2013 Investment Climate Statement - Malaysia

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
March 2013


The Government of Malaysia in general strongly encourages foreign direct investment (FDI), although it maintains restrictions or limits on investment in some sectors. It actively reaches out to targeted industries and negotiates incentive packages to attract FDI. Malaysia provides a number of incentives, particularly in export-oriented high-tech industries and "back office" service operations. A wide range of U.S. companies have extensive operations in Malaysia.

Prime Minister Najib Razak (Najib) has made generating new domestic and foreign investment a centerpiece of his economic reform program introduced in March 2010 as the New Economic Model (NEM). Although FDI inflow continues to recover from the effects of the 2008-2009 global financial crises, Malaysia’s performance in attracting FDI relative to both earlier decades and the rest of the Association of Southeast Asian Nations (ASEAN) has slowed. According to a recent Organization for Economic Cooperation and Development (OECD) Investment Policy Review of Malaysia, FDI to Malaysia began to decline in 1992, and private investment overall started to slide in 1997 following the Asian financial crises. Today, FDI levels are at record high levels in absolute terms, but at an all-time low as a percentage of GDP. Moreover, Malaysia’s percentage of overall investment in the ASEAN member states is now lower than its share of the group’s GDP. The National Economic Advisory Council (NEAC), a blue ribbon panel of experts on Malaysia’s economy, in 2010 issued two reports identifying shortcomings in Malaysia’s investment climate and proposing policies necessary to improve Malaysia’s competitiveness as a foreign investment destination and meet the country’s goal of becoming a high-income economy by 2020. Since then, the Najib administration has progressively introduced a series of initiatives to implement the NEM. One initiative, the Economic Transformation Program (ETP), is focused on investment in 12 key economic areas to accelerate economic growth; and a set of policy measures to improve competitiveness. Another initiative, the Government Transformation Program (GTP) addresses governance and quality of life issues, and aims to reduce corruption and crime, to improve education, urban public transport and rural basic infrastructure, and to reduce the number of low-income households. The Tenth Malaysia Plan (10MP) underpins these programs and guides public sector capital expenditures.

Inflows of actual FDI to Malaysia in 2011 increased to US$10.9 billion, up 12.3% from $9.7 billion in 2010 according to the UN Conference on Trade and Development (UNCTAD). According to the Malaysian Investment Development Authority (MIDA), the total value of foreign manufacturing projects approved in 2011 was US$10.77 billion. The 2011 manufacturing FDI approvals were 13.36% higher than US$9.5 billion in 2010. The U.S., Japan, and Hong Kong are the top three countries investing in Malaysia. Up to September 2012, MIDA had approved foreign manufacturing projects worth US$5.25 billion, with Saudi Arabia the largest source of new approved investments.

(Note: Approval statistics are not directly comparable to actual FDI statistics and can be found at www.mida.gov.my. Also, manufacturing investment statistics do not capture investments in non-manufacturing-related services or upstream oil and gas production.)

U.S. FDI in Malaysia is led by the manufacturing, oil and gas, financial services, and consumer products sectors. The total stock of U.S. manufacturing FDI in Malaysia was approximately $20 billion in 2011 as compared to $15 billion in 2010 according to MIDA. Including FDI in the financial and oil and gas sectors, would make total U.S. FDI significantly higher (perhaps more than $30 billion).

From 2009 to 2011, the electronics sector received the largest share of overall FDI. The oil and gas sector became the largest source of new U.S. FDI in 2011 and is expected to remain a focus. For the past three years, manufacturing FDI commitments have centered on projects in the Malaysian states of Sarawak, Selangor, Johor, and Penang – with manufacturing investment in Johor increasing the fastest due to the Iskandar Development Region near Singapore.

As a destination for FDI, Malaysia’s attractiveness for lower-wage manufacturing has diminished as years of steady economic growth have increased average wage levels making Malaysia an upper middle-income country. The NEM seeks to move the economy further “up the value chain” to high income status by promoting investment in higher value added manufacturing and service sectors. The ETP identified 12 specific sectors in which the Malaysian government is encouraging foreign and domestic investment, including: electrical & electronics; medical devices; green energy, machinery & equipment; oil and gas, and transportation equipment. Also targeted for growth are a number of resource-based industries and some services sub-sectors including logistics, although the sectors are subject to foreign investment conditions or restrictions.

Through the course of 2011, Prime Minister Najib announced, as a part of the ETP, 113 total new commitments to invest in Malaysia from both foreign and domestic investors with a total value of $57 billion. These investments spanned all 12 ETP target sectors. In 2012, the number of new projects and investment for ETP was smaller with a total of 48 projects and US$17.4 billion recorded. This slow pace is expected to continue in 2013, and in part reflects the fact that much of the investments in 2011-2012 were projects that had been pending government fiscal or policy changes for some time.

Openness to Foreign Investment

Malaysia has one of the world’s most trade-dependent economies with trade reaching 200% of annual GDP. The Malaysian government values foreign investment as a powerful force for the continued economic development of the country, but is hampered by restrictions in some sectors and an at times burdensome regulatory regime. However, the government continues to liberalize and in some cases remove investment restrictions.

In 2009, Malaysia removed its former Foreign Investment Committee (FIC) investment guidelines, enabling transactions for acquisitions of interests, mergers, and takeovers of local companies by domestic or foreign parties without FIC approval. While the FIC itself still exists, it now only reviews the purchase by foreigners of commercial properties valued greater than at RM20 million (approximately US$6.5 million) from Bumiputras (ethnic Malays and other indigenous ethnicities in Malaysia).

The Ministerial Functions Act grants relevant ministries broad discretionary powers over the approval of specific investment projects. Investors in industries targeted by the Malaysian government often can negotiate favorable terms with ministries regulating the specific industry or other regulatory bodies. This can include assistance in navigating a complex web of regulations and policies, some of which can be waived on a case-by-case basis. Foreign investors in non-targeted industries tend to receive less government assistance in obtaining the necessary approvals from the various regulatory bodies and therefore can face greater bureaucratic obstacles.

In 2009 the government announced a limited set of liberalization measures covering 27 service subsectors. In 2011, the government announced plans to liberalize an additional 17 services subsectors during 2012. So far, the government has liberalized 15 of these subsectors, allowing 100 % foreign equity participation in private hospital services, medical specialist clinics, department and specialty stores, telecommunications Application Service Providers (ASP), incineration services, accounting and taxation services, courier services, private universities, vocational schools, dental specialist services, skills training centers, international schools, and vocational schools for special needs. The Malaysian government added an 18th sub-sector of quantity surveyors services. Of the remaining subsectors, liberalizing architectural services, quantity surveying services and engineering services requires new legislation. Legislation that permits the opening of legal services was passed in 2012, but awaits the completion of implementing regulations.

Regulatory Burden

In the World Bank’s global Doing Business 2013 report, Malaysia moved up from 18th to 14th place overall among the 183 economies covered in the survey. Malaysia’s most improved rankings were in the standardized indicators “enforcing contracts, resolving insolvency and starting a business”. Malaysia was up from 111st to 50th place for “starting a business.” Malaysia’s worst rankings are in “dealing with construction permits” at 113th, “paying taxes” at 41st, down two places from 2011, and “trading across borders” at 29th place, down one spot. Malaysia made tax compliance easier by improving electronic systems and the availability of software, although it also reintroduced a capital gains tax on real estate. Starting a business was made easier by merging company, tax and social security and employment fund registration at the one-stop shop and providing same-day registration.




