This June marks the tenth anniversary of the establishment of AVCO CORPORATE, a subsidiary of AVCO LEGAL, in Malaysia: first as a Representative Office, to explore the market, develop contacts, and draft a strategy; and then, after achieving this goal, as a Branch Office, to advise, accompany, and ultimately facilitate the entry of Spanish companies into Malaysia, or do the same with Malaysian companies in Spain. A decade is undoubtedly a period of time that calls for celebration, especially in markets like Malaysia, and by extension in those of the rest of Southeast Asia, where plans must be made for the medium or long term, never for the short term; but it also invites reflection on whether the path taken has been the right one and, furthermore, if there is still more ground to cover. This reflection can be useful not only to AVCO CORPORATE but also -and above all- to its clients.
Economic Freedom in Malaysia
Malaysia is undoubtedly one of the freest economies in the Asia-Pacific region, as reflected in The Heritage Foundation’s Economic Freedom Index. According to this index, Malaysia holds a prominent position among countries with greater economic freedom, surpassing South Korea and Japan, but still below Hong Kong and Singapore. Other indices, such as the Global Competitiveness Index by the World Economic Forum, the Ease of Doing Business Index by the World Bank, and the Global Innovation Index by the World Intellectual Property Organization, also highlight the significance of the Malaysian economy. They respectively rank Malaysia as the second in development and competitiveness among Southeast Asian countries, the twelfth globally in ease and profitability of doing business, and the eighth in science and innovation among Southeast Asia, East Asia, and Oceania.
Investor Confidence
The approval of investments totaling 330 billion ringgits, approximately equivalent to around 65 billion euros, in the 2023 fiscal year confirms investors’ confidence in the openness of the Malaysian market, the effectiveness of its institutions, and the efficiency of its regulatory framework. This confidence, which we at AVCO CORPORATE have firsthand experience with in carrying out our advisory functions, has generally been exercised freely without any hindrances. Nevertheless, over the past decade, we have observed that the practical functioning of these indicators, especially in establishing representative offices, branches, or subsidiaries, or exceptionally in cases like managing the appointment of administrators for the estates of deceased Spanish citizens in Spain, can be improved in certain aspects.
Challenges in Company Law
The fact that in certain sectors, such as foreign investments, for instance, there is no general regulation, and the approval process is sector-specific, or that the discretion of regulatory authorities to approve or reject an application is so broad that they can impose additional conditions as they see fit, sometimes creates a sense of uncertainty. At AVCO CORPORATE, we encountered a specific case when opening a branch of a foreign company and were surprised to find that the local regulatory authority did not accept that the administrator of the parent company could be a legal entity because such a circumstance was not provided for in Malaysian regulations. This unforeseen situation prevented acceptance despite being perfectly regulated by foreign regulations. After several discussions, this circumstance was eventually accepted, as it should have been, albeit causing a delay in the processing of the application.
Challenges in Family Law
Another case that occurred at AVCO CORPORATE was when we requested the competent court to appoint an administrator for the assets of a Spanish citizen, who had passed away in Spain, and had assets in Malaysia. Despite submitting over twenty documents, properly translated and legalized, including the literal death certificate as required, the court still delayed the process for months, claiming that they needed to verify if the said death was recorded in any Malaysian registry. Additionally, the same court imposed another inconvenience by scheduling a virtual hearing for the future administrator, which they postponed five times without providing any explanation or reasoned justification, nor taking responsibility for the economic damages caused by the undue delay to the interested party and the other heirs.
Substitution of Legalization with Apostille
The last case I’m going to analyze is related to a process, the legalization of documents, which is of special importance in this context. For a public document issued in Spain to be legally valid in Malaysia, and vice versa, it must be legalized, which involves passing through various stages: in Spain, for example, these include the Notary College, the Ministry of Justice, the Ministry of Foreign Affairs, and the Consular Section of the Malaysian Embassy. All of this could be bypassed if Malaysia were a contracting party to the Hague Convention abolishing the requirement of legalization for foreign public documents, signed in that city on October 5, 1961, as Spain is, and as are the Philippines, Indonesia, and Singapore in Southeast Asia. This convention replaces legalization with the issuance of a single certificate – the apostille – resulting in time and cost savings.
Support from AVCO Corporate in Various Sectors
The reference to the aforementioned setbacks, among others, should not be construed as a criticism of a business climate that continues to attract investment to Malaysia as a whole, but rather as a contribution – however small – to its improvement, based on the experiences accumulated during ten years of presence in the country. This contribution, with these clarifications, also aims to highlight that investors looking to do business still have a long way to go, given the opportunities presented by multiple sectors of the Malaysian economy, such as infrastructure, renewable energy, manufacturing, logistics and transportation, information and communication technologies, food and beverages, capital goods, or franchises, to name a few. Opportunities that we at AVCO CORPORATE recommend exploring, either alone or preferably with a local partner.
Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal
