Legal and Regulatory Requirements for Setting Up an E-commerce Business in Malaysia

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As Malaysia emerges as the 33rd largest market for e-commerce, the potential for growth in the digital landscape is undeniable. However, as a new business looking at expanding to Malaysia, you may be wondering, “What are the online business laws and regulations in the Malaysian e-commerce landscape?”

Come along as we delve into the regulatory requirements for establishing a successful e-commerce business in Malaysia through this article. From business registration to taxation laws, consumer protection, and advertising guidelines, we uncover the essential elements for compliance. 

Regulatory Bodies for E-commerce in Malaysia

The Malaysian e-commerce landscape is largely operated under three regulatory bodies that oversee all related operations. Moreover, each of these bodies serves very different purposes. Read on as we discuss them at length.

  • Ministry of Domestic Trade and Consumer Affairs

The Ministry of Domestic Trade and Consumer Affairs (MDTCA) in Malaysia is responsible for regulating various aspects of domestic trade and protecting consumer rights. In the e-commerce domain, the MDTCA ensures fair business practices and safeguards consumers from fraudulent or deceptive online activities. 

Some other key areas regulated by the MDTCA in the context of e-commerce include:

  1. Consumer Protection
  2. E-commerce dispute resolution
  3.  Price control and anti-profiteering measures
  • Discuss DFTZ (Digital Free Trade Zone) and its purpose

The Digital Free Trade Zone (DFTZ) is a groundbreaking initiative launched in collaboration with Alibaba Group and the Malaysian government. The primary purpose of DFTZ is to facilitate seamless cross-border e-commerce trade and position Malaysia as a regional e-commerce and logistics hub. Some of its key objectives are:

  1. Quicker customs clearing
  2. E-commerce hub
  3. Logistics and fulfillment support
  4. Digital economy acceleration

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E-commerce Regulations in Malaysia (By Category)

In the following subheadings, we will be discussing the different regulations and laws by category and offer a brief explanation about the same. 

Business Registration

In Malaysia, online businesses can be operated by individuals or legal entities. For legal entities like companies, partnerships, or limited liability partnerships (LLPs), business registration is a mandatory requirement. The regulatory body responsible for business registration in Malaysia is the Companies Commission of Malaysia (CCM), a statutory body under the Ministry of International Trade and Industry (MITI).

In addition to this, the Electronic Commerce Act 2006 (ECA) ensures the validity of electronic contracts and signatures, fostering trust in digital transactions. Additionally, the Digital Signature Act 1997 sets the framework for secure digital signatures, guaranteeing authenticity and non-repudiation. 

Complying with these regulations empowers e-commerce ventures to conduct transactions confidently, protect their interests, and provide a seamless shopping experience, fostering growth in Malaysia’s dynamic e-commerce ecosystem.

Regulations governing online vendors and consumers

  1. Guidelines on Taxation of E-commerce: The Malaysian government has issued guidelines on the taxation of e-commerce transactions, addressing income tax, goods and services tax (GST), and withholding tax obligations for online vendors.
  2. Section 7(1) of the Electronic Commerce Act 2006: This section stipulates that electronic messages (such as emails) used in e-commerce transactions are legally recognised and hold evidential weight in court proceedings.
  3. Section 7(2) of the Electronic Commerce Act 2006: According to this section, electronic signatures used in electronic transactions are deemed to be reliable, valid, and legally binding, ensuring the authenticity of online agreements.
  4. Consumer Protection Act 1999 (CPA): The CPA safeguards the rights of consumers engaging in e-commerce transactions, offering protection against unfair practices, misleading representations, and defective products.
  5. Consumer Protection (Electronic Trade Transactions) Regulations 2012: These regulations provide specific guidelines for e-commerce transactions, including disclosure of information by online vendors, clear terms of contract, and mechanisms for consumer redress.
  6. Trade Descriptions Act 2011 (TDA): The TDA prohibits false trade descriptions, ensuring that online vendors accurately represent their products and services and preventing deceptive practices.
  7. Sale of Goods Act 1957 (SGA): The SGA governs contracts for the sale of goods, including those conducted through e-commerce platforms, protecting consumers’ rights regarding product quality and performance.

Payment

In the dynamic world of e-commerce, ensuring secure and seamless payment options is crucial for both online vendors and consumers. Malaysia has developed a robust regulatory framework to govern payment methods and protect users from fraudulent activities. Some of these are:

  1. Financial Process Exchange (FPX): This is a popular online payment gateway in Malaysia that facilitates real-time interbank transfers and is regulated by the country’s central bank, Bank Negara Malaysia (BNM). It enables customers to make direct payments from their bank accounts to merchants, providing a safe and efficient payment solution for e-commerce transactions.
  2. Financial Services Act 2013: Electronic money (e-money) and e-wallets have gained prominence in Malaysia’s digital payment landscape, and the Financial Services Act of 2013 recognises e-money and e-wallets as legitimate means of transaction. 
  3. Payment Systems (Designated Payment Instruments) Order 2003: Under this regulatory order, certain payment instruments, including credit cards and charge cards, are designated for e-commerce transactions. The order establishes guidelines for their secure usage, encouraging consumers to adopt these designated payment methods for online purchases confidently.

