Setting up shop: Requirements and mechanisms for operation

The Corporate Environment

The Economic Transformation Programme (ETP) was launched on September 25, 2010 by the 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 (NKEA) – including 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 the Greater Kuala Lumpur/Klang Valley, selected by the government because they are seen as engines of future growth;
• 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 come from the public sector. On August 29, 2013, the ETP announced that 86%, or RM25.42bn ($7.93bn), in committed investments for projects in both 2011 and 2012 had been realised.

New projects announced or which are in the process of implementation include the Klang Valley Mass Rapid Transit (MRT) project, the Kuala Lumpur-Singapore High Speed Rail System, the 1Malaysia People’s Housing Programme (PR1MA), Tun Razak Exchange and the new low-cost carrier terminal at Kuala Lumpur National Airport (KLIA2) project.

Budget 2014 

The 2014 budget was announced on October 25, 2013. Some of the salient proposals extracted from the 2014 budget published by the Ministry of Finance and tabled by the Prime Minister, Najib Abdul Razak, are described below.

It is foreseen that private investments will increase to RM189bn ($59bn), while public investments are expected to reach RM106bn ($33.1bn) in 2014. Amongst the projects to be implemented in 2014 include the construction of the West Coast Expressway from Banting to Taiping and double-tracking projects from Ipoh to Padang Besar and Gemas to Johor Bahru. In the oil and gas industry, Petronas will be undertaking new projects in both Sabah and Johor.

Some RM1.6bn ($499.4m) will be allocated to realise projects in the five regional economic corridors, such as the agropolitan project and oil palm-based industries in the Sabah Development Corridor and the planting of commercial crops and fertigation system in the Northern Corridor. Recognising the services sector as a key contributor to the country’s economic growth, the Services Sector Blueprint will be launched to develop potential service sectors.

Protection Measures

To ensure efficient operations and stability in the financial market, Bank Negara Malaysia will be formulating a Netting Act with the purpose of protecting enforcement rights of “closeout netting” under financial contracts. Netting arrangements in Malaysia are currently regulated under the Financial Services Act 2013. The new Netting Act is aimed at reducing credit risk and promoting the derivatives market. To further improve Malaysia’s standing as the world’s leading global issuer, Malaysia’s Securities Commission (SC) will release an index for Socially Responsible Investment (SRI) Sukuk and Environmental, Social and Governance. Firms will also be entitled to funding under the SRI Fund created by the government.

With a recent amendment made to the definition of small and medium-sized enterprises (SME), it is anticipated there will be an increase of registered SMEs to 98.5%. SMEs will be entitled to an integrated package that provides financing for mechanisation, automation and upgrading capacity, as well as various tax incentives under the Green Lane Policy.

Tax Amendments

Also announced was that the sales tax and service tax will be abolished and replaced with a common goods and services tax (GST) with a fixed rate of 6%, and to become enforceable on April 1, 2015. However, goods and services like basic food items and essential services like piped water supply, transportation, education and health services, residential properties and selected financial services are exempted from GST. Businesses with an annual sales value of RM500,000 ($156,050) and above are required to register under the GST legislation.

To cope with the implementation of GST, the income tax rate for corporate businesses and SMEs will be reduced by 1% starting in 2016. Training grants will also be provided to employers who send their employees for GST training as well as financial assistance for the purchase of accounting software. The income tax structure for individuals will be reviewed with the maximum rate of chargeable income to be increased from more than RM100,000 ($31,210) to more than RM400,000 ($124,840).

It is proposed that the current real property gains tax (RPGT) for disposal of property made within a period of three years from date of purchase be revised to a rate of 30%. RPGT is exempted for disposal of property made after six years from the date of purchase for individuals, whereas companies are taxed at a rate of 5%. The minimum threshold for purchase of properties by foreigners will also be increased from RM500,000 ($156,050) to RM1m ($312,100).

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 firms limited by shares. Companies in Malaysia are principally governed by the Malaysian Companies Act 1965. The act’s principles are largely common law, based on enunciated rules typically 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 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 that 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, and 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.

Merger & Acquisition Transactions

Merger and acquisition (M&A) transactions 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 SC and thus subject to the provisions of the Capital Markets and Services Act 2007 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 the 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.

