2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report

The Government of Malaysia in general strongly encourages foreign direct investment (FDI), although it maintains restrictions or limits on investment in some sectors. It provides a number of incentives, particularly in export-oriented high-tech industries and "back office" service operations. The Malaysian government also hosts international trade shows and advertises broadly to attract FDI. 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). 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 private sector-led investment in 12 national 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. It aims to reduce corruption, crime, and the number of low-income households and improve education, urban public transport, and rural basic infrastructure. The Tenth Malaysia Plan (10MP) underpins these programs and guides public sector capital expenditures.

The Malaysian government actively reaches out to targeted industries and negotiates incentive packages to attract FDI. According to the Malaysian Investment Development Authority (MIDA), total value of foreign manufacturing projects approved in 2010 was $9.5 billion, of which $5.3 billion was approved during the fourth quarter. The surge in fourth quarter investment could be a result of the ETP stimulating private investment. In 2010 manufacturing FDI approvals were 50% higher than the 2009 annual total of $6.5 billion, but less than the $13.3 billion approved in 2008. The U.S., Japan and Hong Kong are the top three countries investing in Malaysia. U.S. investment in the manufacturing sector was $3.8 billion in 2010.

The positive momentum in 2010 continued in 2011. Up to October 2011, MIDA had approved foreign manufacturing projects worth $6.8 billion, with Japan as the largest investment source. MIDA-approved new U.S. investments in manufacturing stood at $800 million for the first 10 months of 2011. [October 2011 average exchange USD1 = RM3.04]

Inflows of actual FDI to Malaysia in 2010 increased to $7 billion, a 409.7% increase from an abnormally low base of $1.4 billion in 2009, while the inflows for 2008 were $8.1 billion, according to the UN Conference on Trade and Development (UNCTAD). Up to September 2011, realized FDI stood at $8.7 billion, a 42% year-on-year growth over 2010, including $1.3 billion from the U.S.

The stock of U.S. manufacturing FDI in Malaysia was approximately $15 billion in 2010, up from $13.3 billion in 2008. This does not include FDI in the financial, oil and gas sectors, therefore, total U.S. FDI is significantly higher, perhaps $30 billion. U.S. FDI in Malaysia is led by the manufacturing, oil and gas, financial services, and consumer products sectors.

(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.)

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 a middle-income country. The NEM seeks to move the economy “up the value chain” by promoting investment in higher value added manufacturing and service sectors. The ETP identified 12 specific sectors that 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 were a number of resource-based industries and some services sub-sectors including logistics. However, the extent to which foreign investors are allowed to participate in these sectors is highly controlled by the government.

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 2010 and 2009, the electronics sector received the largest share of FDI, and in 2008 basic metal manufacturing attracted the largest investment share. The oil and gas sector was also the largest source of new U.S. FDI in 2011. It is expected to remain a focus with off shore development, two new storage and services hubs planned for Johor. For the past three years manufacturing FDI has centered on projects in the Malaysian states of Selangor, Johor, and Penang – with manufacturing investment in Johor increasing the fastest due to the Iskandar Development Region near Singapore.

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 overly burdensome regulatory regime. However, the government continues to liberalize and 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 $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, a few 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.

Regulatory Burden

In the World Bank’s global Doing Business 2012 report, Malaysia moved up from 21st to 18th 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, social security, and employment fund registration at the one-stop shop, as well as providing same-day registration.

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2011

60/178 (4.3 score)

Heritage Economic Freedom

2011

53

World Bank Doing Business

2011

18/183

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. It will also 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. It will not focus 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 ethnic Malays 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 subject to Bumiputra hiring preferences. The NEM proposes reforming ethnic preferences in business ownership and social safety net programs. 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 18.9%. The government’s methodology has been criticized for its lack of full transparency. 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, a company seeking a public listing on the Bursa Malaysia (formerly Kuala Lumpur Stock Exchange) was required to reserve at least 30% of its initial public offering (IPO) for purchase by Bumiputra. In 2009, the government reduced Bumiputra ownership requirements for new listings of foreign owned corporations from 30% to 12.5%, removed foreign ownership limits for 27 non-controversial services subsectors, repealed FIC guidelines on mergers and acquisitions, and reduced FIC approval requirements for foreign ownership of real properties to only those above RM 20 million ($7 million). Domestic companies must still reserve 30% of shares for Bumiputra investors. 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.

Manufacturing

The Malaysian Investment Development Authority (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 10MP.

