The corporate environment: New programmes are attracting foreign direct investment

OVERVIEW OF THE ECONOMIC TRANSFORMATION PROGRAMME: The Economic Transformation Programme (ETP) was introduced in late 2010 by the Malaysian Government to transform Malaysia into a high-income economy by 2020. It is aimed at lifting Malaysia’s gross national income per capita from $6700 in 2009 to more than $15,000 in 2020. The ETP primarily consists of two parts:

• 12 National Key Economic Areas (NKEAs, i.e. oil, gas and energy, palm oil and rubber, financial services, tourism, business services, electrical and electronics, wholesale and retail, education, health care, communications, content and infrastructure, agriculture and Greater Kuala Lumpur/Klang Valley), selected by the government because they are viewed as significant engines of future growth; and

• Six Strategic Reform Initiatives (SRIs) which introduce driving policies to complement the NKEAs and ensure that Malaysia remains a competitive global player.

These SRIs include competition, standards and liberalisation, the government’s role in business, human capital development, public service delivery, narrowing disparities and public finance reform. It is projected that under the ETP 92% of total investments will originate from the private sector, with private firms investing $266bn (60%) and corporations linked to the government investing $144bn (32%). The remaining 8% of the total investments – amounting to about $34bn – will originate from the public sector.

FOREIGN DIRECT INVESTMENT: Based on the World Investment Report produced by the UN Conference on Trade and Development (UNCTAD), as of July 5, 2012, foreign direct investment in Malaysia had increased to $11.97bn (from the $9.1bn of 2010).

In response to the ETP and the government’s continuous effort to encourage direct foreign investments in Malaysia, it is reported in the ETP Annual Report 2011 that the Canada-based Vale, Australia-based Worley Parsons, Japan-based Toshiba and US-based Schlumberger, AECOM, PayPal and IBM have all set up operations and/or committed investments in Malaysia. IBM will be investing up to RM1bn ($323m) in its Global Technology Services Delivery Centre in Cyberjaya over the next five years. Toshiba will be investing RM268m ($86.5m) and is proposing to set up global and regional roles for its new centre in Malaysia. Schlumberger also announced on September 20, 2012 that it had selected Malaysia as its Asia Pacific regional hub.

COMMON FORMS OF BUSINESS ENTITIES: The common forms of business entities adopted by foreign investors in Malaysia are private companies or listed or unlisted public companies limited by shares. Companies in Malaysia are principally governed by the Malaysian Companies Act 1965. Its principles are largely common law based and enunciate rules commonly seen in other Commonwealth jurisdictions, with slight variations to cater to the local environment.

The objects and powers of a company are set out in the memorandum of association and the rules regulating the internal affairs of the company (including the powers of the directors and shareholders and the meetings of these groups) are governed by the articles of association. Like most companies in the Commonwealth’s jurisdiction, the board of directors is empowered to manage or direct the business and affairs of the company. One peculiar requirement of the board’s constitution worth noting is that at least two directors (whether or not they are Malaysian citizens) must have their principal residence in Malaysia. Directors owe their primary duties to the company and are required to at all times act and exercise their powers for a proper purpose and in the best interests of the company as a whole, and not for their personal interest. It is for this reason that directors of public companies or subsidiaries of public companies are required to abstain from voting on certain matters that involve the directors or persons connected to the directors.

Even though the board of directors is tasked with managing the business and affairs of a company, there are certain matters which require specific approvals from the shareholders either by way of ordinary resolution (where a simple majority would suffice whether by show of hands or by proxy) or special resolution (where a resolution may be passed by a majority of not less than 75% of members by a show of hands or proxy). Examples of matters that require shareholders’ approval are the substantial acquisition or disposal of properties; the issuance and allotment of shares; capital reduction; amendments of the memorandum; and articles of association, appointment and removal of auditors. Given that certain matters require shareholders’ approval by way of special resolution, a shareholder should hold at least 75% of the voting shares of a company to have effective control. TYPES OF MERGER & ACQUISITION TRANSACTIONS IN MALAYSIA: Merger and acquisition transactions (M&A) in Malaysia usually involve:

• Share acquisition;

• Business and asset transfer;

• Joint ventures;

• Privatisation of listed companies;

• Selective capital reduction;

• Schemes of reconstruction and amalgamation; and

• Schemes of arrangements. The first four of these are more commonplace. The terms and conditions of the M&A are usually documented in agreements or instruments of transfer save that a court order or confirmation must be obtained for selective capital reduction exercises and arrangement, reconstruction and amalgamation schemes.