Foreign Direct Investment (FDI)

One of the main concerns for foreign investors is foreign equity restriction. As part of liberalisation efforts, the guidelines on the acquisition of interests, mergers and takeovers by local and foreign interests issued by the Malaysian Foreign Investment Committee (FIC) were abolished on June 30, 2009, taking with it overarching policies governing FDI, such as the equity requirement that companies be 30% era” means an individual who is a Malay or native of Malaysia or a company or institution whereby Bumiputeras hold more than 50% of the voting rights in such company or institution), with a 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 Ministry of Finance for the banking, insurance and ic insurance) industry; the SC for the capital market services industry; and the Malaysian Communications and Multimedia Commission for the telecoms sector. Sector by sector: 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.

To date, 15 sub-sectors have been liberalised following the 2012 budget speech, including accounting and taxation services, courier services, dental specialists, departmental and specialty stores, incineration services, legal services, international schools, technical and vocational schools, technical and vocational schools with special needs, centres for skills training, centres of private higher education with university status, private hospitals, medical specialists, telecoms providers for applications services, network services and network facilities. Three remaining subsectors – architecture, engineering and quantity surveying services – are ready for liberalisation pending amendments to their respective legislations.

Tax & Incentives

The Malaysian corporate tax rate is presently 25%. However, the corporate tax rate will be reduced to 24% starting from 2016. Resident companies with a paid-up capital of RM2.5m ($780,250) and below at the beginning of the basis period for a year of assessment will be subject to a corporate income tax rate of 20% on the first RM500,000 ($156,050) of chargeable income; the corporate income tax rate for chargeable income in excess of RM500, 000 ($156,050) will be 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 like 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 tax rate of 38%. One of the biggest changes to the tax structure during the 2014 budget announcement is the introduction of the GST tax that is expected to come into force on April 1, 2015.

Tax incentives, both direct and indirect, are provided for under 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 different forms of investments in Malaysia, and cover investments in the manufacturing, agriculture, tourism (including hotels) and approved services sectors, and high-technology companies. Incentives also exist for areas of research and development, training and environmental protection activities, as well as other industrial or commercial activities as determined by the Ministry 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 Malaysia real properties are subject to the relevant land rules and Malay reservation enactments for the state in question, i.e. the state where the property is located. The provisions of the National Land Code 1965 (NLC), and dealings with east Malaysia properties are subject to provisions of the Sarawak Land Code and the Sabah Land Ordinance.

Registration

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. Ownership of Malaysian real property is generally 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, and searches may be conducted to ascertain particulars pertaining to the property, such as ownership, encumbrances (charges, caveats, liens, or other third-party interests like easements, leases or endorsed tenancies), category of land use, tenure, express conditions regarding use, restrictions in interest (e.g. whether state authority consent is required for any sale, transfer, charge, lease or dealing with the land), and other particulars.

In Malaysia, if the period of occupation (with payment of rent) of a piece of real property is three years or less, this is known as a “tenancy”. Any 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. Leases must 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.

Ownership

Concurrent with the aforementioned repeal of the FIC guidelines, a new set of guidelines on the acquisition of properties (Property Guidelines) were introduced by the Economic Planning Unit (EPU) of the prime minister’s Department of Malaysia in June 2009. Under this new set of Property Guidelines, save for residential units, (i) an acquisition of real property valued at RM20m ($6.2m) or more which results in the dilution in ownership of property held by a Bumiputera interest and/or government agency, or (ii) an acquisition of shares in a company which (a) holds total real properties valued at more than RM20m ($6.2m), 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 a Bumiputera interest and/or government agency, this will still require the approval of the EPU and be subject to an equity condition of 30% Bumiputera. Real property 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 RM100,000 ($31,210) if it is owned by local interests or RM250,000 ($78,025) if it is owned by foreign interests.

Commercial, industrial or residential real properties purchased by foreign interests and valued at RM1m ($312,100) or more or transfers of property to a foreigner based on family ties amongst immediate family members 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 RM1m ($312,100) 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 RM1m ($312,100) per unit; (ii) residential units under the category of low and low-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 state authority.

Foreign Purchase

The acquisition of commercial, residential, agricultural or industrial real properties by foreign interests would, however, fall within the purview of the relevant state authorities and/or 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 RM1m ($312,210) 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 NLC. It should be noted, however, that individual issue documents of title to Malaysian real properties may 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.

RPGT

Taxes on real property gains refers to tax imposed on net gains from the disposal of all types of real properties (i.e. residential, commercial, land, and shares in real property companies) after deducting the acquisition price and other expenses (e.g. stamp duties, legal fees, renovation costs, sales commissions, and administrative payments) incurred up to the disposal of the property. RPGT rates range between 0% and 30% depending on the holding period, referring to the period between the date of acquisition and the date of disposal of the property.