Project approval depends on many other factors as well. MIDA may consider the size of an investment, the export-orientation of production, the type of financing required (both local and offshore), capital/labor ratio, the potential for technological diffusion 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. 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 to expedite the processing of expatriate work visas. 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 government pledged in 2004 to replace the PIA with a more concise law covering investments in both manufacturing and services, but has yet to do so. The PIA does not address services investment. Private entities, both foreign and domestic, may acquire, merge with, and take over business enterprises. However, the acquisition or disposal of 5% or more of interests in any local financial institution requires the prior approval of the Minister of Finance and Bank Negara Malaysia (BNM, central bank). The Malaysia Competition Commission (MyCC) implements and enforces the provisions of the Competition Act 2010, issue guidelines in relation to the implementation and enforcement of the competition laws, act as advocate for competition matters; carry out general studies in relation to issues connected with competition in the Malaysian economy or particular sectors of the Malaysian economy; inform and educate the public regarding the ways in which competition may benefit consumers in, and the economy of, Malaysia.

Distribution Services, including Direct Selling and Retail Trade

Local companies that seek multi-level direct selling licenses require paid-in capital of RM 1.5 million ($423,700), while companies with foreign shareholders must have paid-in capital of RM 5 million ($1.4 million). Malaysia no longer requires the licensing and operation of direct selling companies to have 30% Bumiputra equity.

The Ministry of Domestic Trade’s "Guidelines on Foreign Participation in the Distributive Trade Services" (www.kpdnkk.gov.my/kpdnkk-theme/images/pdf/WRT_Guideline.pdf) that came into effect in December 2004 and were amended in 2010 prohibit foreign involvement in supermarkets, mini-markets, convenience stores, general vendor shops, and news agents. Foreign investment in hypermarkets, department stores, and superstores is allowed, subject to restrictions. For example, the Guidelines require that hypermarkets provide at least 30% equity for Bumiputra. Hypermarkets, department stores, and superstores must allocate at least 30% of total stock keeping units (SKUs) displayed on the shelf space in their premises for goods and products manufactured by Bumiputra-owned small and medium sized industries. The Guidelines also impose restrictions on the number and location of hypermarkets.

Regional Distribution Centers and International Procurement Centers (CPC 87909) were two of the 27 service sectors from which the government removed 30% Bumiputra ownership requirements in 2009.

Professional Services

Malaysia restricts foreign participation in professional services (other than "back office" operations that support foreign business activities).

Legal Services

Liberalization in the legal services sector is expected to begin pending amendments to relevant legislation. It is expected that the changes will allow for the establishment of joint ventures for permitted areas of practice. The liberalization initiative, however, is only applicable to Peninsular Malaysia, not the states of Sarawak and Sabah. Currently, 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 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 allow for foreign legal consultancy except on a limited basis in the Labuan International Offshore Financial Center (see section on “Financial Services” below).

Architectural Services

The Malaysian government has announced that architectural services will be fully liberalized, subject to amending existing legislation, to allow for 100% foreign ownership in architectural firms in Malaysia. 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. Foreign architects may not be licensed in Malaysia, but are allowed to be managers, shareholders, or employees of Malaysian firms.

Engineering Services

The Malaysian government has announced that engineering services will be liberalized once pending amendments to relevant Acts have been passed by the Malaysian Parliament. At present, 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

The government announced in 2011 that by January 2012 foreign accountants and auditors will be allowed to wholly-own a practice in Malaysia. However, guidelines have yet to be issued. 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. Citizenship or permanent residency is required for registration with the MIA.

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 agreements (PSAs). Foreign operators include ExxonMobil, ConocoPhillips, Hess, Baker Hughes, Newfield, and Murphy Oil from the U.S., as well as Royal Dutch Shell. 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

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 Independent Power Producers (IPPs) with power generation plants located in Malaysia. Peninsular Malaysia is connected to an electricity grid with Singapore and Thailand. Foreign investors are allowed to own up to 49% of an IPP or power plant in Malaysia.

Telecommunications

Malaysia made limited WTO commitments on most basic telecommunications services and partially adopted the WTO reference paper on regulatory commitments. Based on Malaysia’s WTO commitments, currently foreign companies are entitled to acquire only up to a 30% equity stake in existing licensed public telecommunications operators and foreign participation is limited to facilities-based suppliers. In certain instances Malaysia has allowed greater than 30% equity participation in the telecommunications market, but the manner in which such exceptions are administered is nontransparent and is perceived by foreign suppliers as arbitrary. In some cases, firms permitted to invest up to a certain equity limit are subsequently asked to divest to lower foreign equity levels. However in April 2012, foreign companies will be allowed to have the license to be an applications service, network facilities or network service provider.

The government also removed 30% Bumiputra ownership requirements from computer hardware installation consultancy services (CPC 841), software implementation services (CPC 842), data processing services (CPC 843), database services (CPC 844), computer repair services (CPC 845), and other computer related services (CPC 849).