M & A INVOLVING PUBLIC COMPANIES: One major distinction between an M & A of a private company and an M & A of a public company is that the latter is within the purview of the Securities Commission (SC) and thus subject to the provisions of the Capital Markets and Services Act 2007 (CMSA) and the Malaysian Code on Take-overs and Mergers 2010. An offer for a public company may be recommended by the target company’s board of directors. A full offer cannot succeed unless the bidder has received acceptances that will result in the bidder (together with persons acting in concert with it) holding more than 50% of the voting rights in the target company. In the case of partial offers for more than 33%, the partial offer must be approved by the independent target company shareholders holding more than 50% of the voting shares of the target company not held by the bidder and persons acting in concert with it.

A potential bidder may be required to make a mandatory offer for all the target company’s shares if taken together with shares held or acquired by persons acting in concert with it, the potential bidder acquires more than 33% of the voting shares of the target; or if together with persons acting in concert with it, it already holds more than 33% but less than 50% of the voting shares of the target, and it (or persons acting in concert with it) acquires or intends to acquire voting rights in the target by more than 2% in any six-month period. The board of the target company (and in some cases, the bidder as well) must obtain independent advice in regards to any take-over offer.

RESTRICTIONS ON FOREIGN DIRECT INVESTMENT: undefined One of the main concerns for foreign investors is foreign equity restrictions. As part of liberalisation efforts, the Guidelines on the Acquisition of Interests, Mergers and Takeovers by Local and Foreign Interests (FIC Guidelines) issued by the Malaysian Foreign Investment Committee (FIC) were abolished on June 30, 2009, taking with it overarching policies governing foreign direct investments such as the 30% bumiputera (an individual who is a native of Malaysia or a company or institution in which bumiputeras hold more than 50% of the voting rights in such a company or institution) equity requirements and the 70% foreign shareholding ceiling.

In effect from June 30, 2009, the purchase of shares in a Malaysian company no longer falls within the purview of the FIC and is regulated by the respective sector regulators (the Ministry of International Trade and Industry for the manufacturing industry; the Ministry of Domestic Trade, Cooperative and Consumerism for distributive trade, direct selling and hypermarkets; the Central Bank of Malaysia and the Minister of Finance for the banking, insurance and takaful [Islamic insurance] industry; the SC for the capital market services industry; and the Malaysian Communications and Multimedia Commission for the telecoms industry).

Equity conditions in the various regulated sectors in Malaysia are also now generally determined by the respective governmental ministries. Foreign ownership limits vary sector to sector.

At the 2012 budget speech, the liberalisation of 17 services sub-sectors was identified, and it was announced that 100% foreign equity ownership is now allowed for 10 sub-sectors: telecoms for the applications service provider licence category, technical and vocational schools, technical and vocational schools for students with special needs, private hospitals, departmental and specialty stores, incineration services, accounting and taxation services, skills training centres, courier services and international schools. The remaining seven sub-sectors – telecoms for the network service provider and network facilities provider licences categories, private universities, medical specialists clinics, dental specialists clinics, legal services, architectural services and engineering services – are expected to be liberalised by the end of 2012.

BUDGET 2013: The 2013 budget was recently announced on September 28, 2012. Some of the salient proposals extracted from the 2013 Budget published by the Ministry of Finance and tabled by the prime minister, Najib Abdul Razak, are described in the following paragraphs.

RM3bn ($968m) will be allocated for the implementation of entry-point projects, with RM1.5bn ($484m) for agricultural projects such as oil palm, rubber, high-value herbs and paddy. The entry-point projects concretely outline the actions required to grow the economy. An example of such a project under the ETP is the mass rapid transit (MRT) rail, spanning 141 km with three major routes and covering a radius of 20 km of Kuala Lumpur’s city centre. It is expected to generate economic growth through productivity gains, property appreciation from transit-oriented developments and improve the overall quality of city life.

To support the participation of private operators in the oil and gas industry, various special tax incentives and non-tax incentives have been provided, including the cost of land acquisition and financial assistance as a tipping point for public-private partnership projects, 100% income tax exemption for a period of 10 years, exemption of withholding tax and exemption of stamp duty. For investment in the refinery activities on petroleum products, investment tax allowance of 100% for a period of 10 years will be provided to qualified companies. For liquefied natural gas trading companies, the Global Incentive for Trading (GIFT) programme will be enhanced with a 100% income tax exemption on statutory income for the first three years of operations. This is in addition to the current tax incentives under the GIFT programme, which includes a flat corporate income tax rate of 3% of the chargeable income.

