Foreign Exchange Policy Notices

Foreign Exchange Policy Notices

INTRODUCTION

Bank Negara Malaysia (“BNM”) issued an updated Foreign Exchange Policy Notices (“FEP Notices”) on 1 June 2022 and they take effect from the same date. The revised FEP Notices will supersede the Foreign Exchange Notices (“FE Notices”) issued by BNM on 15 April 2021.

 

Refinements of the previous FE Notices are aimed at improving business efficiency and providing flexibility to individuals and corporates to better manage their foreign exchange risk exposures. It remains the responsibility of customers to ensure that they comply with FEP Notices, and as such we are pleased to provide the following reminder to help with your understanding of the said rules.

 

ARE YOU A RESIDENT OR NON-RESIDENT?

The applicable rules within the FEP Notices differ between Residents and Non-Residents. BNM’s definitions of Residents and Non-Residents are set out below and we included a few examples to assist with your understanding:

 

 

Residents

Non-Residents

Individuals

  • a citizen of Malaysia, excluding a citizen who has obtained permanent resident status in a country or a territory outside Malaysia and is residing outside Malaysia;

    E.g.: A Malaysian blue MyKad holder who is staying in Malaysia is considered a Resident.

  • a non-citizen of Malaysia who has obtained permanent resident status in Malaysia and is
    ordinarily residing in Malaysia;

    E.g.: A British citizen who is a permanent resident of Malaysia and is staying in Malaysia is considered a Resident.  
  • any person other than a resident

  • a Malaysian citizen who has obtained permanent resident status of a country or territory outside Malaysia and is residing outside Malaysia

    E.g.: A Malaysian blue MyKad holder who is a permanent resident of Singapore and is staying in Singapore is considered a Non-Resident.

 

Entities

  • a body corporate incorporated or established, or registered with or approved by any authority, in Malaysia;
    E.g.: A private limited company registered with the Companies Commission of Malaysia (i.e. a Sdn. Bhd.).
  • an unincorporated body registered with or approved by any authority in Malaysia; or
    E.g.: A co-operative society, a club or an association.
  • the Government of Malaysia or any State Government of Malaysia.
  • any person other than a resident
    E.g.: A company incorporated in Hong Kong is considered as a Non-Resident.
  • an overseas branch, a subsidiary, regional office, sales office or representative office of a resident company
  • Embassies, Consulates, High Commissions, supranational or international organizations

 

For the avoidance of doubt, this includes Malaysian Embassies, Consulates and High Commissions

1. Foreign Currency Accounts

For Individual:

- Click for Fact Sheet

 

For Entity:

For entities, Trade and Investment FCAs can be opened:

i. solely under the entity’s own name; or

ii. jointly between Non-Resident entities

 

a. Investment Foreign Currency Account (“Investment FCA”)

Permitted Sources into Investment FCA

Permitted Uses from Investment FCA

1. Any foreign currency funds other than -

· Proceeds of the export of goods; and

· Settlement of domestic trade from another Resident within the Global Supply Chain as permitted under Notice 4

1. Any amount for same-party transfers into a Trade or Investment FCA

2. All permissible purposes

2. Transfers from a Trade FCA up to the permitted aggregated investment limit in Notice 3

 

3. Any amount for same-party transfers from Investment FCA

 

 

b. Trade Foreign Currency Account (“Trade FCA”)

Permitted Sources into Trade FCA

Permitted Uses from Trade FCA 

1. Proceeds of the export of goods

1. Settlement of domestic trade from another Resident within the Global Supply Chain as permitted under Notice 4

2. Settlement of domestic trade from another Resident within the Global Supply Chain as permitted under Notice 4

2. All permissible purposes in the Notice including investment in Foreign Currency Asset (incl. transfers to Investment FCA) up to the permitted aggregated investment limit in FE Notice 3

3. Any amount for same-party transfers from Trade FCA or Investment FCA

3. Any amount for same-party transfers into Trade FCA

4. Other foreign currency funds arising from transaction permitted under the FEP Notices

 