TI Corruption Index


54/176 (4.9 score)

Heritage Economic Freedom


53 (66.4)

World Bank Doing Business



To improve the business climate in Malaysia, the Malaysian government established the PEMUDAH task force, consisting of 23 top-level government officials and private sector representatives with a mandate to identify and evaluate bureaucratic impediments to conducting business in Malaysia and to make recommendations to the Prime Minister on how to address them. PEMUDAH’s focus is specifically on administrative reforms designed to enhance the efficiency of the government bureaucracy’s interaction with the private sector, not on deeper reform issues needed to address policy-level structural inefficiencies in Malaysia’s economy. More information about the task force is available at www.pemudah.gov.my.

Ethnic Preferences

According to many analysts, Malaysia’s complex network of preferences to promote the acquisition of economic assets by the ethnic Malay majority and other indigenous groups (collectively known as “Bumiputra”) represents a key impediment to the country’s ability to reach its goal of achieving high-income status by 2020. Many of the preference policies are opaque, with details of implementation largely left to the various ministries and civil servants within those ministries. Policies and practices vary greatly. Some practices are explicit and contained in law or regulation while others are informal, leaving much ambiguity for potential investors. The civil service itself is overwhelmingly ethnic-Malay in composition. The NEM proposes reforming ethnic preferences in business ownership and social safety net programs, moving to an income based approach rather than one that is ethnicity based. Some conservative Bumiputra groups have voiced strong opposition to any significant changes to the extensive preferences.

In the early 1970s, the Malaysian government set a target of 30% of the nation’s wealth to be held by ethnic-Malay Bumiputra. Several studies have concluded that the 30% equity target has been reached or exceeded; however, the topic has proven to be extremely sensitive politically and official government figures place Bumiputra equity at 23%. The government’s methodology has been criticized as not fully transparent, and there has been considerable debate over how to account for the value of state-owned enterprises and other government-linked companies or how to measure equity (par value versus market value). The government states that the NEM is returning the focus of preference policies to poverty reduction goals, as originally intended when preferences were established in the early 1970s.

Prior to 2009, all companies seeking a public listing on the Bursa Malaysia (formerly Kuala Lumpur Stock Exchange) were required to reserve at least 30% of its initial public offering (IPO) for purchase by Bumiputra. In 2009, the government eliminated Bumiputra ownership requirements for new listings of domestic or foreign corporations whose operations are mainly foreign based. At the same time, the government also reduced Bumiputra ownership requirements for new listings of domestic or foreign corporations whose operations are mainly in Malaysia from 30% to 12.5%. However, Bumiputra equity remains a consideration when companies apply for an array of required permits and licenses, many of which must be renewed either annually or biennially. Government procurement (and that by most state owned enterprises) continues to be subject to Bumiputra preferences.


MIDA screens all proposals for manufacturing and related projects in Malaysia, both foreign and domestic, to determine the extent to which they contribute to the government’s goals and objectives. These goals are outlined in the Third Industrial Master Plan (2006-2020), the various regional initiatives (Iskandar Development Region and the Northern, Eastern, Sabah and Sarawak Economic Regions) as well as the ETP and the Tenth Malaysia Plan.

Project approval depends on many other factors as well. MIDA may consider the size of an investment, the share of production exported, the type of financing required (both local and offshore), the capital/labor ratio, the potential for technology transfer into the local economy, the ability of existing and planned infrastructure to support the effort, and the existence of a local or foreign market for the output. If both local and foreign firms propose similar projects, the local firm will be given preference. However, all requests are handled on a case-by-case basis. MIDA now has the authority to issue or renew licenses for all manufacturing companies, eliminating a second layer of approval from its parent ministry, the Ministry of International Trade and Industry (MITI). MIDA established an on-site immigration unit in 2007 which has helped expedite the processing of expatriate work visas, as has TalentCorp, a separate recently established agency. Applications for investment in sectors other than manufacturing are handled by the relevant ministries and sometimes require multiple approvals.

Investment regulations are specified in the Promotion of Investments Act of 1986 (PIA) and the Industrial Coordination Act of 1975. The PIA does not address services investment. Private entities, both foreign and domestic, may acquire, merge with, and take over business enterprises. The Malaysia Competition Commission (MyCC) implements and enforces the provisions of the Competition Act 2010, and issues guidelines in relation to the implementation and enforcement of the competition laws.

Distribution Services, including Direct Selling and Retail Trade

Malaysia began allowing 100% foreign ownership of department and specialty stores in 2012. However, foreign owned larger retailers (“hypermarkets”) and locally incorporated direct selling companies must still have 30% Bumiputra equity. Malaysian government guidelines define a “hypermarket” as a standalone self-service store with a sales floor area of 5,000 square meters or more and selling a very wide variety of food and non-food consumer products. The guidelines also include requirements that department stores, supermarkets, and hypermarkets must reserve at least 30 % of shelf space in their premises for goods and products manufactured by Bumiputra-owned small and medium size industries. These guidelines are currently under review by the Malaysian government. The Malaysian government also issues “recommendations” for local content targets, which are in effect mandatory. Domestic companies that seek direct selling licenses require paid-in capital of RM1.5 million (approximately US$397,000), while companies with foreign shareholders must have paid-in capital of RM5 million (approximately US$1.3 million).

Legal Services

Malaysia amended its Legal Professions Act in July 2012. The amendments in principle will allow foreign law firms to practice in Malaysia through a partnership or qualified foreign law firm license and empower local firms to employ foreign lawyers subject to certain conditions. However, a provision reportedly modeled after Singapore’s law prohibits practicing litigation except on an ad hoc basis, and restricts work in real property law. While foreign lawyers will be allowed to structure transactions, only Malaysian lawyers will be able to make actual filings. The Attorney General’s Chambers is working with the Malaysian Bar Council in developing rules for the amended law, but has not indicated when the new law will come into force.

Until the new law is implemented, foreign lawyers may not practice Malaysian law, nor may they affiliate with local firms or use the name of an international firm. Foreign law firms may not operate in Malaysia except as minority partners with local law firms and their stake in any partnership is limited to 30 %. The Attorney General of Malaysia has authority to grant limited exceptions on a case-by-case basis under the law restricting the practice of Malaysian law to Malaysian citizens or permanent residents who have apprenticed with a Malaysian lawyer, are competent in Bahasa Malaysia (the official language), and have a local law degree or are accredited British Barristers at Law, provided the applicant has seven years of legal experience. Malaysian law does not presently allow for foreign legal consultancy except on a limited basis in the Labuan International Business and Financial Center. Foreign lawyers can, however, appear in arbitral proceedings before the Kuala Lumpur Regional Arbitration Center.

Architectural Services

Architectural Services are among the 17 services sub-sectors the Malaysian government pledged to liberalize in 2012. The necessary legislation to allow 100 % foreign equity in architectural firms has yet to be tabled in Parliament, but now is expected to be completed in 2013. At present, a foreign architectural firm may operate in Malaysia only as a joint venture participant in a specific project with the approval of the Board of Architects. Malaysian architectural firms may not have foreign architectural firms as registered partners. Foreign architects may not be licensed in Malaysia, but are allowed to be managers, shareholders, or employees of Malaysian firms. Even after the sector is opened, foreign architectural firms will have to register locally as professional architects similar to Malaysian firms.

Engineering Services

The engineering sector was scheduled to be liberalized in 2012, but pending amendments to relevant Acts have not been completed. Until then, foreign engineers may be licensed by the Board of Engineers only for specific projects and must be sponsored by the Malaysian company carrying out the project. In general, a foreign engineer must be registered as a professional engineer in his or her home country, have a minimum of 10 years experience, and have a physical presence in Malaysia of at least 180 days in one calendar year. To obtain temporary licensing for a foreign engineer, a Malaysian company often must demonstrate to the Board that they cannot find a Malaysian engineer for the job. Foreign engineers are not allowed to operate independently of Malaysian partners or serve as directors or shareholders of an engineering consulting company. A foreign engineering firm may establish a non-temporary commercial presence if all directors and shareholders are Malaysian. Foreign engineering companies may collaborate with a Malaysian firm but only the Malaysian company may submit the plans for domestic approval.