As a measure to counter speculative investment, it is proposed that disposal of properties made within a period not exceeding two years from the date of purchase will be subject to real property gains tax (RPGT) at the rate of 10-15% of disposal of property within a period of two to five years. For property disposed after five years from the date of purchase, RPGT is not applicable. In addition, gains from the disposal of one residential property once in a lifetime and disposal of properties based on love and affection between a husband and wife, parents and children, or grandparents and grandchildren are exempted from RPGT.

CMSA will be amended to provide an option for carrying out business operations through a business trust, which adopts the unit trust structure as a basis for its business. In line with this, it is proposed that a business trust be given the same tax treatment as a company. It is proposed that the transfer of any business, asset and real property to a business trust be given stamp duty exemption and RPGT exemption at the early stage of the establishment of a business trust.

When the Limited Liability Partnerships Act 2012 comes into force, a limited liability partnership (LLP) is to be accorded income tax treatment similar to that of a company, where inter alia a LLP will be taxed at 25%, any profit distributed to partners by a LLP will be exempted from tax and remunerations paid to a partner by a LLP will be exempted from tax.

Danajamin Nasional Berhad (Danajamin), Malaysia’s first financial guarantee insurer established in 2009, would provide guarantee facilities to viable companies to obtain funds from the bond market at a reasonable cost. It was announced that Danajamin has already approved guarantees totalling RM9.3bn ($3bn) to 30 companies, resulting in the issuance of bonds and sukuk (Islamic bond) worth RM4.2bn ($1.4bn).

There are proposed tax incentives to boost the commercialisation of research and development (R&D) findings of public institutions. Companies that invest in their subsidiary companies that undertake the commercialisation of R&D findings will be given a deduction equivalent to the total investment made in that subsidiary. The subsidiary company that undertakes the commercialisation of R&D findings will also be given income tax exemption of 100% on the statutory income for a period of 10 years.

There will be tax incentives for the revival of abandoned housing projects. The government is allocating RM100m (approximately $32.3m) to revive 30 abandoned housing projects. Banking institutions will be given tax exemption on interest income received from the rescuing contractor/developer. The rescuing developer will in turn be given a double deduction on interest paid and all direct costs incurred in obtaining loans, stamp duty exemption on all instruments executed from the purpose of transfer of land or houses and loan agreements to finance the cost of revival. Furthermore, the original house buyer in the abandoned project will be given stamp duty exemption on all instruments executed for the purpose of obtaining additional finance and the transfer of the house.

An angel investor in a venture company at start-up financing, seed capital financing and early stage financing may claim deduction on the total value of investment. The deduction is limited to business income.

The development of Tun Razak Exchange is to be completed by 2016 and is expected to attract more than 250 of the world’s leading companies to locate at it. It has a gross development value of RM26bn ($8.4bn).

To provide certainty to taxpayers, it is proposed that the time bar for raising income tax or additional assessment be reduced from six years to five years.

EXCHANGE CONTROL: The central bank of Malaysia, Bank Negara Malaysia (BNM), regulates and supervises the Malaysian banking system, the development of financial institutions and insurance companies. BNM also issues the Malaysian currency (the Ringgit), acts as a banker and an economic and financial adviser to the government, administers the country’s foreign exchange control regulations and acts as lender of last resort to the banking system.

There are currently no restrictions on the repatriation of capital, profits, dividends, interest and rental income by foreign direct investors from their Malaysian subsidiary company. The amounts repatriated will however need to be reported to BNM.

TAX & INCENTIVES: The Malaysian corporate tax rate is presently 25%. Resident companies with a paid-up capital of RM2.5m ($806,500) and below at the beginning of the basis period for a year of assessment are subject to a corporate income tax rate of 20% on the first RM500,000 ($161,300) of chargeable income; the corporate income tax rate for chargeable income in excess of RM500,000 is 25%. Apart from income tax payable by Malaysian resident companies, there are other direct taxes such as stamp duty and real property gains tax, and indirect taxes such as sales tax, service tax, excise duty, import duty and export duty. It should be noted, however, that companies engaged in petroleum operations are subject to a rate of 38%.

