Malaysia Imposes Exit Tax on Foreign Investments
by Bruce G. Leto, Esquire
On February 4, 1999, the government of Malaysia announced the imposition of a new tax on the repatriation of investments in that country. On February 10, 1999, Bank Negra Malaysia, the central bank of Malaysia, issued an interpretative release explaining the new tax. The new tax replaces the 12-month holding period imposed on September 1, 1998, under the exchange control rules governing the rinngit, the Malaysian currency. The old rules severely constrained, and in most cases prohibited, foreign investors, including U.S. mutual funds, from repatriating assets invested or held in Malaysia. As a consequence, mutual funds have been unable to convert the proceeds of the sale of their Malaysian securities into U.S. dollars. The stated goal of the new tax is to encourage long-term rather than short-term investments in Malaysian companies.
Under the new rules, mutual funds will be able to repatriate assets held in Malaysia subject to a tax. The amount of tax, which is set forth below, depends on when funds were invested in Malaysia and whether the funds represent the initial principal investment or profits from the investment. Thus, there are two categories of funds: funds brought into Malaysia before February 15, 1999, and funds brought into Malaysia on or after February 15, 1999.
Funds invested in Malaysia before February 15, 1999:
A 30% tax is imposed on principal investments repatriated on or before March 31, 1999.
A 20% tax is imposed on principal investments repatriated after March 31, 1999, and before May 30, 1999.
A 10% tax is imposed on principal investments repatriated after May 30, 1999, and before August 31, 1999.
No tax is imposed on principal investments repatriated after August 31, 1999.
Any profits earned on investments that are repatriated on a date between February 15, 1999, and September 1, 1999, are not subject to a tax.
A 10% tax on any profits earned on investments that are repatriated on a date after September 1, 1999.
Principal is deemed to be repatriated before profits.
Repatriation of funds invested in Malaysia on or after February 15, 1999:
No tax on principal investments repatriated on or after February 15, 1999;
30% tax on profits if profits are repatriated within 12 months of the realization of the profits; and
10% tax on profits if profits are repatriated 12 months or more after the realization of profits.
Profits are deemed to be repatriated before principal investments.
Bruce G. Leto is a partner in and chairs the Securities and Investment Company Department at the Philadelphia-based law firm of Stradley, Ronon, Stevens & Young, LLP.
Information contained in this article should not be construed as legal advice or opinion, or as a substitute for the advice of counsel. The enclosed materials are provided for informational and educational purposes.