Foreign Participation in Distributive Trade Services in Malaysia

Foreign Participation in Distributive Trade Services in Malaysia | Bestar

Foreign Participation in Distributive Trade Services in Malaysia

Distributive Trade

Distributive traders encompass a wide range of businesses and individuals, such as wholesalers, retailers, franchise practitioners, and direct sellers. It also includes suppliers who distribute their products within the domestic market, online businesses, and commission agents or representatives, including those working for international trading companies.

Wholesale Trade

Wholesale trade refers to the sale or resale of new or used goods and services to distributors. These distributors purchase the goods and services specifically for business purposes.

Retail Trade

Retail trade involves the sale or resale of new or used goods and services directly to the general public for their final consumption. This can also include the sale or resale of fast-moving consumer goods to organizational buyers when it's hard to distinguish between personal and business consumption.

Administrative Conditions for Foreign Involvement in Distributive Trade

Any foreign involvement in distributive trade requires approval from the Ministry of Domestic Trade and Consumer Affairs' (KPDN) Distributive Trade Committee. This includes, but is not limited to, the following applications:

• Acquisition of interest: When a foreign entity gains ownership or control in an existing distributive trade business.

• Mergers and/or takeovers by foreign participation: When foreign entities combine with or acquire existing distributive trade businesses.

• Opening of new branches/outlets/chain stores: Establishing new physical locations for distributive trade.

• Relocation of branches/outlets/chain stores: Moving existing distributive trade locations.

• Expansion of existing branches/outlets/chain stores: Increasing the size or scope of current distributive trade locations.

• Buying over/taking over of outlets of other operators: Acquiring existing distributive trade businesses from other operators.

• Purchase and sale of properties to operate distributive trade activities: This applies to properties intended for distributive trade operations, and approval from KPDN's Distributive Trade Committee must be secured before obtaining any necessary licenses or approvals from local authorities and other agencies.

Recommendations for Distributive Trade Companies with Foreign Involvement

All distributive trade companies that have foreign involvement should follow these recommendations:

• Appoint Bumiputera or Malay directors: It's recommended to have Bumiputera or Malay individuals on the board of directors.

• Prioritize local hiring: Companies should aim to hire Malaysian personnel for all positions, especially in management roles and above.

• Limit low-skilled foreign workers: The total workforce should consist of no more than 15% low-skilled foreign workers.

• Establish transparent SOPs for local suppliers: Develop and provide clear, standard operating procedures to help local suppliers market their goods effectively.

• Promote Bumiputera or Malay participation: Encourage Bumiputera or Malay involvement within the distributive trade sector.

• Hire persons with disabilities: Large format companies should aim to have at least 1% of their total workforce comprise persons with disabilities.

• Increase use of local transportation hubs: Utilize Malaysian airports and ports more for both exporting and importing goods.

• Encourage local professional services: Companies should make an effort to use professional services available in Malaysia.

• Submit audited financial reports: Annually submit audited financial reports to the Ministry of Domestic Trade and Consumer Affairs (KPDN).

• Support sustainable development goals: Align with and support the Malaysian government's initiatives and agenda for sustainable development, as outlined in the Sustainable Development Goals.

• Comply with local regulations: Adhere to all by-laws and regulations set by local authorities.

SPECIALTY STORE

What's a Specialty Store?

A specialty store focuses on selling a single brand, product, or line of goods often associated with one specific item.

Here are some examples of what a specialty store might sell:

• Exclusive food and beverage items

• Food, drinks, or tobacco products

• Household or personal goods

• Exclusive furniture

• Household appliances

• Electrical appliances

• Healthcare products

• Optical goods

• Footwear

• Clothing and apparel

• Sports goods

• Books

• Jewelry

• Electronic goods

• Motorcycles or motor vehicles

• Small machinery (like industrial or agricultural equipment for small-scale users)

• Pharmacy items, where each outlet has a pharmacist and only sells drugs, health, and beauty care goods

• Other specialized products

Criteria for Specialty Stores

For a business to be categorized as a specialty store, it must meet the following criteria:

• Contribution to Malaysia's socio-economic development: The store should positively impact Malaysia's social and economic growth.

• Generate substantial foreign direct investment: It needs to attract a significant amount of foreign investment.

• Absence of local players in proposed formats: There should be no existing local businesses operating in the same specific format or niche.

• Create employment opportunities: The business must generate jobs for the local workforce.

• Transfer of technology/skills to locals: It should facilitate the transfer of knowledge and expertise to Malaysian citizens.

• Unique/exclusive nature of business: The store's business model or offerings should be distinct and not commonly found.

Incorporation and Capital Requirements for Foreign Specialty Stores

If you're a foreign entity looking to get involved in the specialty store business, here's what you need to know about incorporation and capital:

Local Incorporation

Any specialty store business with foreign equity must be incorporated locally under the Companies Act 2016 [Act 777]. This rule applies to new ventures as well as existing specialty store businesses currently operating as foreign branches.

Minimum Capital Requirement

Your company needs a minimum capital investment of RM1 million in shareholders' funds. This amount includes your paid-up capital.

Operational Conditions for Specialty Stores

Here are the operational requirements for specialty stores:

• Additional Branches: If a specialty store wants to open more branches, they'll need to get approval from the Distributive Trade Committee of KPDN first.

• Franchise Operations: For specialty stores planning to operate as a franchise, it's essential to obtain approval from KPDN before applying for a license under the Franchise Act 1998 [Act 590].

Environment and Public Interest Conditions

For specialty stores with a sales floor area exceeding 5,000 square meters, feasibility and impact studies on existing local retailers and residents must be conducted.

Documents and Application Procedure

To apply, you'll need to:

1. Complete and submit Form WRT 1 (found in Appendix 1) to the following address:

   Secretary, Committee on Distributive Trade Ministry of Domestic Trade and Cost of Living Malaysia

2. Prepare all necessary documents as outlined in the checklist in Appendix 2.

How Bestar can Help

Foreign Participation in Distributive Trade Services in Malaysia

Bestar can provide invaluable assistance with the processes and conditions for foreign involvement in distributive trade in Malaysia. Here's how we can help:

• Compliance with Companies Act 2016 [Act 777]: Bestar can guide foreign entities through the complexities of incorporating a local company in Malaysia, ensuring all legal requirements are met. This includes drafting articles of association, shareholder agreements, and fulfilling registration formalities.

• Distributive Trade Committee (DTC) Approval: We can assist in preparing and submitting the application to the Distributive Trade Committee (KPDN), ensuring all documentation is accurate and complete (e.g., Form WRT 1 and Appendix 2 checklist).

• Franchise Act 1998 [Act 590]: For specialty stores looking to operate through a franchise system, Bestar is crucial for navigating the Franchise Act, securing KPDN approval, and then the necessary license.

• Acquisition, Mergers, Takeovers: We provide legal due diligence, draft agreements, and ensure all regulatory approvals are obtained for such complex transactions involving foreign participation.

• Employment Law: Advise on Malaysian labor laws, particularly regarding the hiring of local personnel, Bumiputera/Malay directors, and persons with disabilities, as well as regulations concerning foreign workers.

• Contract Drafting: Prepare and review all necessary contracts, including supplier agreements, lease agreements, and employment contracts.

• Feasibility and Impact Studies: For large specialty stores (over 5,000 sq m sales floor), Bestar can conduct the required feasibility and impact studies on local retailers and residents, providing data and analysis to support the application.

• Marke Entry Strategy: Advise foreign companies on the best strategies for entering the Malaysian distributive trade market, considering the local landscape and regulatory environment.

• Business Plan Development: Assist in developing robust business plans that address the socio-economic contributions, employment creation, and technology transfer aspects required by the criteria.

• Operational Setup: Provide guidance on establishing efficient operational procedures, including developing transparent standard operating procedures (SOPs) for local suppliers.

• Local Market Integration: Offer insights into encouraging Bumiputera/Malay participation and increasing the utilization of local airports, ports, and professional services.

• Sustainable Development Goals (SDG) Alignment: Help businesses align their operations and reporting with Malaysia's SDG initiatives.

• Strategic Advisory: Provide ongoing strategic advice to ensure the business remains compliant and successful in the Malaysian market.

  Minimum Capital Requirement: Advise on the minimum capital requirement (RM1 million shareholders' funds) and help structure the capital investment appropriately.

• Audited Annual Financial Reports: Crucially, Bestar will prepare and audit the annual financial reports required for submission to KPDN, ensuring compliance with Malaysian accounting standards.

• Financial Planning and Analysis: Assist with financial projections, budgeting, and cash flow management to ensure the business's financial viability.

• Tax Compliance: Advise on Malaysian tax laws, ensuring the company complies with all corporate tax, GST/SST, and other relevant tax regulations.

• Financial Due Diligence: For acquisitions or mergers, Bestar conduct a financial due diligence to assess the financial health and risks of target companies.

In summary, engaging Bestar is highly recommended for any foreign entity looking to enter or expand within Malaysia's distributive trade sector. Our expertise ensures compliance with local regulations, optimizes business operations, and helps navigate the specific conditions set forth by the Malaysian government.

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