Malaysia: Investing

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI flows to Malaysia rose by 39% to almost USD 17 billion in 2022, a new record for the country. The largest greenfield project announced was the plan by Bin Zayed International (United Arab Emirates) to invest USD 9.6 billion in developing a mixed-use real estate project in Langkasuka, following a joint venture with Widad Business Group (Malaysia). At the end of the same year, the total stock of FDI stood at USD 199.2 billion. In terms of sectors, Malaysia's manufacturing sector attracted the highest FDI, bringing in MYR 17.1 billion and resulting in a net inflow of MYR 49.5 billion. The services sector followed as the second-largest contributor, ahead of the mining sector. Additionally, the Americas region surpassed Asia as the leading region for FDI in 2022, recording net inflows of MYR 42.6 billion, primarily from the U.S., contributing MYR 37.8 billion to the total (Statistics Malaysia). Data from the Malaysian Investment Development Authority (MIDA) show that, in the first nine months of 2023, FDI amounted to MYR 125.7 billion, coming mostly from the Netherlands, Singapore, the U.S., and China.

The investment landscape in Malaysia is strengthened by its strategic positioning and connectivity to Southeast Asian markets. It boasts ample land and natural resources, a well-established information and communications technology (ICT) infrastructure, a proficient English-speaking workforce, and a resilient ecosystem of manufacturers and suppliers. Key sectors, such as medical devices, semiconductors, and solar panels, contribute to Malaysia's robust economic environment. However, being a nation reliant on exports, Malaysia is highly responsive to fluctuations in global economic conditions and 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. Depending on the specific industry, foreign investments may be obliged to fulfil local participation requirements, including equity ownership or representation on boards. Commonly, restrictions on foreign equity ownership manifest through mandated minimum or majority stakes, either held by local Malaysians or Bumiputera entities (representing ethnic Malays). Overall, Malaysia has a good business environment, ranking 36th among the 132 economies on the Global Innovation Index 2023 and 45th out of 184 countries on the 2023 Index of Economic Freedom.

Foreign Direct Investment	2020	2021	2022
FDI Inward Flow (million USD)	3,160	12,173	16,940
FDI Stock (million USD)	170,682	187,257	199,206
Number of Greenfield Investments*	100	123	153
Value of Greenfield Investments (million USD)	7,284	25,086	16,805

Source: UNCTAD, Latest data available.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

FDI STOCKS BY COUNTRY AND INDUSTRY

Main Investing Countries	2023, in %
Singapore	22.3
Hong Kong	12.3
USA	10.4
Japan	10.2
Netherlands	5.4
Switzerland	4.0
China	3.8

Main Invested Sectors	2023, in %
Manufacturing	42.3
Financial and insurance activities	24.2
Wholesale and retail trade	6.1
Information and communication	5.2
Mining and quarrying	4.6

Source: Department of Statistics Malaysia, Latest data available.

Form of Company Preferred By Foreign Investors: Partnership with a local company.
Form of Establishment Preferred By Foreign Investors: A company.
Main Foreign Companies: Some examples include: Exxon/Mobil, Caltex, Texas Instruments, Intel, Sony, Fuji, Panasonic, Microsoft, Motorola, Mattel, Dell.
For further information, consult the "Success Stories" section of the InvestKL portal.
Sources of Statistics: Department of Statistics Malaysia

What to consider if you invest in Malaysia

Strong Points

Malaysia's economy is already relatively well internationalised and relies on diversifying and growing exports. The country has also managed to create a healthy business environment, ranked at the 12th position in terms of ease of doing business out of 190 countries in the World Bank's 2020 Doing Business Report. The country continues to strive to make its economy attractive to FDI by implementing a broadly liberal and transparent investment policy by proposing in addition:

High cost-competitiveness
Attractive investment incentives
Developed infrastructure
A strategic position linked to the country's proximity to the main Asian markets
Important natural resources
Strong dynamism of the services sector
High domestic consumption fuelled by high per capita income and low unemployment.

Weak Points

The main weaknesses of Malaysia in terms of FDI are:

Bureaucratic and regulatory burdens
A shortage of skilled labour
Overall rise in labour costs, creating a risk of erosion of the country's price competitiveness
The country's economy also remains vulnerable to a slowdown in demand from China, its main trading partner and to the prices of natural resources (gas and oil)
The country's unity is rather fragile given regional, ethnic and religious disparities.

Government Measures to Motivate or Restrict FDI

Malaysian governments have traditionally been open to foreign direct investments, which have been an integral component of the country's economic development. Within the framework of its economic development plan, Malaysia has provided tax incentives to attract foreign investment in strategic sectors of activity, such as "pioneering status" for industry sectors, agriculture, and tourism, the "Bionexus label" for the biotechnology sector and the "MSC status" for companies in the ICT and multimedia sectors.
The government established the National Committee on Investment, an investment approval body jointly chaired by the Minister of Finance and the Minister of International Trade and Industry, to expedite the regulatory process with respect to approving new investments. The 2022 budget includes a special fund of up to RMY 2 billion to attract strategic FDI.
Malaysia has various national, regional, and municipal investment promotion agencies, including the Malaysian Investment Development Authority (MIDA) and InvestKL. Further information can be sourced on i-Incentives, the portal that provides the information on investment incentives offered by the Federal Government of Malaysia.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By Malaysia: To see the list of investment treaties signed by malaysia, consult UNCTAD's International Investment Agreements Navigator.
International Controversies Registered By UNCTAD: Refer to UNCTAD's Investment Dispute Settlement Navigator.
Organizations Offering Their Assistance in Case of Disagreement: ICSID , International Centre for settlement of Investment Disputes
ICCWBO , International Court of Arbitration, International Chamber of Commerce
Member of the Multilateral Investment Guarantee Agency: Malaysia is a signatory of the MIGA convention.

Country Comparison For the Protection of Investors	Malaysia	East Asia & Pacific	United States	Germany
Index of Transaction Transparency*	10.0	5.9	7.0	5.0
Index of Manager’s Responsibility**	9.0	5.2	9.0	5.0
Index of Shareholders’ Power***	8.0	6.7	9.0	5.0

Source: The World Bank - Doing Business, Latest data available.

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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