 


2. Investing in Foreign Currency Assets

 

Resident Investor

Sources of Foreign Currency (“FC”) funds 

Threshold for investment in Foreign Currency Assets

(offshore and onshore)

Individual/ Sole Proprietorship/ General Partnership

Without Domestic Ringgit Borrowing

Any Amount

With Domestic Ringgit Borrowing

a)    Any source, for investment in real estate abroad for education, employment or migration

 

b)    FC funds sourced from

·         abroad, except proceeds of export of goods

·         approved FC Borrowing

·         same-party transfers from an Investment FCA

c)           Conversion of RM

·         FC funds from Trade FCA

•        Swapping of Ringgit financial assets in Malaysia for financial assets in a Labuan Entity or outside Malaysia

RM 1 million equivalent in aggregate per calendar year

 

Entity

Without Domestic Ringgit Borrowing

Any Amount

With Domestic Ringgit Borrowing

 

a)    FC funds sourced from

·         abroad, except proceeds of export of goods

·         approved FC Borrowing as per Part B of Notice 2

 

b)    FC borrowing from a Malaysian bank for Direct Investment Abroad

(c)  •   Conversion of RM

·         FC funds from Trade FCA

·         FC borrowing from a Malaysian bank for purposes other than Direct Investment Abroad

·         Swapping of Ringgit financial assets in Malaysia for financial assets in a Labuan Entity or outside Malaysia

RM 50* million equivalent in aggregate per calendar year

 

*in aggregate for all Resident entities in the same group with Parent-Subsidiary Relationship

 

 

 

Application Submission

A Resident entity or individual must apply for BNM’s approval before undertaking transactions other than stated above through the BNM’s online submission portal.

3. Foreign Currency Borrowing in Malaysia and Abroad

Borrowing by Resident Individuals, Sole Proprietors or General Partnerships

Lender

Limit

Immediate Family Member

Any amount

(Includes Borrowings from Resident Immediate Family Member)

Non-Resident

Up to RM10 million equivalent in aggregate

Licensed Onshore Bank

 

Borrowing by Resident Entities

Lender

Limit

Entity within the Resident Entity’s Group or from the Resident Entity’s Direct Shareholder

Any amount

Issuance of Debt Securities

Any amount for issuance of a Foreign Currency corporate bond or sukuk issued to another Resident

Other Non-Resident

Up to RM100 million in equivalent in aggregate

Licensed Onshore Bank

Any amount

 

Application Submission

A Resident entity or individual must apply for BNM’s approval before undertaking transactions other than stated above through the BNM’s online submission portal.

4. Ringgit borrowing from Non-Resident

Borrowing by Resident Individuals, Sole Proprietors or General Partnerships

Lender

Limit

Non-Resident Immediate Family Member

Any amount

Non-Resident Employer in Malaysia

Any amount for use in Malaysia and pursuant to terms and conditions of employment

Other Non-Resident

Up to RM1 million in aggregate for use in Malaysia

(Excludes Borrowings from a Non-Resident Financial Institution)

 

Borrowing by Resident Entities

Lender

Limit

Related Non-Resident

Any amount, to finance Real Sector Activities in Malaysia

Issuance of Debt Securities, such as –

a)    RPS or Islamic RPS in Ringgit, for use in Malaysia;

b)    Ringgit sovereign bond or sukuk; or

c)    Tradeable Ringgit corporate bond or sukuk

Any amount

Other Non-Resident

Up to RM1 million in aggregate, for use in Malaysia

(Excludes Borrowings from a Non-Resident Financial Institution)

 

Application Submission

A Resident entity or individual must apply for BNM’s approval before undertaking transactions other than stated above through the BNM’s online submission portal.