Tax incentives, both direct and indirect, are provided for in the Malaysian Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972, Excise Act 1976 and Free Zones Act 1990. These acts provide various tax incentives and inducements for various forms of investments in Malaysia, and cover investments in the manufacturing, agriculture, tourism (including hotels) and approved services sectors, and high-technology companies, as well as R&D, training and environmental protection activities, and other industrial or commercial activities determined by the Minister of Finance. The direct tax incentives grant partial or total relief from income tax payment for a specified period, while indirect tax incentives come in the form of exemptions from import duty, sales tax and excise duty.

REAL PROPERTY: Malaysian real property is generally categorised as being for agricultural, industrial or building (commercial or residential) use and may either be freehold (perpetual) or leasehold (limited to the term specified in the individual issue document of title, generally 60 or 99 years) in tenure. Dealings with Peninsular Malaysian real properties are subject to the relevant land rules and Malay reservation enactments for the state in question where the property is located and the provisions of the National Land Code 1965 (NLC), and dealings with East Malaysia real properties are subject to the provisions of the Sarawak Land Code and the Sabah Land Ordinance.

The Torrens system of land registration is embodied in the NLC and applicable to real properties in Peninsular Malaysia. A person who has been registered with the relevant land office or registry as a proprietor of Malaysian real property enjoys immediate, indefeasible title to the same, unless there was any fraud or misrepresentation to which such person was party or privy, the registration was obtained by forgery or by means of an insufficient or void instrument, or the title or interest was unlawfully acquired by such person in the purported exercise of any power or authority conferred by any written law. Generally, ownership of Malaysian real property is evidenced by an individual issue document of title issued by the relevant land office or registry for landed real properties, or by strata titles for individual parcels in subdivided, stratified buildings. Malaysian land offices or registries have records of real properties registered with them, and searches may be conducted thereat to ascertain particulars pertaining to the property – ownership, encumbrances (e.g. charges, caveats, liens or other third-party interests like easements, leases or endorsed tenancies), category of land use, tenure, express conditions (generally regarding its use) and restrictions in interest (whether state authority consent for any sale, transfer, charge, lease or dealing with the land is required).

In Malaysia, where the period of occupation (with payment of rent) of a piece of real property is three years or less, the same would be a “tenancy”. Any period/term exceeding three years is a “lease”. Leases of Malaysian real property may be for a maximum term of 99 years if the lease relates to the whole of the land, or a maximum of 30 years if the lease relates to only a part of the land. Tenancies are exempted from registration under the NLC, but may be endorsed on the title to the property if the tenant wishes to protect his interests in the same. Leases are required to be registered if the lessee is to enjoy the protection accorded to lessees under the NLC. The endorsement of a tenancy or registration of a lease would bind a subsequent transferee of the property until its expiry. An unregistered lease would not be invalid or void but would not bind a subsequent transferee of the property, and may only be enforced against the person who granted the lease.

Concurrent with the aforementioned repeal of the FIC Guidelines, the new Guidelines on the Acquisition of Properties by Local and Foreign Interests (Property Guidelines) were introduced by the Economic Planning Unit of the Prime Minister’s Department of Malaysia (EPU) in June 2009. Under this new set of Property Guidelines, (i) an acquisition of real property valued at RM20m ($6.5m) or more which results in the dilution in ownership of property held by bumiputera interest and/or a government agency or (ii) an acquisition of shares in a company which (a) holds total real properties valued at more than RM20m ( approximately $6.3m) and (b) has real properties constituting more than 50% of its total assets, if such acquisition results in a change in control of the company owned by bumiputera interests and/or government agency, will still require the approval of the EPU and be subject to an equity condition of 30% bumiputera ownership. Real property which is directly or indirectly acquired in the manner aforesaid must be registered under a locally incorporated company, and the paid-up capital of the local company must be (i) RM100,000 ($32,300) if it is owned by local interests or (ii) RM250,000 ($80,700) if it is owned by foreign interests.

Commercial, industrial or residential real properties purchased by foreign interests and valued at RM500,000 ($161,300) or more or transfers of property to a foreigner based on immediate family ties do not require the EPU’s approval. An acquisition of agricultural land by a foreign interest would not require the EPU’s approval provided that such land is valued at RM500,000 ($161,300) or more or is at least five acres in area, and is acquired for the following purposes: (i) to undertake agricultural activities on a commercial scale using modern or high technology, (ii) to undertake agro-tourism projects or (iii) to undertake agricultural or agro-based industrial activities for the production of goods for export.

