Malaysia: Investing

FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).

According to UNCTAD's World Investment Report 2022, FDI inflows declined 55% to USD 3.16 billion in 2020 before reaching 11.62 billion in 2021. The FDI stock was about USD 174 billion in 2020 and USD 187.37 billion in 2021. Multinationals in the M&A sector, such as those in the health and mining sectors (e.g. the acquisition of a stake in IHH Healthcare by Mitsui & Co, Japan and in Seb Upstream by OMV, Austria) have sustained the level of investment. The decrease in FDI inflows was driven by lower equity and investment fund shares and higher loans extended to overseas affiliates. Services and manufacturing sectors were the main contributors to FDI flows in 2020, followed by Mining & quarrying. Investment in the Services sector was particularly in financial and utilities, while Manufacturing was largely in the electricity, transport equipment and other manufacturing subsectors. The main investors in terms of FDI flows are Singapore, Thailand and China.

Malaysia’s net FDI inflows reached 10.9 billion USD in 2021, increasing 2.6 times from the 2020 figure. This is a new record compared to the previous record of 10.7 billion USD in 2016. Investment from countries in Asia are the biggest contributor to this growth, with a total of 5.1 billion USD invested, making up 46.7% of total investments. Among the Asian countries, Singapore, Japan, Korea, Hong Kong, and Mainland are the top five investors. It was followed by the U.S, which invested 4.2 billion USD. Europe ranked third with 1.3 billion USD, with the UK, Netherlands and Austria as the largest investing countries.The sector receiving the most investments and that contributed to the growth in 2021 was manufacturing, with a total increasing from which had been severely impacted by the COVID-19 outbreak. Transport equipment, and other equipment, followed by mineral and metal products, saw particular popularity, with 60% of the manufacturing investment going into these sectors. Manufacturing is gaining increasing interest from FDI investors, as its contribution to total FDI has become dominant since 2020, making up 53% and 61% of total net FDI inflows in 2020 and 2021 respectively (Asia Perspectives, 2022).

Despite a difficult situation in 2020, Malaysia continues to be an attractive investment destination amid rising trade tensions across the world. The authorities seek to position Malaysia as a gateway to the ASEAN market by offering various incentives to foreign companies, notably the status of pioneer company and tax reductions associated with investments. The country benefits from a high-skilled and English-speaking workforce. However, the government maintains a large discretionary power for authorising investment projects and uses it to obtain the maximum benefits from foreign participation and by demanding agreements that are advantageous in matters of transferring technologies or creating joint ventures.

The latest United NationAsia-Pacific Trade and Investment Trends Report provides additional information on FDI in Malaysia and Asia-Pacific in 2022 and 2023.

What to consider if you invest in Malaysia

Protection of Foreign Investment

Procedures Relative to Foreign Investment

Freedom of Establishment

Foreign and domestic private entities can establish and own business enterprises and engage in all forms of remunerative activity, although exceptions may apply to specific sectors.

Acquisition of Holdings

Restrictions still apply in various sectors: logistics, industrial training, wholesale and distributive trade (in relation to hypermarkets and food and restaurant businesses), which are required to limit foreign equity participation when applying for operating licenses, permits and approvals (max 70% for foreigners); insurance companies (max 70%, with exceptions); the national telecommunications firm Telekom Malaysia (aggregate foreign share cap set at 30%, or 5% for individual investors); oil & gas; financial services; capital markets activities carried out by investment banks; insurance and Islamic insurance (takaful); communications and multimedia; education; transportation services, freight forwarding and shipping; water; energy supply; professional services; and security and employment agencies.

Obligation to Declare

Under the Industrial Coordination Act of 1975, investors seeking to engage in manufacturing activities need a license if the business claims capital of MYR 2.5 million or employs at least 75 full-time staff.

Competent Organisation For the Declaration

National Committee on Investment

Requests For Specific Authorisations

Foreign holdings are limited in radio/television broadcasting, distribution of water and electricity, logistics, industrial training, and distributive trade, insurance sector, oil & gas, telecommunications, etc.
Foreign investment in services, whether in sectors with no foreign equity caps or controlled sub-sectors, remain subject to review and approval by ministries and agencies with jurisdiction over the relevant sectors. 

