Issues

Clarification - Part 11

• the guarantee and standby letters of credit are to secure ringgit denominated credit facilities or performance bonds extended by the financial institutions to their resident client; and

• the payment, in the event the guarantees or standby letters of credits are called upon, are made in foreign currency.

• Malaysian financial institutions are allowed to up-lift the ringgit deposits of nonresidents to settle the ringgit credit facilities extended to resident clients without having to convert the ringgit deposits into foreign currency.

• The resident borrowers are required to repay to the non-resident guarantors any consequential loans in foreign currency equivalent.

• Malaysian financial institutions are allowed to receive proceeds from the sale of Malaysian shares or immovable property belonging to nonresidents and which have been pledged as securities, to settle credit facilities extended to residents.

• The resident borrowers, however, are required to repay to the nonresident guarantors any consequential loans in foreign currency equivalent.

The nonresident investors are required to provide documentary evidence to the remitting banks in order for the banks to ascertain that the funds to be repatriated are arising from transactions of shares listed on MESDAQ.

Would income earned and gains derived from sale of the following financial instruments and papers be treated as profit or interest?

• Malaysian Government Bills (MGS), Treasury Bills (TB), Cagamas bonds, Danamodal and Danaharta bonds;

• Islamic papers such as Unsecured Redeemable Islamic Debts Securities.

• Income received from holding of the MGS, TB and Private Debt Securities are deemed as interest and are exempted from payment of exit levy.

• Capital gains arising from sale of the above types of securities are considered as profit except for capital gains from zero-coupon bonds, which are deemed as interest.

• All capital gains from Islamic financial instruments are also exempted from the levy.

• If repatriated within 12 months of selling the rights/Pals, the levy is 30% on the profit.

• If repatriated after 12 months of selling the rights/Pals, the levy is 10% on the profit.

Can settlement between two nonresidents for the sale and purchase of ringgit asset be made in a foreign currency?

• Settlements between two nonresidents for the sale and purchase of securities registered in Malaysia must be made in ringgit through External Accounts and not in foreign currency.

Example 1:

• Call warrants purchased on 30 November 1998.
• Purchased shares via call warrants on 19 February 1999 using funds brought into the country on 18 February 1999.
• The date of investments of shares is deemed to be 30 November 1998.
• If sold the shares before 30 November 1999, realised profits would attract 30% levy if repatriated before 30 November 1999, or 10% levy if repatriated on or after 30 November 1999.
• If sold the shares on or after 30 November 1999, the levy is 10% on repatriation of profits realised.

Example 2:

• Purchased the rights on 18 February 1999.
• Purchased shares via rights on 26 February 1999.
• The date of investment of share is deemed to be 18 February 1999.
• If sold the shares before 18 February 2000, realised profits would attract 30% levy if repatriated before 18 February 2000, or 10% levy if repatriated on or after 18 February 2000.
• If sold the shares on or after 18 February 2000, the levy is 10% upon repatriation of the profits realised.

Can the computation of levy and hence, the completion of BNM/JKPW/EA1 for repatriation of funds from an Omnibus account be done at individual client level?

• No, the computation of levy and the completion of Form BNM/JKPW/EA1 is as per account basis.
• Nevertheless, the omnibus External Account holder is allowed to segregate the funds belonging to clients who brought in new funds into Malaysia on or after 1 September 1998, into separate External Accounts for each of such clients.

• The funds belonging to the other clients who did not bring new funds into Malaysia on or after 1 September 1998, may continue to be co-mingled in the omnibus External Account.

Are nonresidents working in Malaysia required to pay levy for:

• the transfer of funds from their existing EAs to Seas;
• Repatriation of funds which are profits realised from funds brought into Malaysia and not based on income earned in Malaysia.

• Nonresidents working in Malaysia do not have to pay levy when they transfer funds from their existing EAs to their own Seas or repatriate funds out of the country from their EAs.

• Nevertheless, they are required to deposit fresh funds brought from overseas into Seas Profit realised on funds in the Seas will be subject to levy upon repatriation.

Are Malaysians with permanent resident status abroad and reside overseas required to pay levy for repatriation of funds from their EAs or Seas?

• Malaysians with permanent resident status abroad and reside overseas do not have to pay levy when they transfer funds from their existing EAs to their own Seas or repatriate funds out of the country from their EAs.
• Nevertheless, they are required to deposit fresh funds brought from overseas into Seas Profit realised on funds in the Seas will be subject to levy upon repatriation.

Can a foreign investor produce a foreign contract note for the purchase of Malaysian share, as evidence of investment in Malaysia?

For foreign broker who buys or sells Malaysian securities on behalf of residents, would levy be paid under the following situations:

• Remittance of funds from EA/SEA of foreign broker to residents who are abroad; and
• Payment of funds by foreign broker from its EA/SEA to credit into the resident's ringgit account in Malaysia.

• Remittance of funds by foreign broker to residents working or living abroad would not attract levy. The foreign stockbroking companies, however, have to provide documentary evidence to prove that the funds belong to residents working or living abroad.
• There is no levy to be paid for the transfer of funds from foreign brokers’ EA/SEA to resident’s local account if underlying transaction is for sale/purchase of ringgit asset.

• There is no exchange control restriction for a resident in Malaysia to buy or sell Malaysian shares through a foreign broker.
• Accordingly, while the foreign brokers may buy or sell KLSE shares on behalf of residents residing in Malaysia, they are not allowed to retain the ringgit funds of residents.
• Similarly, foreign fund managers are also not allowed to retain ringgit funds of any residents in EA or SEA.

• Offset amount due to or from foreign broker and only pays or receives net amount vis-à-vis the foreign stockbroker arising from sale and purchase of Malaysian securities; or
• On settlement date of a married deal contract between two foreign stockbrokers, offset amount due to or from among the foreign stockbrokers and only receive the net difference from one of the stockbrokers?

• Offsetting of gross settlement for sale/or purchase of securities registered in Malaysia between the resident stockbroker and the foreign stockbroker is not allowed.

• Offsetting of the gross settlement for sales and/or purchase of securities registered in Malaysia between two foreign stockbrokers for a married deal via a resident stockbroker is also not allowed.

• Third party settlements for the sale of Malaysian securities is not allowed other than as named in the contract note.