Under the property guidelines, there are also certain other acquisitions of real property that are exempted from requiring EPU approval. The following are, however, not permitted to be acquired by foreign interests: (i) properties valued at less than RM500,000 ($161,300), (ii) residential units under the category of low and medium cost as determined by the relevant state authority, (iii) properties built on Malay-reserved land and (iv) properties allocated to bumiputera interests in any property development project as determined by the relevant state authority.

The acquisition of commercial, residential, agricultural or industrial real properties by foreign interests would however fall within the purview of the relevant state authorities, relevant ministries and/or governmental departments. Section 433B of the NLC requires state authority consent to be obtained for acquisitions of Malaysian real property by non-citizens or foreign companies, save for any land or interest in land which is subject to the category of “industry” or to any condition requiring its use for industrial purposes. An acquisition of industrial real property valued at RM500,000 ($161,300) or more would accordingly not require either the EPU’s approval under the Property Guidelines or the state authority’s consent pursuant to Section 433B of the National Land Code. It should be noted that individual issue documents of title to Malaysian real properties might contain a restriction in interest requiring state authority consent for, inter alia, a transfer of the same – in which event such consent will need to be obtained.

COMPETITION LAW: The Competition Act 2010 came into force on January 1, 2012. The Competition Act applies to commercial activities within Malaysia and outside Malaysia if the latter affects competition in any market in Malaysia. The influence of Article 101 of the Treaty on the Functioning of the European Union (TFEU) can be seen in the drafting of the act. First, “agreements” that come within the purview of the act also include decisions by associations and concerted practices. “Concerted practices” in turn will also cover exchanges of information. Further, the act extends coverage beyond the end consumer to intermediate consumers such as wholesalers and retailers. As such it is anticipated that EU case law will significantly influence the manner in which the act will be interpreted and applied. The Section 4 prohibition on horizontal and vertical agreements, which has the object or effect of “preventing, restricting or distorting competition” (discussed in the 2011 Malaysia report), broadly follows Article 101 of the TFEU, save that it also contains an additional requirement of “significance” as compared to the de minimis principle applied in the EU.

The Malaysian Competition Commission (MyCC) published guidelines on May 2, 2012 on how such anti-competitive objects or effects are to be assessed. Broadly, the MyCC will not just examine the actual common intentions of the parties but also assess the aims pursued by the agreement. If the agreement has an anti-competitive object the MyCC will not proceed to inquire into whether the same has an anti-competitive effect. Conversely, if an anti-competitive object is not found, the agreement may contravene the Competition Act if it has an anti-competitive effect. Still, the impact of the agreement or concerted practice must be “significant” in that it is more than trivial. The MyCC has set safe harbours in the guidelines in that anti-competitive agreements may not be considered significant if parties to the agreement are competitors in the same market, and their combined market share does not exceed 20%; or if the parties are not competitors, where all of the parties individually have less than 25% in their relevant market.

Guidelines on determining dominance and abuse of dominant position as well as market definition were published by the MyCC on the same date. Briefly, both the relevant product and geographical markets will be assessed to determine whether an enterprise possesses significant market power in a relevant market. The MyCC has also stated that enterprises are expected to conduct self-assessment exercises and ensure that compliance procedures are put in place at all levels of employment. In other developments, five applications for block exemptions and one application for an individual exemption have been made, and the MyCC has announced that all these applications remain under assessment. The MyCC also commenced a review of the competitiveness of the domestic broiler market on July 16, 2012. The public consultation section of the review was closed on August 29, 2012 and a final report was due to be issued on October 15, 2012.

EMPLOYMENT: The legislative foundation and cornerstone of Malaysian employment law lays in the Employment Act 1955 (EA) and the Industrial Relations Act 1967 (IRA). The EA regulates the legal relations of employer-employee and the IRA regulates employer-union relationships and industrial disputes. Save for some protection, which applies to all employees, the EA protects only: (a) persons whose monthly wages do not exceed RM2000 ($645) a month; (b) manual labourers, (c) supervisors of manual labourers; (d) persons engaged in the operation or maintenance of mechanically driven vehicles; and (e) certain persons engaged on vessels registered in Malaysia. The EA also protects domestic servants but only to a limited extent. The EA further regulates the minimum terms and conditions of employment, such as rest days, hours of work, shift work, public holidays, annual leave (vacation), sick leave, and maternity leave, while the IRA establishes the Industrial Court (an administrative tribunal) with wide powers including the power to order reinstatement of an employee who is found to have been unlawfully dismissed.

