Malaysia Attracting Foreign Investments In The Halal Sector

Kuala Lumpur:–With its modern infrastructures, good administrative regulations, sound legal system rooted in common law, growing Muslim population, incentives for foreign investments, also intended for development of products and services for the Islamic community worldwide, with specific focus on Islamic finance and Halal certification, Malaysia appears to have a number of characteristics that mirror, and therefore complement and converge with, those of Italy.

In the general classification of the World Bank Doing Business Report Malaysia ranks sixth (while Italy ranks sixty-fifth), it ranks first for obtaining credit and fourth for investor protection. With these characteristics, combined with its stability and economic growth policies, Malaysia aspires to become the natural global hub not only for Islamic finance, but also for development of the so-called Halal economy. For this purpose, as stated by Jeff Leong, Senior Partner of the Jeff Leong, Poon & Wong Law Firm of Kuala Lumpur, the Malaysian Government “has embarked on a number of initiatives to create an environment that is attractive and favourable to the participation of foreign enterprises and investors in development of the Halal industry in Malaysia”. One such initiative is the establishment of the Halal Industry Development Corporation (HDC) for managing public incentives,  of  which the ventures include the creation of so-called Halal parks,  communities  of enterprises performing Halal market orientated activities located in the same production site. Malaysia currently has 24 Halal parks, in which 140 SMEs and 15 multinational companies work. Thirteen of these have obtained “Halmas” accreditation, assigned to enterprises meeting HDC-approved requirements.

Benefits provided for the Halal park operators who have obtained this accreditation include various tax incentives, which range, depending on the nature of the operator, from full exemption from income tax for 10 years to exemption from import duties and sales tax for certain machines, equipment or raw materials used in the Halal production cycle.

In Malaysia Halal certification is issued by the Department for Islamic Development (JAKIM), while in other countries of the world, as Jeff Leong explains “Halal certifications are approved by the respective Islamic associations or non-governmental organisations. Malaysia is therefore the only country in which the Halal certification process has the government’s full support”. For this reason it is recognised and respected worldwide.

Previously “JAKIM” certification could only be obtained in Malaysia and so manufacturers wishing to obtain it had to base their production in Malaysia. Recently, a pilot scheme has been launched which allows certification to be acquired anywhere in the world through qualified consultants of the Department for Islamic Development.

Enterprises wishing to take advantage of the opportunities in the Malaysian Halal market through a direct presence should bear in mind that while the reality is a complex one, it also offers a wealth of opportunities, where knowledge of local culture and laws is fundamental.

A first step would be to open a representative office, to carry out promotional activity and to liaise with the Italian parent company, in order to gather or provide information, while not directly conducting business. Instead to conduct business on site, excluding the incorporation of a sole proprietorship or a partnership, it would be possible to use the corporate form of limited liability corporations limited by shares or by guarantee. In practice this form, which limits liability for corporate obligations to the amount of the capital, in the same way as an SpA or an Srl in Italy, is to be preferred. Normally these companies, when used by a foreign parent company as a vehicle for approaching the market, are not listed and may not therefore offer shares or other financial instruments to the public.

Furthermore, since 1974, the Foreign Investment Committee (FIC) has been responsible for regulating investments from other countries, such as the purchase of real estate or of equity investments in companies, and in the latter case, unless the transaction concerns short-term investments in shares of listed companies, authorisations to exceed certain percentages of share capital can be requested.

Hence, attention on Malaysia is set to increase, partly as a result of development of the Halal market. Growing attention is also being paid by Italian investors, for whom it could provide an excellent base for expanding their business in Asia.

Originally published on www.lexology.com