5. Payment in foreign currency

 

Permitted Purpose

Between Residents

Between Resident and Non-Residents

Any transaction between immediate family members

Settlement of any purpose EXCEPT for:

·         a FC derivative offered by a Resident unless approved by BNM under Part B of Notice 5 or otherwise approved in writing by BNM;

·         a derivative derived from, referenced to, or based on Ringgit unless approved by BNM; or

·         an Exchange Rate Derivative offered by a Non-Resident unless approved by BNM

Payment for education, employment or migration outside Malaysia

Transaction between a Resident and:

·         a Malaysian bank

·         a licensed international takaful operator

·         an International Currency Business Units of a licensed takaful operator

 

in carrying out its business involving FC

Settlement of a FC-denominated derivative transacted on a Specified Exchange through a Resident futures broker, excluding exchange rate derivatives

Allowed for:

·         a FC derivative purchased by a Malaysian bank for its own account, excluding exchange rate derivatives with reference to Ringgit

·         a FC derivative offered on a Specified Exchange through a Resident futures broker or directly with a Non-Resident counterparty up to the underlying exposure, excluding exchange rate derivatives

·         FC interest rate swap between a Resident and a Labuan bank to manage interest rate exposure arising from a Borrowing in FC

·         FC derivative purchased by a Resident individual for his own account, excluding exchange rate derivatives

Settlement of a commodity murabahah transaction through a commodity trading service provider

Settlement of a miscellaneous expense incurred outside Malaysia between a Resident Individual residing in Malaysia and a Resident Individual residing outside Malaysia

Settlement of domestic trade in goods or services between a Resident exporter and a Resident entity involved in the Global Supply Chain operations in Malaysia, provided that payment:

·         is sourced from Trade FCA of the Resident payor or proceeds from Foreign Currency trade financing facility

·         shall not be sourced from conversion of Ringgit into Foreign Currency by the Resident payor; and

·         is credited into Trade FCA of the Resident payee

 

 

1. Opening and maintaining of account

 

a) Non-Residents are allowed to open and maintain: 

i. FCAs with LOBs individually or jointly with

  • another Non-Resident ; or
  • a Resident Individual

ii. an External Account, which is an account in Ringgit opened with any Financial Institution in Malaysia. Click for Fact Sheet and FAQ.

 

NOTE:

FFCAs opened by Non-Residents, are not required to be designated unlike for Residents (see Section 1 - Foreign Currency Accounts under Rules Applicable to Residents).

a)    Funds in these accounts are free to be remitted abroad in foreign currency. The conversion of Ringgit into foreign currency however must be undertaken in accordance with Part B of Notice 1.

The above limits shall not apply to –

i. A Consulate;

ii. A High Commission;

iii. An Embassy;

iv. An individual participating in the Malaysia My Second Home Programme; or

v. An individual who is working or studying in Malaysia including the individual’s spouse, child or parent who is staying in Malaysia.

 

There is no limit for any cash withdrawal over-the-counter from an External Account.

2. Payment in Ringgit

 

A Non-Resident is allowed to make or receive payment in ringgit in Malaysia, to or from a Resident or a Non-Resident, for the purposes as follows:

Purpose of Use and Source of Funds

Between Non-Resident and Resident

Between
Non-Residents

For any purpose between immediate family members

Income earned or expense incurred, in Malaysia

Settlement of trade in goods

1

Settlement of services, in any manner

1

Settlement of a ringgit asset including any income and profit due from the ringgit asset

Settlement of court judgement where the transaction under litigation is undertaken in compliance with the FEP Notices

 

Settlement of a commodity murabahah transaction undertaken through a commodity trading service provider

2

Settlement of reinsurance for domestic insurance business or retakaful for domestic takaful business between a Resident and a person licensed to undertake Labuan insurance or takaful business

 

Settlement of a Financial Guarantee denominated in Ringgit, to secure a Ringgit Borrowing

 

Settlement of a Non-Financial Guarantee denominated in Ringgit for use in Malaysia

 

1 Excluding payment between Non-Residents for settlement of a trade in goods or services outside Malaysia

2 Excluding payment between Non-Residents for settlement of a commodity murabahah transaction undertaken through a Non-Resident commodity trading service provider

 

Payments on behalf of Non-Resident clients using funds in the external account is allowed as follows:

By

For the purpose of

Non-Resident financial institution

Settlement of international trade of goods or services with a Resident.

