MALAYSIA Law and Practice Contributed by: Shelina Razaly Wahi and Vincent Chan Siew Onn, Abdullah Chan & Co
2. Aircraft and Engine Leasing 2.1 Overview 2.1.1 Non-Permissible Leases
2.1.6 Licensing/Qualification of Lessors A lessor does not have to be licensed in order to do business with a domestic lessee. If a lessor is carrying on a Labuan Leasing Business (defined as “the business of letting or sub-letting property on hire for the purpose of the use of such property by the hirer”) then that lessor would need to have a Labuan Leasing Licence granted by the Labuan Financial Services Authority (LFSA), prior to leasing aircraft to a domestic lessee. 2.2 Lease Terms 2.2.1 Mandatory Terms for Leases Governed by English or New York Law There are no mandatory terms for aircraft leases. The following would be included as a matter of Malaysian law compliance: • matters pertaining to the commercial operations of a lessee (such as the Air Operator’s Certificate and the Air Service Licence); • the documents to effect a registration of the lease on the Malaysian civil aircraft register (the “Aircraft Register”) maintained by the Civil Aviation Authority of Malaysia (CAAM); • registration of a lessor’s security interests; and • stamp duty declaration. 2.2.2 Tax and Withholding Gross-Up Provisions A Malaysian party is obligated to deduct withhold - ing tax when making payments to a non-resident in respect of services rendered in Malaysia. It is com - mon to see a tax gross-up provision and a withholding gross-up provision in leases. Such a term would be valid and enforceable on the basis that it has been contractually agreed between the parties. 2.2.3 Parts Installed or Replaced After a Lease’s Execution A lease can cover parts that are installed or replaced on an aircraft or engine after the lease’s execution, provided the installation/replacement of such parts is specifically provided for in the lease. 2.2.4 Risk of Title Annexation There is a risk of title annexation in respect of aircraft engines installed on an airframe. For example, if an
Operating/wet/finance leases over aircraft are recog - nised and are registrable in Malaysia. Leases concern - ing only engines or parts are similarly recognised but are not registrable. 2.1.2 Application of Foreign Laws A lease involving either a domestic party or an asset situated in Malaysia may be governed by a foreign law. Malaysian courts have recognised and accepted parties’ choice of contracting law. 2.1.3 Restrictions Concerning Payments in US Dollars There are no material restrictions imposed on domes - tic lessees making rent payments to foreign lessors in US dollars generally, subject to a domestic lessee being able to evidence its obligation to make such payments. The Malaysian central bank, Bank Negara Malay - sia (BNM), must approve leases for aggregate sums over MYR100 million that fall within the definition of a “borrowing” under the Bank Negara Malaysia For - eign Exchange Notices (”BNM Notices”). Once such approval is obtained prior to the entry into a finance lease, there is no separate approval required for indi - vidual payments to the foreign lessor. 2.1.4 Exchange Controls Domestic entities and individuals may make or receive payments in foreign currency to or from non-residents for any purpose. A foreign lessor may repatriate funds from Malaysia provided that the repatriation occurs in a foreign currency. 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease Stamp duty is payable on a lease that is executed in Malaysia and/or a lease that is executed by a domes - tic party, upon an original or copy of a lease being brought into Malaysia either physically or by any elec - tronic means (including for example, by email).
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