Malaysian AI exporters face up to €35 million in fines under the EU Artificial Intelligence Act's ("AI Act") - early compliance planning is essential. The EU AI Act's extraterritorial scope captures both providers that place an AI system on the EU market and entities – inside or outside the Union – whose AI output is used within the EU. Non-compliance attracts penalties of up to €35 million (≈ RM 176 million) or seven per cent of global turnover, placing the Act among the most aggressive technology regimes worldwide. This write-up provides an overview of what Malaysian companies covered by the AI Act's scope should consider.
Regulatory reach and key dates
Article 2 of the AI Act extends it to:
- Providers established in third countries that sell, license or embed AI systems in the EU.
- Deployers located in the EU that use AI systems or rely on their output.
- Any provider or deployer – wherever situated – "where the output of the system is used in the EU."
The phased timeline below illustrates when core obligations crystallise:
| Date | What becomes enforceable | Who must act |
|---|---|---|
| 2 February 2025 | Ban on "unacceptable-risk" AI – social scoring, manipulative systems, untargeted facial-image scraping | Any provider or deployer – withdraw or redesign affected tools |
| 2 August 2025 | Transparency duties for limited-risk AI, core rules for general-purpose models, start of the penalty regime | SaaS vendors, LLM providers, marketing chatbots |
| 2 August 2026 | Full compliance deadline for high-risk AI – biometrics, HR-tech, credit scoring, drone inspection, medical devices, etc. | Providers, deployers, importers and distributors in high-risk sectors |
| 31 December 2030 | Grace period ends for unchanged legacy systems | Any firm relying on grandfathering |
Building AI governance, technical documentation and audit trails typically requires 12–18 months; early mobilisation is therefore essential.
Penalty framework
| Breach category | Maximum penalty | RM-equivalent |
|---|---|---|
| Prohibited AI practices | EUR35 million or 7% of global turnover | ≈ RM 175 million |
| High-risk or general-purpose AI violations | EUR15 million or 3% of global turnover | ≈ RM 75 million |
| False or incomplete information to regulators | EUR7 million or 1% of global turnover | ≈ RM 37.5 million |
Class actions brought under the EU Representative Actions Directive and the revised Product Liability Directive further elevate litigation risk.
Most exposed Malaysian industry segments
The AI Act designates certain use cases "high risk". Malaysian organisations active in the following fields should assume direct exposure:
- Industrial automation & machine vision – AI that guides, inspects or controls CE-marked machinery.
- Drone and remote-sensing analytics – AI services for European energy, transport or telecoms infrastructure.
- Biometric identity & e-passport solutions – facial recognition, fingerprint readers, border-control software.
- Medical imaging & diagnostics – AI-enabled scanners, decision-support tools, "digital autopsy" suites.
- Fintech analytics – credit scoring, insurance underwriting, anti-fraud engines.
- HR-tech & recruitment algorithms – candidate ranking, employee monitoring, performance scoring.
- Ed-tech platforms – automated exam marking, adaptive learning systems.
- Public-sector AI for law-enforcement, migration or border-control decision-making.
Activities outside these domains are not automatically exempt: limited-risk tools carry mandatory transparency duties, and reclassification procedures allow the European Commission to upgrade any system to high-risk status.
Initial diagnostic – five essential questions
A preliminary assessment can begin with the following questions:
- Output location: is any decision, score or insight from the AI used by persons or devices inside the EU?
- Product integration: is the AI embedded in hardware exported to the Union?
- Service accessibility: can EU-based customers access a Malaysian-hosted AI service or API?
- Data origin: does the model ingest or process personal data originating in the EU?
- Risk tier: does the use case correspond to a high-risk category listed above?
An affirmative answer to any question indicates that the organisation falls within the AI Act's scope and should proceed to a structured compliance plan.
Indicative compliance roadmap
- Comprehensive mapping: catalogue every EU touch-point across product lines, SaaS tenants and data-analytics projects.
- Removal of prohibited functionalities: eliminate social scoring, untargeted facial scraping and other red-line practices.
- AI governance launch: align with ISO 42001, appoint accountable officers and establish a live risk register.
- Core documentation drafting: produce model cards, data-quality statements, human-oversight plans and logging policies.
- Contractual upgrade: incorporate AI-Act warranties, audit rights and update obligations into EU-facing agreements.
- Mock conformity audit (early 2026): Simulate an EU market-surveillance inspection to close gaps before the final deadline.
Strategic considerations and contract practice
Early compliance carries strategic dividends. European purchasers increasingly require proof of AI governance during procurement. Organisations able to demonstrate a risk register, internal controls and an implementation timeline can secure market share while slower competitors face procurement exclusion.
Contract alignment is equally important. Commercial terms should allocate AI-Act responsibilities, address future delegated acts and harmonised standards, and define update obligations across the value chain. For detailed guidance on incorporating AI-specific clauses into supply and licensing agreements, see 5 Reasons You Need to Add an AI Addendum to Your Contract.
Outlook
The European Commission retains power to adopt delegated acts for at least five years, enabling swift adjustments to risk classifications and technical-documentation requirements. Organisations exporting AI-enabled technology to the EU should therefore treat compliance as a continuous programme, not a one-off exercise. Preparing early mitigates regulatory risk, strengthens commercial positioning and facilitates future certification under the planned "Trustworthy AI" labelling scheme.
Need a roadmap for EU AI Act compliance?
Need hands-on EU AI Act guidance? Harald Sippel – an EU-qualified lawyer based in Kuala Lumpur – and Vishnu Vijandran, partner and head of our AI & emerging-technology practice, translate complex European rules into practical, business-ready solutions for companies across Asia. Book a free 30-minute consultation to see how we can fast-track your compliance.
The original article was published on Aqran Vijandran's website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