In addition, there is extensive Malaysian legislation protecting workers’ welfare and benefits. In the area of workers’ health and safety in the workplace, legislation comes in the form of the Occupational Safety and Health Act 1994 and the Factories and Machinery Act 1967. As for compensation and survivors’ benefits, the Employee’s Social Security Act 1969 (SOCSO) provides benefits and/or social security in cases of employment injury and invalidity. In addition, the Employment Provident Fund Act 1991 creates a compulsory saving scheme for employees and protects them against contingencies concerning old age and death by compelling monthly contributions from both employers and employees (the scheme is, however, not compulsory for expatriates/foreigners). The Minister of Human Resources, personally and through his various departments ( including the Labour Office, the Industrial Relations Department and the Industrial Court), plays a vital role in maintaining industrial harmony in the country.

SECURITY OF TENURE: Of particular importance to Malaysian employment jurisprudence is the concept of security of tenure of an individual’s employment, which is regarded as a fundamental liberty and a right to livelihood guaranteed by the Federal Constitution. In brief, an employer may only terminate the services of an employee if it can be justified. Security of tenure is given statutory force by the IRA.

Employers must be cautious when dealing with terminating employment. Unless there is “just cause or excuse” for such termination, if challenged, such termination may be declared unlawful by the Industrial Court. Unlawful termination may be a costly affair. The Industrial Court may award up to two years’ back wages (back salary) and in addition order the reinstatement of the employee, or in lieu of reinstatement, award compensation. Compensation in lieu of reinstatement is generally calculated at the rate of one month’s wages for every year of service. While the IRA benefits all employees (referred to as “workmen”), the EA on the other hand, generally applies only to a limited category of employees.

Recent developments in 2012 have expanded some of the protection afforded by the Employment Act to all employees. The notable expansions include the recognition of maternity leave of 60 days for all female employees. Statutory recognition has also been given to sexual harassment with the insertion of a new section into the EA. Again, this expansion applies to all employees. “Sexual harassment” is defined as any unwanted conduct of a sexual nature – whether verbal, non-verbal, visual, gestural or physical – directed at a person, which is offensive or humiliating or is a threat to his well-being, arising out of and in the course of his employment. The EA now imposes an obligation on an employer to conduct an enquiry into the complaint of sexual harassment. If an employer refuses to conduct such enquiry, the employer shall inform the complainant of his/her refusal and the reasons for the refusal within a specified time.

However, the EA also provides for situations when an employer may refuse to conduct an enquiry; for example, when the employer is of the opinion that such complaint is frivolous, vexatious or is not made in good faith. A complainant who is dissatisfied with the refusal of the employer to enquire into his complaint may refer the matter to the Director General of Labour, who may either direct the employer to conduct an enquiry or inform the person who referred the matter that no further action will be taken. If an employer is satisfied that sexual harassment is proven; the employer is obligated to take disciplinary action. An employee may also make a complaint of sexual harassment directly to Director General of Labour. The Director General of Labour is required to assess such complaint and may direct the employer to enquire into the complaint.

An employer who is so directed by the Director General of Labour must submit a report of the enquiry to the Director General of Labour within a specified time. Any employer who fails to do any of the following commits an offence: (a) enquire into complaints of sexual harassment; (b) inform the complainant of the refusal and the reasons for the refusal to conduct an enquiry into a complaint of sexual harassment; (c) inquire into complaints of sexual harassment when directed to do so by the Director General of Labour; or (d) submit a report of enquiry into sexual harassment to the Director General of Labour, if so directed by the Director General of Labour.

POST EMPLOYMENT RESTRAINTS: Section 28 of the Contracts Act 1950 effectively provides that all post-employment restraints are void and unenforceable. The principle has been applied strictly, making all forms of restraints on post-employment legally void and unenforceable. The test of reasonableness of the post- employment restraint is not applicable in Malaysia. Many employers, particularly multinational companies, find this rather archaic and difficult, particularly when such restraints, if reasonable, are recognised in other jurisdictions. Nevertheless, the courts have “enforced” such restraints (indirectly) in a handful of recent cases when former employees have been found to have misused confidential information or trade secrets. Post-employment restraints clauses are nevertheless not uncommon in Malaysian employment contracts and are said to have some “moral” value even if not strictly/legally enforceable. It is however advisable for employers to include a severability clause into employment contracts when post-employment restraints are included.