Accounting and Taxation Services

Beginning in January 2012, foreign accountants and auditors have been allowed to wholly-own a practice in Malaysia. All accountants seeking to provide auditing and taxation services in Malaysia must register with the Malaysian Institute of Accountants (MIA) before they may apply for a license from the Ministry of Finance.

Oil and Gas

Under the terms of the Petroleum Development Act of 1974, the upstream oil and gas industry is controlled by Petroleum Nasional Berhad (PETRONAS), a wholly state-owned company and the sole entity with legal title to Malaysian crude oil and gas deposits. Foreign investment takes the form of production sharing contracts (PSCs). Foreign operators include ExxonMobil, ConocoPhillips, Hess, Newfield, and Murphy Oil from the United States, as well as Royal Dutch Shell, and other foreign firms. PETRONAS requires that its PSC partners contract with Malaysian firms for many tenders. Non-Malaysian firms are permitted to participate in oil services either in partnership with local firms and are restricted to a 49% equity stake if the foreign party is the principal shareholder. Terms of upstream projects with foreign participation are determined on a case-by-case basis by PETRONAS.

Electricity Generation and Distribution

Foreign investors are allowed to own up to 49% of an Independent Power Producer (IPP) or power plant in Malaysia. Tenaga Nasional Berhad (TNB) is a state-owned electricity utility company that has a monopoly on electricity distribution in Malaysia. TNB generates its own electricity and purchases electricity from IPPs with power generation plants located in Malaysia. Peninsular Malaysia is connected to an electricity grid with Singapore and Thailand.


Malaysia began allowing 100% foreign equity participation in Applications Service Providers (ASP) in April 2012. However, for Network Facilities Providers (NFP) and Network Service Provider (NSP) licenses, currently only 70% foreign participation is permitted. In certain instances, Malaysia has allowed greater equity participation, but the manner in which such exceptions are administered is nontransparent. The maximum aggregate foreign ownership allowed in Telekom Malaysia is 30% or 5% for individual investors. Malaysia made limited GATS commitments on most basic telecommunications services and partially adopted the WTO reference paper on regulatory commitments.

Broadcasting and Audio-Visual

The Malaysian government maintains broadcast content quotas on both radio and television programming. At least 80% of television programming is required to originate from local production companies owned by Bumiputras and 60% of radio programming must be of local origin. Foreign investment in terrestrial broadcast networks is prohibited and is limited to a 20% equity share in cable and satellite operations. As a condition for obtaining a license to operate, video rental establishments are required to have 30% local content in their inventories.


Advertising falls under the purview of multiple ministries and agencies, complicating the adoption of a single set of advertising regulations and enforcement procedures for all stakeholders in this process. International firms have concerns about the lack of clear and consistent advertising content guidelines, and how some advertisers misrepresent their products and services through advertising. The Government of Malaysia has an informal and vague guideline that commercials cannot “promote a foreign lifestyle.”

Foreign content in commercials in Malaysia is limited to 20%. The Malaysian government relaxed enforcement of regulations governing the appearance of foreign actors in commercials shown in Malaysia in 2007.

Financial Services


The Malaysian Parliament passed legislation in 2012 to update the regulatory framework for the financial services industry. The legislation implements a new 10-year Financial Sector Blueprint that envisages further opening of the financial sector to foreign banks but does not contain specific market-opening commitments or timelines. The new Blueprint, which follows the previous 10-year Financial Services Masterplan, does not significantly break with the existing case by case approach of the central bank, Bank Negara Malaysia (BNM), towards granting foreign banks access to Malaysia. Under the new Financial Services Act, issuance of new licenses will be guided by prudential criteria and the “best interests of Malaysia”. Prudential criteria include consideration of the financial strength, business record, experience, character and integrity of the foreign investor, soundness and feasibility of the business plan for the institution in Malaysia, transparency and complexity of the group structure, and the extent of supervision of the foreign investor in its home country. In determining the “best interests of Malaysia”, BNM will consider the contribution of the investment in promoting new high value-added economic activities, addressing demand for financial services where there are gaps, enhancing trade and investment linkages, and providing high-skilled employment opportunities. BNM has also stated that it wants to ensure that local banks have at least 50 % of total banking assets in Malaysia (the share at present is significantly beyond that).

In 2009, the Malaysian government announced a liberalization package for the conventional and Islamic financial sectors, but equity limits continue to broadly apply in many areas. BNM sets controls on both foreign and local financial products. Interest rates on consumer savings accounts and fixed deposits are mandated and significantly higher than in other Asian countries. Fees on transactions are determined by the Association of Banks, but banks are not permitted to change these fees without BNM approval. Credit card interest rates are capped at 18 % per annum. Presently, foreign banks are also not allowed to open Ringgit Correspondent Bank Accounts with local banks, as this is deemed as local banks being used as conduits for “branching” by foreign banks.

BNM currently allows foreign banks to open four additional branches throughout Malaysia, subject to restrictions, which include designating where the branches can be set up (i.e., in market centers, semi-urban areas and non-urban areas). The policies do not allow foreign banks to set up new branches within 1.5 km of an existing local bank. BNM has considered ATMs as equivalent to separate branches. BNM also has conditioned foreign banks’ ability to offer certain services on commitments to undertake certain back office activities in Malaysia.

To attract multinational corporations (MNCs) to establish their treasury management services in Malaysia, the Malaysian government announced in its 2012 budget an income tax exemption of 70% for 5 years, a withholding tax exemption on interest payments on borrowings, and stamp duty exemption on loan and service agreements. The government has extended a concessionary tax rate of 10% on dividends of non-corporate institutional and individual investors in Real Estate Investment Trusts through December 2016. The government provides an income tax exemption of 100% for 10 years and stamp duty exemption on loan and service agreements for companies that locate in the Tun Razak Exchange, a new business center in Kuala Lumpur. In addition to the income tax exemption of 100% for 10 years and stamp duty exemption on loan and service agreements for Tun Razak Exchange (formerly known as Kuala Lumpur International Financial District) status companies, the government also in its 2013 Budget announced that these companies would enjoy industrial building allowance and accelerated capital allowance.


The life insurance industry remains dominated by foreign providers, including some U.S. firms, while domestic firms control the general insurance industry. In 2009, foreign ownership limits were raised from 49% to 70% for branches of foreign insurance companies. However, foreign equity above 70 % is considered on a case-by-case basis for insurance companies if the investment is determined to facilitate the consolidation and rationalization of the insurance industry. Reinsurance companies are required to do more than 50% of reinsurance in Malaysia and have 5% cession and local retention. As part of Malaysia’s response to the 1997-1998 Asian financial crises, all branches of foreign insurance companies were required to incorporate locally.

Investment Services

Foreigners are permitted to purchase a limited number of stockbrokerage licenses and are allowed to take a majority ownership stake in unit trust management companies. Malaysia has allowed five foreign stock brokerage firms and one foreign fund management company to set up operations in Malaysia. Maximum foreign ownership in domestic Malaysian stock brokerage firms and unit trusts is 70%. There are no foreign equity restrictions for fund management companies providing wholesale services and 70% foreign equity unit trust management companies providing retail services and for stock broking companies. Futures brokerage firms may be 100% foreign-owned. International fund managers have to go through a local fund provider, which then establishes a ‘feeder’ arrangement.

