2023 was a roller coaster ride for regulators around the world. From figuring out how to regulate new emerging technologies such as artificial intelligence platforms like ChatGPT to managing data leaks to high-profile crypto prosecutions, 2023 was an exciting time throughout the year.
In 2024, there are several upcoming regulatory changes that may be taking place in Malaysia.
Regulatory clarity on the use of SAFE (Simple Agreement for Future Equity) and convertible notes
The Securities Commission of Malaysia, the capital market regulator, in December 2023 said that it is seeking to introduce a “small offering exemption” in the current securities law in 2024.
The exemption may permit safe harbour for offerings of a “certain size” to sophisticated investors (i.e., high-net-worth people or accredited investors). To illustrate, Singapore’s threshold is capped at an SG$5 (US$3.70) million funding limit to selected investors.
The new exemption rule would likely provide better regulatory clarity in line with international practices for startups and small and medium enterprises in Malaysia seeking to raise funds using legal instruments like SAFEs and convertible notes, which are the usual norm for early-stage startup funding in Silicon Valley.
Cyber Security Bill
Current cyber security offences are regulated by multiple key laws that need serious overhaul, including the Computer Crimes Act 1997, the Communications and Multimedia Act 1998, the Malaysian Penal Code and the Personal Data Protection Act 2010.
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The new Cyber Security Bill is likely to be an omnibus bill form, which means that the bill may cover changes in other present legislations, such as the ones highlighted in the earlier paragraph, to ensure that existing laws may be streamlined, including distinguishing the roles of different entities to minimise any overlaps.
The government also said the National Cybersecurity Agency (NACSA) under the present National Security Council will be designated as the main entity to regulate and enforce cyber security laws and enhance the country’s cyber resilience. Separately, there is also a plan to form a Cyber Security Commission to strengthen cyber security, but the discussion is still at the preliminary stage, and we may likely hear more updates this year.
A government official said that the Cybersecurity Bill may likely be tabled during the third or the fourth quarter of parliamentary sitting this year. Ordinarily, a draft bill would be made available for public consultation, which we would expect in this quarter or so.
As a startup that may not already be in a regulated space, such as a fintech startup, you may likely need to assess your cyber security policy and internal processes with your IT team to ensure that you are in compliance with the new Cyber Security Bill once it comes into force.
Amendments to the Personal Data Protection Act
Another long overdue bill that has yet to be tabled by the parliament is the amendments to the current personal data protection laws. The minister in charge mentioned that the bill is in its final stages and is expected to be tabled in March of this year.
Among notable improvements include a mandatory obligation for data users to designate and appoint a person as a ‘Data Protection Officer’ and mandatory data breach notification to the Personal Data Protection Department. The bill was meant to be tabled in 2022 but was put on hold due to the general election, so we may likely see the long-awaited changes to be tabled this year.
The Personal Data Protection Department will also further be empowered as a statutory authority as opposed to its present role as a government department under the ministry to better address data leaks and execute its functions more effectively.
In early 2023, the Singapore and Malaysia governments signed a memorandum of understanding (MOU) to cooperate on personal data protection areas, including the promotion of cross-border data flows and sharing of expertise on personal data protection policies, including monitoring cyber security incidents. So, we may likely hear more updates on this this year.
As a company, you need to take proactive steps and speak to your usual startup lawyer to help assess and update your existing data processing systems and processes in anticipation of it being rolled out in the near future.
Revised beneficial ownership reporting requirements
The new Companies Act amendments bill will include new requirements for companies to maintain a register of beneficial owners (RBO) to enhance corporate transparency.
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Under the amendments, a company needs to maintain a register of beneficial owners (RBO) at the registered office of the company and report any changes to the Companies Commission of Malaysia (CCM) within 14 days.
The amendments were initially tabled for the first reading in the parliament in October 2023. The second reading may likely be expected to be this year, but it is unclear when the amended Companies Act will come into force.
The regulator may likely need to release further guidelines on how these provisions will be implemented. Ordinarily, the government may likely allow a certain grace period for companies and relevant parties to adhere to these new provisions. As a founder, you may likely need to speak to your usual service provider to ensure compliance.
Capital gains tax on disposal of unlisted shares
Starting 1 March 2024, a capital gains tax of 10 per cent will be enforced against gains or profits received pursuant to the disposal of unlisted shares held in private companies.
There are still many questions that need to be answered with respect to the proposed capital gains tax. For example, it is unclear if founders and angels may also be subject to capital gains tax or not, as venture funds are likely to be exempt from such tax.
Also, companies that elect to get listed on the local stock exchange may also be exempted from capital gains. These exemptions are not mentioned in the recent bill, so they may be likely to be included in a subsidiary legislation this year.
The new capital gains tax may likely impact the local startup scene. Several investors and founders have indicated that they may be considering redomiciling the entity elsewhere to avoid tax exposure. To illustrate, in Asia, only Singapore and Hong Kong do not tax capital gains.
As a founder, you will need to stay up to date to ensure necessary actions may be taken in a timely manner to manage any potential tax implications together with other shareholders that may be impacted by the new proposed tax.
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