Liberalisation of foreign exchange administration rules

Effective 1 April 2005, the following foreign exchange administration rules and procedures are liberalised further.

A. Overseas investment

To give greater flexibility for overseas investment, changes are made to the thresholds for investment abroad, including extension of credit facilities to non-residents and placement of funds by residents from the current limit of RM10,000 to the following :-

# Residents without domestic credit facilities are free to invest abroad in foreign currency, to be funded either from their own foreign currency or from conversion of ringgit funds.

# Corporations with domestic credit facilities are also free to use their foreign currency funds or convert ringgit up to RM10 million per annum for investment in foreign currency assets. These corporations must have a minimum shareholders’ fund of RM100,000 and must be operating for at least 1 year.

# Individuals with domestic credit facilities may invest abroad any amount of their foreign currency funds or convert ringgit up to RM100,000 per annum for such purposes.

# The threshold for investing abroad funds attributed to residents by a unit trust company is increased to 30%, from the current 10%, of the Net Asset Value of all resident funds managed by the unit trust company. There continues to be no restriction on investment abroad for funds attributed to non-resident clients.

# Fund managers may now invest abroad any amount of funds belonging to non-resident clients and resident clients that do not have any domestic credit facilities. They are also free to invest up to 30% of funds of resident clients with domestic credit facilities. Currently they may invest only 10% of resident funds, irrespective whether the resident clients have any domestic credit facilities.

B. Foreign Currency Account (FCA)

Rules on retention of foreign currency by residents are further liberalised :-

# Residents are free to open FCA onshore or offshore (except for export FCA). No specific prior permission is required.

# There is no limit on the amount of foreign currency funds a resident is able to retain onshore or offshore.

# A resident without any domestic credit facilities is free to convert any amount of his ringgit funds for credit into his FCA maintained onshore or offshore.

# A resident corporation with domestic credit facilities is allowed to convert ringgit up to RM10 million in a calendar year for credit into its FCA.

# A resident individual with domestic credit facilities is also allowed to convert ringgit for credit into FCA as follows-

#

For education or overseas employment purposes

# Up to USD150,000 for credit into onshore FCA or FCA maintained with offshore banks in Labuan; and

# Up to USD50,000 for credit into overseas FCA.

For other purposes

# Up to RM100,000 per annum.

Exporters may now retain any amount of their foreign currency export proceeds onshore with licensed banks. The current limits of between USD30 million and USD100 million are abolished. All export proceeds continue to be required to be repatriated to Malaysia onshore.

C. Foreign Currency Credit Facilities

To enhance access to foreign currency funding, limits for foreign currency credit facilities that can be obtained by residents from non-residents, licensed onshore banks and licensed merchant banks have been increased as follows :-

# Resident corporation, on a per corporate group basis, may now obtain foreign currency credit facilities up to the aggregate of RM50 million equivalent. The foreign currency borrowing may be used to finance overseas investment up to RM10 million equivalent.

# The aggregate limit for foreign currency borrowing by individuals is also increased from RM5 million to RM10 million equivalent. The funds may be used for any purposes, including financing overseas investments.

D. Hedging

To facilitate better and more efficient risk management of currency exposure, rules on hedging are also liberalised further to allow residents as well as non-residents to enter into hedging arrangements with licensed onshore banks as follows :-

Residents

# Any committed or anticipatory current account transactions.

# Any committed capital account payments, including loan repayment due within 24 months, and committed receipts.

# Foreign currency exposures of approved overseas investment (equity hedge).

Non-residents

Any inflow or outflow of funds for firm committed transactions.

E. Domestic borrowing by Non-Resident Controlled Companies

The rules for domestic borrowing by Non-Resident Controlled Companies are fully liberalised by removing the current RM50 million limit and the 3:1 gearing ratio requirement.

Prior registration for statistical purposes

For purpose of compiling balance of payment statistics on the inflow and outflow of funds from the country, transactions involving investment abroad, hedging and foreign currency credit facilities would continue to be reported to Bank Negara Malaysia through a registration process. In summary, the following transactions under the liberalised rules are required to be registered-

# Remittance of funds exceeding RM50,000 equivalent from Malaysia for investment abroad;

# Procurement of foreign currency credit facilities exceeding RM1 million; and Proposal by resident to enter into forward foreign exchange contracts to hedge current account transactions on anticipatory basis and all transactions under financial account transactions exceeding the equivalent of USD10 million.

Bank Negara Malaysia has also launched the Exchange Control Approval and Monitoring System (ECAMS) for online submission of application on foreign exchange administration transactions. Information on the foreign exchange administration rules and the application/registration forms for online submission may be obtained on the Bank Negara Malaysia website at www.bnm.gov.my