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

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. Firms are also concerned with 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

Banking

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. Bank Negara Malaysia (BNM – Central Bank) 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 they are not permitted to vary these fees without BNM approval. Credit card interest rates are capped at 18% per annum.

Foreign equity limits are 70% for domestic Islamic banks and 30% for domestic conventional banks. Foreign banks can own 100% of individually licensed banks that the foreign bank opens in Malaysia. BNM currently allows foreign banks to open four additional branches throughout Malaysia, subject to restrictions, which include designating how 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 branch. Joint-ventures between foreign banks and foreign insurers are not permitted, regardless of whether the companies are locally incorporated. Presently, foreign banks are also not allowed to open ringgit-based Correspondent Bank Accounts with local banks due to concerns with local banks being used as conduits for ‘branching’ by foreign banks.

To attract multinational corporations 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 Kuala Lumpur International Financial District status companies.

Insurance

The life insurance industry remains dominated by foreign providers, including some U.S. firms, and domestic firms control the general insurance industry. As part of Malaysia’s response to the 1997-1998 Asian financial crisis, all branches of foreign insurance companies were required to incorporate locally. The 2001 Financial Sector Master Plan set out a timeline for liberalization of the insurance industry in several phases. These include increasing caps on foreign equity, fully opening the reinsurance industry to foreign competition, and lifting existing restrictions on employment of expatriate specialists. In 2009, foreign ownership limits were raised from 49% to 70% for branches of foreign insurance companies. Reinsurance companies are required to do more than 50% of reinsurance in Malaysia and have 5% cession and local retention.

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 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, provider of funds 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. 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 $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 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 Bhd 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 five 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 RM500,000 (approximately $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 RM500, 000 (approximately $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), with an initial rate of 4%, to broaden the overall tax base.

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 Ringgit traded in a wide range during 2011 as portfolio capital flowed in to and out from the markets. The Ringgit’s lowest level against the USD in 2011 was RM3.231 on October 3, 2011, while its highest level was RM2.927 on August 1, 2011. The exchange rate against the USD stood at 3.174 on December 31, 2011. 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 $58,000). More information on Malaysia’s foreign exchange administration can be found at: www.bnm.gov.my/microsites/fxadmin/index.htm.

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, www.worldbank/org/icsid).

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).The domestic legal system 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 partnered with MIT to develop a graduate program in logistics management and 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. Malaysia gazetted implementing regulations for its Bio Safety Act of 2007 in 2010 that raise significant concerns, including: the undefined adherence to the "precautionary principle"; socio-economic, religious, and cultural norms that would be a part of the regulatory process; stringent penalties hindering modern biotechnology development; and mandatory labeling of food and food products containing genetically-modified organizations. The labeling requirements, which are scheduled to enter into force by July 2012, are handled by the Ministry of Health. 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 $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

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 is a member of the World Intellectual Property Organization (WIPO) and is a party to the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, and the Patent Cooperation Treaty.

The Malaysian Parliament in late 2011 passed amendments to the Copyright Act that strengthened IP protection. The amended Act is expected to enter into force before June 2012. With passage of the amended Act, Malaysia intends to accede to the WIPO Copyright Treaty or the WIPO Performance and Phonograms Treaty. Malaysia plans to update its Trademark Act.

In 2004, Malaysia passed the “Protection of New Plant Varieties Act 2004” in line with the requirements of Article 27.3 (b) of the TRIPS Agreement. Enabling regulations for this law went into effect in 2011.

While remaining on the U.S. Special 301 Watch List since October 2001, Malaysia continues to express a commitment to protecting and enforcing intellectual property rights (IPR) and has made important progress with respect to the protection and enforcement of IPR in the past few years.

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 the Ministry of International Trade and Industry and the Ministry of Domestic Trade, Co-operatives, and Consumerism (MDTCC), to place source identification (SID) codes on each disc, and to allow regular inspections of their operations.

MDTCC has taken 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. Prosecution continues to be an ongoing challenge, although there have been some recent successes.

Pharmaceuticals

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 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.

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. The products have caused harm to individuals and damage to automobiles and household goods. Some of the pirated goods are produced in Malaysia, but most 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

Patents registered in Malaysia generally have a 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 Patents and Trademarks Department of the Ministry of Domestic Trade and Consumer Affairs.

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. No systematic government-wide process exists for publishing draft regulations for comment, although some agencies do offer opportunities to comment, and legislation is rarely available before it is formally introduced in Parliament. Sometimes the government will reach out the affected stakeholders for their views, but the process is not transparent.

