You are receiving this email because of your relationship with Lee Hishammuddin Allen & Gledhill. If you do not wish to receive any more emails, you can unsubscribe here Foreign Investment e-law Alert Issue: 01/10, August 2010 Guidelines On Foreign Participation In The Distributive Trade Services Malaysia 2010 24 August 2010 The new Guidelines On Foreign Participation in The Distributive Trade Services Malaysia was issued by the Ministry of Domestic Trade, Co-Operatives And Consumerism ( MTDCC ) [formerly known as Ministry of Domestic Trade And Consumer Affairs ( MDTCA )] on 12 May 2010, which is a revision of the Guidelines on Foreign Participation in the Distributive Trade Services Malaysia 2004. The salient terms of the new Guidelines 2010 are as follows:- With effect from 6 January 2010, all proposals for foreign involvement in Distributive Trade shall obtain the approval of MDTCC. These include:- acquisition of interest; mergers and/or takeovers by foreign participation; opening of new branches/outlets/chain stores; relocation of branches/outlets/chain stores; expansion of existing branches/outlets/chain stores; buying over/taking over of outlets of other operators; and purchase and sale of properties to operate distributive trade activities prior to obtaining the approval/license from local authorities and other agencies to operate distributive trade activities. Any ancillary business carried out by a foreign business operator shall require prior approval of MDTCC. All Distributive Trade companies with foreign equity shall be required to, amongst others: appoint Bumiputera director/directors; hire personnel at all levels including management to reflect the racial composition of the Malaysian population; formulate clear policies and plans to assist Bumiputera participation in the distributive trade sector; utilize local companies for legal and other professional services which are available in Malaysia; submit annual financial reports to MDTCC; and comply with all by-laws and regulations of Local Authorities. Based on the new Guidelines 2010 which liberalized the distributive trade sector, all Distributive Trade formats, except for HYPERMARKET, can be 100% owned by foreign interests. The table below summarizes the conditions imposed on the different formats of Distributive Trade:
No. Category Definition Body Corporate 1 Hypermarket A standalone self-service distribution store with 5,000 square meters or more, selling a very wide variety of mainly consumer goods, comprising a mix of food and non-food products, in a range of transaction sizes or quantities and in different forms of packaging. Minimum Capital Requirement RM 50 million Equity Structure/ Condition Provide at least 30% equity for Bumiputera A grace period of 3 years for compliance may be given by MDTCC upon approval. 2 Departmental store A distribution store with varying sizes, usually engaged in retailing an extensive assortment of consumer goods that are departmentalized by gender, age or lifestyle, through self-service or with sales assistance, generally under one common store management. A departmental store may include a supermarket of not more than 2,000 square meters. RM 20 million (review every 3 years) 3 Superstore A self-service distribution store with 3,000 square meters to less than 4,999 square meters retailing a very wide variety of mainly consumer goods, comprising a mix of food and non-food products. RM25 million 4 Specialty Store Stores dealing with one main brand name / product / line of goods associated with one product. They may specialize in: - food catering and restaurant services outside hotel premises; RM 1 million for each specialty outlet (review every 3 years)
- food-drink-tobacco (e.g. food and beverages); - household/personal goods; - furniture, - household appliances, - electrical appliances, - healthcare products, - optical goods, - footwear, - clothing and apparel, - sports goods, - books, - jewellery, - electronic goods; - motorcycles-motor vehicles; - small machinery (e.g. industrial, agricultural equipment for small users); - pharmacy, serviced by a pharmacist at each outlet (retailing only drugs, health and beauty care goods); and - others.
5 Others Other types of businesses not specified will be considered on the merits of each case with particular reference to their contribution to the socio-economic development of Malaysia. Various other distribution formats may be allowed to operate in the above categories if it fulfills the following criteria: (a) contribution to the socio-economic development of Malaysia; RM 1 million for each outlet (b) generate substantial foreign direct investment; (c) absence of local players in proposed formats; (d) create employment opportunities; (e) transfer of technology/skills; and (f) unique/ exclusive nature of business. 6 Franchise A franchisor engages in distributive trade mainly through franchisees according to the contractual agreement between them. A franchisee engages in distributive trade according to the contractual agreement with the franchisor up the supply chain. A franchise is defined under the Franchise Act 1998. Based on the merits of each case With the objective of further liberalizing the Distributive Trade sector so as to attract foreign direct investments into Malaysia, the new Guidelines also offer greater transparency and foreign investors will now have a clearer picture of the regulatory environment in which they plan to participate. However, like the Foreign Investment Committee guidelines, the new Guidelines do not have the force of law, and it remains to be seen how the new Guidelines will be enforced and whether the
approvals previously granted with equity conditions will be revised by MDTCC to be in line with the new Guidelines. This e-law Alert is brought to you by the Foreign Investment Practice Group. The practice group consists of experienced lawyers who are a single source of reference for any corporate and commercial transactions such as mergers and acquisitions, alliances and joint ventures, IPOs, private placements, strategic and commercial, impact in regulatory changes etc. If you have any queries, please do not hesitate to contact our partner in charge: Ooi Bee Hong DID : + 603 2170 5805 Fax : + 603 2161 3933/1661 E-mail: obh@lh-ag.com Published by the Foreign Investment Practice Group Lee Hishammuddin Allen & Gledhill. All rights reserved. The views and opinions attributable to the authors or editor of this publication are not to be imputed to the firm, Lee Hishammuddin Allen & Gledhill. The contents of this publication are intended for purposes of general information and academic discussion only. It should not be construed as legal advice or legal opinion on any fact or circumstance. www.lh-ag.com