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At the end of season 1, Oliver Queen the Arrow has apparently killed Malcolm Merlyn by driving his arrow into Merlyn's chest:

Oliver managed to stab Malcolm through the chest with one of Malcolm's arrows, by stabbing himself through his shoulder. Oliver rose from the ground, and after receiving confirmation from Felicity that the device was disarmed, told Malcolm that his plan had failed. Injured, Malcolm revealed he had a second device stationed in the Glades. Believing he had won, Malcolm fell on his side and succumbed to his apparent demise.

Despite everyone's assumptions, Malcolm had in fact survived his brush with death

I don't think how anyone can cheat death at this point. But Malcolm Merlyn does! And in addition to death, Malcolm Merlyn also cheats the Arrow into believing that he is really dead.

How is this even possible?

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    After half of characters were really dead at some point and came back to life you are sticking to Merlyn's death. Nice :D – Vanja Vasiljevic Jan 5 '16 at 12:21
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According to this article he used his influence to have the coroners help him fake his death:

Despite everyone's assumptions, Malcolm had in fact survived his brush with death, and had coroners make the police believe he was dead and had left Starling City. However he still had associates in the D.A.'s office including someone close to A.D.A. Adam Donner.

I don't believe the show offers much explanation beyond that.

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