Openness to Foreign Investment
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 in some cases remove investment
restrictions.
In 2009,
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
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-bycase 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.Conversion and Transfer Policies Return to top
Regulatory Burden
In the World Bank’s global Doing Business 2012 report,
place overall among the 183 economies covered in the survey.
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 29thplace, down one spot.
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.
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
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
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
at www.pemudah.gov.my.
Ethnic Preferences
According to many analysts,
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 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, 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.
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
exercised in
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
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
negotiations are anticipated at this time. The government has postponed since
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.
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Individual companies in the petrochemical industry are required to file an annual import
plan. The government controls the retail price and profit margins of gasoline and diesel.
Government documents articulating the restrictions and explaining the policy are difficult
to obtain.
Agriculture production and most manufacturing production are private. State-owned
enterprises (SOEs) currently account for only one percent of total employment. Over
90% of manufacturers have fewer than 10 employees. Foreign companies interested in
acquiring ownership in SOEs apply through the DIP. Equity in medium and large-sized
SOEs can be obtained through a joint venture with the Lao government.
The GOL is supposed to respond to proposed new business investment within 15–45
working days. Foreign enterprises must begin business activities within 90 days from the
date of receipt of an investment license, or the license is subject to termination.
Lao law provides for sanctity of contracts, but in practice contracts are subject to political
interference and patronage. A contract can be voided if it is disadvantageous to one
party, or if it conflicts with state or public interests. Foreign businessmen have described contracts in
binding agreement. Although a commercial court system exists, in practice most judges
adjudicating commercial disputes have little training in commercial law. Those
considering doing business in
