New Material Enterprises Venturing into the Malaysian Market: How to Establish "Rule-backed Mutual Trust" for Both Parties in Non-controlling Joint V

Introduction:

Looking at the global market to explore the second growth curve has become a definite direction, but how to expand overseas still tests the wisdom and courage of every Chinese enterprise. Brand globalization, supply chain globalization, cross-border e-commerce... There are numerous paths, yet no universal one-size-fits-all solution; North America, Southeast Asia, the Middle East, Latin America... The markets are vast, but each has its own unique challenges. Behind every overseas expedition is the down-to-earth exploration of Chinese enterprises, and more Chinese players are emerging on every distant coastline.

The "Global Trailblazers" column aims to find benchmark enterprises that have achieved successful overseas expansion in various sectors, deconstruct practical operation cases from a professional perspective, precipitate methodologies through industry consensus, and discover new possibilities from differentiated practices.

Centering on the full life cycle demands of enterprises' overseas expansion including "preliminary planning, mid-term implementation, and post-operation", Zhejiang Enterprise Globalization Comprehensive Service Port has introduced more than 40 leading service institutions in the fields of law, finance and taxation, finance, human resources and other sectors, realizing one-stop service for enterprises' overseas expansion.

To provide more enterprises that are planning to go global with referable practical samples, we will showcase successful cases of how outstanding service providers support enterprises' overseas layout. In this issue, we bring you the case of U&I GROUP that supported a new material manufacturing enterprise to build a joint venture factory in Malaysia.

01

Enterprise Case Showcase

A leading domestic company in the new material manufacturing sector plans to build a joint venture factory with a local natural person partner in Malaysia, with metal material manufacturing and metal packaging as its main businesses. The total investment ranges from RMB 30 million to RMB 100 million, with the Chinese party holding 40% of the shares.

The enterprise faces three key issues under the joint venture model: first, how to ensure the safety of its technology input and capital when it does not hold a controlling stake; second, how to reduce tax costs for future profit repatriation; third, how to exit in an orderly manner if disagreements arise in the cooperation.

In response to the core demands of the enterprise's overseas expansion, U&I Group has developed a complete set of implementation plans combining the local business environment in Malaysia, bilateral tax rules and cross-border investment compliance requirements, including four major measures:

[Three-tier Architecture Design] It is recommended to adopt the architecture of "Hong Kong company - Singapore company - Malaysian joint venture company". The domestic company first sets up a Hong Kong holding company, the Hong Kong company then sets up a Singapore company, and the Singapore company establishes the Malaysian joint venture company together with the local partner.

[Tax Path Optimization] The core consideration of setting up an intermediate layer in Singapore is to make use of the bilateral tax treaty between Singapore and Malaysia to legally and reasonably control the cost of dividend withholding tax for future profit repatriation. If the Malaysian company is directly held by a Hong Kong company, it cannot enjoy the benefits of this tax treaty.

[Rights and Interests Protection Mechanism] In the joint venture agreement and articles of association, we assisted the enterprise to embed key clauses such as veto power over major decisions, pre-emptive right, and tag-along right, to ensure that the Chinese party will not be sidelined in core decision-making, and clarify the exit path in the future.

[Full-process Accompaniment] We provide one-stop services covering the industrial analysis report for Malaysia, relevant procedures for overseas investment, and company registration in the three regions.

Finally, with the professional support of U&I Group, the new material enterprise successfully established the three-tier equity structure of Hong Kong - Singapore - Malaysia, completed the relevant procedures for overseas investment, solidified all rights protection clauses into the joint venture legal documents, and the Malaysian joint venture project is advancing steadily.

02

Dialogue with the Service Provider

What makes the overseas expansion approach of this new material enterprise different?

U&I Group: This enterprise plans to build a joint venture factory in Malaysia with a local partner, with the Chinese party holding 40% of the shares. The core problem is that we are not the majority shareholder, how can we guarantee the safety of technology input and capital? How can we exit smoothly if the cooperation does not go well in the future?

What is the architecture recommendation you provided?

U&I Group: We recommend adopting the three-tier architecture of "Hong Kong - Singapore - Malaysia". Specifically, the domestic company first sets up a holding company in Hong Kong, the Hong Kong company then sets up a Singapore company, and the Singapore company jointly establishes the Malaysian joint venture company with the local partner.

Why add an intermediate layer in Singapore?

U&I Group: It is mainly based on two considerations.

The first is taxation. There is a bilateral tax treaty between Singapore and Malaysia. When the Malaysian joint venture company distributes dividends to the Singapore company in the future, the cost of dividend withholding tax can be legally and reasonably controlled. If the Malaysian company is directly held by a Hong Kong company, the benefits of this tax treaty cannot be enjoyed.

The second is regional management. Singapore can serve as the regional headquarters for Southeast Asia. If the enterprise wants to continue its layout in Indonesia, Thailand, Vietnam and other regions in the future, all extensions can be made downward from the Singapore company, resulting in a clearer architecture and more centralized management.

At the level of the joint venture company, what protection measures have you taken?

U&I Group: We assisted the enterprise to embed several key clauses in the joint venture agreement and articles of association:

The first is the "veto power over major matters" to ensure that the Chinese party will not be sidelined in core decision-making.

The second is the "pre-emptive right" and "tag-along right". If the Chinese party wants to exit in the future, it can ensure that the shares are sold at a reasonable price; or if the foreign party wants to sell its shares, the Chinese party has the right to sell its shares together.

We assisted the enterprise in reviewing and revising the legal texts of these clauses, which were finally implemented in the official documents.

03

Introduction of the Service Provider

Headquartered in Hong Kong, U&I GROUP is a professional service group focusing on cross-border supporting services in business, law, finance and taxation. It holds licenses and employs professional teams of CPAs, lawyers, corporate secretaries and registered agents in relevant cross-border jurisdictions. As one of the earliest domestic professional teams providing comprehensive cross-border services, we have been deeply engaged in meeting the overseas development needs of enterprises and entrepreneurs for 20 years. Relying on more than 20 branches at home and abroad and a service network covering more than 160 countries and regions around the world, we provide clients with professional cross-border services with international vision and professional competence.

* All opinions contained herein are from the interviewed institutions or individuals, for reference only.

This article is from the WeChat official account "Zhejiang Enterprise Globalization Comprehensive Service Port".