Non-Resident intermediary or Non-Resident custodian or trust bank

Settlement of ringgit assets.

 

Any payment, receipt or transfer from or into an External Account is allowed provided that the Non-Resident is able to produce documentary evidence that the purpose of transaction complies with relevant FEP Notices.

Notwithstanding this, any payment, receipt or transfer from or into an External Account is not subject for verification by the Bank up to RM10,000 per transaction.

 

3. Investing in Malaysia

A Non-Resident investor is free to -

a) undertake any type of investment in ringgit asset or Foreign Currency (FC) Asset in Malaysia (direct or portfolio investment) without any restriction;

b) open a ringgit account or FC account (FCA) with a licensed onshore bank. Funds are free to be remitted into and out of such accounts, subject to normal due diligence process by the licensed onshore bank; and

c) repatriate divestment proceeds, profits, dividends or any income arising from the investments in Malaysia. Repatriation shall be made in FC and the conversion of Ringgit into FC is undertaken in accordance with Part B of Notice 1.

 

A Non-Resident investor also has the flexibility to hedge FX exposure arising from their investments in Malaysia either via a licensed onshore bank or an Appointed Overseas Office (AOO).

4. Buying or selling of currency

a) Buying or selling of foreign currency against Ringgit

Non-Residents are free to buy or sell foreign currency against Ringgit with LOBs (excluding International Islamic Banks) for its own account on spot basis.

Transactions with AOO and transactions on Forward Basis are subject to the conditions set out in Part B of Notice 1

 

b) Buying or selling of foreign currency against another foreign currency

Non-Residents in Malaysia are free to buy or sell foreign currency against another foreign currency on Spot Basis or Forward Basis with a LOB.

Appointed overseas office/AOO

a) a Holding/Parent Entity, subsidiary Entity, sister Entity, head office or branch outside Malaysia within a LOB’s banking group and its overseas office outside the LOB’s banking group approved by BNM.

Borrowing

a) any utilised or unutilised credit facility or financing facility;

b) any utilised or unutilised trade financing facility, including but not limited to, trade guarantee or guarantee for payment of goods;

c)  redeemable preference share or Islamic redeemable preference share; or.

d) Corporate Bond or Sukuk.

 Notwithstanding the above, the following are excluded from the

definition of Borrowing —

 i. a trade credit term extended by a supplier for any goods or services;

ii. a credit limit that a LOB apportions for its client to undertake a Forward Basis transaction, excluding a transaction that involves—

A. exchanging or swapping of Ringgit or foreign currency debt for another foreign currency debt; or

B. exchanging of foreign currency debt for a Ringgit debt;

 iii. a Financial Guarantee or Non-Financial Guarantee;

iv. an operational leasing facility;

v. a factoring facility without recourse;

vi. a credit card or charge card facility obtained by an Individual from a Resident and used for payment for retail goods or services only; or

vii. a credit facility or financing facility obtained by a Resident Individual from a Resident to purchase one (1) Residential property and one (1) vehicle.

 Note: For clarity purposes, the transactions in paragraphs (ii)(A) and (ii)(B) shall be considered as Borrowing 

Direct Investment Abroad or DIA

a) An investment in Foreign Currency Asset Offshore by a Resident resulting in at least 10% equity ownership or control of a Non-Resident Entity outside Malaysia or a Labuan entity;

b) An inter-company lending by a Resident Entity to a Non-Resident Entity within the Resident Entity’s Group where the Non-Resident Entity is outside Malaysia or a Labuan Entity or;

c)  A capital expenditure by a Resident investor in an unincorporated Entity outside Malaysia or a project outside Malaysia by an agreement with no establishment created, where the Resident investor —

i. Contributes capital of at least 10% of the cost of the project;

ii. Is entitled to at least 10% of profits from the unincorporated Entity or project; or

iii. Have management control of the unincorporated Entity or project.

