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Finance

by The Expatriate Lifestyle Editorial Team 2 Jun 2013
Finance

FINANCE

Opening a banking account in Malaysia is not as difficult as it looks. Firstly, decide which bank and what type of account is needed. Depending on your circumstances, opting for Offshore Banking carries its own set of positives and negatives. It is recommended to ask friends or colleagues before deciding.

If it’s work related, consult the company as payment by cheque or direct transfer are equally common. Take note that banks in Malaysia take a few days to process cheques even if it’s issued from their own bank. Each institution will however, be able to process cheques at their own branch.

Take, for example, if a company banks at Maybank in KLCC, it would be a good idea to open an account there to ensure the money is cleared the very same day. This has to be done before lunchtime or bank it in the day after pay is in hand. These cheques are known as “house cheques” so you avoid the “clearing process”.

An introduction is needed to arrange for opening an account. This can be a letter from an employer or a friend/ colleague that banks with them or any bank from home. This allows contact references and financial history. Then it is time to meet with someone from the bank. Bring along all documentations from employers certifying work situation. A deposit is needed to initially open an account.

Opening an account here is like most aspects of banking in Malaysia: perfectly fine, as long as you have patience. It will probably require a trip to the branch to meet with a representative who will need your signature on several forms. The paperwork is all very simple though and assuming there are no irregularities you should be approved. It will then be a few weeks until you are contacted to collect your credit card.

When the papers are signed, ensure that you are able to control your finances online. Most banks have excellent internet-based banking services, which are certainly as fast, convenient and secure, if not quite always as smoothly functioning, as at home. Only institutions licensed under the Banking and Financial Institutions Act 1989 are allowed to offer online services, so check if yours is one of them before signing up.

FOREIGN FIELDS

It is unlikely to be paid out of another country into a Malaysian account, however, the principle is the same when receiving a cheque from overseas. There will be a certain amount of commission, stamp duty, agent’s charges, drawee’s bank’s charges, courier charges and handling charges (all fees differ from bank to bank). These cheques can take a few weeks to clear.

ISLAMIC BANKING

Started almost 45 years ago, Islamic Banking was originally designed to allow Muslims to save money to make their pilgrimage to Mecca (the Hajj). The first dedicated Islamic Bank, however, was formed in 1983 and since 1993, when major banks and finance companies started offering Islamic services, the sector has boomed.

Islamic banking and transactions therein are kept entirely separate from conventional banking and operate on Syariah principles. These are centred around traditional Islamic concepts such as profit sharing and safekeeping. Accruing interest is strictly prohibited in Islamic banking but there is a way of earning various “bonuses”, which often means that there are much higher earnings than conventional rates.

The bonuses can be accrued in the form of gifts (hibah) from a bank to thank the individual for use of their funds or given voluntarily in return for a loan or benefit obtained. Another positive of the system is called a “Benevolent Loan” (Qardhul Hassan). This means only the amount of loan taken needs to be paid back.

There are a far wider array of services available from Islamic banking organisations, be sure to enquire for qualification purposes to compare the benefits on offer. Watch out for the “Perbankan Islam” logo to be certain the institution is fully accredited. For further details on Islamic Banking, visit: www.ibfim.com.

For more information about banking in Malaysia, www.bankinginfo.com.my is a one-stop information centre about money and banking in this country.

ESSENTIAL DOCUMENTS

Checklist for Opening a Bank Account

• Get identification documents and introductory letters
• Ask for information of the duties and services of the bank
• Find out:
- Who is liable for unauthorised transactions
- How to communicate (about changes/problems)
- About lodging complaints
- Whose responsibility it is to ensure privacy

TAXATION

Finding someone to help with your taxation issues is essential in Malaysia, even more so than with other countries. Most companies will have either an internal or external expert.

The basics to note are that tax only applies if you have spent above 182 days working in the country in your first year, 90 days in the years thereafter. And the top tax bracket (which many expatriates will fall either in or near—so keep it in mind for any pay reviews) is 28 per cent and comes into effect after earnings reach RM 250,000.

Tax returns must be filed by April 30th for the preceding tax year that runs from January to December. The natural delay in sending in this paperwork and the bureaucratic hold-ups often means that rebates to which many expatriates are entitled take some time to appear, so be prepared on how to follow this up if you will be moving on from Malaysia. For more information on the Inland Revenue and taxation, visit www.hasil.com.my.

CURREN CY EXCHANGE

Currency exchange booths are common, especially in areas with high tourist traffic, e.g. all the shopping malls, Chinatown, etc. It is quite simple to tell if they are authorised and credible and there is no great difference in rates between them, although they are all much better value than changing your currency at hotels or even at banks, where rates are set in different ways.

The Malaysian Ringgit has remained comparatively strong in the face of devaluations elsewhere in the world during 2009. Formerly pegged to the US dollar, the move to ‘un-peg’ the Ringgit now seems a very good one.