With effect from January 1, 2014, the RPGT rates for the disposal of properties and shares in real property companies are as follows:

• RPGT exemption of up to RM10,000 ($3121) or 10% of the net gains, whichever is higher, is granted for disposals of real property by individuals;
• RPGT is not imposed on gains from the disposal of property between husband and wife, parents and children, or grandparents and grandchildren;
• For citizens and permanent residents, RPGT is not imposed for the disposal of one residential property once in a lifetime.
• Within three years: companies, 30%; citizens and permanent residents, 30%; non-citizens, 30%;
• In the fourth year: companies, 20%; citizens and permanent residents, 20%; non-citizens, 30%;
• In the fifth year: companies, 15%; citizens and permanent residents, 15%; non-citizens, 30%;
• In the sixth and subsequent years: companies, 5%; citizens and permanent residents, 0%; non-citizens, 5%.

Competition Law

The Competition Act 2010 came into force on January 1, 2012. The act applies to commercial activities within Malaysia and outside Malaysia if the latter affects competition in any market in Malaysia. Salient elements of the Competition Act and guidelines issued by the Malaysian Competition Commission (MyCC) were discussed in the 2011 and 2012 editions of The Report: Malaysia. Broadly, the Competition Act prohibits the formation of horizontal and vertical agreements that have the object or effect of “significantly preventing, restricting or distorting competition” as well as conduct, which constitutes an abuse of dominant position.

In this context, on September 6, 2013 the MyCC issued a proposed decision to impose a financial penalty of RM10m ($3.12m) each on Malaysian Airline System (MAS) and Air Asia (Air Asia). This was premised on an initial finding that both companies had entered into an agreement, which had the object of sharing of markets in the air transport services sector within Malaysia. This infringed upon the prohibition against horizontal agreements, which had the object of sharing markets or sources of supply.

The MyCC may impose penalties not exceeding 10% of the worldwide turnover of the enterprise in question over the period of infringement. It was announced that the penalties proposed in this present case were less than 10% of such turnover after taking into account mitigating factors such as the co-cooperativeness demonstrated by MAS and Air Asia.

On November 1, 2013, the MyCC issued another proposed decision in respect of integrated steel manufacturer Megasteel, finding that the firm had infringed upon its dominant position, and proposed a financial penalty of RM4.5m ($1.4m). The MyCC found that Megasteel’s practice of charging or imposing a price for its hot rolled coil, which was disproportionate to the selling price of its cold rolled coil, amounted to a margin squeeze that produced anti-competitive effects. The financial penalty proposed is likewise lower than the maximum permissible penalty.

It is understood that the parties concerned have made representations to the MyCC, and no final determinations have been made. These proposed decisions are, however, indicative of a more robust approach being adopted by the regulator moving forward.

Employment

The legislative foundation and cornerstone of Malaysian employment law lies in the Employment Act 1955 (EA) and the Industrial Relations Act 1967 (IRA). The EA regulates the legal relations of employer-employee whilst the IRA regulates employer-union relationships and industrial disputes. Save for some protection, which apply to all employees, the EA protects only: (a) persons whose monthly wages do not exceed RM2000 ($624.20) 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, maternity leave, etc. whilst 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 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. In terms of compensation and survivors’ benefits, the Employee’s Social Security Act 1969 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 of old age and death by compelling monthly contributions from both employers and employees (however, the scheme is not compulsory for expatriates/foreigners). The Ministry of Human Resources directly and through its various departments under its umbrella, 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 in 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. Under these circumstances, it is not surprising that there exists the misconception that employment law in Malaysia is pro-employee. Security of tenure is given statutory force by the IRA. Employers must be cautious when dealing with termination of employment. Unless there is just cause or excuse for the 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, in addition to ordering 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 EA 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 clause into the EA. Again, this expansion applies to all employees.

Harassment

Sexual harassment is defined as any unwanted conduct of a sexual nature, whether verbal, non-verbal, visual, gestural or physical, directed at a person who deems the act to be offensive, humiliating or as a threat to his or her well being, arising out of and in the course of his or her employment.