In 2011, Securities Commission Act 1993 and the Capital Markets and Services Act 2007 were amended to promote the development of the capital market, in line with global standards and pursuant to the strategies outlined in the Capital Market Masterplan 2. Subject to the Securities Commission’s approval, fund management firms may offer a range of funds from which individuals can choose to invest in, based on their financial needs, goals and risk appetite. The Capital Market Master Plan 2 was released in April 2011. Full report: http://www.sc.com.my/eng/html/cmp2/cmp2_final.pdf

Offshore Financial Services Center

The Federal Territory of Labuan was declared an International Offshore Financial Center in October 1990. Businesses receive preferential tax treatment for offshore banking activities, trust and fund management, offshore insurance and offshore insurance-related businesses, and offshore investment holding businesses conducted in Labuan. Islamic banks and takaful (Islamic insurance) operators regulated by the Labuan Financial Services Authority are given greater flexibility to open operation offices anywhere in Malaysia and are granted a tax exemption for international currency Islamic financial businesses. Islamic banks and takaful operators retain the favored tax treatment extended to offshore businesses in Labuan, 3% or RM 20,000 (approximately US$5,650), whether or not they maintain a physical presence in Labuan. This option is not available for conventional banks, which are required to maintain a physical presence in Labuan in order to retain the favorable tax treatment.

Islamic Financial Services

The Malaysian Parliament passed legislation in late 2012 to update the regulatory framework for Islamic Financial Services. The Malaysian government provides tax incentives and other measures to encourage commercial banks operating in Malaysia to set up full-fledged Islamic banking subsidiaries. BNM uses its Malaysia International Islamic Financial Center Initiative to provide special tax and regulatory treatment, scholarships, and efforts to work toward mutual recognition of Islamic banking and takaful (Islamic insurance) practices. This offers a ten-year tax exemption on Islamic financial products in foreign currencies and tax relief for Islamic Finance studies. Expatriate Islamic finance experts are exempted from paying Malaysian income tax in an effort to better enable Malaysia to attract foreign talent. Foreign institutions can hold 70% equity ownership in domestic Islamic banks.

The Government continues to promote takaful as part of its strategy to make Malaysia a global hub for Islamic financial services, including through tax breaks and incentives. Companies wishing to offer takaful need a separate license. Foreign investors are permitted to own 49% of takaful joint ventures. International takaful operators, both domestic and foreign, may apply for licenses to conduct business in international currencies, either as incorporated entities or as branches. Currently, AIA Takaful International Berhad is the sole foreign-owned international takaful operator in Malaysia. Bank Negara is working with qualified local and foreign insurers to provide "re-takaful" (reinsurance under Islamic principles) services in Malaysia and to make Malaysia their center for re-takaful activities. New re-takaful operators will be given flexibility to conduct business in the country as a subsidiary or branch.

Malaysia has 10 international Islamic fund management firms. The government provides tax incentives for existing stock brokerage firms to set up Islamic brokerage subsidiaries and recently issued three new licenses to high profile brokerage firms, including U.S. firms Goldman Sachs and Citibank Securities, which the government hopes will attract Middle Eastern capital to invest in Malaysia. There are no restrictions on the ability of wholly foreign-owned Islamic fund management companies to invest assets abroad. Fees received from the management of Islamic funds are tax-exempt for ten years.

Maritime and Logistics

Foreigners are subject to a 70% equity limit in shipping and logistics companies and 49% in forwarding agencies. According to Malaysian officials, requirements would vary for single purpose and multipurpose port facilities.

Land and Agriculture

Only Malaysian citizens may own agricultural land. Malaysia also restricts foreign participation in agriculture (unless it is an agro-tourism linked project), and construction.

Land acquisitions by foreign interests that require approval from the Malaysian government are;

  • Acquisition of agricultural land valued at US$163,000 and above
  • Land of at least five acres in area for following purposes of: commercial scale agricultural activities, agro-tourism projects or agro based industrial activities for production of export goods.
  • Acquisition of industrial land valued at US$163,000 and above.

The Federal Department of Land and Mines controls the incorporation of mining companies.

However, mining, land ownership and licensing requirements to mine are under the jurisdiction of each individual Malaysian State’s mining departments.

There are no restrictions for investing in the fisheries industry, except for owning an aquaculture or deep sea fishing project as they are subject to the 30% local equity requirement for establishing the company. For an aquaculture project, the size of the pond must be at least two hectares in area.

Corporate Taxes

For tax purposes, local and foreign enterprises are treated essentially the same. Resident petroleum companies pay 38% income tax; all other resident companies currently pay an income tax of 25%. Dividends are taxed at the corporate rate. A company is resident in Malaysia for tax purposes if its management and control is exercised in Malaysia, that is, if directors’ meetings are held in Malaysia. Payments made to non-residents for technical or management services and rental of movable properties are subject to withholding tax at the rate of 10%. Multinational corporations that establish their treasury management services in Malaysia are given 70% exemption of income taxes for 5 years, withholding taxes on interest payment on borrowings, and stamp duties on loan and services agreements. The income tax rate for non-resident individuals is 26%. The U.S. and Malaysia do not have a bilateral tax agreement and no negotiations are anticipated at this time. The government has postponed since 2010 a plan to implement a Goods and Services Tax (GST, similar to a value-added tax).

Human Resources

Beyond the investment restrictions resulting from the Bumiputra policies and often opaque regulatory process, Malaysia’s shortage of skilled labor is its most oft-cited impediment to economic growth. (See sections on labor and performance requirements).

Conversion and Transfer Policies

The Malaysian central bank states that Malaysia maintains liberal foreign exchange administration policies. Selective capital controls imposed in 1998 during the Asian Financial Crisis to insulate the Malaysian economy from risks posed by volatile short-term capital flows and to eliminate offshore trading of the Malaysian Ringgit have been largely removed. A series of sequenced and progressive liberalization initiatives gradually relaxed controls on foreign direct investment flows, wages, dividends, interest, and rental income earned in Malaysia, to the point that capital now moves freely in and out of Malaysia.

The government continues to control the use of Malaysian Ringgit outside of Malaysia for settlement. However, there are no longer restrictions on resident companies with export earnings from paying in foreign currencies to another resident company for the purchase of goods and services. Foreign investors are allowed to buy or sell Malaysian Ringgit on a forward or spot basis with licensed onshore banks to facilitate the settlement of investments in Ringgit. In June 2011, Bank Negara removed limits on outbound investment, non-bank inter-company loans, and trade financing.

BNM manages a floating exchange rate against a trade-weighted basket of currencies. The exchange rate against the USD stood at 3.05 on December 31, 2012. All payments to other countries must be made through authorized foreign exchange dealers. Banks must record the amount and purpose of each cross-border transfer over RM 200,000 (approximately US$58,000). More information on Malaysia’s foreign exchange administration can be found at http://www.bnm.gov.my/index.php?ch=fea_adm&pg=fea_adm&lang=en

Expropriation and Compensation

The Embassy is not aware of any cases of uncompensated expropriation of U.S.-held assets by the Malaysian government. The government's stated policy is that all investors, both foreign and domestic, are entitled to fair compensation in the event that their private property is required for public purposes. Should the investor and the government disagree on the amount of compensation, the issue is then referred to the Malaysian judicial system.

Dispute Settlement

Malaysia has signed and ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Malaysia became a Contracting State on October 14, 1966 when the Convention entered into force, granting jurisdiction over investment disputes between the Government of Malaysia and non-Malaysian citizens to the International Center for Settlement of Investment Disputes (ICSID). http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2001/05/08/000094946_01042407280024/Rendered/PDF/multi0page.pdf Malaysia also is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The domestic legal system is accessible but generally requires any non-Malaysian citizen to make a large deposit before pursuing a case in the Malaysian courts (i.e., $100,000), and can be slow, bureaucratic, and is regarded by some observers as politically influenced.


Many firms choose to include mandatory arbitration clauses in their contracts. The government actively promotes use of the Kuala Lumpur Regional Center for Arbitration (http://www.rcakl.org.my), established under the auspices of the Asian-African Legal Consultative Committee to offer international arbitration, mediation, and conciliation for trade disputes. The KLRCA is the only recognized center for arbitration in Malaysia. Arbitration held in a foreign jurisdiction under the rules of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 or under the United Nations Commission on International trade Law Arbitration Rules 1976 and the Rules of the Regional Centre for Arbitration at Kuala Lumpur can be enforceable in Malaysia.

