Malaysia Replaces Repatriation Restrictions with Exit Tax on Foreign Investments

Washington, DC, February 4, 1999 - The government of Malaysia announced today that it is replacing the 12-month holding period imposed under the September 1, 1998 exchange control rules with a graduated exit tax. In a press release, the Malaysian National Economic Action Council stated that these new measures are intended "to encourage existing portfolio investors to take a longer term view of their investments in Malaysia and to attract new funds into the country, while at the same time discourage destabilizing short-term flows."

Among other things, the current exchange controls prohibit foreign investors from repatriating balances in their external accounts before September 1, 1999. The new exit tax would allow repatriation subject to a levy. The amount of the levy and whether it is imposed on principal or capital gains will depend upon a number of factors, including the length of time the funds have been invested in Malaysia and whether the investments were made before or after February 15, 1999. In general, money already invested in Malaysia will be subject to a levy on principal which will decline from 30% for money repatriated now to 0% for money repatriated after September 1, 1999. New money invested in Malaysia will not be subject to a levy on principal, but will be subject to a profits tax of 30% for investments repatriated in less than a year and 10% for investments repatriated after a year.

In addition, under the new rules, to invest new money in Malaysia after February 15, 1999, foreign investors will be required to create special new external accounts to distinguish these funds from existing external accounts.