Consistent with Malaysia's commitment under the ASEAN Framework Agreement on Services (AFAS), the long awaited liberalisation of the engineering services sector in Malaysia has finally come to pass.
Prior to the liberalisation, the engineering services sector in Malaysia was largely a closed sector whereby:
- only Malaysian citizens residing in Malaysia or permanent residents were able to register as Professional Engineers ("PE"); and
- no foreign participation was allowed for single disciplinary practices (as all engineering consultancy firms had to be wholly-owned by PEs - comprising of Malaysian citizens or permanent residents).
As a result thereof, foreign multi-national companies seeking to provide professional engineering services in Malaysia (such as project management, construction supervisory services and operations and maintenance services in respect of the construction of large scale projects) have often times also been constrained from doing so.
The Registration of Engineers (Amendment) Act 2014 and Registration of Engineers (Amendment) Regulations 2015 ("Amended REA Legislation") came into force on 31 July 2015. Under the Amended REA Legislation, the engineering services sector has been fully liberalised as follows.
New Category of Professional Engineers with Practicing Certificates
- Previously, either a PE or an engineering consultancy practice ("ECP") may submit plans, engineering surveys, drawings, schemes, proposals, reports, designs or studies to any person or authority in Malaysia ("Submissions").
- Further to the Amended REA Legislation, this requirement has been tightened and only PEs with Practicing Certificates ("PC") or ECPs may make Submissions.
- To qualify as a PE with a PC (and therefore be able to own shares in an ECP and make Submissions), a PE is required to undertake and pass additional professional assessment examinations (regulated and prepared by the Malaysian Board of Engineers ("BEM")). Without a PC, a PE may only be employed to provide professional engineering services under a PE with a PC or under an ECP.
Ability for Foreign Engineers to be Registered with BEM
- All recognised local or foreign engineers may now be registered with BEM as graduate engineers, PEs, or PEs with PCs.
- There is however a limited residency requirement for the registration of PEs or PEs with PCs which requires the applicant to have been residing in Malaysia for a minimum period of 6 months prior to his/her application for registration.
Engineering Consultancy Practice
- Prior to the liberalisation, a single disciplinary ECP had to be wholly-owned by PEs (whom could only compromise of Malaysian citizens or permanent residents).
- Post-liberalisation, at least 70 percent of the shares of a body corporate carrying out a single disciplinary ECP (i.e. a company registered under Section 7A of the REA) can now be held by PEs with PCs while the remaining 30 percent can be held by any other individuals or bodies corporate (including foreign parties).
- Effectively therefore, an ECP can now be wholly foreign-owned (at least 70 percent by an individual foreign PEs with PCs and the remaining 30 percent by any other foreign individuals or bodies corporate). This will provide greater structuring flexibility to foreign multi-national companies which intend to set up engineering operations in Malaysia.
- In addition, only two thirds of the board of directors of an ECP needs to be comprised of PEs with PCs. The remaining one third of directors can comprise of non-registered individuals. Prior to the liberalisation, all of the directors of an ECP needed to be PEs.
- Control and management of the day-to-day affairs of the ECP must however remain with the PEs with PCs.
These liberalisation measures are welcomed steps towards the Malaysia Government's goal of moving up the value chain and fulfilling its high-income aspirations and the engineering services sector in Malaysia will definitely be a space to watch in the coming months.