Performance Requirements and Incentives

Fiscal incentives granted to both foreign and domestic investors historically have been subject to performance requirements, usually in the form of export targets, local content requirements and technology transfer requirements. Performance requirements are usually written into the individual manufacturing licenses of local and foreign investors.

The Malaysian government extends a full tax exemption incentive of fifteen years for firms with "Pioneer Status" (companies promoting products or activities in industries or parts of Malaysia to which the government places a high priority), and ten years for companies with "Investment Tax Allowance" status (those on which the government places a priority, but not as high as Pioneer Status). However, the government appears to have some flexibility with respect to the expiry of these periods, and some firms reportedly have had their pioneer status renewed. Government priorities generally include the levels of value-added, technology used, and industrial linkages. If a firm (foreign or domestic) fails to meet the terms of its license, it risks losing any tax benefits it may have been awarded. Potentially, a firm could lose its manufacturing license. The New Economic Model stated that in the long term, the government intends gradually to eliminate most of the fiscal incentives now offered to foreign and domestic manufacturing investors. More information on specific incentives for various sectors can be found at www.mida.gov.my.

Malaysia also seeks to attract foreign investment in the information technology industry, particularly in the Multimedia Super Corridor (MSC), a government scheme to foster the growth of research, development, and other high technology activities in Malaysia. Foreign investors who obtain MSC status receive tax and regulatory exemptions as well as public service commitments in exchange for a commitment of substantial technology transfer. For further details on incentives, see www.mdec.my. The Multimedia Development Corporation (MDeC) approves all applications for MSC status.

In the services sector, the government’s stated goal is to attract foreign investment in regional distribution centers, international procurement centers, operational headquarter research and development, university and graduate education, integrated market and logistics support services, cold chain facilities, central utility facilities, industrial training, and environmental management. To date, Malaysia has had some success in attracting regional distribution centers and local campuses of foreign universities. For example, during 2011 the government facilitated partnerships between local partners and MIT to develop a graduate program in logistics management and with Johns Hopkins University to develop its first graduate medical school located outside the United States.

Malaysia seeks to attract foreign investment in biotechnology, but sends a mixed message on agricultural and food biotechnology. On July 8, 2010, the Malaysian Ministry of Health posted amendments to the Food Regulations 1985 [P.U. (A) 437/1985] that require strict mandatory labeling of food and food ingredients obtained through modern biotechnology. The amendments also included a requirement that no person shall import, prepare or advertise for sale, or sell any food or food ingredients obtained through modern biotechnology without the prior written approval of the Director. There is no ‘threshold’ level on the labeling requirement. Labeling of “GMO Free” or “Non-GMO” is not permitted. The labeling requirements only apply to foods and food ingredients obtained through modern biotechnology but not to food produced with GMO feed. The labeling regulation was originally scheduled to be enforced beginning in July 2012. However, a Ministry of Health circular published on August 27, 2012 announced that enforcement would be deferred until July 8, 2014. A copy of the law and regulations respectively can be found at: http://www.biosafety.nre.gov.my/BiosafetyAct2007.shtml, and http://www.biosafety.nre.gov.my/BIOSAFETY%20REGULATIONS%202010.pdf.

Right to Private Ownership and Establishment

Foreigners may purchase property worth over RM500, 000 (approximately US$163,000) without restriction. Although the Federal government no longer requires foreigners to get approval from the FICs (Foreign Investment Committee) for the purchase of residential property, the State governments at times can be more restrictive than Federal regulation and can delay the purchase.

Owning a business in Malaysia requires two local directors, though 100% of the shares can be held by foreign owners, except in sectors where foreign investment is restricted.

Protection of Property Rights

Real Property Rights

Land administration is shared among federal, state, and local government. State governments have their own rules about land ownership, including foreign ownership. Malaysian law affords strong protections to real property owners. Real property titles are recorded in public records and attorneys review transfer documentation to ensure efficacy of a title transfer. There is no title insurance available in Malaysia. Malaysian courts protect property ownership rights. Foreign investors are allowed to borrow using real property as collateral. Foreign and domestic lenders are able to record mortgages with competent authorities and execute foreclosure in the event of loan default.

Intellectual Property Rights

Malaysia was removed from the U.S. Special 301 Watch List in 2012 following improvements in recent years in protecting IPR. In December 2011, the Malaysian Parliament passed amendments to the copyright law designed to, inter alia, bring the country into compliance with the WIPO Copyright Treaty and the WIPO Performance and Phonogram Treaty, define Internet Service Provider (ISP) liabilities, and prohibit unauthorized camcording of motion pictures in theaters. Malaysia subsequently acceded to the WIPO Copyright Treaty and the WIPO Performance and Phonogram Treaty in September 2012. In addition, the Ministry of Domestic Trade, Cooperatives, and Consumerism (MDTCC) took steps to enhance Malaysia’s enforcement regime, including active cooperation with rights holders on matters pertaining to IPR enforcement, ongoing training of prosecutors for specialized IPR courts, and the reestablishment of a Special Anti-Piracy Taskforce. In recent years, the MDTCC has also instructed its enforcement division to begin to take ex officio action, resulting in significant seizures of pirated products. In June 2011, the Malaysian government took action to block access to several international pirate sites and continues to be open to take down local sites featuring pirated content. The Ministry of Health implemented regulations in 2011 to provide a five year term for data protection of pharmaceutical products.

Despite Malaysia’s success in improving its effective protection of IPR, key issues remain, including relatively widespread availability of pirated and counterfeit products in Malaysia, high rates of piracy over the Internet, and continued problems with book piracy. The United States continues to encourage Malaysia to accede to the WIPO Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure. In addition, the United States continues to urge Malaysia to provide effective protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products, and to provide an effective system to address patent issues expeditiously in connection with applications to market pharmaceutical products.

Copyright Protection and Optical Media Piracy

Copyright protection lasts for 50 years after the author’s death and extends to computer software. The Copyright Act includes enforcement provisions allowing government officials to enter and search premises suspected of infringement and to seize infringing copies and reproduction equipment. The amendments to the Act passed by the Malaysian Parliament in 2011 include new authority to combat camcording activities in cinemas.

Malaysia continues to face challenges in ensuring the effective protection of copyrighted materials. Pirated optical discs remain widely available, although less conspicuously than in the past. Unauthorized photocopying of textbooks remains a particular concern. On-line piracy and illegal downloading of cinematographic and musical works has grown.

The Optical Disc Act of 2000 established a licensing and regulatory framework to control the manufacture of optical discs and to fight piracy. Under the Act, manufacturers are required to obtain licenses from MITI and MDTCC, to place source identification (SID) codes on each disc, and to allow regular inspections of their operations.


The Ministry of Health in 2011 issued revised regulations to provide data exclusivity protection for pharmaceuticals for five years for new chemical entities, and three years for new indications. The time periods would be based on a drug's approval date in its country of origin. Applications for data exclusivity for new chemical entities must be made within 18 months from the date the product is first registered and granted marketing authorization and for second indications within 12 months from the date the second indication is approved. The Malaysian law allows for the regulatory approval of generic versions of pharmaceuticals that are still patented, but prohibits marketing and commercial manufacturing during the patent validity period.

Sales of counterfeit pharmaceuticals remain a problem in Malaysia. Counterfeit medicines that have been identified include "drugs" with the wrong ingredients, insufficient active ingredients, and those with fake packaging. Unregistered generic copies of patented products are also available in Malaysia. The Ministry of Health and the MDTCC are improving their enforcement efforts, and share information and collaborate with industry on those efforts. The Ministry of Health in late 2012 circulated for comment draft legislation that would, if passed by Parliament, significantly increase penalties against those selling counterfeit medicines.