Government Procurement

Malaysia is 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.

Corruption

Malaysia ranked in 60th place in Transparency International’s Corruption Perception Index in 2011 (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.

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

Banking

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 ($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 $35 billion outflow during the 2008-9 global financial crisis.

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%. Listing requirements for foreign companies are similar to that of local companies. There are 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, which took effect January 1, 2012, establish Malaysia’s first comprehensive competition law and an enforcement agency. The Competition Act prohibits cartels and abuses of a dominant market position, but does not create a merger control regime. Violations are punishable by fines, as well as imprisonment for individual violations. The Acts establish 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, 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.

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. 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.

Political Violence

Malaysia has experienced little political violence since ethnic rioting in 1969 and can be characterized as a politically stable country. Najib Razak peacefully took office as Malaysia’s 6th Prime Minister on April 2, 2009. The government has historically denied assembly permits for anti-government street demonstrations and, on July 9, 2011, the police disrupted a protest march that took place without official permission. Subsequently, the government passed a Peaceful Assembly Bill which, when it takes effect (likely in 2012), will eliminate the need for permits for public assemblies, although it will outlaw street protests and place other restrictions on public assemblies.

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 no bilateral investment treaty between the US and Malaysia. Efforts to negotiate a more comprehensive bilateral investment treaty would require resolution of several issues, including differing interpretations of national treatment and extended tax holidays offered to new and existing investors in targeted sectors.

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.

Labor

Malaysia’s shortage of skilled labor is the most oft-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 at 3.0% in October 2011, compared to 3.2% in September 2010. The number of unemployed university graduates remains high at nearly 15% of total unemployed in the country. 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.

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.

Employing Expatriates

Foreign workers are categorized as follows: “expatriates” (anyone earning at least RM 5,000, or $1429, 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 $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.

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 the largest 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, Dow Chemical, and Eastman Chemicals (all of which have investments in downstream activities). 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)

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.
If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Total Investment

2006

12,532

2007

17,422

2008

18,146

2009

9,543

2010

15,317

Jan-Oct 2011

13,261

Foreign

5,512

9,717

13,323

6,475

9,434

6,421

Domestic

7,021

7,705

4,823

3,068

5,883

6,840

Table Two: Leading Foreign Investment Sources in the Manufacturing Sector

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

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

2006

2007

2008

2009 2010 Jan-Oct 2011

Germany

63

1,092

1,287

124 629 N/A

United States

675

878

2,544

672 3,811 803

Singapore

514

858

565

585 700 761

Netherlands

895

491

526

140 303 399

Japan

1,202

1,896

1,637

2,047 1,308 849

Australia

698

490

3,830

94 N/A N/A

Hong Kong

N/A

N/A

24

1,550 898 N/A

China

N/A

N/A

10

47 N/A N/A

Korea

N/A

N/A

58

98 N/A 700

Total Foreign

5,512

9,717

13,323

6,475 9,434 6,421

U.S. Share of Total Foreign

14.3%

9.0%

19.1%

10.4% 49.8% 12.5%

Foreign Share of Total

44.0%

55.8%

73.4%

67.9% 81.0% 48.4%


-Source: Malaysian Investment Development Authority; values represent approved, not actual investment.
-Exchange Rates: U.S. $1.0=RM 3.42 (2009 rate), RM3.04 (2010 rate), 3.17 (2011 rate)

-Note: Manufacturing investment only, does not include the upstream oil and gas industry or services.

Table Three: Foreign Manufacturing Investment by Sector

(U.S. Dollars Millions)

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Sector

2006

2007

2008

2009

2010

Jan – Oct 2011

Chemicals

826

454

357

2,058

564

1,154

Petroleum Products

165

1,551

364

135

354

N/A

Electronics

2,344

3,993

5,068

1,162

3,844

2,450

Basic Metal

623

1,450

5,978

127

1,167

816

Food Manufacturing

244

107

313

273

N/A

696

Transport

59

89

249

158

N/A

331

Other

685

2,073

994

2,562

N/A

N/A

Total

5,512

9,717

13,323

6,475

5,929

5,447


Source: Malaysian Industrial Development Authority

.

Source: Bank Negara Annual Report 2004-2007

Web Resources Return to top


Bank Negara Malaysia: www.bnm.gov.my
Securities Commission: www.sc.com.my
MIDA: http://www.mida.gov.my
World Intellectual Property Organization (WIPO): www.wipo.int/
LawNet : www.lawnet.com.my
E-Warta: http://www.e-warta.com.my/
MITI: http://www.miti.gov.my/
Companies Commission: http://www.ssm.com.my/
MyIPO: http://www.myipo.gov.my/
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.

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