MINIMUM RETIREMENT AGE: The Minimum Retirement Age Act 2012 was recently enacted, but it has yet to come into force. Therefore, the retirement age of employees remains unregulated and is governed solely by the terms and conditions of employment. Once the Minimum Retirement Age Act is in force, the minimum retirement age of an employee shall be 60 years. Thereafter, an employer who prematurely retires an employee before the age of 60 years commits an offence. The Minimum Retirement Age Act is generally only applicable to confirmed full- time employees who are Malaysian citizens in the private sector. The Minimum Retirement Age Act does not apply to government servants, probationers, non-citizens, apprentices, domestic servants, persons employed with average hours of work not exceeding 70% of the normal hours of work of a full-time employee, students employed under a temporary term of employment, persons employed on a fixed term contract of less than 24 months (including extensions) and persons above 55 years of age who have already retired before the Minimum Retirement Age Act comes into force and are subsequently re-employed after such retirement.

Accordingly, any retirement age in the terms and conditions of service made before, on or after the coming into operation of the Minimum Retirement Age Act, which is less than 60 years shall be deemed to be void and substituted with the minimum retirement age of 60. Neither employer nor employee may contract out of the Minimum Retirement Age Act. However, the employer and employee may agree to an optional retirement age. An employee who claims to have been made to retire prematurely may lodge a complaint with the Director General of Labour, who may then conduct an enquiry to determine whether the employee has been prematurely retired. If the Director General of Labour is satisfied that said employee has been prematurely retired, the Director General of Labour may direct the employer to reinstate the employee in his former employment and to pay the employee arrears of wages calculated from the date the employee had been prematurely retired to the date of the reinstatement.

Alternatively, the Director General of Labour may direct the employer to pay the employee compensation in lieu of reinstatement, not exceeding the total wages the employee would have received from the date the employee was prematurely retired to the date the employee attains minimum retirement age. An employer who fails to comply with the direction of the Director General of Labour commits an offence.

MINIMUM WAGE LEGISLATION: The Minimum Wages Order 2012, made under the National Wages Consultative Council Act 2011, which comes into effect on January 1, 2013, sets out minimum wage rates in relation to an employer who employs more than five employees and an employer who carries out a professional activity classified under the Malaysia Standard Classification of Occupations (MASCO) as published by the Ministry of Human Resources. From July 1, 2013, the minimum wage rate will also apply to an employer who employs five employees or less, other than one who is classified under MASCO, as above. The order does not apply to domestic servants as defined in the Employment Act 1955.

PERSONAL DATA PROTECTION: Malaysia has enacted the Personal Data Protection Act 2010 (PDPA) but it has yet to come into force. Under the PDPA, a data user who processes, has control over or authorises the processing of any personal data shall not process ( collect, record, hold or store) any personal data about a data subject unless the data subject has given his consent to the processing of such personal data or where sensitive personal data is concerned (matters such as physical or mental health/condition, political opinions, religious beliefs or other similar beliefs, commission or alleged commission of offences or any other personal data as the minister may determine by order published in the gazette) the consent is explicit.

Also, no personal data shall be disclosed for any purpose other than the purpose for which such personal data was to be disclosed at the time of collection of the personal data, without the consent of the data subject. “Personal data” includes information in respect of commercial transactions that relates directly or indirectly to a data subject. “Commercial transactions” are defined as transactions of a commercial nature, whether contractual or not, which include any matters relating to the supply or exchange of goods or services, and accordingly, is applicable to an employer-employee relationship.

The PDPA confers rights on the data subject to access and correct his personal data. A data subject has the right to withdraw his consent to the processing of his personal data by giving notice in writing. The data user is required, amongst other matters, by written notice to inform a data subject of his right to request access to and the correction of his personal data. The PDPA also requires a data user to take practical steps to protect personal data from loss, misuse, modification, unauthorised or accidental access or disclosure, alteration or destruction.

The PDPA applies only to personal data processed in Malaysia. However, no personal data shall be transferred outside Malaysia unless specified by the Minister of Information, Culture and Communications. Data users may however transfer personal data outside Malaysia under certain circumstances and conditions. Contravention of the PDPA carries heavy penalties.

OBG would like to thank Chooi & Company for their contribution to THE REPORT Malaysia 2012