Trademarked Consumer Products

A number of U.S. consumer product companies also have suffered losses due to the presence in the market of counterfeit trademarked products. Counterfeiters have improved the quality of packaging and marketing so that consumers are misled into purchasing the products. Most of these counterfeit products are brought into the country from China, Thailand, and India.

In 2011, MDTCC launched a “Basket of Brands” initiative, a voluntary program where participating trademark holders receive more proactive protection efforts in exchange for a commitment to testify in any resulting prosecutions. Complicating enforcement of trademark-related violations is a Malaysian Court of Appeals interpretation of the trademark law that requires enforcement officials to have a “Trade Description Order” to conduct criminal raids when the counterfeit product seized is not identical to the trademarked original.


Patents registered in Malaysia generally have 20-year duration from date of filing, which can be extended under certain circumstances. The length of time required for patent registration averages five years and trademark registration averages two years. Registrations are handled by the MDTCC’s Patents and Trademarks Department.

Transparency of Regulatory System

The lack of transparency in government rule-making and procedures in Malaysia has impeded U.S. firms’ access to the Malaysian market. Stakeholders have found it very difficult to access draft laws and regulations for the purpose of reviewing and offering comments, in large part due to Malaysia’s broad Official Secrets Act.

Following an announcement by Prime Minister Najib in February 2012, the Chief Secretary to the Cabinet in April 2012 issued a circular instructing all Ministries to publicly post all draft laws and regulations on the internet for a 14 day public comment period. However, implementation of this new requirement appears to be uneven and many Ministries continue to consult selected stake holders in an opaque invitation-only manner.

Government Procurement

Malaysia is an observer but not a signatory of the WTO Government Procurement Agreement (GPA). Malaysia’s procurement policies are explicitly used to encourage greater participation of Bumiputra in the economy, transfer technology to local industries, create opportunities for local companies in the services sector, and enhance Malaysia’s export capabilities.

U.S. companies have voiced concerns about the non-transparent nature of the procurement process in Malaysia. Traditionally, international tenders have been invited only where domestic goods and services are not available. In domestic tenders, preferences are provided for Bumiputra suppliers and other domestic suppliers. As a result, foreign companies do not have the same opportunities as local companies to compete for contracts. In most government tenders, especially for major infrastructure, foreign companies are required to take on a Bumiputra partner before their bids will be considered.

Government officials maintain that procurement reform is an important goal of the Najib administration, and that progress is being made. The Prime Minister established the Performance Management and Delivery Unit (PEMANDU), to address concerns about transparency and competitive bidding in government procurement. In April 2010, the government launched a website to improve transparency in public procurement. Known as the MyProcurement portal, which can be accessed at http://myprocurement.treasury.gov.my, the website aims to be a government procurement information centre. To date, more than 5,000 contracts are listed on the website citing information on both advertised and awarded tenders (including dates), values of the contracts, and winners of the tenders. Malaysia is also increasing use of the Swiss Challenge method and integrity pacts in its government procurement procedures. However, some of the largest infrastructure and other projects are still sole-sourced through closed negotiations, not open tenders.


Malaysia ranked in 54th place in Transparency International’s Corruption Perception Index in 2012 (the lower the ranking, the less perceived corruption). The Malaysian government has taken steps to address corruption, including through the establishment of the Malaysian Anti-Corruption Commission (MACC) in 2008, passage of legislation to make judicial appointments more transparent (the Judicial Appointments Commission Act) also in 2008, passage of a Whistleblower Protection Act in 2010, the introduction of procurement reforms and the launch of government initiatives to target corrupt practices. The Malaysian government considers bribery a criminal act and does not permit bribes to be deducted from taxes. Malaysia’s anti-corruption law includes the criminal offense of bribery of foreign public officials, permits the prosecution of Malaysians for offense committed overseas, and also provides for the seizure of properties.

Critics have questioned the MACC’s ability to effectively address high-level corruption, although a number of cases are in court. The MACC conducts investigations but prosecutorial discretion remains with the Attorney General. A lack of capacity and technical skills in some areas hampers MACC’s overall effectiveness. The MACC introduced a public database of those convicted of corruption offenses. There is no systematic public disclosure of assets by senior officials. Critics also note that the Whistleblower Act does not protect those who disclose allegations to the media.

Government officials cite a four point approach to reducing corruption in government procurement, a key area of focus: increasing the number and decreasing the size of government procurement contract subject to open tenders, introducing the Transparency International “Integrity Pact” concept to be signed by all vendors that they understand bidding rules and anti-corruption laws prior to engaging in contract negotiations, issuing rules against Ministerial “referral letters” recommending specific contractors for government contracts, and fully implementing the new Whistleblower Act.

Efficient Capital Markets and Portfolio Investments


Foreign investors and foreign companies have access to credit on the local capital market. Foreign-controlled companies may seek any amount of Malaysian Ringgit credit facilities without Bank Negara’s approval. There are no restrictions on foreign stock brokerage companies obtaining ringgit facilities to facilitate the settlement of transaction on the Malaysian stock and bond markets. There is no limit on the number of residential and commercial property loans allowed to foreigners. In 2008, the government liberalized the foreign exchange administration rules allowing borrowing in foreign currency by residents as well as borrowing and lending in ringgit between residents and non-residents.

The Malaysian Deposit Insurance Company insures deposit accounts of up to RM 250,000 (US$80,645) with separate funds for conventional and Islamic banking institutions.

Capital Markets and Securities Trading

Foreigners may trade in securities and derivatives. Malaysia houses Asia’s third largest corporate bond market, behind only Japan and Korea in market capitalization. Both domestic and foreign companies regularly access capital in Malaysia’s bond market. Malaysia provides tax incentives for foreign companies issuing Islamic bonds and financial instruments in Malaysia. During 2011, foreign capital continued flowing back into Malaysian bonds after a US$35 billion outflow during the 2008-9 global financial crises.

Malaysia’s stock market (Bursa Malaysia) is open to foreign investment and foreign corporation issuing shares. However, foreign issuers remain subject to Bumiputra ownership requirements of 12.5% if the majority of their operations are in Malaysia. Listing requirements for foreign companies are similar to that of local companies. There additional criteria for foreign companies wanting to list in Malaysia including, among others: approval of regulatory authorities of foreign jurisdiction where the company was incorporated, valuation of assets that are standards applied in Malaysia or International Valuation Standards and the company must have been registered with the Registrar of Companies under the Companies Act 1965.

Malaysia has taken steps to promote good corporate governance by listed companies. Publicly listed companies must submit quarterly reports that include a balance sheet and income statement within two months of each financial quarter’s end and audited annual accounts for public scrutiny within four months of each year’s end. An individual may hold up to 25 corporate directorships. All public and private company directors are required to attend classes on corporate rules and regulations.

Legislation also regulates equity buybacks, mandates book entry of all securities transfers, and requires that all owners of securities accounts be identified. A Central Depository System (CDS) for stocks and bonds established in 1991 makes physical possession of certificates unnecessary. All shares traded on the Bursa Malaysia must be deposited in the CDS. Short selling of stocks is prohibited.

Competition and State-Owned Enterprises

On April 21, 2010, the Parliament of Malaysia approved two bills, the Competition Commission Act 2010 and the Competition Act 2010. The Acts took effect January 1, 2012. The Competition Act prohibits cartels and abuses of a dominant market position, but does not create any pre-transaction review of mergers or acquisitions. Violations are punishable by fines, as well as imprisonment for individual violations. The Acts established a Competition Commission with broad investigative and enforcement powers, as well as a Competition Appeals Tribunal (CAT) to hear all appeals of Commission decisions.

