be refunded all monies paid to the franchisor, save for reasonable expenses incurred by the franchisor in preparing the agreement.
(3)
(3) Extension Extension of of a a franchise franchise termterm
The Act requires the Minimum Term for a franchise with an option for the franchisee to apply for an extension of the franchise term on similar conditions for a further term or not less favourable than the conditions in the previous franchise agreement. Save where the franchisee has breached the terms of the previous franchise agreement or where the franchisee gives the franchisor a written notice of his intent not to renew the franchise agreement, the franchisor may only refuse to renew the franchise if he agrees to compensate the franchisee. In the event the franchisee intends to apply for an extension of the Minimum Term, the franchisee must give a written notice to the franchisor not less than 6 months prior to the expiration of the franchise term.
Alternatively, the franchisor may waive any provision in the franchise agreement which prohibits the franchisee from conducting substantially the same business under another trade mark in the same area prior to the expiration of the franchise agreement.
(4) Termination (4) Termination
Under the Act, a franchisor may not terminate a franchise agreement before the expiration date except for a "good cause". An example of a "good cause" is when a franchisee fails to remedy a breach after the franchisor has given a notice of, and an opportunity to remedy, the breach.
Though a franchise term must not be less than the Minimum Term, a franchise term may be terminated before the expiry of the minimum term in the following circumstances:-
(a) where both parties to the franchise agreement agree to a termination; or