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While Malaysia has been taking active steps to liberalise foreign direct investment (FDI) restrictions in recent years, restrictions in a number of business sectors remain. For example, the banking, telecommunications, construction, engineering, health, education, and energy sectors, among others, are still subject to varying degrees of FDI restrictions.

The current trend is one of heightened scrutiny. Earlier this week, it was reported that the Malaysian Anti-Corruption Commission (MACC) had commenced an investigation into a global oil services company on suspicion of making false statements in relation to the ownership of one of its Malaysian subsidiaries. At the same time we have the coming into force of new ultimate beneficial ownership reporting obligations, introduced by the Companies Commission of Malaysia (CCM). These trends are described further below.

In Malaysia, FDI restrictions are usually imposed through a cap on foreign shareholding, namely a minimum level of Malaysian shareholding or Bumiputera (native or indigenous) shareholding, or both. In certain sectors, there may also be a minimum number of Malaysian or Bumiputera directors prescribed. Depending on the sector, the FDI restrictions are typically prescribed either in legislation, guidelines issued by regulators, conditions attached to the grant of a licence, or a combination of these.

Nominee structures

Some foreign businesses have used nominee structures to carry out business activities in Malaysia. In short, this entails the foreign business entering into a joint venture with a local or Bumiputera shareholder to fulfil the FDI restrictions “on paper”. This structure will be presented to regulators during licence applications. Behind the scenes, foreign businesses may enter into side arrangements with the local or Bumiputera shareholder whereby the local or Bumiputera shareholder waives its economic interest and voting rights in favour of the foreign business.

The Malaysian courts have in the past refused to enforce such side arrangements, especially where the FDI restrictions are set out in statute, on the basis that such arrangements are intended to circumvent Malaysian FDI restrictions and should not be upheld for public policy reasons.

Implications and risks

Beyond the risk of unenforceability of these side arrangements, there are other risks associated with conducting business in Malaysia through these nominee arrangements.

Firstly, if the structure is discovered by the relevant sector regulator, there is a risk of the relevant licence issued being revoked or not renewed upon expiry, resulting in the business being unable to continue until the licence is reinstated or replaced.

Secondly, the foreign businesses, its nominee directors or its officers involved in the submission of the licence application may be exposed to criminal liability, financial sanctions and, consequently, reputational risks.

As mentioned above, it has been reported that the MACC has commenced an investigation into a global oil services company on suspicion of making false statements in relation to the ownership of one of its Malaysian subsidiaries in order to obtain a licence from PETRONAS, Malaysia’s national oil and gas company. Under the Malaysian Anti-Corruption Commission Act 2009, penalties for making false statements could include imprisonment for a term of up to 20 years (for individuals), and a fine of not less than five times the sum or value of the false particulars, if capable of being valued (for both individuals and companies).

Beneficial ownership reporting requirements

The risks described above have become more pertinent in light of the new ultimate beneficial ownership reporting obligations introduced by the CCM, as mentioned above, through the Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons (BO Guidelines) issued earlier this year.

Pursuant to the BO Guidelines, Malaysian companies and foreign companies registered in Malaysia are required to identify and commence reporting on the identity of their beneficial owners from 1 January 2021 onwards. The BO Guidelines clarify that a “beneficial owner” is an individual who meets one or more of the following criteria:

  • has an interest, directly or indirectly, in not less than 20% of the shares of the company;
  • holds, directly or indirectly, not less than 20% of the voting shares of the company;
  • has the right to exercise ultimate effective control whether formal or informal over the company; or the directors or the management of the company;
  • has the right or power to directly or indirectly appoint or remove a director(s) who holds a majority of the voting rights at the meeting of directors; or
  • is a member of the company and, under an agreement with another member of the company, controls alone a majority of the voting rights in the company.

Under the BO Guidelines, nominees of any description are not to be considered as beneficial owners. Further, for each beneficial owner, each of the criteria triggered (which may be more than one) must also be stated as part of the reporting, with records of beneficial owners being kept by companies and also notified to CCM.

Companies are also required to provide access to beneficial ownership information to “competent authorities” and “law enforcement agencies”, although no specific definitions have been provided in the BO Guidelines.

As a result of these requirements, any nominee structure may become more visible to regulators when the reporting obligations become effective in January 2021, increasing the risks associated with using such structures.  


With the heightened scrutiny towards nominee structures and the increasing transparency arising from the new beneficial ownership reporting requirements, foreign businesses with nominee structures in place may wish to consider re-visiting such arrangements to consider whether there are any de-risking measures which may be put in place. 

Key contacts

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Peter Godwin

Managing Partner, Kuala Lumpur, Kuala Lumpur

Peter Godwin
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Glynn Cooper

Partner, Singapore

Glynn Cooper
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Jamie McLaren

Partner, Singapore

Jamie McLaren