State-owned enterprises play a very significant role in the Malaysian economy. Such enterprises have been used to spearhead infrastructure and industrial projects. The government owns approximately 36% of the value of firms listed on the Bursa Malaysia through its seven Government-Linked Investment Corporations (GLICs), including a majority stake in a number of companies. Only a minority portion of stock is available for trading for some of the largest publicly listed local companies. The government has indicated increasing interest in restarting its privatization efforts through the New Economic Model reforms. Khazanah, often considered the government’s sovereign wealth fund, owns stakes in companies competing many of the country’s major industries. The Prime Minister chairs Khazanah’s Board of Directors. PETRONAS, the state-owned oil and gas company, is Malaysia’s only Fortune Global 500 firm.

In July 2011, the Government identified 33 government-linked companies as ready for divestment, but did not identify them by name. Under the plan to rationalize the portfolio of government-linked companies (GLCs) in Malaysia, the Government will reduce its stakes in some of these companies, list a few others and sell the rest. In first quarter of 2012 Khazanah offloaded its stake in the national car company Proton to DRB-Hicom Bhd. In December 2012 Khazanah announced its intention to divest its IT company Time Engineering Bhd to a Bumiputra-owned company. However, the majority of GLCs are not affected by the divestment plan, and GLCs will retain a major role in Malaysia’s economy.

Corporate Social Responsibility (CSR)

The development of corporate social responsibility in Malaysia is moving to higher levels and many larger companies have CSR programs and activities. In 2006, Malaysian stock market regulator, the Securities Commission, published a CSR Framework for all publicly listed companies, which are required to disclose their CSR programs in their annual financial reports.

In 2007 the Women, Family and Community Ministry launched the Prime Minister’s CSR’s Awards to recognize companies that have made a difference to the communities in which they are active through their CSR programs.

Political Violence

Malaysia has experienced political stability since its independence in 1957, with the exception of ethnic riots that followed the 1969 national elections. Najib Razak peacefully took office as Malaysia’s 6th Prime Minister on April 2, 2009. The government historically denied assembly permits for anti-government street demonstrations. In April 2012, the Peaceful Assembly Act took effect, which eliminates the need for permits for public assemblies but outlaws street protests and places other significant restrictions on public assemblies. On April 28 2012, the police disrupted a large protest march that took place despite restrictions the government attempted to impose. Subsequent demonstrations and protest marches took place in 2012 without disruption.

Bilateral Investment and Taxation Agreements

Malaysia has bilateral investment guarantee agreements with over 70 economies, including the United States, has bilateral investment treaties with 36 countries, and has double taxation treaties with over 70 countries. Malaysia’s double taxation agreement with the U.S. currently is limited to air and sea transportation. There is currently no bilateral investment treaty between the US and Malaysia.

OPIC and Other Investment Insurance Programs

Malaysia has a limited investment guarantee agreement with the U.S. under the U.S. Overseas Private Investment Corporation (OPIC) program, for which it has qualified since 1959. However, few investors have sought OPIC insurance in Malaysia.


Malaysia’s shortage of skilled labor is the most often cited impediment to economic growth cited in numerous studies. Malaysia has an acute shortage of highly qualified professionals, scientists, and academics.

The Malaysian labor market operates at essentially full employment, with unemployment for Malaysians averaging 3.2% in 2012. The number of unemployed university graduates remains high, however, at about 40,000 in 2012. In an effort to improve the employability of local graduates, the GOM offers additional training modules at public universities in English language skills, presentation techniques, and entrepreneurship.

Malaysia is a member of the International Labor Organization (ILO). Labor relations in Malaysia are generally non-confrontational. A system of government controls strongly discourages strikes. Some labor disputes are settled through negotiation or arbitration by an industrial court, though cases can be backlogged for years. Once a case is referred to the industrial court, the union and management are barred from further industrial action.

While national unions are proscribed due to sovereignty issues within Malaysia, there are a number of territorial federations of unions (the three territories being Peninsular Malaysia, Sabah, and Sarawak). The government has prevented some trade unions, such as those in the electronics and textile sectors, from forming territorial federations. Instead of allowing a federation for all of Peninsular Malaysia, the electronics sector is limited to forming four regional federations of unions, while the textile sector is limited to state-based federations of unions, for those states which have a textile industry. Employers and employees share the costs of the Social Security Organization (SOSCO), which covers an estimated 12.9 million workers. No systematic welfare programs or government unemployment benefits exist; however the Employee Provident Fund (EPF), which employers and employees are required to contribute to, provides retirement benefits for workers in the private sector. Civil servants receive pensions upon retirement.

The regulation of employment in Malaysia, specifically as it affects the hiring and redundancy of workers remains a notable impediment to employing workers in Malaysia. The high cost of terminating their employees, even in cases of wrongdoing, is a source of complaint for domestic and foreign employers. The World Bank estimates that the financial cost of firing an employee averages 75 weeks of salary for that worker.

The Embassy hears reports from some U.S. companies that the government monitors the ethnic balance among employees and enforces an ethnic quota system for hiring in certain areas. Race-based preferences in hiring and promotion are widespread in government, government-owned universities, and government-linked corporations.

The Minimum Wage Order 2012 came into force on January 1, 2013 and fixed the rate at $300 per month in Peninsular Malaysia and $266 for those in East Malaysia. However there have been calls for the government to defer the implementation of the new policy.

Employing Expatriates

Foreign workers are categorized as follows: “expatriates” (anyone earning at least RM 5,000 or $1,429, per month); “foreign skilled workers,” and “foreign unskilled and semi-skilled workers.” The Malaysian Government has embarked on a number of immigration liberalization initiatives aimed at expatriates and foreign skilled workers.

Employing expatriates involves two phases. First, the company must be granted approval for the expatriate post; then the individual must be approved by receiving a “reference visa” from the Malaysian embassy in the expatriate’s home country and approval from the Immigration Department. More details can be found at www.pemudah.gov.my/guidebook.pdf.

Companies in different sectors must apply for approval for expatriate posts through the respective government authority: manufacturing and manufacturing-related companies apply through MIDA; companies with “Multimedia Super Corridor” (MSC) status through the Multimedia Development Corporation; banking and insurance companies through Bank Negara Malaysia; securities brokers through the Securities Commission; biotechnology companies through Biotech Corp; and companies in other sectors through the Expatriate Committee. Each authority has its own set of requirements and decisions are made on a case-by-case basis.

Manufacturing companies that are 100% foreign-owned must have a minimum paid-in capital of RM 500,000 (as of January 1, 2010) to employ expatriates. Companies with joint foreign and Malaysian ownership must have a minimum paid-up capital of RM 350,000 while Malaysian-owned companies must have a minimum of RM 250,000. It appears that the larger a company’s paid-in capital, the more expatriates the company can employ. Manufacturing-related companies in sub-sectors targeted by the government for development are given priority. These include regional establishments (operational headquarters, international procurement centers, regional distribution centers); support services (integrated logistics services, integrated market support services, central utility facilities, cold chain facilities); research and development; software development; hotel and tourism projects; technical and vocational training; some environment-related services; and film or video production. Except for manufacturing companies with automatic allowances, a firm wishing to employ expatriate personnel generally must demonstrate that there is a shortage of qualified Malaysian candidates and that a Malaysian citizen is being trained. In practice this is difficult for firms to document. In 2010, the government eliminated the six-month waiting period for determining a shortage of Malaysian candidates.