Advertisements

In the fast-paced digital landscape, advertising plays a pivotal role in promoting e-commerce businesses. Malaysia has specific regulations to ensure that advertisements adhere to ethical standards and do not mislead consumers.

  1. Multimedia Act 1998:

The Multimedia Act 1998 serves as the foundation for regulating multimedia activities, including advertising in electronic form. Under this act, the Malaysian Communications and Multimedia Commission (MCMC) has the authority to oversee and enforce compliance with advertising regulations to maintain the integrity of electronic media content.

  1. Malaysian Communications, Multimedia Content Code (“Content Code”):

The Content Code, issued by the MCMC, sets forth guidelines for content dissemination across multimedia platforms. It outlines the standards for advertisements, ensuring they are truthful, accurate, and do not contain offensive or harmful material. Adhering to the Content Code helps businesses create transparent and responsible advertisements that resonate with the audience while staying within legal boundaries.

Licensing & market entry requirements

To establish a business in Malaysia and venture into the local market, entrepreneurs need to meet specific licensing and documentation requirements:

  1. Proposed Name and Business Activities: Applicants must provide the proposed name of the company and a clear description of the primary business activities it intends to undertake.
  2. Identification and Residential Proof: Copies of all directors’ and shareholders’ identification cards or passports, along with their latest residential proof of address, are mandatory for the business registration process.
  3. Minimum Paid-Up Capital: Information about the minimum paid-up capital is necessary. The amount varies depending on the type and structure of the business entity.
  4. Percentage of Shareholding: For transparency, the percentage of shareholding for each shareholder involved in the business must be disclosed.
  5. Data Protection and Consumer Privacy

The PDPA is a crucial piece of legislation aimed at protecting the personal data of individuals, including data collected through e-commerce websites. Businesses must comply with PDPA’s provisions, such as obtaining consent for data collection and ensuring the security and confidentiality of personal information. By adhering to PDPA, e-commerce companies can establish trust with customers and safeguard their data privacy, which is paramount in the digital age.

By following these regulatory guidelines for advertisements, licensing, and data protection, e-commerce businesses can operate responsibly, gain consumer trust, and thrive in Malaysia’s competitive marketplace.

Taxation Laws and Compliance

For e-commerce entrepreneurs in Malaysia, understanding the tax obligations is essential to operate legally and maintain financial transparency. The country’s taxation laws encompass various key taxes that e-commerce businesses should be aware of:

  1. Goods and Services Tax (GST) or Sales and Services Tax (SST):

Goods and Services Tax (GST) was previously in effect, but it was replaced by the Sales and Services Tax (SST) in September 2018. The SST applies to the provision of taxable goods and services in Malaysia. With respect to the SST, E-commerce businesses must be mindful of the following:

  • Registration thresholds
  • Filing requirements
  • Implications of e-commerce
  1. Income Tax:

E-commerce businesses are also subject to income tax in Malaysia. The income tax rates and filing procedures depend on the business’s residency status (resident or non-resident) and the amount of income earned.

  1. Withholding Tax:

Withholding tax applies to certain payments made to non-resident suppliers, affiliates, or service providers by businesses operating in Malaysia. It includes considerations such as:

  • Types of Payments: Payments for services, royalties, technical fees, and other income to non-residents may be subject to withholding tax.
  • Rate of Withholding Tax: The withholding tax rate varies depending on the nature of the payment and relevant tax treaties, if applicable.
  • Compliance and Reporting: Businesses are responsible for deducting and remitting the withholding tax to the Malaysian tax authorities, ensuring proper compliance.

How Locad Steps in

Understanding and complying with e-commerce regulations in Malaysia are crucial for businesses and consumers alike. These regulations foster transparency, trust, and secure online transactions. Adherence to business registration, taxation laws, and advertising guidelines establishes credibility for vendors. Consumers benefit from protection against unfair practices and data privacy breaches. 

Moreover, partnering with trusted logistics providers like Locad further streamlines e-commerce operations, ensuring efficient supply chains and enhanced customer satisfaction. Embracing these regulations and leveraging reliable logistics solutions contribute to a thriving e-commerce ecosystem, driving Malaysia’s digital economy forward with confidence.

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What are the entities allowed to engage in e-commerce?

Individuals and legal entities, like companies who are registered with the CCM, can engage in e-commerce in Malaysia.

Who regulates e-commerce in Malaysia?

E-commerce in Malaysia is regulated by the Ministry of Domestic Trade and Consumer Affairs (MDTCA) and the National E-commerce Council (NECC).

What is the legal protection for e-consumers in Malaysia?

E-consumers in Malaysia are protected by the Consumer Protection Act 1999, which safeguards their rights and interests in online transactions.

Is e-commerce taxable in Malaysia?

Yes, e-commerce is taxable in Malaysia. Key taxes include the Sales and Services Tax (SST) and income tax, which businesses need to comply with.

What is the most used e-commerce platform in Malaysia?

The most used e-commerce platform in Malaysia is Shopee, offering a wide range of products and services to consumers.

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