Legal Framework of Registration of Engineering Consulting Business in Malaysia

Introduction

The Board of Engineering Malaysia (“BEM”) was established and introduced on 23 August 1973 with the aim of facilitating the registration of engineers and regulating the professional conduct and practice of registered engineers in order to safeguard the interest of the public. BEM falls within the ambit of the Minister of Works, where the Board Members and the Registrars are appointed by the Minister. With the registration of professional engineers, an engineer may legally endorse drawings from their respective discipline[1].

The main Act that regulates the registration of engineers is the Registration of Engineers Act 1967 (“RE 1967”). It is an act to provide for the registration of engineers, sole proprietorships, partnerships and bodies corporate providing professional engineering services and for the purpose connected herewith[2]. BEM is constituted in accordance to Section 3 of the RE 1967.

Procedure of Registration of Engineering Consulting Business

Registration with Companies Commission Malaysia

The setting up of an engineering consultancy in Malaysia firstly requires the intended professional to register with Companies Commissions of Malaysia (CCM) under the Registration of Business Act, 1956 or incorporate a company in Malaysia under the Companies Act 2016. It is worthy to note that a foreign company cannot conduct business in Malaysia unless it incorporates a local company in Malaysia or registers a branch in Malaysia[3].

Registration with the Board of Engineers Malaysia

Under the RE 1967, ‘Engineering Consultancy Practice’ is defined as sole proprietorship, partnership, or body corporate, providing professional services, registered under Section 7A or 7B. Any candidate who applies for registration as a Professional Engineer must fulfil certain criteria, such as:

(i) having registered as a Graduate Engineer with BEM and having satisfied training requirements with BEM;

(ii) having passed the Professional Assessment Examination (PAE) of BEM or is elected as a Corporate Member of the Institution of Engineers of Malaysia (IEM); and

(iii) having been residing in Malaysia for a period of no less than six (6) months immediately prior to the date of application[4].

Business License

Companies or businesses intending to set up an office are then required to obtain a business premise and signboard license from the respective local authorities, depending on the nature of the business activity. In Malaysia there are approximately 179 local authorities that are responsible for approving business premises and signboard licenses.

The requirement in obtaining these licenses may vary depending on the different conditions and requirements set by each local authority. The application and other fees may also vary depending on each local authority.

Registration under the Service Tax Act 2018

Any engineering consultancy business providing taxable services (e.g. engineering consultancy or other professional service) in the course of furtherance of business in Malaysia for a period of 12 months which exceeds the threshold for total value of taxable services is required to register under the Service Tax Act 2018. Under the Guidelines of Registration published by the Royal Malaysian Customs Department, the threshold currently in force is RM 500,000.00[5].

Requirements for Setting up an Engineering Consultancy Business

There are typically four (4) types of establishment when it comes to setting up an engineering consultancy business. Each type has its own set of requirements that need to be fulfilled. The requirements for each of the establishments are discussed as follows:

Sole Proprietorship

For establishment involving sole proprietorship, the requirements are that the proprietor must be a registered professional engineer, and there is no minimum paid-up capital.

Partnership

For partnership, the main requirement is that all partners be professional engineers.

Body Corporate

The requirements for anyone wanting to establish a company would be that the Board of Directors must be composed of Professional Engineers, Professional Architect, and/or registered Quantity Surveyors. The shares shall be held by members of the Board of Directors or with any other persons who are professional engineers. Additionally, the minimum paid-up capital must be RM 50,000.

Multi-Disciplinary

For this establishment, the main requirement is identical to establishing a company meaning that the Board of Directors must comprise of Professional Engineers, Professional Architects, and/or registered Quantity Surveyors and the shares shall be held (i) by members of the Board of Directors or other persons who are professional engineers, and/or companies providing professional engineering and/or professional architect services, and/or the company that is practicing as consulting quantity surveyor hold a MINIMUM combined share of seventy percent (70%) of the overall equity of the company, of which the professional engineers and/or the company providing professional engineer services hold a minimum share of 10%, and (ii) any other person, including persons belonging to a profession allied to engineering, architecture or quantity surveying, being a professional approved in writing by the Board of regulating respective professions, and holds a maximum share of 30% of the overall equity of the company. One other requirement to this establishment would be that the minimum paid-up capital shall be RM150,000.

Foreign Professionals

Foreign professionals who are permanent residents intending to practice or provide engineering services in Malaysia must sit for an examination set by BEM to determine their competence and ability for the purpose of registration with the board.

Two agreements which provide provisions for foreign professionals intending to practice in Malaysia are the General Agreement on Trade in Services (GATS) and the ASEAN Framework Agreement on Services (AFAS).

General Agreement on Trade in Services (GATS)

Foreign professionals are allowed to provide engineering services in Malaysia subject to the Schedule of Specific Commitments. There is no restriction under cross border supply and consumption abroad; however this service must be authenticated by the relevant registered professionals in Malaysia.

ASEAN Framework Agreement on Services (AFAS)

Under AFAS, for foreign investment in Engineering Services and other multi-disciplinary practices and foreign (ASEAN) equity up to 30% of joint ventures by professionals who are registered in the company of origin is allowed. However, foreign directorship is prohibited in this field.

Conversely, for the supply of services through the movement of natural persons, practicing professionals are subject to temporary registration.

Conclusion

The regulation and registration of an engineering consulting business in Malaysia is heavily regulated and monitored by BEM in accordance to the Act in ensuring that there is no foul play in this line of professionalism. Similarly, it is also to safeguard the interest of the public against illegal businesses conducted by illegal engineers that could manipulate or exploit clients financially.

As such, while the engineering consulting business is highly encouraged amongst locals and foreigners, there must be strict monitoring and enforcement procedures in place to ensure that such business is not tainted with illegality.

——————–
1. Engineering Consultancy Practice (ECP) Business Model in Malaysia: A Structural Equation Modeling (SEM) Approach, Justin Lai1 , Rosli Zin, Khairulzan Yahya & Chai Chang Saar.
2. Registration of Engineers Act 1967
3. MIDA: Engineering and Energy Consultancy Services
4. Ibid
5.  https://mysst.customs.gov.my/assets/document/Guide%20on%20Service%20Tax%20Regis~1.pdf

Written by:

Syed Zomael Hussain & Azreena Azimuddin (general@azmilaw.com)