Expatriate visas are issued for a period of up to ten years. Unskilled foreign workers receive a three-year work permit, renewable annually up to five years, and foreign skilled workers can qualify for up to 12 months. If an unskilled worker acquires “skills certificates,” he/she may apply for a permit as a skilled worker after exhausting the five-year maximum as an unskilled worker. Foreign domestic helpers are permitted to remain in Malaysia on a work permit beyond ten years. Malaysia’s freeze on permanent resident visas was removed in 2010 with a point system introduced for residents living in Malaysia over five years. Malaysia also has the “Malaysia, My Second Home” program and the Residence Pass that provides long-term resident visas for expatriates. Launched in April 2011, the Residence Pass – Talent (RP-T) is offered to highly qualified expatriates who can contribute towards Malaysia’s economic transformation. The ten-year Pass accords eligible holders many benefits, including the ability to change employers without having to renew the pass. Details are at http://www.talentcorp.com.my.

Government officials say they have taken steps to simplify and expedite permit approvals for some categories of foreign personnel. The PEMUDAH task force developed a guidebook clarifying the various procedures and requirements. In 2010, the government implemented new regulations reducing application approval times, removing expatriate age limits, and allowing automatic approval for expatriate employees earning over US$2,580 per month. The spouse of an expatriate holding a Dependent Pass is allowed to take up paid employment without converting the Dependent Pass to an “Employment Pass” or to a “Visit Pass for Temporary Employment” on the condition that permission to take up the paid employment is endorsed on his/her passport by an authorized Immigration officer.

In November 2012, the government announced the setting up of the Expatriate Services Division to facilitate and retain foreign talents. Expected to be fully operational by March 2013, this division will be an integrated service facility offering services to expatriates and their dependants in matters relating to immigration process.

Foreign Trade Zones/Free Ports

The Free Zone Act of 1990 authorized the Minister of Finance to designate any suitable area as either a Free Industrial Zone (FIZ), where manufacturing and assembly takes place, or a Free Commercial Zone (FCZ), generally for warehousing commercial stock. Currently there are 13 FIZs and 12 FCZs in Malaysia. In June 2006, the Port Klang Free Zone opened as the nation's first fully integrated FIZ and FCZ, although the project been dogged by corruption allegations related to the land acquisition for the site. The Minister of Finance may appoint any federal, state, or local government agency or entity as an authority to administer, maintain and operate any free trade zone.

Raw materials, products and equipment may be imported duty-free into these zones with minimum customs formalities. Companies that export not less than 80% of their output and depend on imported goods, raw materials, and components may be located in these FZs. Ports, shipping and maritime-related services play an important role in Malaysia since 90% of its international trade by volume is seaborne. Malaysia is also a major transshipment center.

Goods sold into the Malaysian economy by companies within the FZs must pay import duties. If a company wants to enjoy Common External Preferential Tariff (CEPT) rates within the ASEAN Free Trade Area, 40% of a product's content must be ASEAN-sourced. In addition to the FZs, Malaysia permits the establishment of licensed manufacturing warehouses outside of free zones, which give companies greater freedom of location while allowing them to enjoy privileges similar to firms operating in an FZ. Companies operating in these zones require approval/license for each activity. The time needed to obtain licenses depends on the type of approval and ranges from 2-8 weeks.

Foreign Direct Investment Statistics

The U.S. has been consistently a leading foreign investor in Malaysia, with significant presence in the oil and gas sector, manufacturing, and financial services. A 2005 survey by the American Malaysian Chamber of Commerce put cumulative U.S. interest in Malaysia at more than US $30.0 billion, significantly more than some official U.S. and Malaysian statistics, which may not capture or may undercount U.S. investment. U.S. firms with significant investment in Malaysia’s petroleum and petrochemical sector include: ExxonMobil, Caltex, ConocoPhillips, Murphy Oil, Hess Oil, Halliburton, Dow Chemical and Eastman Chemicals. Major semiconductor manufacturers, including Freescale, Texas Instruments, Intel, and others have substantial operations in Malaysia, as do electronics manufacturers Western Digital, Komag, Agilent, and Motorola. In recent years Malaysia has attracted significant investment in the production of solar panels, including from U.S. firms. Virtually all major Japanese consumer electronics firms (Sony, Fuji, Panasonic, Matsushita, Hitachi, etc.) have facilities in Malaysia. Tables 1-3 report approved manufacturing investment in Malaysia, as opposed to actual investments, and do not include significant U.S. investment in the petroleum and financial sectors.

Table One: Sources of Approved Manufacturing Investment in Malaysia

(Value in Millions of U.S. Dollars)








Jan- Sept 2012

Total Investment
























- Source: Malaysian Investment Development Authority.
- Exchange Rates: U.S. $1.0=RM 3.42 (2009 rate), RM3.04 (2010 rate), 3.17 (2011 rate)

- Note: Approved manufacturing investment only, does not include the upstream oil and gas industry or services. “Approved investments” represent planned or proposed investment, not actual investment flows.

Table Two: Leading Approved Foreign Investment Sources in the Manufacturing Sector

(Value in Millions of U.S. Dollars; Share in %)








Jan-Sept 2012









United States








































Hong Kong
























Total Foreign








U.S. Share of Total Foreign








Foreign Share of Total








- Source: Malaysian Investment Development Authority.
- Exchange Rates: U.S. $1.0=RM 3.42 (2009 rate), RM3.04 (2010 rate), 3.17 (2011 rate)

- Note: Approved manufacturing investment only, does not include the upstream oil and gas industry or services. “Approved investments” represent planned or proposed investment, not actual investment flows.

Table Three: Approved Foreign Manufacturing Investment by Sector

(Value in Millions of U.S. Dollars)








Jan-Sept 2012









Petroleum Products
















Basic Metal








Food Manufacturing
































- Source: Malaysian Investment Development Authority.
- Exchange Rates: U.S. $1.0=RM 3.42 (2009 rate), RM3.04 (2010 rate), 3.17 (2011 rate)

- Note: Approved manufacturing investment only, does not include the upstream oil and gas industry or services. “Approved investments” represent planned or proposed investment, not actual investment flows.

Table Four: Foreign Direct Investment Flow in Malaysia by Countries

(Value in Millions of U.S Dollars)


















United States
























Hong Kong, SAR
























Korea, Republic of








Cayman Islands
























Virgin Islands (British)
















Chinese Taipei








- Source: Bank Negara Malaysia and Department of Statistics Malaysia

- Exchange Rates: U.S. $1.0=RM 3.42 (2009 rate), RM3.04 (2010 rate), RM3.17 (2011 rate) RM3.05 (2012 rate)

- Note: Credit refers to inflow of funds or amounts received by direct investment enterprise in Malaysia from foreign direct investor and affiliate in the form of equity capital, reinvested earnings, loan transactions, and trade credits as well as other capital receipts.

Table Five: Foreign Direct Investment Stock, Countries

(Value in Millions of U.S Dollars)

















United States










Chinese Taipei





Virgin Islands (British)










Hong Kong, SAR










Korea, Republic of





Cayman Islands




















-Source: Bank Negara Malaysia and Department of Statistics, Malaysia

-Exchange Rates: U.S. $1.0=RM 3.42 (2009 rate), RM3.04 (2010 rate), RM3.17 (2011 rate) RM3.05 (2012 rate)

Table Six: Foreign Direct Investment Stock in Malaysia, by Sector

(Value in Millions of U.S. Dollars)











Financial and Insurance/Takaful Activities





Information and Communication





Wholesale and Retail Trade





Mining and Quarrying (including oil and gas)





Agriculture, Forestry and Fishing










Other Services










- Source: Bank Negara Malaysia and Department of Statistics, Malaysia

- Exchange Rates: U.S. $1.0=RM 3.42 (2009 rate), RM3.04 (2010 rate), RM3.17 (2011 rate) RM3.05 (2012 rate)

- Note: Includes investments by holding companies.

Web Resources

U.S. exporters seeking general export information/assistance or country-specific commercial information should consult with their nearest Export Assistance Center or the U.S. Department of Commerce’s Trade Information Center at (800) USA-TRADE, or go to the following website: http://www.export.gov. To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of State does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in these endeavors.