OFFSHORE BANKING

Many expatriates choose to bank and manage their finances using offshore principles. This is well worth exploring and it is highly advisable to make an appointment with a trusted, reputable financial advisor to discuss how banking offshore can save you money.

Offshore banking works relatively simply and involves many of the standard banking practices and services you would expect from a high street branch.

In October 1980, the island of Labuan, just off the coast of East Malaysia, was established as an international offshore financial centre (IOFC), similar to the Isle of Man in the UK.

The island is administered by the government of Malaysia and is easily accessible, has a developed infrastructure, low cost of operation and hence is favoured by numerous international banks and financial institutions.

Labuan is a one stop regulatory body and integrated IOFC, complementing the activities of the domestic banking sector, while offering successful individuals (especially expatriates) the opportunity to make more of their money. Labuan now boasts more than 60 banks and 80 offshore insurance providers and is internationally recognised as a primary offshore financial hub.

As well as banking and investment banking, Labuan’s offshore financial services include providing credit facilities, receiving deposits, Islamic banking, development finance, captives, trust business, fund management, investment holding, company management, and leasing. The other key services include those offered by insurance companies.

The Labuan IOFC is not subject to the exchange control rules and regulations of Malaysia as the nature of offshore business in Labuan is basically foreign currency based and conducted with non-residents. The incorporation and registration of companies to conduct business in Labuan can be done in LOFSA. LOFSA oversees and supervises offshore industries such as banking, insurance, securities, and trust and fund management.

LOFSA has implemented policies that facilitate the creation of a competitive and attractive business environment in Labuan. Labuan’s legislative framework is not only business-friendly but also prudent to safeguard the island’s image as a clean and reputable offshore financial centre.

The companies there also undertake research and development work, improving efficiency and creating the best possible business environment.

For more information on Labuan visit www.lofsa.gov.my, www.matrade.gov.my or www.mida.gov.my.

Incentives for Offshore Financial Services:

(i) Minimum Tax
An offshore company carrying on an offshore trading activity can opt to pay tax each year at the rate of 3 per cent of its net audited profits or a fixed tax of RM 20,000. An offshore company conducting non-trading activities is subject to zero tax.

(ii) Abatement of Tax for Professional Services
Any person or their employee or a company rendering qualifying professional services to an offshore company in Labuan is exempted from income tax of up to 65 per cent of the statutory income. This includes legal, accounting, financial and secretarial services.

(iii) Abatement of Tax for Employment
Non-citizens employed in a managerial capacity in an offshore company in Labuan enjoy an income tax exemption of up to 50 per cent of gross employment income. Non-citizens trust officers working in a Labuan trust company enjoy tax exemption of up to 50 per cent of gross employment.

(iv) Exemptions from Income Tax
The following exemptions are available for offshore companies under the Income Tax Act 1967:
• Dividends paid to a resident or a non-resident person by a Labuan offshore company.
• Dividends received from a Malaysian Domestic Company which are paid out of dividends received from a Labuan offshore company.
• 100 per cent tax exemption on Director’s fees paid to a non-citizen Director.
• 50 per cent tax exemption on Labuan and housing allowances paid to Malaysian citizens working in an offshore company.

Offshore companies are exempted from withholding tax for the following:

• Interest paid to a resident person or a non-resident who is not engaged in the business of banking, finance or insurance.
• Insurance paid to a non-resident person or another offshore company unless the interest accrues to a banking, finance company or insurance business by a non-resident.
• Lease rental paid to a non-resident.
• Technical or management fee paid to a non-resident or another offshore company.
• Royalty to a non-resident or another offshore company.
• Distributions made by an offshore trust to non-resident beneficiaries

(v) Stamp Duty Exemption
Offshore business transactions by an offshore company (including M&A of an offshore company and transfer of shares in an offshore company) are exempted from payment of stamp duty.
Source: www.mida.gov.my.

FINANCIAL PLANNING

It is a good idea to sit down with a financial advisor early on in your residency in Malaysia. You’ll want to make your expat package work effectively for you, whether you decide to keep your investments liquid or are interested in beginning or expanding a portfolio.

As the world suffers from the credit crunch, property is a market that naturally suffers. However, there is so much development (and of a significantly high quality) here in Malaysia that certain opportunities may turn into excellent investment projects. Again, your advisor should have a good inside line on these.

Some advisors specialise in specific short-term expatriate plans, while others will be better for coming up with medium and long-term goals. Your bank may offer free advice and those sent by big international banks such as HSBC are often excellent. However, many expatriates prefer someone independent. And there is no shortage of those to choose from.

The critical thing is not simply to hook up with the first advisor to call your office (and call they will). By all means meet with several. Many expats appoint more than one advisor, partly to spread the risk but also because they may have particular (and complimentary) areas of expertise in certain markets.

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