2023: Doing Business In Malaysia

Doing Business In Malaysia

1. What is the current business climate in your jurisdiction including major political, economic and/or legal activities on the horizon in Malaysia that could have a big impact on businesses?

Malaysia attracted a record RM893.2 billion in foreign direct investment (FDI) during the first quarter of 2023, a RM14.1 billion increase compared to the last quarter of 2022 (RM879.1 billion). The attraction of foreign investments is further reinforced by the Madani Economy Framework announced by Prime Minister Datuk Seri Anwar Ibrahim which aims to position Malaysia as a competitive investment destination. The key initiatives introduced under this framework include the establishment of a special financial zone in Johor to attract global investors and knowledge workers, an initial allocation of RM100 million for eco-friendly industrial infrastructure upgrades and workforce training in key sectors, advancing Penang’s semiconductor industry beyond lower value Outsourced Semiconductor Assembly and Test (OSAT) and focusing on high-value semiconductor industries such as IC design, and the allocation of RM1 billion by the government to finance, cultivate and internationalize startups and local SMEs to spur export growth, with the RM1 billion to be matched by private funds to support local startups. In addition, political stability has always been a key factor in determining Malaysia's attractiveness as an investment destination, and with the Prime Minister recently reassuring foreign investors that there is no concern of political instabilities within Malaysia. Malaysia is moving in the right direction in establishing itself as a preferred investment destination.

2. From what countries do you see the most inbound investment? What about outbound?

In the first quarter of 2023, the largest sources of FDI for Malaysia were from Singapore with a total of RM183.2 billion invested, followed by the United States of America at RM102.4 billion and Hong Kong SAR at RM94.6 billion.

As regards Malaysia’s direct investment abroad (DIA), the top three DIA destinations were Singapore with a total of RM 134.9 billion invested, followed by Indonesia at RM 67.6 billion and the Netherlands at RM 37.8 billion.

3. In what industries/sectors are you seeing the most opportunity for foreign investment?

Recently, Prime Minister Datuk Seri Anwar Ibrahim announced that Malaysia is leading in attracting investment in the Renewable Energy (RE) sector. The Government will identify several suitable locations for foreign investors interested in the RE sector to choose from, including Pahang state. With the launching of Phase 1 of the National Energy Transition Roadmap (NETR), we would expect that renewable energy projects and electric car (EV) manufacturing and charging infrastructure are poised for significant foreign investment opportunities.


4. What advantages and pitfalls should others know about doing business in your country?

The World Bank’s Doing Business 2020 report ranked Malaysia in the top 12 out of 190 economies for ease of doing business. With the liberalization of the policy on foreign participation, foreign investors are allowed to hold 100% equity in new, expansion, and diversification projects in the manufacturing sector and certain services sectors.

Malaysia has signed a total of 16 free trade agreements (FTAs) (7 bilateral FTAs and 9 regional FTAs). This creates a potential market size of more than 4 billion people globally. Up to 99% of products have zero import duties under Malaysia’s FTAs with ASEAN. The Malaysian Government also offers various incentives for investments in the manufacturing, agriculture, tourism (including hotel) and approved services sectors as well as R&D, training and environmental protection activities.

While there is no overarching foreign direct investment (FDI) regime in Malaysia, there are certain specific sectors or industries which would require the approval of the specific sectoral regulator for foreign investment or be subject to foreign equity ownership restrictions, for eg. distributive trade, private employment agencies, freight forwarding services, valuers, appraisers, estate agents and property management services, oil and gas sectors, etc.

5. What is one cultural fact or custom about your country that others should know when doing business there?

In Malaysia, the working week and weekend vary between states. Most of the states and federal territories in Malaysia have their working week from Monday to Friday, with Saturday and Sunday as weekend. However, the states of Johor, Kedah, Kelantan and Terengganu observe a Friday to Saturday weekend. In the states which observe a Monday to Friday working week, a longer long lunch break may be observed on Fridays to allow Muslims to perform their Friday prayers.

Our Firm

Authors

Zhen Pik Lai and Kar Mun Ng