The EA now imposes an obligation on an employer to conduct an inquiry into the complaint of sexual harassment. If an employer refuses to conduct such inquiry, the employer shall inform the complainant of its 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 inquiry, 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 inquire into his or her complaint may refer to the director general of labour, who may either direct the employer to conduct an inquiry 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 the director general of labour. The director general of labour is required to assess such complaint and may direct the employer to inquire into a complaint. An employer who is so directed by the director general of labour must submit a report of the inquiry to the directorate within a specified time. Any employer who fails to do any of the following is committing an offence: (a) inquire into complaints of sexual harassment; (b) inform the complaint of the refusal and the reasons for the refusal to conduct an inquiry 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 inquiry 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 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 in a handful of reported cases in recent times indirectly enforced such restraints when former employees are 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 they are not strictly or 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 and came into force on July 1, 2013, and provides that the minimum retirement age of an employee shall be 60 years. An employer who prematurely retires an employee before the age of 60 years commits an offence. The 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 in any employment 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 of extensions) and persons above 55 years of age who have already retired before the new Minimum Retirement Age Act came into force in 2013.

Accordingly, any retirement age in the terms and conditions of service made before, on or after the date of coming into operation of the new Minimum Retirement Age Act that is less than 60 years shall be deemed to be void and substituted with the minimum retirement age of 60. Neither the employer nor the employee may choose to contract out of the minimum retirement age requirement.

However, the employer and employee may agree to an optional retirement age. An employee claiming to have been retired prematurely may lodge a complaint with the director general of labour, who may then conduct an inquiry to determine whether the employee has been prematurely retired.

If the director general of labour is satisfied that the 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 the minimum retirement age. An employer who fails to comply with the direction of the director general of labour commits an offence.

Minimum Wage

The Minimum Wages Order 2012, made under the National Wages Consultative Council Act 2011, came into effect on January 1, 2013 and 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 was also extended to an employer that employs five employees or less, other than one who is classified under the MASCO as above. The order does not apply to domestic servants as defined in the EA.

Personal Data Protection

Malaysia has enacted the Personal Data Protection Act 2010 (PDPA) which came into force on November 15, 2013. Under the PDAP, 11 classes of data users were required to register themselves with the Personal Data Protection Department (PDPD) by February 15, 2014.

There are seven principles enshrined in the PDAP, which are: general; notice and choice; disclosure; retention; security; access; and data integrity principles. A data user has to be a legal person, and this term covers individuals as well as companies and other corporate and unincorporated entities. A data user who processes, has control over or authorises the processing of any personal data, shall not process (i.e. collect, record, hold, store) any personal data about a data subject unless the data subject has given his or her express consent to the processing of such personal data, or where sensitive personal data is concerned (i.e. 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 includes 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 also 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, to inform a data subject of his right to request access to and correction of his personal data by written notice. 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.

Data Abroad

The PDPA applies only to personal data processed in Malaysia. However, no personal data shall be transferred outside Malaysia unless specified by the minister. Data users may, however, transfer personal data outside Malaysia under certain circumstances and conditions. Contravention of the PDPA carries heavy financial and custodial penalties and with fines up to RM500,000 ($156,050) and/ or a term of imprisonment not exceeding three years. Business entities would in its day-to-day operations invariably deal with personal data ranging from its employees to clients and customers.

Section 7(1) and 7(2) of the PDPA requires all companies to have a privacy policy statement on personal data. For example, direct marketing companies or companies that adopt a direct marketing approach must pay special attention to Section 43(1) of the PDPA that once data is obtained, it may only be used for such a period that is reasonable or until notice in writing is given by a data user to terminate use of his or her personal data. Companies should not assume that once data is obtained, such data can be forever used on its marketing brochures and material. It is imperative for business entities to take necessary measures and incorporate policies and processes in accordance with PDPA in order to safeguard personal data obtained in its course of business. It is the obligation of a data user to ensure that personal data in businesses are to be regulated and safeguarded by formulating necessary policies.

Specifications

Section 129(1) of the PDPA imposes restrictions on cross-border data transfer, of which a data user is prohibited from transferring data to jurisdictions outside of Malaysia unless the jurisdiction is specified by the minister and published in the Gazette. The minister may specify any jurisdiction in the Gazette if such jurisdiction has the equivalent laws or adequate levels of protection to safeguard personal data. This section is similar to directive 95/46/EC of EU law “on the protection of individuals with regard to the processing of personal data and on the free movement of such data”, which allows the European Commission to approve certain third-world countries as having the adequate levels of protection to receive personal data. Currently, the ministry has yet to specify any such jurisdictions; however, there are several exceptions that allow for cross-border data transfer pursuant to Section 129(3) of the PDPA. Such data may be transferred outside of Malaysia provided the data subject gives consent to the data user or the data user has taken all reasonable precautions and exercises due diligence to ensure that personal data will not be processed in a manner contravening the PDPA.