Recent Amendments to the Foreign Exchange Administration Rules

Phua Pao Yii discusses the amendments

 

 

INTRODUCTION

On 28 May 2008, Bank Negara Malaysia announced various amendments to the Foreign Exchange Administration Rules. These amendments, which came into effect immediately, seek to enhance Malaysia's competitiveness by facilitating greater access to financing and reducing the cost of doing business within the country.

 

 

FOREIGN CURRENCY BORROWINGS BY RESIDENTS

 

(1) A resident company may now borrow any amount in foreign currency from:-

 

(a) its non-resident non-bank parent company;

(b) other resident companies within the same corporate group in Malaysia; and

(c) licensed onshore banks and licensed International Islamic Banks.

 

(2) A resident company is permitted to obtain any amount of foreign currency supplier's credit for capital goods from non-resident suppliers; and

 

(3) A resident company or individual is free to refinance outstanding approved foreign currency borrowings, including principal and interest.

 

The above-referred financing activities are exempted from the existing limits of RM100 million imposed on foreign currency borrowings by a resident company on a corporate group basis and of RM10 million on foreign currency borrowings by a resident individual.

 

With respect to paragraph 1(b) above, it should be noted that before the recent amendments came into effect, the prior approval of the Controller of Foreign Exchange ("Controller") was required for the borrowing of any amount in foreign currency from resident companies even though they are within the same corporate group in Malaysia.

 

 

BORROWING IN RINGGIT FROM NON-RESIDENTS

 

(1) A resident company is now permitted to borrow in Ringgit Malaysia, including the issue of Ringgit-denominated redeemable preference shares or loan stocks:-

 

(a) of any amount from its non-resident non-bank parent company to finance activities in the real sector in Malaysia; and

(b) up to RM1 million in aggregate from other non-resident non-bank companies or individuals for use in Malaysia.

 

(2) A resident individual is allowed to borrow in Ringgit Malaysia up to RM1 million in aggregate from non-resident non-bank companies or individuals for use in Malaysia.

 

Previously, the borrowing by a resident of any amount in Ringgit Malaysia from non-residents required the prior approval of the Controller. Such approval is no longer required where the Ringgit Malaysia borrowings from non-residents are for the purposes set out in paragraphs (1) and (2) above.

 

In relation to redeemable preference shares, it appears that the RM1 million threshold referred to in paragraph (1)(b) above is based on the amount payable on redemption of such shares.

 

 

LENDING IN RINGGIT BY RESIDENTS TO NON-RESIDENTS

A resident company (including a licensed onshore bank) or individual is free to lend any amount in Ringgit Malaysia to non-resident non-bank companies or individuals to finance activities in the real sector in Malaysia.

 

Previously, the Foreign Exchange Administration Rules imposed a maximum lending limit of RM10 million on such financing by licensed onshore banks and a maximum lending limit of RM10,000 on other resident companies and individuals.

 

 

DEFINITION OF CREDIT FACILITIES

Credit facilities have been defined in ECM1 as any advances, loans, trade financing facilities, hire purchase, factoring facilities with recourse, financial leasing facilities, guarantees for payment of goods, redeemable preference shares or similar facilities in whatever name or form other than the following:-

 

(a) trade credit terms extended by a supplier for all types of goods and services;

(b) forward foreign exchange contracts entered into with licensed onshore banks and licensed International Islamic Banks;

(c) one personal housing loan and one vehicle loan obtained from residents; and

(d) credit card and charge card facilities.

 

The definition of "credit facilities" has now been amended to exclude the following:-

 

(i) operational leasing facilities;

(ii) factoring facilities without recourse; and

(iii) performance guarantees and financial guarantees.

 

 

FURTHER CLARIFICATIONS

The recent amendments also clarify the threshold of foreign currency borrowings and investment in foreign currency assets that apply to certain residents (excluding a company incorporated or registered pursuant to the Companies Act).  These may be summarised as follows:-

 

For sole proprietorships, general partnerships and general and limited partners within a partnership:-

 

(a) foreign currency borrowings is limited to RM10 million in the aggregate;

(b) investments in foreign currency assets:-

 

(i) no limit if funded by own foreign currency funds retained onshore or offshore;

(ii) up to the full amount of foreign currency borrowing if funded by approved foreign currency borrowing; and

(iii) up to RM1 million in aggregate per calendar year if the entity has Ringgit Malaysia domestic borrowings and funds the investment through the conversion of Ringgit Malaysia.

 

For limited partnerships and other entities such as co-operative societies and charitable organisations:-

 

(a) foreign currency borrowings is limited to RM100 million in the aggregate;

(b) investments in foreign currency assets:-

 

(i) no limit if funded by own foreign currency funds retained onshore or offshore;

(ii) up to the full amount of foreign currency borrowing if funded by approved foreign currency borrowing; and

(iii) up to RM50 million in aggregate per calendar year if the entity has Ringgit Malaysia domestic borrowings and funds the investment through the conversion of Ringgit Malaysia.

 

 

CONCLUSION

The recent amendments to the Foreign Exchange Administration Rules have liberalised certain aspects of the exchange control regime in Malaysia and clarified the rules that apply to foreign currency borrowings and investments in foreign currency assets by residents which are not companies.

 

 

PHUA PAO YII ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 

 

 

 

 
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