Office Real Estate and Land Ownership

Possible Temporary Solutions

You can refer to platforms such as Instant Offices, CoWorker, Property Guru, etc.

The Possibility of Buying Land and Industrial and Commercial Buildings

Land administration is shared among federal, state, and local government.  State governments have their own rules about land ownership, including foreign ownership.

Risk of Expropriation

The risk of expropriation is low. Both foreign and domestic investors are entitled to fair compensation in case their private property is required for public purposes.

Investment Aid

Forms of Aid

Direct fiscal incentives consisting of a reduction in the tax on profits for a determined length of time and indirect incentives in the form of exemption from Customs duties, goods and services tax and excise duties. For further information, consult the i-Incentives portal.

Privileged Domains

Incentives in the form of tax holidays, financing, and special deductions are provided for investments in qualifying projects sectors such as ICT; biotechnology; halal products (e.g., food, cosmetics, pharmaceuticals); oil and gas storage and trading. For further information, consult the i-Incentives portal.

Privileged Geographical Zones

The government is trying to encourage FDI in sectors such as the exporting manufacturing industries; information and communications technologies; biotechnology; halal products (e.g., food, cosmetics, pharmaceuticals); oil and gas storage and trading; Islamic finance. For further information, consult the i-Incentives portal.

Free-trade zones

There are thirteen free industrial zones (FIZ) and twelve free commercial zones (FIC); the port of Klang is both FIZ and FIC.
Incentives are available in several areas: Kuala Lumpur; Labuan Island (off Eastern Malaysia); East Coast of Peninsular Malaysia; Sabah and Sarawak (Eastern Malaysia); Northern Corridor.

Public aid and funding organisations

The State (finances industrial training, provides funds for the development of human resources), the Malaysia International Financial Centre (MIFC) initiative, the Malaysian banking sector (Export Credit Refinancing), the Islamic Development Bank (IDB).

Investment Opportunities

The Key Sectors of the National Economy

Malaysia exploits its abundant natural resources (palm oil, rubber, tin, wood, oil, natural gas), and has developed the electronics and chemicals sectors. It also has a high value-added products industry, such as semiconductors and other electronic products. Financial services; tourism; communications content and infrastructure; education; agriculture; and health care are among the important economical sectors for the country..

High Potential Sectors

The national government has recently called for investments in high technology and research and development, focusing on artificial intelligence, "Internet of Things" device design and manufacturing, smart cities, electric vehicles, automation of the manufacturing industry, telecommunications infrastructure, and aerospace.

Privatization Programmes

Although the government restated its commitment to privatize companies in several key sectors (i.e. transportation, agriculture, utilities, financial services, manufacturing, and construction), no timeline for the process has been set.
The Malaysian Government established the Public-Private Partnership Unit (UKAS) to provide guidance and administrative support to businesses interested in privatization projects and large-scale government procurement projects, as well as to oversee transactions ranging from contracts and concessions to sales and transfers of ownership from the public to the private sector.
Foreign investors may participate in privatization programs, but foreign ownership is limited to 25% of the privatized entity’s equity.

Tenders, Projects and Public Procurement

Tenders Info, Tenders in Malaysia
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

The Government restricts investment in those branches of production deemed to be essential for national development, such as the automobile industry, as well as in low value-added branches of production, which are labour-intensive. Foreigners have limited access to services, such as financial services, professional services (legal, for example), accounting and architecture.
Government Linked Corporations (GLCs) continue to dominate the market in several sectors, including transportation, agriculture, utilities, financial services, manufacturing, and construction.

Finding Assistance For Further Information

Investment Aid Agency

Malaysian Investment Development Authority (MIDA)
i-Incentives platform
InvestKL

Other Useful Resources

National Chamber of Commerce and Industry of Malaysia
SME Info

Doing Business Guides

Investment Climate in Malaysia - US Department of State
World Bank's Doing Business Report - Malaysia

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