Generally, a contractor is not allowed to register as a local contractor with the Construction Industry Development Board of Malaysia (“CIDB“) if it has more than 30% foreign equity (subject to exemptions). See below examples of the permitted foreign equity in a local contractor:
| Country of Origin of Foreign Shareholder | Permitted Foreign Equity Threshold |
|---|---|
| ASEAN countries | 51% |
| Australia | 49% |
| China | 30% |
| Japan | 30% |
In such case, a contractor with foreign equity which exceeds the permitted threshold may register as a foreign contractor with the CIDB.
In January 2023, the CIDB has issued the following circulars relating to the registration requirements for foreign contractors in Malaysia:
- Circular on the announcement on the restructuring of the foreign contractors’ registration (No. 2/2023) (“Circular on Foreign Contractors’ Registration”); and
- Circular on the announcement relating to the government employment certificate for foreign contractors (No. 1/2023) (“Circular on Government Employment Certificate for Foreign Contractors”).
Both circulars came into effect on 1 February 2023.
Circular on Foreign Contractors’ Registration
What are the changes?
Previously, foreign contractors are required to register with the CIDB based on the project awarded and the certificate of registration is issued for the implementation of the project specifically stated in such certificate.
The Circular on Foreign Contractors’ Registration has effectively introduced a new registration regime for foreign contractors who wish to carry out construction works, without having to be first awarded a project in Malaysia. The first registration will be valid for 2 years.
Upon being awarded a project, foreign contractors registered with the CIDB are then required to declare and register such awarded project with the CIDB for the purpose of obtaining the certificate of registration of project for each project.
Who is eligible?
The eligibility requirements for the CIDB foreign contractors’ registration are, to a large extent,
similar to those of the registration of a G7 local contractor.
Below is the summary table of the eligibility requirements for the registration of both G7 local
contractors and foreign contractors:
| Requirement/Eligibility | Local Contractor (G7) | Foreign Contractor |
|---|---|---|
| Minimum Paid-up Capital | RM750,000 | RM750,000 |
| Technical Personnel Requirement | At least 2 Malaysian degree holder (1 of whom must have at least 5 years of experience) OR At least 1 degree holder and o1 diploma holder (both with at least 5 years of experience) |
At least 2 Malaysian citizens (1 of whom must have at least 5 years of experience) |
| Valid CIDB SCORE (Contractor Competency and Capability Rating) | Required | |
| Continuous Contractor Development programme | Participation is required for renewal purposes | |
| Limit on Value of Construction Works | No Limit | |
Circular on Government Employment Certificate for Foreign Contractors
What are the changes?
A registered foreign contractor is now allowed to obtain the government employment certificate for foreign contractors (“SPKKA”) to participate in tenders for government works pursuant to the Circular on Government Employment Certificate for Foreign Contractors.
Who is eligible?
Based on the Circular, the SPKKA is only issued to foreign contractors from countries that have signed and ratified the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”).
As at the date of writing, the countries that have signed and ratified the CPTPP are as follows: Australia, Canada, Japan, Mexico, New Zealand, Singapore, Vietnam Peru and Chile. For the purpose of illustration, we have set out the eligibility of foreign contractors based on their shareholders’ origin below:
| Shareholder | Eligibility to apply for a SPKK |
||
|---|---|---|---|
| Countries | Shareholding Percentage |
||
| Company A | Singapore | 98% | Ineligible, as Brazil is not a party to CPTPP |
| Brazil | 2% | ||
| Company B | Japan | 70% | Eligible |
| Australia | 30% | ||
Registration Conditions
Pursuant to the Circular on Government Employment Certificate for Foreign Contractors, an
applicant must comply with the following conditions in order to apply for SPKKA:
- the applicant must hold a valid Foreign Contractor Registration with the CIDB and is not currently subject to any disciplinary actions by the CIDB;
- none of the shareholders of the applicant are allowed to hold more than 5% equity in any other companies that have a valid government employment certificate for local contractor (“SPKK”) or SPKKA;
- the directors, technical personnel, competent person(s) and responsible person(s) named in the SPKKA must not be involved in any other companies that have a valid SPKK or SPKKA;
- the applicant must have a valid CIDB Score (Contractor Competency and Capability Rating) with a rating of minimum 3 stars; and
- the responsible person(s) named in the SPKKA must include at least 1 Malaysian citizen;
- the applicant must have a valid Contractor’s Quality Management System (CQMS) or ISO 9001:2008/2015 certification (quality management system).
Commentary
With the harmonised registration regime for both local and foreign contractors, we expect foreign contractors to be more actively involved in construction activities in Malaysia, particularly for government works.
We applaud the government’s effort and welcome any further initiatives to encourage the growth of foreign investments in Malaysia.
Date: 15 May 2023
Leong Wan May
Managing Partner, WM Leong & Co
Leo Wai Kin
Associate, WM Leong & Co