Direct Shareholder

A shareholder with at least 10% effective shareholding in a Resident Entity.

Domestic Ringgit Borrowing

a) Any Borrowing in Ringgit obtained by a Resident from another Resident; or

b) Any obligation considered or deemed as Domestic Ringgit Borrowing under any of the FE Notices.
Note: For purposes of determining the Domestic Ringgit Borrowing status of a Resident Entity—

c) The Resident Entity is deemed to have a Domestic Ringgit Borrowing when another Resident Entity with Parent Subsidiary Relationship has a Domestic Ringgit Borrowing; and

d) The following shall not be considered as Domestic Ringgit Borrowing —

i. A Borrowing obtained from another Resident Entity with Parent-Subsidiary Relationship;

ii. A Borrowing obtained from its Direct Shareholder; or

iii. Any facility including credit facility or financing facility which is used for Sundry Expenses or Employees’ Expenses only. 

“Sundry Expenses” refers to small and infrequent expenses for office supplies (e.g. stationaries), ancillary services (e.g. software and online subscription) and other minor expenses to facilitate daily business operation.

“Employees' Expenses” refers to business-related expenses which may include, but not limited to, travel (e.g. lodging and transportation), entertainment, health, insurance, takaful and other employees' expenses, excluding investment.

“Borrowing” refers to the definition of “Borrowing” above.

Entity

a) Any corporation, statutory body, local authority, society, cooperative, limited liability partnership and any other body, organization, association or group of persons, whether corporate or unincorporated, in or outside Malaysia; or

b) The Federal Government, any State Government or any other government.

External Account

An account in Ringgit opened with any Financial Institution in Malaysia —

 a) By a Non-Resident—

i. Individually;

ii. Jointly with another Non-Resident; or

iii. Jointly with a Resident, excluding

· For a joint venture in Malaysia;

· A husband and wife; or

b) By a person who operates the account in trust for or on behalf of a Non-Resident. The designation of the account shall be determined based on the residency of the beneficiary.

Financial Guarantee

A guarantee, indemnity or undertaking to secure the repayment of a Borrowing.

Firm Commitment

A commitment arising from -

a) An obligation to make or a right to receive, any payment under any agreement or arrangement;

b) A holding of an asset including property; or

c) A holding of a debt, obligation or liability.

Foreign Currency Asset Onshore

a) Foreign Currency-denominated securities or Islamic securities offered in Malaysia by a Resident as approved in writing by Bank Negara Malaysia;

b) Foreign Currency-denominated Financial Instrument or Islamic Financial Instrument offered in Malaysia by a Resident as approved in writing by Bank Negara Malaysia excluding a derivative or Islamic derivative transaction entered with Firm Commitment;

c) Deposit in Investment FCA with a LOB or an approved Financial Institution as specified in Notice 3; or

d) Any instrument offered by a LOB with foreign currency delivery at maturity.

Foreign Currency Asset Offshore (previously referred to as “Investment Abroad”)

a) A financial asset in Malaysia swapped for a financial asset in a Labuan Entity or outside Malaysia;

b) Foreign Currency Borrowing given to a Non-Resident;

c) Working capital arising from the set-up of any business arrangement outside Malaysia (including a joint venture project where no Entity is created or established);

d) Deposit in a Foreign Currency Account maintained with a Labuan Entity or outside Malaysia excluding reasonable amount of deposit for education, employment or migration outside Malaysia; or

e) Foreign Currency-denominated—

i. asset (tangible or intangible) offered by a Non-Resident or any person whose residency cannot be determined;

ii. asset (tangible or intangible) in or maintained with a Labuan Entity, or outside Malaysia;

iii. Financial Instrument or Islamic Financial Instrument (excluding Exchange Rate Derivatives) without Firm Commitment offered on a Specified Exchange under the CMSA outside Malaysia undertaken by a Resident through a Resident futures broker; or

iv. Financial Instrument or Islamic Financial Instrument (excluding Exchange Rate Derivatives) without Firm Commitment issued or offered by a Non-Resident.

Global Supply Chain

A business activity where Resident imports goods or services to support production or distribution of goods or services by Resident exporters for Resident exporter’s export activities. This includes domestic trade in goods or services between the Resident importer and the Resident exporter undertaken through Resident intermediate entity.

Group

An Entity's -

a) Ultimate or direct Holding/Parent Entity;

b) Head office;

c) Branch;

d) Subsidiary company where the Entity owns more than 50% of ordinary shares in the subsidiary company;

e) Associate company where the Entity owns between 10% and 50% of ordinary shares in the associate company; or

f) Sister company where the Entity and its sister company have a common shareholder with minimum of 10% of ordinary shares in both the Entity and its sister company.

Immediate Family Member

A legal spouse, parent, legitimate child (including legally adopted) or legitimate sibling of an Individual.

Labuan entity

An Entity which is created, incorporated, licensed or registered under any of the following legislation:

a) Labuan Companies Act 1990 [Act 441];

b) Labuan Trust Act 1996 [Act 554];

c) Labuan Financial Services and Securities Act 2010 [Act 704];

d) Labuan Islamic Financial Services and Securities Act 2010 [Act 705];

e) Labuan Foundations Act 2010 [Act 706]; or

f) Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 [Act 707].

Licensed Onshore Bank or LOB

a) A licensed bank or a licensed investment bank under the FSA; and

b) A licensed Islamic bank under the IFSA.

Miscellaneous Expense

A Current Account Transaction that is of reasonable amount and infrequent in nature, including but not limited to holiday expenses abroad, medical expenses abroad and advance or reimbursement for purchase of goods and services abroad on behalf of a Resident Individual residing in Malaysia.

Parent-Subsidiary Relationship

A relationship between a Resident Entity and its direct or indirect —

a) Resident Holding/Parent Entity; or

b) Resident subsidiary.

For the avoidance of doubt, this includes a relationship between a Resident subsidiary of a Non-Resident Holding/Parent Entity with the Resident subsidiary’s ultimate Resident Holding/Parent Entity.

Real Estate Abroad

The real estate is for the Resident Individual’s own accommodation or the Resident Individual’s Immediate Family Member’s accommodation only.

Real Sector Activity

An activity relating to -

a) Construction or purchase of a Residential or commercial property, excluding purchase of land which will not be utilized for construction or production of goods or services; or

b) Production or consumption of goods or services, excluding - 

 i. Activity in financial services sector, whether Islamic or otherwise;

ii. Purchase of securities or Islamic securities; or

iii. Purchase of Financial Instrument or Islamic Financial Instrument.

Ringgit Asset

a) Ringgit-denominated security or Islamic security issued in Malaysia by a Resident;

b) Ringgit-denominated security or Islamic security issued by a Non-Resident as approved by the Bank Negara Malaysia;

c) Ringgit-denominated Financial Instrument or Islamic Financial Instrument as approved by BNM;

d) Ringgit deposits with a Financial Institution in Malaysia; including deposit-like instrument with only Ringgit delivery at the inception and maturity; or

e) Any property in Malaysia.

 

WHAT DO WE NEED FROM YOU?

 

Please take note of the following:

(a) declare your residency status when you open an account with us and keep us updated when there are changes;

(b) ensure all activities performed for accounts maintained with us comply with the prevailing FE Notices at all times; and

(c) provide us with documentary evidence as part of our due diligence process to ensure compliance with FE Notices. 

 

You are therefore advised to read and understand the FE Notices (accessible here).

 

Where approval or registration is required for any proposed transaction, you may submit your application on BNM’s website (accessible here). We may request for a copy of the relevant approval or registration from you before performing the transactions.

 

Please be reminded that you must not utilize the Bank’s financial products or services for prohibited/illegal transaction, such as (but not limited to) illegal foreign exchange trading and illegal investment schemes. You may refer to BNM’s website at https://www.bnm.gov.my/consumer-alert for further information.

 

For enquiries, connect with us online or drop by your nearest Hong Leong Bank Branch.