Establishing the Malaysian International Ship Registry

FIVE years after amendments were made to the Merchant Shipping Ordinance 1952 of Malaysia (MSO) to provide for an international ship registry, efforts are being made to implement the provisions and establish an international ship registry on the offshore island jurisdiction of Labuan.

Under the MSO provisions currently in effect, a vessel can fly the Malaysian flag only if owned by Malaysian citizens or by Malaysian-incorporated corporations where the majority of directors are Malaysian citizens and the majority shareholding is held by Malaysian citizens free from any trust or obligation in favour of non-Malaysians.

The MSO was amended by Section 4 of the Merchant Shipping (Amendment) Act 1998 to include a new Part IIC to allow non-Malaysians to own Malaysian-flagged ships. Under Section 66A of the MSO, the minister of transport may declare any port or place in Malaysia to be the port of the Malaysia International Ship Registry. A corporation whose majority shareholding is not held by Malaysian citizens can register a ship as a Malaysian ship in the Malaysia International Ship Registry, subject to certain conditions. These conditions are as follows:

(a) The corporation must be incorporated in Malaysia;
(b) An office of the corporation must be established in Malaysia;
(c) A shipmanager must be appointed before an application for registration can be made. The shipmanager must be a Malaysian citizen having permanent residence in Malaysia or a company incorporated in Malaysia and having its principal place of business in Malaysia;
(d) In the event the registration is for the first ship, the corporation must have a minimum paid-up capital of ten per cent of the value of the ship or one million ringgit (around $263,158), whichever is the higher;
(e) The ship must be fitted with mechanical means of propulsion;
(f) The ship must be of not less than 1,600 gt; and
(g) The age of the ship may not be more than 15 years if it is a tanker or a bulk carrier or more than 20 years if it is of any other type.

Even if these conditions are complied with, the Registrar General may still refuse to register any ship as a Malaysian ship under Part IIC without giving a reason. Also, these conditions are not necessarily conclusive: the minister may prescribe additional requirements or exempt any ship from existing requirements.

Curiously, Part IIC has not yet come into force. Although the other provisions of the Merchant Shipping (Amendment) Act 1998 have already come into force, the Malaysian International Ship Registry has not yet been established.

Labuan is already one of four ports of registry under the prevailing Malaysian ship registry of Part IIA of the MSO. It is expected that the minister will make a declaration under Section 66A of Part IIC of the MSO in the near future that Labuan is to be the port of the Malaysia International Ship Registry.

Situated just off the coast of Sabah, a state in East Malaysia, Labuan is currently serving not only as one of two duty-exempt ports in the country but also as an offshore financial jurisdiction. Unlike most of the rest of Malaysia, the island is fibre-optic cable-enabled and has other features designed to attract investment. The Malaysia International Ship Registry, once established, will join the Labuan Offshore Financial Services Authority (LOFSA) and the Labuan International Financial Exchange (LFX) as an investment-attracting institution. Labuan is home to offshore companies and foreign offshore companies which reap the benefit of a host of offshore legislation.

The establishment of the Malaysian International Ship Registry in Labuan will target Japanese interests in particular. Located just across the South China Sea from Japan, Labuan and the other East Malaysian states of Sabah and Sarawak already attract a large number of Japanese visitors. West Malaysia already enjoys significant Japanese investment.

The success of the Malaysia International Ship Registry in Labuan would depend heavily on the infrastructure that is implemented. Together with an international ship registry in Langkawi for yachts, it should at least add to the depth and variety of the country’s maritime industry by creating ancillary work for members of the legal and commercial fraternity and would represent the latest in a series of efforts by the government to build up the industry.